Ahhh, the first full week of the New Year, 2009! Maybe you’ve thought it to yourself, or perhaps someone suggested it to you: This is your year! For many that means starting a new workout regimen or a resolution to save money, or simply cut down on expenses. These are all great resolutions and I hope that whatever your goals are, you can achieve them. But how bout another one? How bout adding a new year’s resolution which should be easier to achieve than anything else you’re setting out to do this year? Here it is…Do your due diligence! I’m not saying that condescendingly, and I’m certain that most of you do that already, but it has become evident towards the end of 2008, that we as citizens have been relying too much on people and organizations who supposedly “know best” without looking into matters for ourselves.
Emmet Pierce, a Union Tribune staff writer reminded us in today’s paper, that the real estate bubble that was created wasn’t just a result of sleazy mortgage brokers. After the dot-com bubble and the terrorist attacks of September 11th, 2001, U.S. policy makers made healing the economy a number one priority. “Home ownership became a key driver of the economy. Federal regulators did not intervene when lenders began using sub prime, adjustable-rate mortgages to temporarily reduce mortgage payments, allowing more people to qualify for loans. Thousands of borrowers became homeowners without regard to their creditworthiness or their ability to cope when adjustable mortgages reset at higher rates. Because such loans carry higher fees, lenders made more money.” And despite the risks involved with such lending practices, our government didn’t want to be the ones to put a stop to what appeared to be a winning situation for everyone.
Pierce goes on, “Attempts to pass federal legislation against predatory lending to protect borrowers from being placed in unnecessarily costly loans were opposed by the Bush administration and members of Congress. They feared that restrictions on lending would slow the rise of home ownership.” The greed that permeated this rise in home ownership was condoned by our government who should have been the one voice that knew better and put a stop to this. Instead, they pushed it to the limits and in “…mid 2002, President Bush urged lenders to add 5.5 million minority homeowners by the end of the decade.” Sure that sounds like a great pledge! But how many of them could actually afford to buy a home?!
So picture a man: A hard working carpenter who’d always wanted to buy a home where his children could grow up. His credit wasn’t good, he didn’t have any assets, and he made just enough money to make ends meet. He knew that buying a home was a tall task, and that it was probably a risky move. But his all-knowing government was assuring him that buying a home was the best investment he could ever make. Why else would they allow such loans that would enable even him to buy a home, if it wasn’t a good idea? It has to be a good decision, doesn’t it? Well I got $50 says that our fictitious carpenter got fictitiously foreclosed upon in this past year because he listened to everyone around him telling him it was a good idea to do something when he knew in his gut it probably wasn’t. So as baffling as it may seem, it is confirmed: The government does not always act in our best interest, even when it thinks it is. Not all things we can control, but when it comes to what we do with our own money, don’t take anyone’s word. Do your due diligence and know your options. If you think you can’t afford a home, you probably can’t. Don’t let someone else convince you that you can! Not even the President.
And what about the U.S. Securities and Exchange Commission? On their website they state their mission as follows: to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” Well certainly, since they are in charge of protecting investors, your money will be safe (Cue the spotlight on Bernie Madoff dressed in a tuxedo and top hat, tap dancing out from stage right to stage center). The $50 billion scheme that Bernie pulled off has proven once again that the people “in charge” don’t have it all as figured out as much as we’d like to believe.
The House Financial Services Committee is holding a hearing today to hear from securities law experts, the SEC’s inspector general, and one of Madoff’s alleged victims. According to Pennsylvania Democratic representative, Paul Kanjorski, the hearing will help guide Congressional leaders as they weigh a “substantial rewrite of the laws governing the U.S. financial markets.” So we’re not just talking about a loophole in the system that Madoff exploited, but a need to “substantially rewrite” the entire rule book! We’ll know more in coming weeks just how much the SEC can be blamed for letting Madoff’s scheme last as long as it did. But it seemed clear that the returns Madoff was producing for his clients were too good to be true. Were Madoff’s clients simply blinded by the wealth they were accumulating? Didn’t they feel that something wasn’t quite right? Could it be that they too were putting too much trust in a so-called “expert”?
We can’t control everything obviously. We can’t control the current economy, the falling home prices, the wars over seas, or tomorrow’s weather. But we can control the decisions we make for ourselves. Sometimes we may not know much about certain subjects, whether it be money, or buying a home. And sometimes the best thing to do is consult someone who does know more than you about that subject. But that doesn’t mean that whatever that person suggests you do is the right decision. No one knows what’s best for you except you. So I hope you adhere to your resolutions this year. Get to the gym! Save some money! And if 2009 is really your year, you’ll perform your own due diligence in all matters before letting someone else do it for you.
Written by Team Aguilar member Andrew Brentan