by Beks
Flipping through my Time magazine this week, I read this quote from Steve Wynn (genius casino mogul)…
‘The whole country got overpriced. Bloated. Swollen. It wasn’t predatory lenders. It was greedy, shortsighted homeowners. ’
What do you think? Agree? Disagree?
Beks is a full-time government employee who enjoys blogging late into the night after her four kids have gone to sleep. She’s been married to Chris, her college sweetheart, for 15 years. In 2017, after 3 long years working the Dave Ramsey Baby Steps, they paid off more than $70K and became debt free. When she’s not working or blogging, she’s exploring the great outdoors.
I think it’s easy for a mogul to blame the little guy, your average homeowner and makes Steve seem out of touch.
Not to say some homeowners weren’t greedy, but it would never have happened if the people who should have known better, the financial industry, had not gone against good practices.
I disagree, but only on the basis that it was both greedy, shortsighted homeowners and greedy, shortsighted lenders. Neither group is innocent, but neither group is the sole cause.
Couldn’t disagree more. There was a huge demand for mortgage loans in the international market.
International investors were buying them up like candy because they gave good returns. Obviously, at some point you run out of mortgages because there aren’t enough people who qualify under the historically stringent loan guidelines.
The market’s answer was to lower those guidelines and keep giving out loans. That started out sane enough but got progressively worse as time went on, until you ended up giving out $300,000 loans without verifying anything about the loan taker whatsoever.
To me, this absolutey falls on mortgage companies and banks. They knew what they were doing was wrong but they didn’t care because they were immediately transferring their risk to someone else by selling the loans to someone on wall street, who then sold them to someone else too.
Yes, consumers should have been more wary and more smart. I’ll place 5% of the blame on them. 95% on the mortgage industry.
I agree. They were part of the problem, but not the whole problem.
I agress with Catlin. People got greedy, and the banks learned how to take advantage of it. Neither one bears the sole blame, but the consumers get the largets punsishment!
I too believe it was both lenders and homeowners. Too many people feel they HAVE to have a house when in reality very few people can truly afford one.
My brother gave me sage advice long ago concerning a car loan. He told me if I couldn’t afford to pay it off in 4 years, I couldn’t afford it. That advice rang in my ears for years so when I bought a home I knew if I had to do any tricky financing to get it, I couldn’t afford it. Of course, I’ve taken it one step further with Dave Ramsey and think I shouldn’t buy it if I need a loan period:)
Absolutely disagree. The homeowners are not the ones to blame, the lenders are. But why did they make those loans? They made them because they knew no matter what they could sell them to the quasi-government entities Fannie Mae and Freddie Mac.
Besides that, interest rates were artifically low because of the Federal Reserve. The Federal Reserve causes bubbles (google “Meltdown” by Tom Woods).
-DC
Absolutely disagree. The homeowners are not the ones to blame, the lenders are. But why did they make those loans? They made them because they knew no matter what they could sell them to the quasi-government entities Fannie Mae and Freddie Mac.
Besides that, interest rates were artifically low because of the Federal Reserve. The Federal Reserve causes bubbles (google “Meltdown” by Tom Woods).
-DC
@David Shouldn’t consumers be responsible for knowing what they can afford? I can think of lots of examples where products or services are sold but are not appropriate for every use or every consumer. For example: cigarettes, guns, alcohol, pharmaceuticals, high fructose corn syrup.
If you aren’t asking yourself whether you should buy something that someone is offering for sale, then you have to accept some of the blame. For example, just because a mortgage seller says you can afford something, doesn’t relieve you of the responsibility of deciding that for yourself.
The fact is people like to take sides and blame others for problem. The quote is half right. Yes, there are greedy and shortsighted homeowners, but a party can only happens when someone’s hold it, so there are ALSO greedy and shortsighted Wall Street people.
AKA, both sides have done something wrong, and we need to stop pretending one side is completely right or completley wrong.
I agree with others here: both are to blame.
It started with people wanting more house than they could afford, and finished with banks agreeing to lend people more than they could afford, which made more people think they could afford more than they really could.
I disagree with the quote.
@ Debt Free Dan
I think the examples you listed is an over simplification of the problem. None of those included an understanding of finance or even comprehension of a contract written at a college level. “Shouldn’t the consumers be responsible for knowing what they can afford?” Sure! However, the sellers should also be responsible for selling a faulty product.
The quote is only marginally accurate. The posters are only marginally accurate.
The Community Reinvestment Act is what caused it. Not in and of itself, but the various modifications made to it throughout the years to slowly, yet systematically, force lenders to lend to lower income individuals, and those with risky financial histories.
