Prime borrowers began defaulting in record numbers from 2009 on due to diminished home values and high unemployment. The inefficient government program HAMP was meant to help homeowners adjust their principal and payments for the new economic realities of declining housing and job markets. This homeowner help never materialized in any significant amount because banks had no legal or economic motivation to do so. America's top banker, JPMorgan Chase CEO Jamie Dimon responded to requests for principal reductions on troubled Washington Mutual home loans with, "That's off the table!"
But JPM's inherited albatross, WaMu and BofA's burdensome Countrywide Financial were as exploitive as any Mesopotamian lender by giving billions of dollars in home loans to anyone with a pulse! Michael Winston a former CW exec explained that rational underwriting and risk standards in the subprime mortgage frenzy were tossed out the window in favor of company motto: "fund "em."
Sadly, not only BofA pays the price for CW's bad behavior, but all of us pay the price for that lender and the dozens of other equally irresponsible lenders. We pay personally and collectively in diminished incomes, asset values and net worth, but even more than that in challenging unemployment, foreclosures, record credit defaults, bankruptcies and the general economic malaise the U.S. and the EU currently wrestle with.
The moral of the story is really simple: we cannot live by cash alone. Nor can we live by credit alone. But a reasonable balance between the two is the place we want to be. So how do we get there now that so much has been thrown off track.
Lately, the Fed Chair and many others, including all of us at Good-b,have been calling for job stimulus programs to right our sinking economic ship. All good and yes we need this! But our economy will not recover until something major is done about the devastated housing market.
A group of economic activists called "the New Bottom Line" claim that reducing loan principals for underwater homeowners would create one million jobs and give $709billion back to struggling borrowers. While ideas like these are unpalatable to free market policy makers, we have to stretch our minds outside the box to solve the growing economic disaster. Outside of Wall Street, things are tough and getting tougher. The problem is not going away just because we want it to. Drastic problems call for drastic solutions.
The negative side of unchecked free markets reared its ugly head in the "fund "em" market philosophy of the credit-happy decade. Jamie Dimon doesn't want to pay for fellow bankers and lenders that didn't do their homework--well, neither do I and I would imagine, neither do you. But pay we must. The issue is how much do we pay? And do we pay now or pay later?
Before we exacerbate the current economic woes and allow the gap between rich and poor, middle class and wealthy to widen even more, resulting in more homelessness, unemployment, crime, welfare, food stamps, and more burdens on society, we have to strike a balance: between paying something now or paying more later.
To "live within our means" necessitates adjusting debt to income ratios for all Americans in the post-2008 world. What level of home could you afford now in relation to your income? What amount of debt should be relieved given the changes in asset values and net worth to live within your means? Debt, as our Babylonian and Sumerian ancestors learned, is a burden shared by all society: borrowers and creditors too.
Perhaps 2011 is the right moment to finally learn the lessons of our ancient past: outsized exploitation of those "without" by those "within" will inevitably result in increased misery for all.
("Living on Credit" is adapted from Monika's soon to be released book, co-authored with Peter Ressler, Conversations with Wall Street: The Inside Story of the Financial Armageddon and How to Prevent the Next One .)
But JPM's inherited albatross, WaMu and BofA's burdensome Countrywide Financial were as exploitive as any Mesopotamian lender by giving billions of dollars in home loans to anyone with a pulse! Michael Winston a former CW exec explained that rational underwriting and risk standards in the subprime mortgage frenzy were tossed out the window in favor of company motto: "fund "em."
Sadly, not only BofA pays the price for CW's bad behavior, but all of us pay the price for that lender and the dozens of other equally irresponsible lenders. We pay personally and collectively in diminished incomes, asset values and net worth, but even more than that in challenging unemployment, foreclosures, record credit defaults, bankruptcies and the general economic malaise the U.S. and the EU currently wrestle with.
The moral of the story is really simple: we cannot live by cash alone. Nor can we live by credit alone. But a reasonable balance between the two is the place we want to be. So how do we get there now that so much has been thrown off track.
A group of economic activists called "the New Bottom Line" claim that reducing loan principals for underwater homeowners would create one million jobs and give $709billion back to struggling borrowers. While ideas like these are unpalatable to free market policy makers, we have to stretch our minds outside the box to solve the growing economic disaster. Outside of Wall Street, things are tough and getting tougher. The problem is not going away just because we want it to. Drastic problems call for drastic solutions.
The negative side of unchecked free markets reared its ugly head in the "fund "em" market philosophy of the credit-happy decade. Jamie Dimon doesn't want to pay for fellow bankers and lenders that didn't do their homework--well, neither do I and I would imagine, neither do you. But pay we must. The issue is how much do we pay? And do we pay now or pay later?
Before we exacerbate the current economic woes and allow the gap between rich and poor, middle class and wealthy to widen even more, resulting in more homelessness, unemployment, crime, welfare, food stamps, and more burdens on society, we have to strike a balance: between paying something now or paying more later.
To "live within our means" necessitates adjusting debt to income ratios for all Americans in the post-2008 world. What level of home could you afford now in relation to your income? What amount of debt should be relieved given the changes in asset values and net worth to live within your means? Debt, as our Babylonian and Sumerian ancestors learned, is a burden shared by all society: borrowers and creditors too.
Perhaps 2011 is the right moment to finally learn the lessons of our ancient past: outsized exploitation of those "without" by those "within" will inevitably result in increased misery for all.
("Living on Credit" is adapted from Monika's soon to be released book, co-authored with Peter Ressler, Conversations with Wall Street: The Inside Story of the Financial Armageddon and How to Prevent the Next One .)
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