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The Sub-Prime Housing Crisis: Who’s Really to Blame?

To give some backdrop as to the issue this article is addressing, let us examine the sub-prime housing crisis.

When someone wants to get a loan from a bank for a house (a mortgage), their credit report is evaluated. This credit report is a report of all of the times that they have been lent money and their history of paying it back on time. The more times you’ve had debt and missed payments, not paid enough and so forth, the lower your credit score is. There are various categories based upon one’s credit score. Sub-prime credit is exactly what the name suggests. It’s someone who has a checkered past. They’ve obviously missed quite a lot of payments here or there, maybe filed bankruptcy. But, at the same time, their credit still holds some potential, most likely because they’ve gotten their act together in recent years and learnt how to manage their money a little bit better. Their past, however, stays with them, so while they can show they’ve improved, they still aren’t prime. Most Americans today would fit into the sub-prime category. In essence, it’s a second chance for people whose credit, while bad, is still good enough to where there’s a flicker at the end of the tunnel.

Now, how did the crisis start? Just by virtue of having sub-prime credit doesn’t create a lending crisis like this. Well, how it started is that banks gave loans to people with sub-prime credit. In former years, it was impossible for most people to get loans if they had sub-prime credit. However, due to the housing bubble and greed on the part of banks, they loosened their restrictions enough to where most people with sub-prime credit could qualify for a mortgage loan. The catch was, as with any form of lending where the lender takes a great amount of risk on someone with poor credit, high interest rates and variable interest rates.

This too does not in itself create a problem. However, it has. So, what caused this crisis? The ultimate cause of the sub-prime mortgage crisis is the individual’s inability to pay their mortgage payment on time if at all. Now, foreclosures are a daily occurrence, so what makes it a crisis? Well, the sheer number of foreclosures is what has turned it into a crisis. Millions of Americans everywhere are having their homes foreclosed on a daily basis due to their inability to pay. The biggest question, however, is who is at fault?

Well, let us examine that question. Who is at fault? There are numerous parties who are at fault in some way or another. The easiest entity to blame is the various banks that gave the sub-prime loans. This is a very tempting thing to do, because not blaming them ultimately shifts blame to the American people, and very few want to do this. However, this is what must be done. While the banks are at fault in some small degree for giving out loans to people who didn’t deserve them in the first place, is it the bank’s fault that individual Americans couldn’t pay their mortgage? In some minuscule way, yes, but the biggest burden is still lying heavily on the shoulders of the American people.

“American people to blame? What hogwash!!” I can hear a typical person reading this shouting right now. However, even if I be forced to stand alone in the desert like John the Baptist, the truth will be told!

One big reason American people are to blame is credit in itself. It’s a good thing to have credit available to use, and it’s a great thing to take advantage of that credit if you have the means of paying it back in a timely fashion (and by timely fashion I mean within three months or less). However, it’s NOT a good thing when spending money on credit becomes the norm, which is what it is for most Americans affected by the sub-prime housing crisis.

It’s a sad day when the typical American spends more than they make in a month. Frugal living is something that pays off in the long-run over instant gratification. However, because most people ignore this, they spend on money they don’t have and expect to somehow pay it off in the future. Well, if you haven’t got the money now, you most likely never will have the money unless you save and live frugally. So, the simple solution to this is to stop buying everything on credit and only buy what you can buy with your cash in hand. If more Americans had used this sound advice, there wouldn’t be the crisis we have today. Americans have lived by this advice ever since our country was founded, and our European ancestors used it before then even! Thousands of years of knowledge have been thrown out the door in the name of instant gratification, and this is the result, a housing crisis with millions of Americans thrown out the door by foreclosure.

The next biggest cause is wanton consumerism, instant gratification and the excesses of modern American life. Who doesn’t want three SUVs, a cell phone or two for each person in the house, cable TV and them fancy high-speed interwebs? Who doesn’t want to frequent fine dining restaurants on a daily basis?

Well, frankly, someone who wants to become rich and move upward and onward doesn’t! These types of things are the bane of upward and onward mobility. When one spends their entire paycheque on these frillies and paying off their ever-increasing debt, how can one expect to ever be able to save money? Saving money, after all, is the surest way of getting rich. Living high off of the hog and hoping for a raise by Christmas isn’t the way to get rich. Saving is the only guaranteed way of getting rich.

Quite frankly, one can’t save when one WASTES, yes WASTES, all of his or her money on these jollies of consumer excess. This is the next cause of the housing crisis.

However, while these lifestyles are to blame for the housing crisis, that doesn’t shift the blame from the American people. After all, these lifestyles didn’t force themselves upon anyone. Everyone who lived such a lifestyle made a conscious decision to do so. Therefore, while this wanton consumer excess is to blame, it is only capable of being blamed as long as there are American people who practice such a lifestyle.

Given this, the blame for the sub-prime housing crisis rests almost solely on the American people. It’s not the bank’s fault; they bank didn’t seek out someone to lend money to. While the rich, excessive lifestyle is to blame, it too did not seek out the American people and force itself upon them. Instead, the American people sought it out, and the American people are therefore to blame for the entire housing crisis.

This rich lifestyle also relates to the loss of jobs in recent months. Had many people been prepared by saving a good portion of their paycheques instead of WASTING it as described above, most would have been able to cope with losing their jobs for long enough to find a new job. This also relates to another fault of the American people on matters economic. Far too often, people complain of the work force “drying up” and not being able to find a job. However, I digress and say that they are making a pivotal mistake in creating synonyms out of “There aren’t any jobs.” and “There are no take-it-easy jobs where I can loaf around and do nothing while making six figures.”. In fact, there are always jobs available. They might not be the jobs one particularly wants to take, and they probably aren’t as good of jobs. But, when it comes to being able to survive, is making $8 an hour at a big-box store better than making $0 sitting on your couch eating a TV dinner while watching I Love Lucy reruns? Quite frankly, it is, and this decline in work ethic is also largely to blame for the subprime housing crisis.

Ergo we’ve established who’s to blame, who’s responsibility is it to fix the problem? It’s not the government’s. The government didn’t force people to live such a lifestyle as to not be able to afford their mortgage. The government didn’t steal the American people’s money. If anything, the American people steal the government’s money through initiatives by the Federal Bank to alleviate messes like this. Therefore, it’s not the responsibility of the government to fix the crisis.

Is it the bank’s responsibility to fix by simply not foreclosing on homes? The bank is NOT at fault for someone else’s inability to pay. Therefore, the bank has no responsibility in fixing the problem other than perhaps to quit giving out an excessive number of sub-prime loans.

Who, then, should solve the problem? The responsibility in creating the whole mess rests on the American people. Therefore, it’s the American people’s responsibility to fix the problem. How, you might ask? Well, refer back to where the root causes of the housing crisis were discussed in relation to consumer excess. If these root causes were alleviated, the housing crisis wouldn’t have happened. If these root causes are alleviated now, they can help prevent further damage.

As for fixing the damage that’s been done, it’s impossible to fix. However, the American people have both the ability and the responsibility of fixing it themselves without the government’s help.