This is the time that I’m supposed to rounding up what has been going on around the blog world. But I am now watching a CNN program : Special Investigation Unit, and I’m intrigued. There is a round table on the mortgage sub prime crisis and the mess we are in right now. The show essentially explains the events that led to the present situation. As I am watching this, a few things spring to mind.

1. Unintended Consequences – One of the things about this show that really intrigued me was this phrase called “reverse red lining” – which is a term used to describe mortgage lending to people like minorities and people with low credit. In 2002, President Bush announced his intention to help more than five million minorities to own their homes.

Great intention, but unfortunately, this ended up with disastrous consequences as we are witnessing right now. But this has led me to challenge every good intention that the three political candidates are proposing now. For example, is “universal health care” really great? Great intentions certainly. But just like the mortgage situation, is “universal health care” really desirable? I don’t know, but I’m looking to see the press ask tough questions about how the democrat ideas will be funded? Are there any “unintended consequences” we are not considering?

Beware of common assumptions – One of the common assumption on why we got into this whole mess is because of this common assumption – that housing prices will always go up. Well, unfortunately, because most people rely on leverage to buy a house, it does not take a large decline before everyone gets into trouble.

Another assumption common in the financial world – invest for the long run, stocks always go up. This may be true, but many people do not have the long run. For example, a 55 year old who is planning to retire in 8 years does not have time on his side. He or she needs a certain degree of protection against portfolio volatility.

Most people will never be financially savvy – CNN interviewed a lady who had her home foreclosed. Inevitably, the reporter asked if she knew that she was taking out an adjustable rate mortgage. Her answer was obviously NO! I’m pretty sure most people who took out interest only or adjustable mortgages will not know what they have gotten into. I can only shudder to think the majority of individual investors don’t know what to do and get scammed.

Alright, back to some tributes here. I participated some carnivals which you should check out :

Carnival of Personal Finance 150th Edition at Lazy Man and Money

Carnival of Personal Finance 149th Edition at The Happy Rock

carnival of Everything Finance #17

carnival of money stories

Carnival of Debt Management #49

Alright – good night and have a great week ahead.

This entry was posted on Monday, May 5th, 2008 at 04:33 and is filed under Economic Commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.