socialy retarded

I want to blame someone, anyone, maybe I should blame you?

Posted on 13. Dec, 2008 by Derrick in Politics, War, and Religion.

With the new auto industry bailout looming, and the current bank bailout, I wanted to delve a bit into our current economic crisis.

I’ve had the unique experience of witnessing the economic downturn from the front lines. From my vantage I’ve been able to understand for better or worse why our society has a complete lack of responsibility. No one wants to take responsibility, but they sure want a hand out when the shit hits the fan.

An economic crisis is not a new thing, and it always comes after times when banks get over-confident and start taking absolutely unnecessary risks, like lending money to people and companies who potentially are not capable to pay it back. Loans should be calculated, but instead over-confident banks sell loans they have no business selling.

Capacity to repay, is completely ignored by the banks, they don’t verify income. Just as it was 5 years ago when unethical mortgage brokers approved subprime mortgages. And since Banks don’t ask for any proof of income, the customer can throw out any number they think will work for them.

When the application will ask if they rent or own and how much they pay. If their name is not on the mortgage, they can state zero. If they pay $1,000 in rent, they can say $500. This is how Ms. Homemaker can walk into Best Buy and fill out an application and claim her husband’s income but not his mortgage payment. It’s irresponsible for the bank (HSBC) to approve this credit limit regardless of her credit score. Only if her husband’s name is co-signed is this a viable banking practice.

It’s somewhat understandable that the Auto industry has taken a 15 year hiatus from making a viable product when they can over build, over charge, and under perform their overseas competitors, just to have the banking industry pick up the slack with bad loans.

Hyundai is a perfect example of the evolution for our beleaguered auto industry. They not only have designed more efficient vehicles, industry leading warranties, top of the line designs, but they are affordable. When I visit the top 3’s websites, the majority of their vehicles are in the $34k-$50, while Hyundai’s are from $15-$30. US’s medial house-hold income is only $54k a year, but I consistently see $40-$50k in auto loans on consumer’s credit reports. I review hundreds of credit reports a day and this is the norm not the exception.

Ford, Chrysler, and GM made their car and now they need to drive it. Instead of making a car that can run 36 miles to the gallon for $10k, they made the H2 for $50k. The auto industry banked on the Banks being able to continue to lend to consumers. Banks can’t lend to sub-prime consumers anymore, by 2005, that was 18% of all auto sales. And the automakers’ own subsidiaries offered low-interest financing that helped move cars off dealers’ lots. Neither of which the auto makers can bank on to sell cars any more.

Last but not least, our current economic downturn needs to be blamed on the consumer. Isn’t it the American dream to want a better life for oneself? Wanting more possessions, bigger houses, faster cars, it’s American and it’s perfectly understandable. On the other hand, people too should have been more calculative about the risks they are taking. It’s always a good idea to think before giving into the constant brainwashing by banks about new loans, mortgages, car financing, and credit cards. If it’s necessary, and more importantly, if one can really afford it. It seems a lot of people have left this calculation undone.

What is my solution? Absolutely nothing. Don’t bail out the Banks, Don’t bail out the Auto industry, and for god sake, don’t bail out the consumers. Would that put the US into a depression? Probably.

It would however promote good Banking practices. The only surviving banks would be the conservative banks that shied away from predatory lending. That would provide our economy with banking leaders with a level head. Not just ponying up more money for people that already made poor decisions.

It would also promote better products to the consumer in the way of good auto makers. We may lose GM, Ford, or Chrysler, but the surviving companies would provide a product that consumers could afford and more importantly want.

Lastly, doing nothing would promote consumers to practice fiscal responsibility. Make them live in an apartment for a couple years before they can buy a new house. Make them drive their overpriced gas guzzler till they pay it off. Make them pay off their revolving credit lines before they can buy that new plasma TV.

My solution may not be immediate, it may not be popular, it may not even be right. But what it would do is make everyone accountable.

Tags: bailout, banks, ford, gm