Wednesday, January 2, 2008

The Credit Crisis Looks to...

...not just kill much of the housing market but the automobile and the credit card segments to.

Which leads to an interesting question that was recently posed to Daily Sprawl: Who's fault is all this mess?

The answer is complex but, primarily, two-fold:

1. The consumers who continued to buy, buy, buy on credit with seemingly very little thought as to the consequences. Of course, these individuals are everyone's neighbors, friends, and even relatives so its hard to be too hard on them. But, ultimately, most of the credit mess resulted not from required expenses like medical bills but from completely unneeded purchases out of people's realistic means.

Or, stated another way, did you really need that boat and Suburban to pull it?

2. The loaners. Whether it is a bank, credit union, finance company, or any variation of the same, you have to wonder who in the heck was running these ships as they headed directly for dry ground. Seriously, these companies are supposed to have intelligent people as their CEOs and COOs and EVPs and other acronymed execs.

Yet, very, very few of them seemed to appreciate the basic mathematical reality that if somebody is making $50,000 per year with existing debt of, say, $15,000 that they cannot afford a $350,000 house or two $29,000 vehicles--or, worse still, both!

It's as if the reality that a good portion of these loans would end up in default--again, because basic math suggested so--never occurred to these corporate heads.

So, who is at fault?

Almost everyone. After all, there aren't many people in the U.S. who either didn't take or give too much credit--more than could possibly be afforded.