THE CREDIT CRUNCH WHO IS TO BLAME

This is some what an odd question, but in recent weeks or months its been a subject of much debate with even the US Election weighing in on it for political gain. But the answer is so simple but most people do not want to acknowledge it. 

In the words of Barack Obama,  "everybody needs to take responsibility for their actions...... Government will do its part and you have to do yours" , a lot of people didn't get what he meant in its full context. Now I will try to explain. 

When we were kids there was a time when if we wanted something we would save up our pocket money to buy it, for others we had to work for it in one way or another e.g. wash dads car, do the dishes or mow the lawn for the kids in the US. We were taught that if you wanted something you had to work for it and if you didn't have the money you couldn't have it, ahhhhhh the good old days. 

I think this is the problem we didn't take those principles and embed them in our  way of life. The idea of easy money has always attracted people I don't know why. As to the question above who is to blame for this mess it is us. the people not the investment banks or Wall Street or Government. It is us the people. We have grown to love easy money and the easy life to the extent that we are willing to sacrifice sound principles to get the next best thing on the market.

I will give you an example, Say I want to buy a house, what should be the things that decide what size of house I can buy and which neighborhood the house situated. Should it be "my wanting" to live in a high class neighborhood or is it my wallet. This is the problem that hit the housing bubble in the US. People where buying houses that they couldn't afford so that they could resale them and make a profit while some just wanted to live in places that they couldn't afford. The credit crunch is a classic example of not living within our means. 

The US situation is very simple yet very complex in that there are things that need to be set right as a fundamental principle that every American needs to acknowledge. Americans need to live within their means to fix this mess. When you don't have the money to pay for something don't borrow to buy it unless it is a necessity and all other options have been exhausted and if you borrow don't refinance it unless you are getting a better deal but rule of thumb always pay up the 1st debt before taking another.

I know a lot of people would ask what do i mean. Well it is simple I believe that say for example you need to buy a house, first and for most look at what you have saved as down payment, then consider your fixed income which is your salary or wages, deduct all your fixed expenses which are not optional ( water, electricity, taxes etc) then consider the balance is it sufficient to meet mortgage payments. Remember that you must always leave some cash for emergencies.

I was listening to one guy in the US on CNN who was talking about how the credit crunch is affecting him badly, this is because he was paying his mortgage using his credit card, I mean that is totally insane. Short term debt is the most expensive and to use short term debt to pay for a long term project is asking for trouble ( Basic level Accounting 101). Then there is the remortgaging your home to buy a car, 2nd home, boat etc, the last thing you need to put your primary home up as collateral especially if your income is erratic. This is what was happening in the US. a vicious cycle of credit and these are the effects. So when you can no longer pay (from loss of employment etc) you are stuck and the bank forecloses on you and you lose your primary residence and what ever it is you had set out to buy.

For my Christian friends its like this on the day of Judgement you have to stand up and answer for yourself and your actions, you can not say someone forced you to do bad, or you couldn't’t resist. You can’t blame the bank for having the financial Instruments they do. They are in this to make money, which means we the people have to be prudent to ensure we are not caught up in the craze of being discontent with what we have and wanting the next best thing. We should be vigilant and not be like a moth being drawn to the light that will zap you.

Simple rule if we lived within our means and were content with what we have things will have moved well. If you need something but cant afford save for it, you may also try to negotiate with your employer for a raise. Do not go and borrow or use your credit card as a 1st option.