Credit Crunch

Everyone should know by now that I am an old fart. That qualifies me as one of those "I told you so" people with respect to the current credit crisis the world is enduring.

You can blame the Democrats, Republicans, unscrupulous mortgage lenders, Alan Greenspan, Ben Bernake, Bush (pick one or more), Bill Clinton, the investment bankers, or just the stupid people who signed all of the documents at closing without reading them, let alone doing the math on their own to determine that they could actually NOT afford their home for the term of the loan.

Well, I'm laying the bulk of the blame on spreadsheets. Spreadsheets?!! I know you think I've lost it, but people never used to borrow too much money to buy a home because you never really knew what you could afford. The rule of thumb was NEVER have a payment exceeding 25% of you monthly net pay or NEVER borrow more than twice your annual gross income. If you forgot, the bank reminded you as they gleefully loaned you the money for anywhere form 8% to as high as 18% in the early '80's. You must be thinking, who would buy a home at those rates? You're right. No one or very few did because people could not afford it...that is until Lotus 1-2-3 invented the spreadsheet in the early '90's. The housing market exploded!

Suddenly, lenders thought they could loan more money at lower rates and borrowers thought they could handle larger mortgages. Wrong and Wrong. Somewhere in the 20 to 30 years of a loan, sh.. happens and you have to have enough of a reserve fund to handle it. Hence, here we are today. Everyone was feeding like pigs in a trough. Of course, you all know where pigs end up.

Live within your means, save 10% of your income, keep six months of income in an emergency fund (not part of your savings),and be glad you live in the U.S.A., that is at least until we sell the naming rights to a foreign country that holds all of the U.S Treasury Bonds. Let's see, where will we put the sign? Ah, I got it...on the forehead of the Statue of Liberty!