Our government, and our nation as a whole, has a problem—one that may not even be our fault. It is a problem evident in even the earliest stages of youth. Shortsightedness is this problem—the inability to look past the short-term. It is not hard to believe that this notion is carried forth to ensure personal benefit; this is our psychological motivation for self-interest at work. You are probably wondering what is wrong with personal success. There is absolutely nothing wrong with personal success, but the nation's problem is far beyond that.
At this point, we have all seen the lavish vacation and conference locations for the insurance companies, specifically the Big Three's comedic approach to enticing Washington for a share of funds, godly bonuses to executives and ridiculous compensation packages all the same. These are America's business leaders.Where are they ""leading"" their companies? Where are they leading this economy?
These types of problems have been highlighted in the lectures and lessons of both Accounting 100: Introduction to Accounting and Economics 302: Intermediate Macroeconomics. Most of the frauds we have discussed in these classes revolve around one common idea: earnings management. Earnings management is the timing of revenues, expenses, gains and losses to smooth out bumps in net income. There is a multitude of ways to practice earnings management. The basic idea usually includes meeting earnings/profit projections so that the financial records match what the company had predicted and that investors and creditors will remain confident.
My economics course made an effort to emphasize the importance of a corruption-free government in setting up a proper economy for the free markets. A huge barrier to the effectiveness of government industrial policy was the politics involved in the capital markets. My greatest sadness regarding this mess lies with the fact that the preventative tools for economic crises are laid out so plainly in our educational institutions, but people chose to ignore them and satisfy their personal desires.
This shortsighted greed may be most evident in the roots of the crisis: the housing market collapse. I observed a graph that showed median home prices over roughly the last 100 years. Each figure was adjusted for inflation, so most of the prices were somewhere (+/- $20,000 usually) near the $100,000 mark. All of a sudden, from about 2000 to a peak in 2006, there was an unprecedented climb of the median home price from a reasonable $119,600 price to a ballooned price of $221,900. This boom coincided with many sketchy subprime lending practices, allowing many people never previously credit-approved to finance a house, giving them their first opportunity to purchase a home.
And from here the snowball occurred. The financial institutions were buying these ""debt-securities,"" which turned out to be toxic assets. The lending companies were not only approving loans to a whole new breed of people, but at unprecedented price levels—causing, initially, a great room for profit. All of this was done with the intention of making quick and easy money. If it's too good to be true, then it probably is. So here we are today with millions struggling to pay off their ridiculously financed homes, and the institutions who made it all possible are crumbling in shame. Who would have thought, after such a thriving housing economy?
What's more is that House Financial Services Committee Chair Barney Frank is in attempts to deal with the foreclosures, with as much as $50 billion going to relieve these errors made by not only businessmen, but the homeowners who may have been too greedy for their own good, financing an item they couldn't afford. But why not, with the killer rates the government was giving us in those days—an unheard of rate of close to 1 percent for a while. Such a rate might be the root of this problem.
Instead of ridding the industries in our national economy of their deceptive and greed-filled policies and operations, the government has simply reached out to the hardworking people of struggling America, asking them to keep these captains of industry afoot and well. More money doesn't necessarily fix the problems that led to this disaster. We cannot remedy our economic crisis if we continue to throw taxpayer money at the companies and people who have forced such a situation in the first place. Their problems need to be reconciled and operations re-envisioned.
Cole Wenzel is a sophomore majoring in business. We welcome your feedback. Please send responses to opinion@dailycardinal.com.
