How did we find ourselves here, or who did this to me? These questions occupy the mind of many as the financial turmoil continues and gravely threatens the overall economy.
There is plenty of blame to spread around. But as a local high school reporter and a seasoned economist both tell us, there is no one single cause or reckless policy decision on which the blame can rest. We are better off blaming ourselves.
In a report soon to be released in the Mountain View High School Freelancer, reporter Pam Barker shows the problems rose long ago. She aptly states, “We sure are living in strange economic times.”
“This issue has been in the making for many years now, and some experts claim that this economic meltdown was in the works as early as the Clinton administration. However, it is widely agreed that when George W. Bush gave a speech in early 2002, the wheels started turning. Bush encouraged mortgage lenders to provide more loans to the low-income and minority borrowers. Many people were given a mortgage that they honestly could not afford.”
Ms. Barker goes on to discuss how homeowners also combined their credit-card debt with their mortgage debt, but saw no problem with this action as higher and higher home values reduced their debt-to-asset ratios. She hits the nail on the head, concluding, “And all of the sudden, this great time came to a halt.”
In his column in Monday’s Idaho Statesman, Economist Ed Lotterman provides ample proof that current claims of fault directed at the Clinton administration and the Community Reinvestment Act are not justified. The act does not force any institution into bad lending practices, The act applies to banks, and most bad loans were made by finance companies. Finally, many well-performing banks today receive high Community Reinvestment Act ratings by helping their communities through important non-mortgage lending and other financial services.
Lotterman quotes a Minnesota banker who places the blame on “mortgage-broker and investment-banker greed.” In all, there appear to be many scapegoats.
As policy makers continue to sort out the blame and devise new rules, world stock markets continued their volatile prices swings Monday, but bond markets remain a source of strength. The benchmark 10-year U.S. Treasury note continues to find buyers, lowering the yield to less than 3.75 percent. Oil and gold prices continue lower to prices not seen in over a year.
The problems of this financial crisis remain evident in the stock market, but steadying prices in many other markets suggest calm may come soon. The low Treasury rate could also quickly make its way to mortgage markets as many mortgage rates are tied to this benchmark.
High school reporter Pam Barker interviewed many local experts and found many different opinions about the problem. She also found that this situation is not limited to Wall Street. “The effects seemed to stem to every American’s home.”
Our local high school students can now see we are all in this boat together. There is no cure in a pointed finger. We do best at this point to get back to basics, such as living within our means and limiting debt. But most of all, let’s calm down and end the blame game.
Since 2000, Peter R. Crabb has been a professor of finance and economics at Northwest Nazarene University in Nampa. He earned his doctorate in international and financial economics from the University of Oregon.