<p>In a previous article titled: <a href="http://biznik.com/articles/a-call-for-the-return-of-integrity">A call for the return of integrity</a>, I drew a parallel between our present financial crisis and that of the great depression of the 1930s. I referred to the inaugural speech of President Roosevelt to postulate that both crises were, in part, due to a lack of integrity in our leaders, political and business alike. I also postulated that another important factor in both crises was the fear that permeated, and today permeates, society at large. This is referred to as "lack of consumer confidence" by experts. We just know it as "fear:" fear of losing one's job, fear of not having enough money to pay the mortgage, the rent or for food. Fear leads us to become self-centered and look out after ourselves first, second and third. In this follow-up, I postulate that each one of us bears some responsibility, to a greater or lesser extent, for the financial crisis. Each of us, or most of us, exercised some lack of integrity over the last few years.</p><p>Psychologists have shown that when we fail, we tend to attribute the cause of our failure to reasons outside of ourselves. Examples are numerous, but the need to be blameless is ingrained early in our childhood. Who has not said: "Not me!!!" in response to an accusation by a parent or a teacher? As we get older, we come up with other excuses to blame external factors for our failures, such as: "traffic was at a standstill"; "my alarm clock broke"; "the data was bad"; "the weather didn't cooperate"; and on, and on. Bottom line: "it's someone or something else's fault, not mine." Of course, the very opposite is also true. If you're like most people, when someone else fails to deliver, whether at work or in a personal setting, s/he gets blamed and no excuse short of death is accepted as valid.</p><p>So how do we, in general, bear some of the blame for the financial crisis? Well, let's take an honest look at our behavior since the early 2000s. Most, if not all, experts now agree that the collapsing value of the residential real estate market is the main cause of the present crisis. Of course, for a number of years, it seemed like the value of real estate was destined to rise forever. Desirous to participate in this cornucopia of seemingly easy profits, banks made it easy to obtain credit. Soon, what came to be known as sub-prime loans were offered to individuals who would not otherwise qualify to purchase a house. No doubt some people were probably taken in by duplicitous brokers. </p><p>However, let's face reality, if you acted with integrity you knew something was terribly wrong when you were told you could afford a $250,000 mortgage on a $25,000 a year salary! With integrity, you also knew something was not proper when you were asked to make up your salary, or weren't even asked to show proof of income or assets. Nevertheless, we signed onto adjustable rate, balloon, interest-only, and the most duplicitous of them all, no-documentation loans. Where once these types of loans represented a small percentage of the total mortgage industry, by 2005 they totaled more than 40% of the market. </p><p>Not surprisingly, a lot of people who signed onto these mortgages fell behind in their payments and started defaulting on their loans. As the rate of default accelerated, banks had to start writing off these loans. In the meantime, the price of property in general started to decrease as people who could not pay their mortgages, and banks who had repossessed properties, were anxious to sell. This started a cascading effect which caught the "investors", those individuals who purchased property at inflated prices because they would always be someone else to purchase it a higher price a few months later. Problem was buyers were now few and far in between, and the "investor" now had to sell at a loss, or give the property back to the bank, further accelerating the downward spiral of prices as more and more distressed properties became available on the market.</p><p>Then there are the rest of us. In an effort to keep up, if not surpass, Joe the Plumber (with apologies with Senator McCain) next door, we cashed in the alleged increased value of our property and...well, spent it. There is an argument to be made that the economy was better off when people were purchasing boats, RVs, multiple and fancier cars, second and third homes, expensive vacations to exotic locales, etc. While this is a valid argument given that our economy is one based on an ever increasing level of debt, it only holds true if the buyer is able to afford the payments. However, many did not once interest rates on their loan began to be adjusted higher.</p><p>I think it is fair to say that most of us had enough integrity to know we should have not cashed in our equity. After all, it is not a realized value until such time as you sell the property. And while I argued that our political and business leaders' lack of integrity is partly to blame for the crisis, let's also face the fact that few of us raised objections to executive salaries and bonuses when it seemed everyone was getting a piece of the pie. Let's all take a look at ourselves before we blame everyone else.</p><p>Perhaps this crisis will act as a wake-up call and remind us to act with integrity moving forward. The dictionary defines "integrity" as: "1. firm adherence to a code of especially moral or artistic values." (www.merriam-webster.com/dictionary/integrity) and links the word to "incorruptibility" and "honesty." I prefer my grandfather's definition which is: "Doing the right thing when no one is watching." </p><p>If history is any witness, I suspect that we will find the next financial bubble and ride it without integrity until it bursts. After all, as early as 1637 there was the tulip "bubble" when people were paying up to 20 times their annual salary for a tulip bulb. When the prices collapsed (i.e., someone figured it was just a tulip bulb!!!), many people were ruined.</p> 2008-11-10T22:05:12Z -15.4298 349 2187 true 7 8006 a-call-for-the-return-of-integrity-part-ii 5 2008-11-11T00:05:22Z 2008-11-11T00:05:22Z

Each one of us bears some responsibility, to a greater or lesser extent, for the current financial crisis. We all exercised some lack of integrity over the last few years, and it's a wake-up to us all moving forward.

0 2009-02-24T09:47:04Z