[Opinion] – Zealous borrowing public to blame

To most of us the issue seems beyond comprehensible âÄî the massive financial crisis afoot âÄî the complexity of which is enough to make your head spin. Even our legislators are proving to have little understanding of this failure; just days ago Senate Majority Leader Harry Reid opined, âÄúNo one knows what to do!âÄù Corporate greed, predatory lending, deregulation: These condensed terms are thrown around in efforts to summarize what many describe as the worst financial crisis since the Great Depression. Each day, floods of editorialist and bloggers offer different explanations to this economic debacle, each places blame in different corners, using accusatory terms and declarative language. In perilous times such as these, outraged fingers begin pointing in all directions, but there has been a noticeably absent culprit in this sea of enraged culpability: the American borrower. What politicians are unwilling to say because of obvious negative political ramifications, and what the media has been mute about for reasons unknown, is that the crux of the crisis is AmericansâÄô failure to pay their mortgages and their lack of foresight when buying a home. The ill-conceived practices of our national lenders and secondary-mortgage market participants are certainly contributing factors, but without a willing populace casting aside common sense and prudence when applying for a home loan, our current predicament would not be possible. A full explanation of âÄúhow we got into this messâÄù (the title of numerous opinion pieces) would involve an anthology of financial jargon, words like âÄúderivativesâÄù and terms such as âÄúcredit default swapsâÄù are required to clarify this calamity. In its simplest terms, relaxed lending-standards allowed lenders to sell their bad mortgages and default risk to government-sponsored enterprises (i.e. Fannie Mae & Freddie Mac) and unworthy insurers. Careless lenders were allowed to profit while passing the risk onto third parties. Now that the government enterprises have failed, and undercapitalized insurers are defaulting in masses, banks are stuck with an influx of bad mortgages and the losses that accompany them. In a rising housing market this wouldnâÄôt be an issue; banks could simply sell the foreclosed properties with little or no loss, but because the value of homes have plummeted, the banks are forced to sell the homes at large losses âÄî if theyâÄôre able to sell them at all. I know I would be hard-pressed to find sympathy for a banking industry that makes billions off the little guy simply because they control the majority of available capital, and blaming the âÄúpoor guyâÄù whoâÄôs house is in foreclosure is not exactly a popular position, but the plain fact remains, a overly optimistic borrowing public, and their failure to honor their loans, is what really got us into this mess. Blaming Wall Street is like blaming the drug dealer while excusing the addict; one doesnâÄôt exist without the other. It is true, the vast majority of Americans are paying their mortgages, but it was the American borrowersâÄô greed and exploitation that drove up housing prices. The irony here is that the people who were supposed to benefit from loosened lending standards couldnâÄôt afford even the lowest priced homes. Before the housing bubble many sub-prime debtors could afford lower-end homes. It wasnâÄôt until Americans in general began abusing their newfound buying power that sub-prime borrowers were forced to use grasping, substandard mortgages to purchase inflated homes. With the $700 billion proposed government bailout failing because Americans widely viewed it as âÄútax-payers bailing out rich Wall Street fat-cats,âÄù some are declaring that free market capitalism has been saved; I wouldnâÄôt go that far but I do wonder if this crisis denotes the end of personal accountability. The convenient scapegoats on Wall Street and in Washington will surely carry the blame for this crisis, but the American borrower should recognize their own responsibility. Ross Anderson welcomes comments at [email protected]