American households got blasted by the Financial Crisis Inquiry Commission because they borrowed too much and saved too little. American households had created an environment of taking on too much risk by over-extending themselves. They did this by placing record debt on themselves and by overstating their income on mortgage applications.
"When the housing and mortgage markets cratered, the lack of transparency, the extraordinary debt loads, the short-term loans, and the risky assets all came home to roost. What resulted was panic," the Financial Crisis Inquiry Commission concluded. "We had reaped what we had sown."
High-risk loans were taking place with people all over the country; everyone had a stake in ensuring that the steady flow of mortgages would continue; and when they stopped, the markets simply collapsed. American households thought that they would just take on no interest loans. Then, after a few years, when their houses increased in value, they would be able to borrow from their home or refinance to an even lower interest rate. Financial institutions can be blamed some because they did indeed act in a manner that can be termed reckless.
As the Financial Crisis Inquiry Commission says, "Compensation systems--designed in an environment of cheap money, intense competition, and light regulation--too often rewarded the quick deal, the short-term gain--without proper consideration of long-term consequences."
We have been taught since the earliest years in school that the American Dream is homeownership, that the path to that is difficult, yet rewarding because it shows a status of what we have achieved. We have believed that the more money we have, the more we can spend it. In some small way, buying things and having things is not only the American way, but the American right.
Home owners are at fault for the money they borrowed to buy homes they couldn't afford, they are at fault for their spending and believing for every second of the day that the value of their house would just keep going up. The homeowner never believed for a moment that the party would end, never thought for a moment that when the money dried up and the bills came due what they would do. Everything that seemed like the American dream was wrong. Cheap money only made people spend even more money they didn't have, and the high prices of homes were just a mad disease that needed to be cured through a total and complete collapse.
The American household has been put at the center of the recession through television, articles and even our own personal experiences. We have seen homes foreclosed on, we have met the people who have lost everything. We have seen what the recession with the housing collapse has done to the country as a whole through high unemployment, state budget shortfalls and lost hope in our government. The American household pursuit of home ownership ended in disaster, and while rebuilding a better tomorrow for some might take a little longer, it remains to be seen if the lessons we learned from the recession will remain much longer.
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