Who is to blame for the recession?

Bush is…or so we are led to believe on a daily basis.
Frankly, the notion that George W. Bush is responsible for the current recession is like the old assumption that Herbert Hoover was responsible for the Great Depression. It is asinine.
Bush, like Hoover, presided over the impetus of an economic mess. So, it only stands to reason that he gets the blame, right? It is not unlike the coach whose team loses a game. The team is largely responsible for the loss, but the coach gets the blame.
Well, both the Great Depression and our current Great Recession were the result of greed, avarice and excess.
The Great Depression happened because banks overextended themselves on investments, many of them rather risky. When the stock market fell on Black Friday, October 29, 1929 investments went belly up, too, and banks were quickly losing thousands to millions of dollars on their investments.
A nationwide collapse of the banking system occurred because small, local banks were unable to get money from the larger regional or national financial institutions, which went broke from their investment failures and the failure of those they invested in to pay the money back that was owed. The lending system collapsed, causing massive business failures.
The Great Recession happened much the same way. The financial industry was selling a lot of loan products and overextending credit. The collapse was triggered by sub-prime lenders and borrowers in the mortgage lending industry. Many of the loan products tailored to low-income people were encouraged, mandated and/or backed by the federal government through federal loan programs called Fannie Mae and Freddie Mac.
In the late 1990s laws were passed in Congress requiring the lending industry to make home loans more accessible to lower income consumers; the idea being that even low income Americans deserved the right and the chance to own a home.
The only practicable way for financial companies to recover inevitable losses incurred from lending money to those with limited income and/or poor credit was to tailor their products designed to get people into their homes at minimal cost and eventually recover their losses at a later date.
What emerged were interest-only home loans in which the borrower paid only the interest on the loan, never touching the principal. This permitted lenders to offer loans at significantly reduced interest rates, too. As such, monthly payments were at levels that lower income consumers could afford.
But there was a caveat to these loan products: They had expiration dates attached to them. At a certain point in time, the interest only loan would revert to a traditional principal plus interest loan product, so that the lender could start recovering its losses.
What this meant for the consumer was a monthly mortgage payment suddenly and significantly higher than what he had been used to paying. In no time, borrowers were falling behind on their payments, because they couldn’t afford what the mortgage now cost them. They were spending more money than they were taking in, leaving them in the red.
Widespread defaults and foreclosures resulted, causing a collapse of the real estate market. Home values plummeted, eventually leaving people with mortgages higher than their homes were actually worth.
Home construction ground to a halt, leaving millions in the construction industry suddenly unemployed. All other occupations related to the housing industry were similarly impacted.
The worst part about this catalyst is that the federal government had initially backed the loan products that ended up getting a lot of consumers into deep trouble.
Yes, thanks to the foresight of our esteemed leaders who just wanted to make home buying more fair for those less fortunate, an economic crisis erupted.
But I can’t place the blame squarely on the shoulders of government. Consumers share in the responsibility, too.
People failed to read the fine print when they purchased their low-cost mortgage products. Consequently, they reaped the whirlwind of their own ignorance.
The American economy has always had a consuming culture, because of the free market, free enterprise capitalist system that has made the United States the economic envy of the world. The trouble is not too much consumption, but rather not enough money to buy with.
Since credit cards were introduced a half-century ago, the American public has been largely spending somebody else’s money and not their own. They have been spending money that they personally do not have. This so-called plastic money isn’t money at all. Rather, it is literally a promise to pay back somebody else who hands over the cash for the good or service you want to buy. It is placing the burden to pay for goods and services on somebody else with our implied or explicit agreement to pay a third party creditor back at a later date.
Credit, of course, is nothing new. Nineteenth Century farmers opened up lines of credit at general stores and mercantiles in order to get the goods they needed to harvest their crops and sell them to market. Once the money was in their hands, though, the farmers paid off what they owed to the store. Some had to extend their credit because of a bad crop year, but most of people didn’t just keep buying things on credit. Most often it was cash on the barrel head or nothing.
Modern society, however, doesn’t seem to understand, appreciate or respect what credit is. Consequently, it has been used recklessly and abused over the years. A large number of consumers even began to use credit cards to pay balances on other credit cards. Instead of using real money to pay down a balance, people would just put that balance on another credit card, then another, and another. Before they knew what was happening, they had become overextended on credit with debt into the tens of thousands.
American consumers today are able to buy more things on impulse simply because they can with a credit card and line of credit. Consuming today has little to do with need and most to do with want.
So, you like that 60-inch flat panel television with the home theater package? No problem. Just put it on the card.
Heck, people have gotten so casual and laissez-faire about using credit cards that they will even pay for a fast food meal—no more than a few dollars—with plastic instead of cash. But by the time one gets the credit card statement showing that charge, the food is long gone, and one is stuck still paying for the meal months or years later.
That is the root cause of the current recession: Careless and reckless use of credit. Because we didn’t handle our credit wisely or responsibly, we ended up owing incredibly huge debts that just could not be paid back; especially when our interest-only loans reverted to interest plus principal products too high for our current incomes to cover. We had to default, got foreclosed on, and filed bankruptcy. Creditors lost vast amounts of money by carelessly and loosely giving credit to just about anyone willing to put their plastic cards in their wallets.
Ergo, our current economic predicament.
It is true that George W. Bush presided over the start of the Great Recession, and it’s true that he did little to help the situation. But that doesn’t mean he gets the blame for it, either. Rather, if you are looking for someone to blame for double-digit unemployment, a tanked housing market, and broken financial industry, I suggest standing in front of a mirror and looking into it. The face looking back at you shares much of the blame.