Is there anyone in Australia, Britain or American who still lives within his means? Does anyone know where their means are?
Only occasionally do they even bother to find out – like a middle aged man hunting around in closets for an old tuxedo. Then, when he puts on the pants, he realises he has outgrown them…he spills over the top and nearly splits the seat.
Of course, you can’t blame people for not living within their means – the whole idea is as quaint as thrift…as antique as spats. New credit card offers come everyday. And when you can buy a house for no-money- down on a teaser-rate ARM…you can afford much more house than you thought you could – as least for a while.
Most of the time, most people get by – just as most of the time, most people don’t get themselves into serious trouble with the law. They know what they can get away with and what they can’t. But occasionally, the old standards and guideposts get knocked down. Then, they run into trouble.
What gets them into trouble is the subject of today’s reckoning.
Junk bonds, margin buying, program trading, portfolio insurance – each one eventually leads to trouble. People get excited about it…they think it is the answer to their prayers…they think it is going to make them rich. They do it. And then they over-do it.
The same is true for the innovation of easy mortgage credit. Now you can get a mortgage, apparently, over the Internet. Lender and borrower never meet. And then, of course, Wall Street created a whole industry – another new innovation – to take these mortgages and turn them into new and titillating products. Now, both the mortgages…and the securities derived from them are landing themselves in trouble.
Everyone knows that a man who wins the lottery is a threat to himself, his family and everyone around him. He runs wild, simply because he can get away with it. And yet everyone still hopes to win the lottery. That is why Christianity regards temptation as such a threat that we don’t even bother asking God’s help to resist it; we know that’s impossible. Instead, we pray to “lead us not into temptation”.
Here at Markets and Money, we’ve had our fair share of temptation and enjoyed every minute of it. But what we’ve noticed is that temptation delayed is temptation denied. Things we would have found irresistible at 25 have only a passing attraction at 50. Fortunately, most people are spared too much temptation – at least, until they are old enough to resist it. Then, it isn’t so tempting anymore.
But to a huge number of people in the last 10 years…the innovation of easy credit – especially easy mortgage credit was like catnip. Not only could they not resist it, they revelled in it. They rolled around in it. They salivated over it.
And now they are praying for help to…well…not to God, but to as near an imitation of Him as we have these days – the government.
According to a Bloomberg analysis of data from the National Conference of State Legislatures, legislators in some 30 states have introduced about 85 bills to protect mortgage borrowers from deceptive lending practices, foreclosure, or fraud. Now, from Illinois to Maine, lenders will be banned from tempting borrowers with enticing loans.
Although the government is stepping in now – the damage in the housing market has been done.
Yes…a ban on temptation. We are glad we are not young now.
Imagine if there were a ban on…but, there – we’ll leave the rest to use your imagination, dear reader.
Markets and Money