There is one aspect of this crisis that scares me. No, I don’t think we will see unemployment rates in the 20% level or a huge drop in GDP or even in the stock market. The real problem is that we might have become a nation that individually just can’t deal with a normal downturn.
Take a look at this MSNBC article entitled “Stock losses take hefty toll on nest eggs – Many forced to rethink when — if ever — they will be able to retire”. Please read the whole thing.
What we are talking about here is a total breakdown in perception of reality – a total lack of distinction between luxury and necessity, privilege and basic rights.
Look at the first example they mention. The Edwards couple; they live in Virginia, are in their 60s, have “less than $1 million in savings” (what kind of number is that? I can only imagine it means close to $1 million) but still owe $425,000 on a house with a market value of $650,000.
This is a couple is in their 60s. Even if their house lost half of its price since they’ve bought it, in order to still have more than 400 thousand in debt means that they decided to buy a house with at least half of its value being financed. They must have made such decision when they were already in their 50s, otherwise they must have bought the house with even more (percentage wise) debt.
Beyond that, we are not talking about any house here. You can go to Zillow.com and do a little research. You can see that 87% of homes in Virginia cost $261,282 or less and 90% of homes in United States cost $214,714 or less.
Why would anyone in their right mind try to finance such a huge amount in a house being already in their 50s? Especially if they could have bought a very nice house for the money they already had in hand? And now this couple is crying about not being able to retire?
How about the second case:
“Cherie Miller, 55, of Crawfordville, Fla., retired a month ago after 35 years in a secretarial job at Florida State University. But she will start a new job next week, working in an elementary school cafeteria, to make ends meet.
Her pension pays about $1,200 a month. But because she’s too young for Medicare, and because her husband Robert, 57, is a self-employed golf course equipment repairman, she needs to spend about $1,100 monthly for health insurance.”
So, this other couple is one where the wife is a secretary and the husband is a repairman, and they are complaining because they can’t retire before they are 60?
Have you got the message here?
I can guarantee you that this is not just a random article and this problem is not restricted to the real estate issue. It is happening everywhere, and in every level of American society. Upper Middle Class people want to live like the rich and think that is just normal; regular middle class people buy Mercedes without thinking about it twice (you should see the parking lot of any American mall); poor people think that high speed internet and cable TV are as essential as water.
I don’t think this is happening only because of cheap credit. I mean, the Edwards couple could now realize the mistake they made and sell the house so they can buy a cheaper one. But no: they can only see one option which is to continue to work and postpone their retirement.
When gas prices went up, you could see people preferred to drive less instead of getting smaller cars. Once I had a discussion with a guy that was trying very hard to convince me that he *needed* a minivan and that it was physically impossible to have a Civic if you have a family and 2 kids.
The whole country is behaving like a spoiled child.
There is a case to be made that the “supplier” side of crisis is a failure of right wing policies. Yes, you had banks and lenders trying to push unreasonable loans. We can talk about regulation and whether the system was really that free to start with all we want, but as far as the right/left divide goes, we will probably see the finance sector moving to the more regulated/bureaucratic ideal that the left defends.
However, I believe there is no doubt about who is to blame for the “consumer” side of this mess. The ideology behind the cases I talked about is clearly the one being pushed by the left since the 60s revolution. The whole idea of using your feelings instead of logic and caution; the entitlement society where people “owe it to themselves” to buy a car that they can’t afford; the new social contract that assumes that the goal of government is to make everyone happy.
In a weird and bizarre way, the lefty consumer and the free market financial system got us here. I just hope that at least the consumer side goes back to the basics that got this nation to its greatness: thrift and self reliance.