{"id":39,"date":"2008-09-26T08:20:54","date_gmt":"2008-09-26T08:20:54","guid":{"rendered":"http:\/\/blog.beliefnet.com\/cityofbrass\/2008\/09\/fiscal-crisis-explained-by-sti.html"},"modified":"2008-09-26T08:20:54","modified_gmt":"2008-09-26T08:20:54","slug":"fiscal-crisis-explained-by-sti","status":"publish","type":"post","link":"https:\/\/www.beliefnet.com\/columnists\/cityofbrass\/2008\/09\/fiscal-crisis-explained-by-sti.html","title":{"rendered":"fiscal crisis explained by stick figures"},"content":{"rendered":"

This powerpoint of unknown authorship has been making the rounds of Wall Street brokers, so Barry Ritholz<\/a> embedded it online in Google Docs for all to share (click it to begin slide show):<\/p>\n

\"ace_mortgage.png\"<\/a><\/span> <\/p>\n

\n

One thing worth noting, and emphasized in the above, is that the entire crisis arose because of the assumption that house prices would always rise. That, in a nutshell, is why the entire conservative argument that the market is all-knowing and all-wise is fundamentally nonsensical. True laissez-faire economic policy will always result in abuse and short-term greed taking priority over long-term prudence. <\/p>\n

However tempting it is to place the blame on the system for the crisis, however, some measure of responsibility rests on the putative homeowners themselves, who sought mortgages beyond what they’d normally be able to afford. The reasoning went, instead of a regular mortgage for $X,000, I can get an adjustable rate mortgage for $2X,000. Then I can refinance the mortgage later and pay a lower rate! Of course as the housing bubble collapsed, the ARMs’ rates increased rather than decreased and these buyers were left with mortgages they could not even remotely afford as the interest payments ballooned. That’s why the value of the securities referred to in the powerpoint collapsed, because these purchasers were defaulting on their loans left and right. The point here is that the homebuyers let their fascination with large homes beyond their means tempt them into mortgages that under prudent fiscal planning would have been obviously unwise. The dream of a big house in suburbia – which also relies on the assumption of cheap gas for the long commute, but that’s another assumption and separate issue – proved unsustainable in every way.<\/p>\n

It’s also worth pointing out that the crisis as a whole is a direct
\nconsequence of the central role that interest plays in the economy. The
\nless reliant you are as a consumer on interest, the more you are
\ninsulated from the effects of the crisis. Abiding by Islamic principles
\nand avoiding interest is easier said than done, but it is still
\npossible – for example, there are schemes whereby the lender actually
\nbuys the home outright and then sells it back to the purchaser in a
\nrent-to-own kind of scenario. The truth of the matter is that it will take longer to own your own house this way, and you won’t get as big or fancy a (first) house as you’d like, either. But living frugally is a virtue in and of itself… at least until you outgrow the first home and trade up. <\/div>\n","protected":false},"excerpt":{"rendered":"

This powerpoint of unknown authorship has been making the rounds of Wall Street brokers, so Barry Ritholz embedded it online in Google Docs for all to share (click it to begin slide show): One thing worth noting, and emphasized in the above, is that the entire crisis arose because of the assumption that house prices…<\/p>\n","protected":false},"author":165,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[94,89,26],"class_list":["post-39","post","type-post","status-publish","format-standard","hentry","category-nation-building","tag-economics","tag-islamic-banking","tag-politics"],"yoast_head":"\nfiscal crisis explained by stick figures - City of Brass<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"fiscal crisis explained by stick figures - City of Brass\" \/>\n<meta property=\"og:description\" content=\"This powerpoint of unknown authorship has been making the rounds of Wall Street brokers, so Barry Ritholz embedded it online in Google Docs for all to share (click it to begin slide show): One thing worth noting, and emphasized in the above, is that the entire crisis arose because of the assumption that house prices…\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.beliefnet.com\/columnists\/cityofbrass\/2008\/09\/fiscal-crisis-explained-by-sti.html\" \/>\n<meta property=\"og:site_name\" content=\"City of Brass\" \/>\n<meta property=\"article:published_time\" content=\"2008-09-26T08:20:54+00:00\" \/>\n<meta property=\"og:image\" content=\"http:\/\/blog.beliefnet.com\/cityofbrass\/files\/import\/ace_mortgage.png\" \/>\n<meta name=\"author\" content=\"Aziz Poonawalla\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"fiscal crisis explained by stick figures - 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Aziz Poonawalla","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.beliefnet.com\/columnists\/cityofbrass\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/www.beliefnet.com\/columnists\/cityofbrass\/#\/schema\/person\/87dfd5533a0222456bb5ad6eaf152fbb","name":"Aziz Poonawalla","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.beliefnet.com\/columnists\/cityofbrass\/#\/schema\/person\/image\/","url":"https:\/\/www.beliefnet.com\/columnists\/cityofbrass\/wp-content\/wphb-cache\/gravatar\/a95\/a95f814e7f2984c887f3b03aed357433x96.jpg","contentUrl":"https:\/\/www.beliefnet.com\/columnists\/cityofbrass\/wp-content\/wphb-cache\/gravatar\/a95\/a95f814e7f2984c887f3b03aed357433x96.jpg","caption":"Aziz Poonawalla"},"description":"Aziz Poonawalla is a member of the Dawoodi Bohra Muslim community, and currently lives in Los Angeles with his wife and two children. City of Brass is his weblog, which was founded in 2002 under the name UNMEDIA. He is a co-founder of the annual Brass Crescent Awards. The name City of Brass refers to the Story of the City of Brass in the Thousand and One Nights, and the poem by Rudyard Kipling of the same name: Here was a people whom, after their works, thou shalt see wept over for their lost dominion; And in this palace is the last information respecting lords collected in the dust. -- Thousand and One Nights, Story of the City of Brass IN A land that the sand overlays, the ways to her gates are untrod, A multitude ended their days whose fates were made splendid by God, Till they grew drunk and were smitten with madness and went to their fall, And of these is a story written: but Allah Alone knoweth all! -- Rudyard Kipling, The City of Brass (1909)"}]}},"_links":{"self":[{"href":"https:\/\/www.beliefnet.com\/columnists\/cityofbrass\/wp-json\/wp\/v2\/posts\/39","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.beliefnet.com\/columnists\/cityofbrass\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.beliefnet.com\/columnists\/cityofbrass\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.beliefnet.com\/columnists\/cityofbrass\/wp-json\/wp\/v2\/users\/165"}],"replies":[{"embeddable":true,"href":"https:\/\/www.beliefnet.com\/columnists\/cityofbrass\/wp-json\/wp\/v2\/comments?post=39"}],"version-history":[{"count":0,"href":"https:\/\/www.beliefnet.com\/columnists\/cityofbrass\/wp-json\/wp\/v2\/posts\/39\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.beliefnet.com\/columnists\/cityofbrass\/wp-json\/wp\/v2\/media?parent=39"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.beliefnet.com\/columnists\/cityofbrass\/wp-json\/wp\/v2\/categories?post=39"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.beliefnet.com\/columnists\/cityofbrass\/wp-json\/wp\/v2\/tags?post=39"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}