Random Thoughts - CNN’s Special examination on the Mortgage Mess

May 04th, 2008 | Category: Credit Cards

This is the date that I’m supposed to rounding up what has been going on around the blog world. But I am now watching a CNN program : Special study Unit, and I’m intrigued. There is a round table on the mortgage sub prime crisis and the mess we are in right now. The show essentially explains the events that led to the present situation. As I am watching that, a few things spring to mind.

1. Unintended Consequences - One of the things about that show that really intrigued me was that phrase called “reverse red lining” - which is a term used to describe mortgage lending to humans like minorities and folks with low credit. In 2002, President Bush announced his intention to help more than five million minorities to own their homes.

Great intention, but unfortunately, that ended up with disastrous consequences as we are witnessing right now. But that has led me to challenge every good intention that the three political candidates are proposing now. For example, is “universal health care” really great? Great intentions certainly. But just like the mortgage situation, is “universal health care” really desirable? I don’t know, but I’m looking to see the press ask firm questions about how the democrat ideas will be funded? Are there any “unintended consequences” we are not considering?

Beware of common assumptions - One of the common assumption on why we got into that whole mess is considering of that common assumption - that housing prices

will always go up. Well, unfortunately, considering most humans rely on leverage to buy a house, it does not take a large decline before everyone gets into trouble.

Another assumption common in the financial world - invest for the lengthy run, stocks always go up. that may be true, but many public do not have the expanded run. For example, a 55 year old who is planning to retire in 8 years does not have moment on his side. He or she needs a convinced degree of protection against portfolio volatility.

Most society will never be financially savvy - CNN interviewed a lady who had her home foreclosed. Inevitably, the reporter asked whether she knew that she was taking out an adjustable rate mortgage. Her reply was obviously NO! I’m pretty certain most public who took out interest only or adjustable mortgages will not know what they have gotten into. I can only shudder to think the majority of individual investors don’t know what to do and get scammed.

Alright, back to some tributes here. I participated some carnivals which you should check out :

Carnival of Personal Finance 150th Edition at Lazy Man and Money

Carnival of Personal Finance 149th Edition at The Happy Rock

carnival of Everything Finance #17

carnival of money stories

Carnival of Debt Management #49

Alright - good night and have a great week ahead.

Orginal post by Mr Credit Card

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