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October 03, 2008

Comments

Chris

You overstate McLean's point. Not once in her article does she mention the poor or lower classes. Writing in the New York Times, she is speaking (overwhelmingly) to well-education middle and upper income Americans. She is saying - egad! - that consumers had a role in this whole mess. Not that they are the only part of the problem - no, and she even puts victims of fraud in another category altogether. But she finds the knee jerk "blame the Wall Street fat cats" reaction to be overly simplistic. And she's right.

From the top down (or the bottom up?) we are not a country that knows much about sacrifice these days. From our "need" to have cable or satellite television (at $100 a month) to the first major war in our history accompanied by major tax CUTS, we are a nation that resists making sacrifices. Many of my friends and neighbors - and me, too - buy and consume things we don't need and which we can't always afford.

I carry credit card debt - some of it is simple life needs, such as baby formula and diapers. But some of it is fast food and books I won't finish reading. And I can surely save money by making better decisions on my groceries - clipping coupons, switching stores, eating less expensive foods. But I don't do all I could. And I'm just like many Americans who are living anywhere from slightly to dramatically beyond our means . . .

The problem is not just on Wall Street. It's on Main Street, too.

toujoursdan

I was living in the U.S. when the housing boom was going on and was amazed at how much advertising and how many unsolicited offers I received that encouraged me to use my home equity as an ATM machine, with the proviso that I could always refinance as prices were skyrocketing and interest rates were low and always predicted to go lower. People may have made bad decisions but they were bad information by finance experts.

Those practises are illegal in Canada and risky mortgages (and any loan where the downpayment is less than 20%) are difficult to get and must be accompanied with a purchase of "mortgage loan insurance" provided by government-owned Canada Mortgage and Housing Corp (CMHC). So the subprime crisis hasn't hit us.

John Petty

Chris makes a valid point. We could all be better stewards.

That said, see Dan's comment. All this consumption stuff is continually promoted 24/7. It takes quite a bit of discipline and foresight to go against the prevailing wisdom, especially when its packaged by a bunch of authoritative-looking white guys in suits.

toujoursdan

The reason I didn't touch it, is that I knew that median housing prices were rising much faster than median income and that the bubble had to burst at some point. So even when I had credit experts tell me that my $200K home was going to be worth $400 in 5 years, I knew that valuation couldn't be sustainable unless incomes doubled too.

I took enough university economics to recognize a bubble when I saw one. There needs to be a steady supply of new homeowners to replace the people who trade up or die off. Once the median monthly mortgage payment becomes more than 33-40% of median income, people can't enter the housing market and the pipeline is choked off, forcing prices to fall until they can.

I certainly didn't expect the burst to be as dramatic as it was, but knew prices were going to fall hard, particularly in the overinflated parts of the US and Canada (our bubble is bursting in places like Calgary, Vancouver and Toronto.)

The problem with economic orthodoxy today is that they think that prices are always "true" and reflect real supply and demand. One of the critiques Marx and others had of "free market" economics is that prices aren't real. They are more often speculative than not. I don't necessarily believe that financial planners are at fault for believing that home prices would stay at the level they were at, it is the common wisdom, reflected at the top. But it's in error.

John Petty

Prices have fallen here in Denver, but not as much as in other places like LA (where they NEEDED to fall), Las Vegas, Phoenix and several others. Lots of places are down 30% and heading further south. Here, we're down about 15%.

Hypatia

Our economy – our culture – was and is based on the willingness of consumers to consume and keep on doing so. You can’t glorify wealth and houseowning and easy credit and dangle goods and baubles in front of people’s noses continuously unless you are expecting and hoping that they will go for the bait. And many will. It’s only human.

No, McLean doesn't actually mention the poor in the article, but then she doesn't really have to, does she?

John Petty

Case in point: Western civilization was supposedly at stake after 9/11, and what were we told to do? Go shopping!

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