Dec 07 2008
Our Current Retail Crisis – Who is Really to Blame?
Have you ever noticed just how important the holiday retail market is to our economy? Ever since “Black Friday”, all we’ve heard is how much the recession has affected the retail market - - there are even some statistics that predict our nation could be in an actual depression by Christmas. So, let’s back up and take a good look at what they’re really saying and follow the trail back to how and why this is happening.
First, when did this snowball start rolling? While I don’t pretend to know all the technicalities or be as educated as some in the powers that be, I do know how it happened in our little corner of the world:
• In order to allow more people to be approved for home loans, credit criteria were lowered to substandard requirements by the federal government and major housing authorities.
• Finance companies/mortgage brokers were feeling a squeeze on making their quotas (which were raised when substandard requirements were implemented) and started using some questionable practices, in conjunction with the lowered credit standards, in order to approve more people, thus achieving more bonuses for themselves. Unfortunately, the majority of the people who were being approved for these loans did not honestly have sufficient means of repaying them and subsequently started defaulting after about 12-24 months later.
• Once the homeowners who were approved under these predatory lending practices began defaulting, largely in part due to the adjustable interest rates and how large their house note was actually becoming, the snowball began to pick up speed in its downhill descent, thus creating potential bankruptcy situations for mortgage banks and mortgage insurance companies.
• These companies that had guaranteed the mortgages were suddenly losing more money than they had coming in, so they went to the federal government with their request for bail-out assistance. Ironically, the entities where they were requesting assistance were the same people who made the decision to lower the credit standards in the first place, and who sadly will never be held accountable for their part in this national downfall.
• In the midst of the first company requesting bail-out assistance, other banks and mortgage companies jumped on the bandwagon making sure their names were also included in the “free” money.
• Unfortunately, this is also the same time period when the first mass market lay-offs were taking place – you know, these were the lay offs that the bail-outs were originally intended to prevent. So much for good intentions. Our unemployment rate is steadily increasing almost daily.
• Then the auto industry began feeling the crunch because honestly, if you have the choice between keeping your utilities on, paying your rent/mortgage, or paying your car note, which one do you think would rank as lowest on that list? We can survive and continue to earn a living without a car - - it’s a little bit harder to do that without a means to take a bath or go to bed. So then we add the whole automotive industry to the equation, affecting every aspect from the dealership salesperson to the automotive manufacturing executive and everyone in between. And just for the record, every automobile industry employee who will lose their job is a guaranteed one less new automobile that will be purchased because that person no longer has a job to pay the note, therefore, really pumping up the fire in the vicious inferno cycle.
• Of course, let’s keep it real. Let’s put the “mass market lay-off’ into layman’s terms that we can all understand. A more accurate descriptive phrase for mass market lay-off (which sounds so much more polite) would be “Hi Honey, Daddy (or Mommy) lost our job today.”
• Once parents began losing their jobs, children were even more affected. As if being caught in the defunct housing crisis (families losing their homes/neighbors/schools/churches/lifestyle) wasn’t bad enough, now these same children are seeing their parents slip into their own personal state of depression while trying to keep groceries on the table, lights and water turned on, and still be able to pay rent/mortgage at the same time while suddenly ‘downsizing’ to either one or no paycheck in the home.
And what are the newspapers reporting? That Black Friday didn’t go as well as was expected. In light of the recent developments, not only did Black Friday not go as well as expected, but I’m sure that parents will also be spending much less on Christmas this year altogether. Once again, when parents lose their jobs (or live under a constant daily fear of losing their jobs), pocketbooks are clutched much more tightly to ensure there will be enough money for necessities, not the wasteful spending of which our nation as a whole has become accustomed. The most unfortunate plight of this whole downward spiral is that the governing authorities and people representing those authorities who made the poor decisions a few years ago to lower the credit criteria in the first place will never be held accountable for what their poor judgment started in our nation, communities, and inevitably, our homes.
