Many average folks think when the economy goes bad, it's ok to lay the problem at the feet of those in Washington.

The government didn't cause this mess.  We did.  We, meaning consumers who bought into the no-money down mortgage scheme.  And, that's what it was, a scheme.  All sound minded investors know that 'homeowners' have no incentive to keep their home or care for it if they haven't invested any of their own money.  Yet, millions eagerly agreed to sign on the bottom line.  Consumers are not investment aware enough to know that the value on their home might go down instead of up.  Everyone else involved with the deals were happy to pocket their commissions and didn't bother to worry they might be close to being out of business a few years down the road.

No one seemed to have a clue as to what the domino effect would be on not only our aggregate economy but the economy of other countries that were dumb enough to buy some of these mortgage back securities.  Oh what mess we weave for ourselves when we only have our eye on the here and now.

Mortgages and credit in general are going to be difficult to get for a long time to come.  Creditors are going to be more choosey about who they agree to back in mortgages, business loans and credit cards.  They are finally waking up to the fact that a great number of the customers they funded are probably never going to pay them back.

The future has to be different for consumers and lenders.  Consumers have to cut way back on their credit spending from here on out or they will find themselves on the street and/or in bankruptcy court.  We are such a credit-oriented society that this is not going to be an easy task.  Bad habits are hard to break.

Ironically, the ones that are going to be hurt the most by what's coming are those with 9 to 5 jobs.  Employees tend to think that their paychecks will continue as long they want them.  This gives rise to the notion that it is ok to charge everything under the sun.

On top of that, home equity loans have been used in the past few years for frivolous purchases.  So not only are they messed up in the short run, but the long run picture is also a mess.  Homeownership was supposed to be a way for the ordinary/middle class to save as well as invest.  The only urge for ordinary consumers these days is how I can get my hands on cash or a new credit line so I can continue to spend.

Employee types misuse their credit and now will have bills they can't pay.  Job cutting isn't over.  What happens to the consumer with that debt and a home they can no longer hang on to? The park bench might be the answer.

Customers are going to have move backwards in their thinking.  If you can't afford it now, you can't buy it.  This, in the long run, will mean a decrease in demand and further shrinking of the economy.  Once consumers get a hold on their spending habits, more companies will be either acquired or shut down.  However painful this is, we grew an economy we couldn't afford to keep going and now we have to face the consequences no matter what.  If Congress does pass a bailout, it doesn't mean that jobs will continue and things will be ok.  It just means that more investment banks and other lenders will probably not go under.  It will still be a mess for a long time to come.

Keep your nose to the grind stone when it comes to your buying habits and watch the business news to see if you need to change jobs before you are handed a pink slip.

Laura
22-NOV-08