Posted on Apr 05, 2011
Isn't it ironic that in an age when access to information , news and opinion is easier than it has ever been ,most people still seem to have a very cursory knowledge of some of the events that impact on us the greatest? The headlines "Global Financial Crisis" have been used so often that the concept is now accepted as being real. But how real is the crisis? How much do most people understand of it, and , importantly - What does it really mean for us individually?
Internationally we think we know the causes. According to the popular press a multitude of loans were made on overvalued properties in the USA to people who couldn't really afford the payments. These dodgy loans were then bundled up into "financial instruments" with fancy names and sold all over the world to institutions who either ignored, didn't care or were too dumb to know what they really were. A bundle of money was made by the bright boys who made the dodgy loans and the even brighter ones who did the bundling and flicked them on. And so we had cheap and easy money looking for homes - so to speak. The private equity business boomed on the back of cheap and easy access to money. Our own over-valued residential market was enabled by both easy money and a lack of memory as too what happens every time a market goes too high too quickly.
So banks were loaning out money as fast as it could be asked for. There were 100% housing loans. There were loans for 2nd and 3rd rental properties, and loans to developers for grandiose projects that were ill-conceived even in the best of times. And often loans to mates with little hope of repayment.
And then it all came crashing down. Not without notice of course. Anyone who read beyond the headlines or bothered to delve deeper than the six o'clock news would have heard the warning being sounded about "sub-prime" ( which is of course an Americanism for "dumb" ) loans. And naturally even a cursory examination of history would have been a reminder as to the chaser after every boom.
So what happens now? Banks turn to governments to bail them out. Even inefficient car manufacturers expect the taxpayer to bail them out. And we bemoan the fact that banks have flip-flopped from handing out almost-free and easy money , to actually expecting borrower equity and an ability to repay! Overall there is an expectation that governments will lead the charge in righting the wrongs and "get the economy back on track".
What is wrong with this picture? Why should we be expecting governments to remedy a situation that was caused by individual greed and poor management? Ultimately it is in the interest of governments to increase their income via the tax take by promoting a buoyant economy. But at the same time we should not be losing the opportunity to take note and perhaps even modify our behaviour in response to mistakes made. It is far too easy to blame banks for making dodgy loans, agents for over-valuing properties and poor management for allowing finance companies to go broke.
Isn't it time that we started to take individual and personal responsibility ? There were banks that made 100% loans. At the same time there were individuals who applied for and accepted 100% loans. Finance companies offered high interest rates - for higher risk. There were plenty of people prepared to take that risk in the chase for a higher return on their "investments".
Now that the game has changed, and we are no longer caught in the hype of a constantly rising market, we have the perfect opportunity to step back, stop blaming others, and individually learn the lesson. Yes, banks were dumb and greedy. Yes, finance companies were dumb and greedy. But so were individuals dumb and greedy. Just because the money was available to increase our home mortgage to go on a trip around the world does not mean it had to be done.
If as individuals we made bad decisions back then, doesn't mean that we have to compound that with bad decisions now. But unfortunately that seems to be the path we are collectively taking. Just as we were caught up in the spiral of chasing the best return, however risky it may have been, now far too many are caught in a quicksand of inertia.
Isn't it about time we took the responsibility to understand our individual business (and personal) circumstances, research the market and the consequences , and then act accordingly? The tools are readily available to do the research and gain the understanding. Then surely the person best placed to understand your business is you. We got into a mess by passing the responsibility elsewhere. Getting out of it requires individuals to recognise that so called "professional advisors" most often have an agenda that is undisclosed, and that advisors should be used to simply advise. Then we take on board their advice, accept, modify or discard it, and make the call.
The "global financial crisis" will only impact negatively if we allow it to. If we view the glass as half full then surely it is. Alternatively , by acknowledging that many opportunities now exist, than surely this is a great time to be seeking them out and taking advantage of them. How much easier is it to use the bank's money at today's interest rates (even if there are some hurdles to jump) than the 28% plus we were paying to borrow in the 1980s?
Personally we believe that while "global financial crisis" may make good headlines, the reality is that there are incredible local opportunities. But the best of these opportunities will not last, as the negative view will not last as long as some are predicting. A vibrant global economy is good for almost everyone. By taking the opportunity to seize back both individual responsibility for our actions, and the initiative in taking advantage of the opportunities , we will benefit individually and collectively.