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The Blame Game: Financial Responsibility and the Great Recession
- 1. The Blame GameWhile aware of the risks, many wagered on rising real estate valuations during the early 2000s, blaming others when the market collapsed Has the recession affected how we manage our finances? In the 2000’s people espoused financial responsibility… …but didn’t always take steps to ensure living within one’s means Many gambled on increasing real estate prices, using money multipliers to maximize expected returns Individuals understood mortgage fundamentals, but when the mortgage crisis occurred blamed the banking industry, with some stopping mortgage payments Five years after the end of Great Recession retirement savings remain underfunded, with many individuals having no retirement accounts at all First-time home buyers purchasing home with a no-money-down loan (2005) 4x43%Increase in median home price (1997-2007) $126M Growth in ARM mortgages as share of new mortgages from 1990 to 2004 (In 2004, ARMs accounted for half of all mortgages by value) King, Doug. Great Recession Study. May 2015. custom research. New York, Fresh Meadows. Parsons, James. "JP's Real Estate Charts." JParsons.net. N.p., n.d. Web. 16 June 2015. Knox, Noelle. "USATODAY.com - 43% of First-time Home Buyers Put No Money down. USA Today, 18 Jan. 2006. Web. 16 June 2015. Klein, Matthew C. "Alphaville: Floating-rate Debt Is Great When Interest Rates Go down." Financial Times, 20 Oct. 2014. Web. 16 June 2015 "Mortgage Originations and Delinquency and Foreclosure Rates: 1990 to 2010." The 2012 Statistical Abstract. United States Census Bureau, n.d. Web. 16 June 2015. Woolley, Suzanne. "The Retirement Savings Gap Between Haves and Have-Nots Is Getting Bigger." Bloomberg.com. Bloomberg, 12 Mar. 2015. Web. 16 June 2015. 45% 55% Yes No 5xMultiple of current salary a 55 year old needs to be on track for retirement ($260M for the median HH) $2.5MMedian retirement account balance in 2015 HAVE RETIREMENT ACCOUNT ASSETS IN 2015 77% 72% 6% People are responsible to live within their means People should regularly save money for the future Life is short, you should spend $ and enjoy today 45% 39% 29% Ensure spending is equal or less to what is earned Review how monies are spent Set aside money for emergencies FINANCIAL ACTIVITIES DONE REGULARLY% AGREE COMPLETELY Monthly payments can increase/ decrease 75% 53% 80% 67% Can get a larger mortgage vs. a fixed-rate mortgage Initial payments are higher vs. a “fixed” 84% 15% 4.5% 4.5% 4.6% 5.4% 6.9% 9.4% 9.3% 1.2% 1.0% 1.2% 2.0% 3.3% 4.3% 4.6% 2004 2005 2006 2007 2008 2009 2010 Delinquent Loans Foreclosures DESCRIPTION OF ARM MORTGAGES IS… ACCURATE INACCURATE Easier to calculate monthly payments vs. “fixed” GROWTH IN MORTGAGE DELINQUENCIES & FORECLOSURESRESPONSIBLE FOR MORTGAGE COLLAPSE Banks Individuals