No, Erin Burnett, We Are Not "All Responsible" for this Mess

CNBC's Erin Burnett has spent most of the day interviewing the players in Congress and the financial markets, feeding them the gibberish that we are "all responsible" for this economic meltdown.

No, Erin, we are not.

The reason we are not is not that the new, "marginal homeowners" (to coin a term) are too unsophisticated to understand what obligations they were undertaking, although they are as a group certainly far less sophisticated that the mortgage lenders earning their commissions, who in turn are far less sophisticated than those who aggregated and then sold the mortgage-related assets (MRAs).

The reason we are not all responsible is the same reason teenagers are not responsible for becoming addicted to cigarettes. They were attacked by the tobacco industry with scenes of success and/or serenity, and it did not take many months of smoking before the addictive power of nicotine set in. Marlboro Country. You've Come a Long Way Baby. Take a Puff and It's Springtime.

Similarly, the American people have been literally bombarded for decades on the benefits of home ownership. Anyone reading this who has not had a friend or relative suggest that they are"wasting money" renting, not building equity? Brokers have been advising prospective buyers that stretching themselves now to meet monthly payments is good financial planning -- the interest is tax-deductible, the house will rise in value, and with a little increase in salary over time, the payments will seem less and less burdensome. And, this does not even include the unscrupulous who acted shamefully.

That is not only how a middle-class family was to build a nest-egg for retirement and a source of loans for college tuition, but they were living in it and thus experiencing practical value at the same time.

And, then, of course home ownership was the paradigm, the symbol, of the American dream. So, if one did not stretch to grab a home, one was not only stupid, but un-American.

Finally, one's friends had done precisely this 5 years ago. While you were wasting money renting, friends had seen value appreciation of 40, 50, 60%. While the renters struggled, the homeowners could take out second mortgages for pre-school, and some great vacations.

None of this is to suggest these people, any more than teenagers who start smoking, bear no responsibility. But, it is not as if they awakened one morning, with no prior urgings, no prior visions pounded into them, and decided on their own to stretch their finances to own a home.

By sheer, utter, and complete contrast, the "sellers" in all of this -- the mortgage companies, the banks, the mortgage-related asset concocters, the investment banks that bought and sold those instruments, the lobbyists who successfully removed oversight, the Republican Congress that overturned Glass-Steagall -- all of them awakened on various mornings and contemplated what schemes they could employ to enhance their revenues.

Moreover, unlike the marginal homeowner whose purchase decision was binary, either they bought a home or rented, the sellers were all making money, it was a continuum, just a question of how much. Thus, they did not face the same type of decision as the marginal homeowner.

The sellers, of course, were lobbying and supported by the Republican Congress, the Bush Administration and John McCain. The marginal homeowners did not have a lobby.

Greed is very different from need, even if need turns out to be a bit of stretch.

So no, Erin, we are not all equally responsible.

Comments

[Ajeb]

When did advertising become a crime? Yes, businesses want to make money and yes they are smarter than us. It's win win for them. You buy a house and pay it off...they win. You don't...they get your house...they win. You bought the sales pitch...you lose. It is wrong on so many levels...yes, but we all need to really think about our parts in this mess. Does Coke add life, or is it just sugar water with a price tag? Do blonds have more fun, or the hairdresser making money to keep you blond? Does smoking make you look cool, no but after you die you'll be cold. Are you so insecure that you are afraid you friends will judge you if you whites aren't white enough. How sexy is a car...really now. Most cars I see are dirty and emitting poisonous gases. Then there were weapons of Mass Destruction...... how many bought that line!

So yes, we bought the bill of goods. We are responsible. We're suckers and need to be mature enough to at least admit that. Until then there will be Nigerian emails, miracle diets, body sprays that make woman want us, etc....

Business are there to make money. Most of us work at companies to make money. The trick is make sure you aren't on of those suckers born every minute.

[LowGenius]

I'm sorry, but I have to disagree, at least in part.

I think it's rather silly to try to blame this mess on *any* one political party or entity. At the same time, as I've discussed in my own blog post (http://www.lowgenius.net/post/2008/09/29/Why-Voting-Against-The-Bailout-Is-A-Good-Thing.aspx) we aren't facing our collective dependence on living beyond our means.

You make an analogy about teenage smokers. I find a much more apt analogy to be that of a relapsing alcoholic. Blame the bartender, blame the liquor companies, blame the government, but in the end you still made a choice to walk in to the bar and buy a drink. This is not to say that I have no sympathy for the alcoholic, but I know from experience: until you take ownership of your own behavior, all of the blame-assignment in the world is not going to solve the root problem.

Certainly, predatory lending and deregulation share blame here, but we have to take personal responsibility, too. At $50K a year, you can't afford a $250K mortgage. If you ignore that reality, then that is a choice you have made.

When We The People can start honestly assessing our own poor choices while ALSO holding business, industry, and government responsible for their part, then we will be working toward a solution. Until we face our own complicity in this, it's just going to happen again, and again, and again.

[SethBLiNK]

The way the mortgage industry is set up, a certain small percentage of homeowners are always expected to default and that is built in. Margins are set up to absorb that.

