Blame those credit card companies...
Yes, a lot of people have lost jobs, and their life savings, and a lot of houses. The hot shot investment bankers making bonuses of above $600,000 are now arranging garage sales for their Ferraris and Mercs. Most people are still in shock regarding the enormity of the situation, and go like, "How can this happen?". But it had to happen. One cant run an economy like a credit card that's got no limit.! Someday, you have to pay back your credit card dues. And when that day came, your Lehman Brothers, and Bear Sterns went for a nose dive!
Mistakes happen out of bad habits, and a major vice that the US citizen is afflicted with is the Credit Card. If I had to blame for all the mess-up I'd blame the credit card companies for the bad habits they've so very successfully infested in the average American. I mean, an average American owns upto 5 credit cards with an average of about $8000 debt in total. Any middle class Indian would consider this an outrageous amount to have as debt, but perhaps the middle class American isn't perturbed by it.
Yes, a lot of people have lost jobs, and their life savings, and a lot of houses. The hot shot investment bankers making bonuses of above $600,000 are now arranging garage sales for their Ferraris and Mercs. Most people are still in shock regarding the enormity of the situation, and go like, "How can this happen?". But it had to happen. One cant run an economy like a credit card that's got no limit.! Someday, you have to pay back your credit card dues. And when that day came, your Lehman Brothers, and Bear Sterns went for a nose dive!
Mistakes happen out of bad habits, and a major vice that the US citizen is afflicted with is the Credit Card. If I had to blame for all the mess-up I'd blame the credit card companies for the bad habits they've so very successfully infested in the average American. I mean, an average American owns upto 5 credit cards with an average of about $8000 debt in total. Any middle class Indian would consider this an outrageous amount to have as debt, but perhaps the middle class American isn't perturbed by it.
And when this approach of letting people have more than what they can afford is extrapolated into the housing sector, a disaster is really a no-brainer. Sub Prime by definition means a person who has a history of loan default or with recorded bankruptcy or with limited debt handling capacity. When we give home loans to people who cannot afford what they are buying, sooner or later it is going to backfire.
And the most surprising part of it all is that Fannie Mae & Freddie Mac, two government-turned-private entities setup exclusively to provide finance to the American citizen to build their homes allowed such a blunderous proposition to get through. It was a Marketing success but an economic melt-down.
On an average, the defaulter ratio in a home loan is about 1:10. And when that elevates to 1:2 lets say, one can imagine how badly screwed banks, and financial institutions can get.
And to add to that, everyone right from ICICI bank of India to the Sheikhs of Abu Dhabi invested money directly or indirectly in this hoopla. The result was like a Domino effect and suddenly, everyone started panicking and hanging on tight to their money (or whatever was left of it).
To surmise, economic meltdowns arise because of people getting lackadaisical more than anything else. When money started coming in easy, people bought houses despite knowing the fact that they couldn't afford it. When economies become developed, life becomes easier, less stressed. Things are more accessible including money. This attitude is not largely restricted to money in fact. My suppliers from EU region (France in particular) are the most lethargic bunch of people I've met in my life.
And this very attitude with respect to money was the reason why everyone (including Lehman brothers with truck loads of IIM graduates) went down the drain.
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