Greenspan probably deserves most of the blame. But you can't really blame people for not keeping up with payments, and here is why. If you bought a house with any kind of mortgage three years ago for $400k, and got it appraised today and saw the value at $350k and falling, would you actually want to keep up with paying it given that it is now worth much less than you bought it for? That's basically the equivalent of giving up a year's salary (i.e., work for a year for basically nothing) just to own a home that isn't worth what you originally agreed to pay. And that's not even considering interest and inflation. Franklly, even given that your credit score would take a beating, for a lot of people it is simply idiotic to actually keep up with the payments knowing that at best you probably will NEVER break even on the thing after considering inflation and interest. It might be irresponsible, but it's also a smart move to let it foreclose and get a few months of free living in it.
Surely this kind of thinking is what got the US into trouble in the first place.
Your house is your home, it is not a credit instrument. Of course when you first buy a house, you can go into a negative equity situation. Over time, inflation reduces the value of your loan in real terms and this issue is resolved. Ask someone that brought a house 15 years ago and never re-mortgaged how much equity they have. Obviously people that don't re-mortgage don't see their home as a credit instrument.
I have plenty of friends in the US that kept on 'taking equity out of their home' to drive flash cars, get their huge LCD screens etc etc. Now they are in negative equity & you think they should just bail out & hand back the car, LCD, the new kitchen. the foreign holiday and the house ? Even those on high salaries are paying $1000's a month to pay off these loans. Fuck that.
It is not madness to continue paying for your house if it's worth $350K but you owe $400K. You still need somewhere to live and the prices will move up. It is irresponsible to just bail out. It is a symptom of wanting an immediate solution as opposed to buckling down and toughing it out for a while.
Not saving money to buy stuff is being financially immature. When you borrow - you end up paying over the odds for what you buy, the only difference is you don't have to be patient. If you have patience & can save to buy stuff you will be much better off.
All this ‘gotta have it now’ and ‘bail out when the loans get too much’ is incredibly immature. Why the rush to have all these material things ?
People need to have some financial responsibility at the end of the day because all the borrowing to fuel the economy was always going to come back & bite the US because ultimately – loans have to be paid back. You simply cannot just keep borrowing to pay off your debts.
Just in case you are wondering - I am 38, I have a mortgage, I put 30% down, I do not have a balance on any of my credit cards and I do not have any loans outside of my mortgage. Last time I brought a car, I saved up for it. I sleep soundly at night because of this.
