Why So Many Foreclosures? Politics? Unwise Spending? Lack of Financial Education? Yes!

By admin ~ November 18th, 2011 @ 10:55 am

We have all heard the more commonly given reasons for the ongoing weaknesses in the real estate market: greedy lenders tricked ignorant home buyers into adjustable rate mortgages, and greedy home buyers overstated their incomes and tricked lenders into giving them loans amounts that were too high. While there is a lot of truth in these arguments, they do not explain the big picture of what has happened in the economy to cause such a foreclosure crisis.

One of the most important reasons so many Americans are in financially difficult situations is the lack of economic knowledge and leadership by the politicians. This leads to massive overspending by Washington, which spends more money than it brings in through taxation. So, to make up a portion of the shortfall, the bureaucrats resort to borrowing money from China and other countries, but this still is not enough. At this point, Washington asks the Federal Reserve to print money, which inflates the currency and devalues the dollar. This causes prices to rise for everything else in the economy, like food and transportation. Homeowners whose income is stagnant or falling can not keep up with 10% inflation rates or more, and when their mortgage payment goes up 15% due to an adjustable rate, financial disaster is one paycheck away.

An ill-conceived foreign policy that is beyond wasteful also contributes to this problem. The nation borrows $2 billion a day from the communists China, politicians give $12 billion in foreign aid to a military dictatorship in Pakistan, then wage a $1 trillion war in Iraq “promoting democracy.” Again, Washington can not afford to do all of that just with the money that actually exists, so the Fed again prints the money to fund the shortfall. It should not be any wonder that oil-producing nations want more dollars due to the devaluation, which drives up oil prices through inflation, which were already being driven up through the instability caused by our military adventurism.

Finally, another problem relating to the foreclosure crisis is the public school system. For over one hundred years, there has been a systematic dumbing down of Americans through government-run public schools, which teach students how to respond to things like bells and orders to be quiet, but do not teach them how to think critically or analyze situations in a broader context. Therefore, it is little surprise that many people read less than one book per year, but refinance their homes with extremely complex mortgage instruments every year. They not only do not understand the paperwork, they do not even attempt to read it or have it explained to them by an attorney that is often mandatory for them to hire in order to close the loan.

And this lack of basic financial education contributes significantly to the problem of homeowners’ failure to understand what they have gotten themselves into. Thus, people do not know how to balance their own checkbooks or realize the importance of planning for the future beyond the next 10 minutes of their lives. If they could analyze their finances in a little more depth, they might set up an emergency fund to get them through a financial hardship or downturn in the market. But people who can not save even an extra 2% of their income towards an emergency fund are not going to be able to realize that even more of their money is being stolen through inflation and the contradictions of borrowing money from communists to give it to dictators and then going to war to spread democracy.

Furthermore, this lack of an ability to think critically is one reason why many of them will dutifully go and vote for the presidential candidate this year who will promise them the most “free” stuff, not understanding that they will be the ones to pay for it, through higher taxes, more of the economy sold off to foreigners, or a further devalued dollar. Everyone likes free programs and free handouts, but they simply do not exist in the world of politics and economics. Someone has to pay for all of that, and bureaucrats enjoy making the people who enjoy the benefits least the ones who pay for it most, as long as they can get a piece of the action.

The foreclosure crisis is not an isolated event caused by the failures of the market and greedy buyers and lenders taking advantage of each other. Although this certainly happened, there are much broader forces at work. Unfortunately, though, few of the homeowners facing foreclosure will be unable to realize the context of their hardship, and even fewer will be able to do anything about it. For homeowners who are in danger of losing their homes, the most important action they can take is to find some way to stop foreclosure, and worry about the macroeconomic issues after they are financially sound once again. Hopefully, though, this experience will teach many of them that the solutions to the problems that caused the foreclosures in the first place do not lie with those same institutions.

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