Random Thoughts – Randocity!

… and there’s definitely a lot of work to be done.  The state of the country is in severe economic disrepair, no thanks to our former president, George W. Bush.  President Obama definitely has his work cut out for him.

Bush era over

Bush’s errors have left a legacy of  his lack of doing ‘the right thing’ for the country by extreme spending on an unnecessary ‘war’  and economic packages which helped only the rich.  During Bush’s reign, we have seen favoritism towards big business at the expense of everything else.  Yes, I understand certain business lobby groups are very powerful (read give lots of money away) in order to get the things they want.  Under Bush’s watch, he ushered in one of the worst recessions in this nation in years!  This happened strictly because he was not focusing on the economy as a whole and instead focused on being overly friendly to his big business buddies.  But, what’s more important, making those greedy businesses happy or making the country prosper as a whole?   Clearly, catering to big business is both short sighted and part of why we are where we are today.  Instead of making these businesses more money, they have, in fact, lost more money as a result of our down economy.  Short sighted.

Bush also presided over the monetary system that encouraged bad lending practices without reigning these institutions in.  He simply turned the other way and ignored it as though it didn’t exist (again, helping his buddies make more money).  Instead, he would firmly focus on the middle east and he thought that everything would be fine.  Well, everything isn’t fine and we’re paying that price now.  Again, short sighted.

Doing what’s right

The hard choice is to do the right thing for the citizens, the economy and the country as a whole, not what’s right for big business.  Clearly, if anything, this downturn has taught us what shouldn’t be done.  I believe these are the ‘hard choices’ that will face the Obama administration.  Choices that we have yet to see in action.  Choices that I’m not even sure Obama will face without falling into the same old traps.  That’s not necessarily the fault of anyone, it’s just the way lobby groups and our political system works.  Politicians tend to cave into these demands when they don’t see any risk.  But, that risk is often masked behind rhetoric and double-talk.

Clearly, lowering the fed interest rate 2-3 years ago to a single point spurred the home lending crisis.  It’s now starting again with the interest rate at a quarter of a point.  We are now facing the same exact housing bubble possibility that faced our country the first time around.  Can we avoid this bubble again?  Perhaps, perhaps not.  Perhaps it isn’t smart to be lowering this rate this low a second time.  It’s all about cause and effect and this effect has already been felt in a major way.  We don’t need to experience it again.

Tough Choices

There are a lot of tough choices that need to be made, and those choices will affect us every day.  For each tough choice to aid our economy, another problem will result.  Is there a choice that can be made to turn the economy around swiftly?  Doubtful.  Recessions come in cycles.  This recession came a bit earlier than expected… it’s usually an 11 year cycle and our last cycle was after the dotcom bubble burst in early 2000.

Clearly, Obama’s words are tough talk on bringing this country back.  When it comes down to it, can he really make and live up to these tough choices?  Will he be able to say no to businesses over the economy?

Blame the consumer

Because of the mortgage crisis, blame is had from all over for its origins, but one finger is always clearly and firmly pointed at the consumer.  While the consumer may have been partly to blame for accepting their bad loan, it was entirely the lending instituions’ fault for granting the loan in the first place.  If you hand money to a consumer, they’re going to take it.  It is the lender’s responsibility to make the proper and correct decision to give money out and to whom.  Yes, that also means that the lenders must take responsibility for their actions when giving money to people who should never have been given that money.  It’s also the lender’s responsibility for shuttling people into specialty loans that practically ensured failure.

Fixing the lending practices is one of the first hard choices that must be made.  Trying to loosen up credit again isn’t necessarily something that we need to be doing as an economy.  This is a hard choice, but it has to be made.  It’s one of those choices that has clear ramifications.  It means that credit will be limited to those with the best credit scores.  But, people who don’t have the money to pay off loans shouldn’t be given loans.

Another tough choice that must be made is to force lending institutions to go back to standard fixed rate loans.  We must prevent these poorly crafted specialty loans from ever being granted again, no matter how tempting they may appear or how much it may appear to help out the consumer.  Balloon, ARMS and introductory rate loans must become a thing of the past.

If there is one single thing to blame in this process, it’s these poorly crafted specialty loans.  These loans created the false impression that people could afford a loan that they couldn’t afford.  So, in 2 years, when the loan reset (which was clearly written into the terms), this reset ensured a loan failure.  Again, the consumer can be blamed here because it’s easy (and because they accepted the terms).  But, it’s really the lending instutition’s responsibility for lacking the foresight in seeing that these loan products were destined to fail.

Days ahead

From here, we will have to see where Obama and his administration takes us.  Obama speaks of tough choices, but I’m waiting until those words become action on his part.  It’s easy to speak them, it’s much tougher to follow through.  We defnitely need a ‘buck stops here’ President who is willing to lay down the hammer.   We no longer need, nor can our country afford, a president who caters to the rich.   We need a president who is willing to work to bring the country together as a whole rather than filling his own bank account.

Obama, we’re ready and waiting for you to put your tough talk into tough action.