By JP Krahel
We’re worried here at Rider about the housing lottery, and ironically enough, the rest of the country is, too. The current housing market is in a terrible slump. People are saying that this may be the worst financial crisis to hit the country in over a decade. Other countries are starting to cast shifty glances our way and put money into non-U.S. markets. To set things right, President Bush recently decided to mail you a check.
Of course, it’s about a thousand times more complicated than that, so let’s step back a bit. The subprime crisis is seemingly growing by the day. What is subprime, you ask? Essentially, greedy people working in lending institutions gave mortgages with adjustable interest rates to people with poor credit scores (hence the phrase, “subprime”) who are now defaulting on those mortgages in droves, leaving the institutions in dire straits. What’s worse, today’s market is extremely sophisticated, which means that individual investors ended up bearing a good chunk of the fallout from this whole mess.
The rest of the economy seems to be following mortgage lenders down the tubes; everyone from realtors to car dealers are feeling the sting. The Federal Reserve has lowered interest rates dramatically in an effort to increase consumer spending, it seems as though every congressman and senator has proposed some idea of how to fix the issue, and President Bush has just approved legislation creating a stimulus package centered around handing out money, in the form of a tax rebate, to lower- and middle-class American families and individuals.
The Associated Press reports that most individual taxpayers will be getting between $300 and $600, and couples will get between $600 and $1,200, with even more available to families with children.
Don’t uncork the champagne just yet, though. This break is going to be going to the actual filer of the return, not to that filer’s dependents. A dependent is a person supported, financially, by another person (e.g., I am supported by my parents, so they can claim me as a dependent on their tax return). So, are you a dependent? If you don’t know the answer, the answer is yes. If you’re unsure, call your parents and ask them. It’s likely that most of us are, which means that while we’ll be doing our part to increase the size of our parents’ rebates, this package won’t exactly be buttering your personal crumpet.
Cheeky metaphors aside, there’s a much deeper lesson to be learned here. The reason our economy is in shambles is because of greed, pure and simple. Borrowers wanted a big house and were willing to overlook the long-term risks of taking on a mortgage with an adjustable interest rate. Lenders were willing to overlook the severe risk of lending to people unlikely to pay back, in order to make sales figures.
What can we learn from this? The age-old adage, “If it sounds too good to be true, it probably is,” is very apt here. When it comes to making any type of long-term investment, be it a house, a car, a student loan, or what have you, don’t be greedy, and don’t be stupid.
Do your research first, make sure you’re getting a deal that’s appropriate to your income, your credit history, and any other relevant circumstances, and don’t overlook the fine print. The country will recover from this crisis, sooner or later; it’s up to you and me to make sure it doesn’t happen again.