Amen, Jason Kelly, Amen!

I had a review copy of Jason Kelly’s newest book, Financially Stupid People Are Everywhere: Don’t Be One Of Them*, waiting for me when I returned home from my family vacation. I’m not finished with the book yet so I’m not ready to post a review. However, I do want to share with you a quote from the book that resonated with me because it sounds like something I and other AFM readers said when we were discussing the housing bubble. Here’s the quote:

In all the talk of the economic meltdown, the media blamed the Federal Reserve for putting too much money on the street, blamed mortgage brokers for lending it out at easy terms, blamed banks for going along with the loans that came in from the brokers, blamed financiers for inventing ways to repackage and resell those loans, blamed homebuilders for building more houses than the market coud support, blamed housing prices for falling instead of rising forever, and blamed corporations for laying people off when the economy stalled.

Nobody blamed the borrowers.

Maybe “nobody blamed the borrowers” is an exaggeration, but he does have a point. Government (Republicans and Democrats alike) for sure placed the blame on everyone and everything EXCEPT the borrowers, who were largely “victims” of the whole mess. The reason for this is political. It’s not good politics to call voters stupid—even though it seems most Americans did indeed consider most of those who got into trouble as stupid or at least ignorant.

The point of Kelly’s book is that companies have ALWAYS sought ways to separate people from their money. People would be wise to understand this and consider it in ANY business transaction. In other words…BUYER BEWARE! If all Americans understood this and it was backed up by NO BAILOUTS, it would drastically change the way people thought about their finances.

In other words, the real key to solving our problems is through EDUCATION! Unfortunately, it requires that people actually be proactive in seeking this education. Regardless, our system should be based on allowing those who take the initiative to succeed and those who don’t, to pay the price for their mistakes. It shouldn’t be up to government to try to cover all the bases by over regulating society.


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7 thoughts on “Amen, Jason Kelly, Amen!”

  1. It’s not that I disagree with the statement, but I always remember something Elizabeth Warren pointed out about our parents’ finances as opposed to ours–they never had access to the loans/credit cards that our generation has. Banks said no. Credit card issuers said no. Mortgage companies said no. And our parents learned to live with that. While borrowers certainly share the blame, I do think it is fair to put a greater burden on the financial institutions, which, by definition, are supposed to be more sophisticated than their clients.

  2. I agree, Grace. But…had there been no borrowers signing on the dotted line, there would have been no crisis. Would you have signed up for a subprime mortgage? I doubt it because you would have looked at the numbers and said, “No thanks.”

    Also, do not forget the governments involvement in wanting “affordable housing.” The banks’ feet were held to the fire to get lower income people into homes. How else was it going to happen without creative financing (I’m not saying creative financing was right)?

    I urge you to read Thomas Sowell’s “The Housing Boom and Bust.”

  3. I had a well known marketing professor at a very top top tier business school say that we had to remember that the vast majority of consumers are in fact stupid.

    As an “evil” mortgage broker, I can’t tell you how many times I warned folks that they were buying too much house even though they “qualified” per the bank’s underwriting guidelines. If we would have said no you cant have the loan, they would have then yelled discrimination because they met the bank guidelines.

    With that said, many of these companies did do some shady stuff and deserve a lot of the legislation/regulation that is coming down from Barney Fife, I mean Frank and his ilk.

    Companies should have taken the high road when dealing with consumers even if the money was for easy taking.

  4. No. I never did any loan that I knew was a foreclosure waiting to happen or I couldn’t defend/justify. Only closed 2 subprime loans in 8 years in the business and not a single Option ARM.

    My point being is that consumers like to play stupid when things aren’t going their way. If you have ever been to a mortgage closing, you know there is no way someone doesn’t know they are in an ARM vs a Fixed unless they are blind and can’t read.

    Heck most subprime loans were actually foreclosure bailouts meaning they were refinances and helped keep people out of foreclosure who honestly should have been foreclosed on years ago. When the market finally crashed, they no longer could refi themselves out of trouble like in the past. At first they would jumping for joy that you saved them and then when the music stopped, the banks were all of a sudden predatory.

    We were in a tricky position because mortgage brokers DO NOT UNDERWRITE NOR DEVELOP MORTGAGE PRODUCTS. However, if we knowingly refused to give a loan to a qualified consumer based on the bank guidelines we could be accused of discrimination. Technically, it isn’t the broker’s job to underwrite or make a lending decision. However, many of us did act as fiduciaries and say no, but most people would just go down the street to a competitor until they found someone who woudl tell them what they wanted to hear.

    I left a lot of money on the table during the housing boom doing the right thing. Unfortunately, being one of the good still in business (most of the scumbags left to easier pickings like loan modifications, debt consolidation, and selling acai berries or whatever the newest get rich quick fad is… gold salesmen maybe) I have to operate under the new misguided regulations coming out of Washington which are goign to make it even harder for consumers (and more expensive).

    However, I get to sleep good at night so I guess it works out in the end…

  5. Russ wrote:

    “… consumers like to play stupid when things aren’t going their way.”

    You got that right! Happens all the time. When things go their way they think they are geniuses…lol.

  6. Jason Kelly just sent me a review copy of his book for me to review on my blog. I look forward to reading his new book as well. Jason’s “The Neatest Little Guide to Investing” was one of the first beginner’s investing books I ever read when I got started investing my own money and doing my own research all by myself a few yrs ago.

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