California Senator Kamala Harris.
(photo credit: REUTERS/PATRICK T. FALLON)
One of the constant themes of my articles is a distrust of politicians. I have written numerous times how they always seem to know what’s best for each and every individual, and have created a system of dependency. It’s as if there is no need for individual responsibility because ultimately if things go wrong some politician will come around and promise to take care of the problem.
Well I didn’t know whether I should laugh or cry when I saw that surging Democratic presidential hopeful Sen. Kamala Harris announced a housing plan to increase home ownership among African-Americans. She wants to change the way lenders look at credit scores, and cites the fact that the homeownership rate among white Americans is 73.2%, whereas the rate among black Americans is just 41.1% (US Census Bureau), is proof of injustice.
Explaining her plan, Jacob Passey of Marketwatch.com writes, “She proposed giving $100 billion in down-payment and closing-cost assistance – up to $25,000 per household – to help black families purchase homes in parts of the country that were traditionally “red-lined,” meaning that people of color were historically denied mortgages to purchases homes in those neighborhoods.”
Humm? Doesn’t that recipe of giving lots and lots of help to people to buy homes, when they don’t have the money to pay back the debt, sound familiar?
Gary Mishuris wrote an article last year for Forbes where he went through certain times in history when investors lost huge amounts of money. Regarding the housing crash of 2008 he wrote, “Investors correctly observed that house prices had never declined substantially at the national level. Therefore it was perceived that what had never happened could never happen in the future. And since housing prices couldn’t decline, housing-related securities could be levered using various financial engineering techniques in a way that amplified both the returns and the losses, should the latter materialize.
“Everyone played along – the investment banks, the rating agencies, the banks, the government and the investors. After all – it’s land, and how could land decline in price since they don’t make it anymore? Warning signs, such as the rapid rise of speculation by the public which started buying and flipping second and third houses were ignored. Credit standards were relaxed so that anyone could get a mortgage. The originators of these mortgages had even seemingly gone out of their way to sell mortgages that the customers had little realistic hope of ever repaying them based on their income.
“Why should the banks have cared? They weren’t going to keep the mortgage and be on the hook for any losses, they were going to pass it along to others through various derivative securities backed by these mortgages and spread them far and wide throughout the investment world. The big underlying assumption – that house prices could not decline at the national level – was the mantra on which the whole house of cards was built.”
Well we all know how well that turned out!
Mistakes are good
It’s okay, especially if you are young, to make money mistakes. Just like success in learning to ride a bicycle is paved with lots of scrapes and bruises, so, too, sometimes we learn good money and investing habits the hard way.
I challenge you all to spend a few minutes thinking about financial mistakes you made in the past. Did you commit the same mistake over and over or did you learn from it and make it a teachable moment?
When it comes to investing the most common mistake that I come across, is that clients tend to be too concerned about the present. They read an article or hear a news report and have the urge to panic, and sell investments. If we have learned anything from the past it’s that yes, markets can drop and drop significantly. But the investors that are patient and have a long-term horizon and ride the wave, are the ones who profit handsomely over the long-term.
By understanding what went wrong in the past you can create a much better financial situation in the future.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.Aaron Katsman is the author of
Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing. www.gpsinvestor.com; firstname.lastname@example.org.
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