On my trip to Hawaii, I had the opportunity of having a barley based beverage with the CEO of a major financial institution, the institution I work with. As we discussed the financial crisis, we felt a certain pride that our institution, though facing challenges, wasn't losing asset values and is still profitable. Over the years, we've lost alot of business to the various purveyors of creative financing that qualified people who should have qualified for a modest $130,000 home, but got into a $300,000 home instead. The whole basis for these loans was a paradigm that was sustainable under one set of assumptions. The assumptions were that the income of the individual getting the mortgage would increase, and that the value of the house would increase, creating instant equity that would give the borrower flexibility to refinance, or even perhaps, move to an even more impressive home.
Well, the assumptions behind this paradigm, just like the assumptions regarding the continual rise of stock prices in the 1920's that drove people to borrow money to put into the stock market, proved to be wrong. And these people made the wrong decisions and those companies which bought these mortgages as investments made bad decisions. And the instability created by these decisions is creating waves in our financial markets and panic among investors. And unfortunately, it is creating an environment where the government somehow feels the need to bail people out of their bad decisions.
People, and institutions overbuilt in the residential market, driven by tax incentives, and by a drive for easy profits and quick equity. Risks were assumed, but they were assumed ignorantly, on the basis of the future looking exactly like the past. This is symptom of a people who have no knowledge of history or basic finance. And our government bailing out those who hadn't learned the lessons of history only reinforces the idea, that you can essentially speculate with other's money. And the other's our us, the U.S. taxpayers.