personal responsibility

Whose fault is the credit mess?  Is it the fault of home buyers who borrowed more than they could afford, using risky mortgage products?  Is it the fault of lenders, who created ever more risky mortgage products, and pushed them on borrowers, in an effort to raise the bottom line?  Is it the fault of buyers of mortgage-backed securities, who bought investment products based on these mortgages, but were left without options when these mortgages went bad?

The truth is, all of these groups of people had the same objectives – earning more money for themselves or their companies, and lowering their total costs.  Don’t we all have the same objectives?  Everyone – from my six year old daughter on up – wants to have more money.  So whose fault is it?  Who can we blame?

I lay the fault squarely at the feet of… everyone.

If you’re a home buyer, you have a responsibility to buy within your means.  It’s your job to look seriously at your income and your other debts and responsibilities, and determine how much mortgage you can afford.  It is not the lender’s job to do this.  The lender is a salesman, and he wants to sell you as much mortgage as he can.  You will have to carefully examine all the possible mortgage choices laid before you and pick the one that fits, even if you have to get a smaller house, or delay the home purchase for a while. 

If you’re a lender, you have a responsibility to lend within your means.  If you make a risky loan, don’t be surprised when it goes bad, and do be prepared to swallow the loss.  Don’t lend your reserves, and don’t depend on the borrower to know what he can afford.  The borrower is looking to get the most house he can, and will be easily enticed to bite off more than he can chew.  Make the loans you know you can handle, and leave the riskier loans to someone else, even if it means delaying profit for a while.

If you’re a buyer of mortgage-backed securities, you’re kind of without options.  You assumed the risk when you bought the security, and when it goes bad, there isn’t much legal recourse.  Don’t depend on the government to bail you out.  Limit exposure to risky investments.  Although there is an upside, there is also a huge downside to these investments.  As with the borrowers and the lenders, it’s your job to take care of your own balance sheet, the responsibility rests with no one else.

In whatever realm you are responsible for, be it your personal finances, your company’s bottom line, or your little piece of a much larger corporate giant, be responsible.  Do the right thing.  Pursue the bottom line, but don’t cross the line into impropriety.

This article originally appeared in the November 12, 2008, edition of the Greenhorn Valley View.

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