The “sub-prime” mortgage crisis is a euphemism that does not exist. Realtors and mortgage companies are only small fish – big money has feasted off an exploding real estate market for so long that, in order to maintain the growth rate, it was necessary to reach further and further into the pockets of people who did not have much to begin with. At that point it should have become clear to the intelligent observer that the players in this system were building a house of cards. This was necessary to extend the feast. Because it was allowed to happen, the claim that the problem was and is limited to the sub-prime market is ridiculous. Above all, this outcome could have been avoided ….
The feeding frenzy happened in plain sight and could have been fixed with a little bit of regulation, and relatively modest costs, compared to what taxpayers have to pay now for the so-called stimulus package that is supposed to contain the fall-out of the crisis. Only a fool can believe that the government has money to give away. The government is borrowing the $120 or $150 billion now, and you and I will have to pay it back with interest.
Should we not learn from our mistakes? Apparently, the people in charge do not think that mistakes were made. But one thing became apparent through all this – the world’s financial systems are tightly coupled, and this system is not very stable. It almost feels like a single person (e.g. a French trader by the name of Jérome) could bring the whole network down in a matter of days. Now that is scary. I have a lot of money in my 401Ks and IRAs. It is not hard to imagine that we narrowly escaped a disaster of unique proportions a few weeks ago, a disaster that could have brought down banks, brokerages, and investment firms all over the world in a very short period of time, without much of a warning. My money is tied up in this system. I cannot withdraw it without facing severe tax penalties and will rather risk losing everything than being taxed on it now. This leaves me without an option to do something proactively, and I hate being at the mercy of people who have just demonstrated so drastically that they are not at all in control.
I believe that there should be alternatives for people to put their retirement money. If I was allowed to withdraw some of the money from my IRA and invest in land or real estate without facing an immediate tax liability, I would do so. Now that would be a stimulus package of a different order of magnitude. That would cure the real estate market and solve liquidity issues. But instead, I am starting to become acquainted with the idea of losing my retirement savings and having to start over at the age of 50. And nobody will be held accountable, because those who are not acting today will once again claim that they could not possibly have it seen coming. What a great country this is!