The Mortgage Crisis of 2007 - A Love Story
In the future, when people cast a financial and historical eye back to 2007, one thing will clearly stand out, and that is the mortgage "meltdown" that came to a head during that year.
In truth, the full effects of this mortgage and lending crisis are yet to been known, even as I write this article in January of 2008. People are, however, beginning to toss the dreaded 'R' word around ... Recession. And why shouldn't they? Abroad, we are spending money we don't have to fight the seemingly endless "war" in Iraq. While at home we are experiencing the so-called mortgage meltdown -- the worst in recorded financial history. It sure smells like a potential recession.
But this article isn't about recession. It's about love.
You see, many people don't realize that the mortgage crisis of 2007 is really a love story. In fact, there are many different types of love overlapping here. It's just one big love-fest! Consider the following types of love that are present here:
- We American consumers love to buy, even when it's not wise to do so.
- American corporations love to profit from the consumers who love to buy.
- Government officials love to be paid for the trouble of looking the other way.
Looking Back - A Love Story Unfolding
Through the mid 1990's and early 2000's, the number of subprime mortgage loans rose significantly. A subprime loan is basically a loan made to somebody who really shouldn't be taking on the loan. But the loan is made possible out of love. The lenders love to charge high interest on consumers with bad credit, and those consumers lRove to buy things (in spite of their bad credit).
Some mortgage lenders fell so deeply with this type of lending (and the profits it produced) that they began to focus on it exclusively as a business model. Thus they became known as subprime lenders, and they saw this as a chance to outmaneuver competitors by extending loans to borrowers that their competitors were turning away.
Economists, who love the truth and the data that supports it, began to warn against this practice. So some states began to pass restrictions against certain types of subprime lending.
Ah, but those state politicians also love lobbyist dollars. So they found themselves torn between two loves -- the love of doing the right thing, and the love of money funneled in from the mortgage industry itself. For example, consider the fact that Governor Arnold Schwarzenegger of California received well over a million dollars from associates of Ameriquest* (one of the largest subprime lending companies).
Incidentally, California is one of the states hit worst by the mortgage crisis. Lots of love in California!
So this is yet another example of a politician who loves to receive support from large corporations -- corporations that, in turn, love to shape our country's laws with some good old-fashioned greasing of skids. I loved Arnold in the original Conan movie, by the way, but I don't love him so much as a Governor.
The Love is Spreading All Around Us
The love of money, buying, selling and lobbying has created a mortgage crisis of truly epic proportions. And like any good financial crisis, it has spread to other areas. When consumer lending tightens, business credit and financing usually follows suit. Just listen to what a recent New York Times article had to say about it recently:
"Credit flowing to American companies is drying up at a pace not seen in decades, threatening the creation of jobs and the expansion of businesses, while intensifying worries that the economy may be headed for recession."
At the same time, we are seeing the dollar weaken against foreign currencies around the world. We should be alarmed by this! We should press for change! We should curtail spending! We should question the White House's maniacal love for overspending on fruitless ventures like the war in Iraq. We should ask the question, "How long until the United States goes broke?" But there is another type of love that lulls us into complacency...
Politicians at the highest level love to offer encouragement by playing down the true severity of our financial crisis. They love to soothe us the way one might soothe a child who is teething.
And we just keep swallowing it right up. Because love is blind.
* Sources: Federal Election Commission; National Institute on Money in Politics; Center for Public Integrity; state disclosure offices.
About the Loving Author
Brandon Cornett is the editor of the Home Buying Institute, which has been teaching home buyers about real estate, mortgages, credit reports and related topics for over five years. Learn more by visiting http://www.homebuyinginstitute.com