THE END OF A WASTEFUL ERA It’s about time we’ve ended the era of careless spending, precarious debt and risky trading. Three major structures: the credit market, the banking market and the political machine have poisoned the heart and soul of the American economy. The heart, which pumped the life-blood into our economy, was tainted through several facets:
1. The government ran budget deficits that, from the beginning, were bound to fail; yet they continued to borrow against the American people as well as foreign markets. The pure ignorance towards our enormous trade deficits, forced us to be dependent on foreign financing, habits that were ultimately too grand to self-sustain. Our government promised to be our safety-net, but yet, they are in worse shape than the majority of the American people and in the end, we will be the ones bailing them out.
2. The 1990’s brought about a new-wave belief of Manifest Destiny, to provide every American with a home and pressured Fannie and Freddie to purblindly home ownership. the falsified incentives and deteriorated discipline in the mortgage markets and continued to snowball in the the 21st Century.
3. Banks grew into “to big to fail” superpowers, gluttonously handing out loans and a myriad of mortgages (of course Fannie and Freddie should have been regulating this, but failed miserably) and we all felt the pain of this monstrosity as Lehman Brothers crumbled and thousands of Americans crumbled with them.
4. Finally Wall Street, like little children on Christmas, greedily took generous compensation schemes and thoughtlessly packaged up these loans into anonymous, complex bundles of risky assets and distributed them globally.
The soul, the true spirit of America, on that we’ve built up for 233 years was overcome by wanted more, more, MORE! Our great, great, great grandparents are turning in their graves as we speak. They understood the concept of saving for a rainy day, to endure through the bad years. What has our generation done? We’ve taken out loans, max’ed out our credit cards and over leveraged ourselves during one of the hottest markets in history. What other generation of American’s have overspent and under-saved as much as our current one? In the past, mortgage default rates were approximately 1% to 2% during the good years and 6% to 7% during the tough years. Within the last decade consumer spending reached up to 70% of our GDP (this was artificially appreciated due to speculative rising home values and people were able to take out lines of equity based on this speculation). An expansion this exponential would not be able to sustain itself forever and eventually the debt of the American people overtook their modest incomes and their home values could no longer support their spending habits. As the low interest-rate on their loans expired, people could no longer opt to refinance because the debt on their homes exceeded its value. Defaults on subprime fixed-rate loans rose to 10%, subprime adjustable mortgages jumped to 25% and option adjustable-rate loans peaked at 60%. Is there an end in sight? Yes, yes there is. THE BEGINNING OF PROSPERITY OF EPIC PROPORTIONS. We’ve made our mistakes. Greed is a powerful desire that even the most disciplined and charitable of souls can, at times, not resist. So the real question is, where do we go from here? How are we going to dig ourselves our of this mess? The answer is simple. Let’s keep moving forward with our core American principals, the ideas that have made our country one of the strongest nations in the world: innovation and entrepreneurship. Although we should not recede back into our careless ways, the credit markets must remain open with a healthy does of practicality and responsibility. History will show that businesses have been able to survive even during the toughest market, the Great Depression. They survived by innovation and going back to their core principals: creating a quality product, instilling good will into their employees, building a loyal consumer base, and if need bee, top-down cuts. In the 1970’s we saw a plethora of new technologies that birthed new companies, spurred job creation and built an aggregation of wealth and prosperity. Today we see the same opportunities arising. With possibilities in biotechnology, nanotechnology, stem-cell research, software services, social networking, wireless broadband mobility, environmental technology and so many other opportunities that my little mind can’t even begin to explain. We are on the cusp of technologies that will lift our economy out of this recession and our recovery will be of epic proportions. We have the tools, we have the knowledge, our last ingredient is action.