Some people are not meant to own a home. It’s just not in the cards for them. For various reasons, they do not have the funds, nor the earning potential to do so. The gov’t (various Administrations & certain members of Congress) and various actitist groups didn’t like this. The result was various modifications to the CRA to force lenders to lend to low-income individuals.
Of course, this created greedy people on all sides: politicos via applied pressure (and money) from lobbiests, lenders who work on commission, agents who work on commission, sellers who wanted top-dollar when selling, and buyers who wanted in on the action.
Look up Community Reinvestment Act
http://en.wikipedia.org/wiki/Community_Reinvestment_Act
Additional references:
http://www.occ.treas.gov/crainfo.htm
A quote from this site: “The law provides a framework for depository institutions and community organizations to work together to promote the availability of credit and other banking services to underserved communities. Under its impetus, banks and thrifts have opened new branches, provided expanded services, adopted more flexible credit underwriting standards, and made substantial commitments to state and local governments or community development organizations to increase lending to underserved segments of local economies and populations. ”
http://www.nypost.com/seven/02052008/postopinion/opedcolumnists/the_real_scandal_243911.htm?page=0
http://www.businessinsider.com/the-cra-debate-a-users-guide-2009-6
http://www.usnews.com/blogs/capital-commerce/2009/03/17/yes-the-community-reinvestment-act-really-did-help-cause-the-housing-crisis.html
Some people say the CRA is not to blame, but when it loosened regulations, and encouraged, er rather, mandated lending to underserved communities, and individuals, it opened the Pandora’s Box for what followed. People can blame any number of individuals and entities, but when the path is followed, back to the origin, it is the CRA and its many revisions through the years.
People got really greedy…. people wanted a champagne lifestyle on a beer budget. When my husband and I bought our home 6 years ago, we too were approved for 250,000 ,however, we purchased a home that we could afford on ONE Salary! So if one of us got laid off, we could still pay our mortgage. Thankfully, my husband and I are still working and paying our mortgage.
Although his quote has some interesting aspects, I wouldnt believe a word out of his mouth!
During the deepest part of the recession last Oct/Nov, he finished ANOTHER Casino in Las Vegas and then forced his new employees to take huge paycuts, discontinued the 401k match, reduced hours so he could “make a profit.”
Not exactly the best person to be talking about the greed of others.
oh yeah, i agree. Of course the lenders were greedy too. personal responsibility!
@Debt Free Dan
“@David Shouldn’t consumers be responsible for knowing what they can afford? I can think of lots of examples where products or services are sold but are not appropriate for every use or every consumer. For example: cigarettes, guns, alcohol, pharmaceuticals, high fructose corn syrup.
If you aren’t asking yourself whether you should buy something that someone is offering for sale, then you have to accept some of the blame. For example, just because a mortgage seller says you can afford something, doesn’t relieve you of the responsibility of deciding that for yourself.”
There is no way this could possibly lead to a financial meltdown. If you can’t afford a mortgage, you should have never received the loan. Simple as that. Consumers might have bought things they shouldn’t have, but where did that come from? Answer – EASY CREDIT.
How is easy credit created? The Federal Reserve sets interest rates.
I think I see it as two sides to the same coin. Lowering standards for mortgages made them available to more people, but those people all still agreed to the terms that weren’t in their best interest. I think the meltdown was caused by aggregate greed between willing buyers and sellers making high-stakes decisions that went bad.
I guess I just look at it like drugs. Just because the person is offering doesn’t mean you should accept. The offerer has an ulterior motive (profit). People pursuing profit don’t necessarily place an equally high value on the consequences to others. When they do, that’s great. That’s what makes a company with good customer service. The greater the disparity between what the seller wants to sell and its effect on you, then the worse the result for the consumer. You go from great, to mediocre, to unethical, to criminal.
A consumer needs to calculate and weigh the consequences of accepting. If you can’t determine the consequences (because you don’t understand the 100 pages of documents you’re required to sign), then you shouldn’t agree to it. I have a hard time swallowing “I didn’t know what I was agreeing to, so I signed it anyway because the guy who got paid by convincing me said it was OK.”
Also, who decides what “can’t afford a mortgage” means? Is there a hard and fast formula that applies to everyone? Frankly, I would be OK with that. But if I profit from convincing you that you can afford it, then you should at least run some calculations for yourself.