In bad times, more people default and the system is set up to absorb that too.

But there is a tipping point. And it's not when ALL homeowners default are even half of them. The overall percentage of homeowners who have to default for the whole house of cards to come tumbling down is actually quite small, and it's made smaller by the "innovative" products that the financial service industry comes up with to get more people in on the game.

Right now, about 0.25% of all US households are in some stage of foreclosure. That's one quarter of one percent, one in 400. As an economic indicator, the number is huge, unprecidented, but as a percentage it's small, and considering the repercussions, it tells us what a delicate balance our economy is.

So, to blame "all of us" including the 399 out of 400 households that are not in foreclosure, is silly. The great majority of people either carry a mortgage they can afford or manage to make the payment on one they can barely afford, or rent because they know they can't afford one. So, in the words of Paul Newman in Hud, "don't go shooten' all the dogs just cause one of 'ems got fleas."

[Levittown]

We are not responsible for the credit reports that are falsified to boost a buyers ability to pay. We are not responsible for the agents who pay for laundered reports.
We are not responsible for false appraisals that make a buy a " steal " . We are responsible for the people we elect who put the oversight and accountability forces
on their toes.

[Ironquill]

In an age when we turn to Colbert for political news and Fox News for comedy, CNBC has turned into a sitcom. Erin returns home from Williams to take over the family newspaper business. Cramer, the screaming Drug Store Propreitor. Gasparino, he's mobbed up with House Republicans. Kudlow, the guy who ten years ago predicted DOW 5000 and whacko Dennis, DOW 10000, they ride a tandem bike around the town square. Liesman, he's writing a book on the second great Depression(what's a smart guy like him doing in this jerkwater town? )The original cast, they are the reliable friends who always stop by for coffee. Maria, she was hot in high school and still is. If you want to learn something, watch Fast Money, these are some real smart folks, not actors, and not shilling for a failed economic policy.

[bbauer]

-but, in the end, math is math right? No matter how many times someone told you that you could afford something, if, mathematically speaking, you can't, then you can't. Are we to blame the marketer's? Well, we are the marketer's. We are they.

On the other hand, if we pay our taxes with some expectation that someone will teach us math and those taxes go instead to, say for instance, policing the world based on our notion of right and wrong, which seems to have a low rate of return in comparison to having a populous that understands math, then okay, you have a point.

[WorkingClass]

Poor uneducated workers are responsible for the decisions and actions of the rich and powerful. Absurd. Yet if somebody says it on Tee Vee ...........................................

[katok]

Beautifully said Paul. This was a trap that began in 1965. Now they want to execute the victims.

[demfriend]

Paul, it is an insult to all of us who once were anywhere in the "middle class" and had jobs and houses, you know, "normal lives". The knowledge that we have a level of impotence that cannot be even believed after so many years of trusting that those in charge of the economy and tose who had businesses intertwined with those in the administration were all doing their jobs for us. We now know we have been manipulated, lied to and our own government has betrayed us at multiple levels. We had a budget surplus 8 years ago and we are fast forwarding into a full blown depression. All of these things didn't happen over night and they happened during times when action should have been taken so that we would not fall further into this nightmare. Now the emergency bells are ringing and we are told this must be deat with and all of this control and money going into one man's mind and pockets. The administration we now have should never be given any more power and control at any level after where we are now. The trust that we will not be struck by terrorists on the top of this and our country being lost completely is not there and has been replaced by terror at the hands of the very people we trusted.

[francoise]

Paul,

I agree. We're not all responsible.

We all benefitted from the huge increase of "wealth" around the world, but we're not responsible.

However there are people who are. There are people who invented the system, who knew the loans were risky. They knew the houses were too huge and too far, too expensive to buy and to run for the buyers.

That is the very reason why they turned the risky loans into financial packages and sold them : to get rid of the sh*t.

So please, someone tell me. When there are good results, there isn't any problem the find the good responsible guys in charge for them to grab the bonuses.

How is it that now that the results are bad, nobody is responsible ?

[schatsie]

what? I do not understand what you mean,, but this might be a generational thing...After WW2, the economy grew at 3.5% and the richest paid 90% in taxes and the median income doubled (after taking inflation into account) and then the workers also received good pensions..

Since beloved Ronnie, our boomer salaries at the median have not increased at all, productivity has been cooking along at 2.5% and the increase has gone to the people at the top..
However at that time, the real estate market grew immensely.... so most peoples pensions are now in their houses....and that history is what made this latest goof up in the price of houses so tempting to both the purchasers and the BANKS...

[ProgressiveVoice]

schatsie, I think you are right about it being a generational thing but what generation? I was taught that demand drives supply. Apparently, voodoo economics become good economics when accompanied with personal popularity.

There it is in a nutshell - the economic meltdown is the fault of the Democrats because they don't like Bush! Where can I pick up my Nobel Prize . . .

