This whole adjustable rate mortgage mess that Wall Street has gotten itself into is really a lesson in basic economics.
I can't stop thinking about the people that caused the mess...those that took out these risky adjustable rate loans and the people who enabled them. I saw a story today that the latest census figures show 7.5 million Americans spend more than 50% of their salary on housing! Is it any wonder why the system crashed? 50% of your salary means there's no wiggle room. Who in their right mind would want to get into that?
But get into it they did and everyone who sold houses had fun. The housing market was over the top. So when we bought our house 5 years ago, and had a 30% down payment like responsible adults, and got a fixed rate mortgage from a local bank (what a concept), we probably got less house than we deserved because those who bought houses they couldn't afford on the adjustable rate mortgages, inflated the market!
You know if you can afford a house just by driving in the neighborhood. I might be able to afford a Lexus, if we cut back on everything else, for a few months, even a year or so, but then we would have no wiggle room if something went wrong. Also we wouldn't be able to save money, or fix our house, or do much more of anything else. So I drive a Subaru and Dodge.
Was it a case of getting caught up in the moment and wanting to keep up with their friends that led them to buy homes they couldn't afford? Surely the scent of available money didn't help any. But now I'm left with the thought that the same people who inflated the market and prevented me from affording more of a house 5 years ago, those are the same people I'm going to be bailing out now.
Corbett
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