I think when people want something, they sometimes avoid deciding whether they SHOULD get the thing. People do it with finances, relationships, food and controlled substance. I’m not immune either. But I certainly don’t blame Ben and Jerry for the consequences of my decision involving their product.
I bought a nice, OLD (110 yr+) fixer-upper farmhouse in 2003, back when I had a good paying JOB. Now the job is gone (since 2004) because the company sent my engineering job to Texas and the assembly lines to Mexico…
Did I plan to lose my good paying job? NO.
Did I think that, nearly SIX YEARS LATER I’d still be trying to find any job, let alone a good paying one? Nope again.
Did I “overbuy” or get greedy and get something beyond what I could afford? Not when I bought it.
Did the company need to move the work south of the border? NO – might be corporate greed? Hmm…
I think it’s an entire set of circumstances in the US – starting with the greed of big business (the company I worked for was a division of Siemens – huge, worldwide, but threw me and my coworkers away like the garbage…) and the greed of credit card companies (when I was a kid, you COULD NOT put groceries on a credit card. Only tangible items that could be repossessed – when did that law change? We’re told it’s ok to put food and drink on a credit card, so we do it, even though most of us will still be paying our Applebee’s meal off 30 years from now…) making it easy for EVERYONE to have huge lines of credit (I had over $60k in credit available when I was working. That’s RIDICULOUS, folks).
The only jobs I’ve been offered in the past 5 years have paid around $40k a year. A good job by most standards, but I have a bachelor’s and masters in engineering that I still have loans for, and I’m so far behind on payments because of the periods of unemployment between jobs that I will likely never catch up.
In my case, don’t think I was greedy or shortsighted. The company I worked for – when I first started there – was over a hundred years old and a fixture in my town. When Siemens bought it, and stopped giving raises and cut out overtime and cut benefits…that was the beginning of the end.
Oh, I should add – I HAVE worked over the past six years. I find a job paying around $40k/yr and just about get caught up on my house payment and stuff and bam, the company closes. So I find another similar job and after 6 months or so, bam, that one closes too. I don’t think I’m a jinx, but I’m beginning to wonder! I should mention I live in an area where unemployment in June hit 15.2%. And you can’t live on $350 a week in unemployment, trust me on that.
Mary, I’m sorry for your situation. It does sound like you’ve had more than your share of bad luck and circumstances beyond your control.
You don’t mention what you made before or what the house cost. It does sound like you have lots of school debt. Regarding “we’re told it’s OK, so we do it”. I’m afraid I have to disagree with you. I certainly don’t do it. Just because it’s easy, doesn’t mean it’s right for you. It certainly seems that your debt load has not been a blessing.
Regarding the greed of big businesses, I don’t disagree that it’s there, but I think this is not in isolation. I think customers vote with their pocketbooks when the cheap stuff sells, companies give you more cheap stuff. Look how many companies sell cheap PCs that work poorly, have bad to no support and break easily. You could buy a pricier computer with good support, but it costs more. I see this over-emphasis on price in the rise of Walmart and cheap PCs.
Also, investors want to see company profitability and rising share prices. When those companies are more profitable, their shares and mutual funds that buy them go up. That makes IRAs and 401ks go up, which appeals to me as an investor. However, it matters to me whether the profit is sustainable or not.
I’ve found that I’d rather buy fewer things and get better quality than shop solely on price and buy crap from companies that are too broke to do a good job with customer service.
Again, I think it’s an oversimplification to put all the blame in one basket. I think there are intertwined relationships here and plenty of blame to go around. I think everybody involved has something they could have done differently that would have made the situation less bad.
Mary, I hope you are able to improve your situation soon. I believe that no one has greater power to help you than you.
It’s a tough call… but I think it’s 50/50.
This is true but also not true. It is America in a whole so many people live above there means and by they doing this they have made the economy very unstable. So people need to stop being greedy and just earn more and also save more and they will be able to be like me. I will help anyone who wishes to become debt free.
I agree to some extent. I believe there is a generation of young adults (including myself) you want what their parents have without the work to earn it. I bought a new car, new house, new furniture and other things on my credit card to have “stuff” like other people do. We did not see the years of hard work individuals (like our parents) struggled and worked hard to afford all these luxuries.
nice post
i really like it
have fun and keep up the good job
Those greedy homeowners were sure fortunate that those innocent, doe-eyed banks strong armed the appraisers into overvaluing the swollen houses they wanted to buy. Oh, and by Wall Street collateralizing those greedy loans as fast as possible so more greedy homeowners could buy even more houses.
If nothing else, this bubble bursting shows that wealth and intelligence only have a passing relationship to one another.