[Furby]

When I was growing up, we were taught some budget basics by our parents. Limit your housing budget to 25% of gross income, never carry debt on liabilities, in fact avoid debt altogther (ex: don't take out a loan to buy a car or take a trip or get a plasma tv), buy a relatively new used car to avoid paying the steep depreciation on the vehicle when you drive it off the lot, buy a four cylinder vehicle, much cheaper on gas. Don't buy a new (fill in the blank) if the old one still works or can be repaired. Our mantra was that if we owed nothing except a mortgage, we're doing better than most. If we were to lay the blame, it would have to be on whoever is supposed to be teaching fiscal responsibility to children. Wouldn't that be a parent's job?

[AZBunny]

"If we were to lay the blame, it would have to be on whoever is supposed to be teaching fiscal responsibility to children. Wouldn't that be a parent's job?"

You can lead a horse to water but you CAN"T make them drink. Ever heard that one?? Know what it means? I thought long and hard how to teach my son about money, avoiding debt and being responsible. I drilled and drilled and drilled the lessons into him. By contrast my parents did NOT teach me one thing at all about money.

4 years ago, he comes to me when his car has been repo'd so going over his finances I find he is behind on every single debt he owes, has no savings, is paying HUGE overdraft fees every month because he is NOT balancing his checkbook, has no budget and has no idea that his income is not enough to pay his monthly expenses which included caring and feeding for two cats!!!!

So we start over with the finance lessons, bail his car out, but him on budget. I get a job to pay off his HUGE credit card debt.

[pattio66]

I'm sorry you've had that experience, but I have to ask you this...why are you enabling your son's poor spending habits? He must be an adult if he has a place of his own, a car, and credit cards. It's nice of you to get a job to pay HIS debt, and extremely nice for you to cough up the funds to get his wheels back, but what kind of lesson does that teach him? That Mom and Dad will always bail him out? What are you, Congress?

[AZBunny]

continued:
Now my husband and I have ZERO credit card debt, have a 14 year old Ford Ranger and until it was totaled a 10 year old Ford Contour, our house payment is only 18% of our budget AND we do NOT eat out hardly ever, probably 5 times a year. I shop at the 99 cent store first before hitting the grocery store. So I hardly think the blame lies with us for our's son's fiscal irresponsiblility.

He really just thought that EVERY American is entitled to a lifestyle of Starbucks every money, going out to dinner a couple times a week, hitting the bars with his pals, driving a Honda Accord with an awesome stereo------ the money part???? Well if the banks said he could afford to live that then why NOT.

It's getting to the the "stuck in debt with absolutely no more wiggle room" point that a lot of American's require before they'll start dealing in financial reality.

[KillTheMessenger]

"The reason we are not all responsible is the same reason teenagers are not responsible for becoming addicted to cigarettes. "

That's total nonsense. When I grew up I had a choice, just like every other teenager. I could start smoking or I could stay healthy. I ended up a non-smoker. By MY OWN CHOICE. They could have added opium to those smokes and I would have never become addicted in my life. Why? Because I did not put a single cigarette between my lips, ever.

That I have never taken cocaine or heroine is not because I didn't know where to get it. I knew perfectly well under which bridge the dealers were to be found in my town (and so did the police). I had to cross it once a day to get home.

It's the same with home loans. One does not become "addicted" to a bad deal just because someone offers one. I became a home owner when I could afford to. My parents became home owners at age 58. That's when they could afford to buy a home with my help.

Of course one has to teach kids and adults to take responsibility for their own actions. The smarter ones get it and don't mess up. As for the others... life is a bitch.

[francoise]

KTM,

I can't really disagree with you, because I'm used to living more materially "reasonably" in a European way.

Nevertheless, I think that some people are not as lucky as you are. In the lottery of birth, some are offered good looks, and some are offered good brains.

For the good looks I don't know, but you were offered many neurons and had the opportunity of getting an excellent education.

I guess that, coupled with much courage to work hard, helped you to be more successful than Joe-six-packs.

[Paul Abrams - Huffpost Blogger]

As I said in the article, teenagers are not totally without responsibility, it is just an unfair advantage for the tobacco-advertisers (of which, by the way, Karl Rove was one!), and their weed. Teenagers think they are indestructible, and the hormones are surging, and the tobacco-companies have the money and the advantage.

Same thing here--are the marginal homeowners TOTALLY without responsibility? No. But, are they equally responsible? Not even close.

[SurrealPumpkin]

The list also includes those who made responsible decisions, lived with in their incomes and then had their incomes pulled out from under them. Or those who were meeting their obligations until medical catastrophe met them.

Let's stop pointing fingers and playing the blame game. It never helps.

1) What happened?
2) What needs immediate fixing?
3) How do we fix it?
3) How do we decrease the chance of it happening again?

[Heavenhelpusall]

She must have meant "we" here at CNBC who have been repeating the crap coming out of the White House that the fundamentals of the economy are strong. She meant "we" in the media who held on to Greenspan's every word like it was the godspel truth. She meant to say "we", it's just that we ain't us.

[alt365]

I saw her make these comments and was outraged. I am NOT at fault. I make my house payment. I make my car payment. I pay off my credit card balances. As to her blaming people who bought homes they could not afford... HELLO... their bank told them they could.