Fed Reserve Chairman, Ben Bernanke, made a statement today in Richmond that struck me the wrong way. He said:
“We do not have the luxury of waiting for markets to stabilize before we think about the future,”
I think that he’s right about putting more strict guidelines on mortgage lenders to help weed out the reckless brokers out there that will do anything, including lying to underwriters, to get someone into a home they can’t afford. But, I still hold my position that we need to take more personal responsibility for the housing and credit problem that we’re now facing. The fact that Bernanke thinks that they should step in EVERY time the economic market goes through a bad time just frustrates me to no end. Back in 2004 and 2005, everyone was a capitalist. They were flipping properties and leveraging debt to make a fortune. In the 1990’s, everyone was a capitalist when they poured all of their investment money into the technology stock boom.
But, as soon as the financial market goes south to correct itself from inflated stock and housing prices, we go crazy and cry out for the government to help. “The government must step in! We’ll never rebound from this mess!” It’s just silly, and we all become socialists when the financial market goes through bad times. We want the government to take control and bail us out. And do not misunderstand me on this one. I’m not pushing some political agenda. I’m pointing out that if you like the opportunity of success that our free market offers, then you MUST face the consequences.
The lesson with the housing downturn and the stock downturn is that every reward comes with risk. Every rate of return has an element of risk. If there was NO risk, there would be a nominal reward, because nothing comes for free in this country. The fact that Wall Street financial institutions are being bailed out by the government is absurd. They bet on buying up a ton of mortgage-backed securities thinking that the housing boom would never end, and they lost the bet. I am sure there are many of you out there that pay your mortgage on time every month, and you’re angry that people are going to get $20,000 taken off their mortgage bill. You should be angry, because it’s not fair. I know that not EVERY person who filed for foreclosure was the result of buying a house they can’t afford, but the majority of it is because of that. If you go and start a business with $50,000 of your own money, and you lose it all because the business fails, do you expect to be paid back by the government for taking that risk? If you put a chunk of cash into a stock that went south, do you expect to be paid back for your losses? Of course not. You willingly took a risk in order to make big gains.
Read this statement twice. You cannot have success without the opportunity to fail.
If we continue to embrace the economy when it succeeds and always bail it out when it fails, then you’ll start to see an economy that offers little reward for your investments.
What we can learn from the ineptitude of the government:
- Don’t be afraid of failure. I’ve learned the most about money when I’ve failed with it. You can always bounce back.
- Be an adult and take responsiblity for your actions. Don’t always seek to be bailed out when you fail with money. Learn from it and move on.
- Know when to leave a good thing. If it seems too good to be true, it probably is too good to be true. If you’re making a killing in the housing market at a rapid pace, you need to know when to get out. Greed sets in quickly, and that’s why companies like Bear Stearns went under.
- Don’t time the market. Invest for the long-term. If you invest with a 10 year mindset, you don’t care about the small recessions, because the years of success far exceed the bad years.
Please don’t miss the point about this post. I am not trying to conjure up a political debate about economic policy. Think about the statement that I asked you to read twice. You cannot seek investment opportunities without the possibility of failure.