Wall Street meets the Beanie Babies

Even without a degree in economics I didn't buy into the Beanie Baby craze of a few years back. Before that it was the Internet Bubble, the Cabbage Patch Doll Craze and way before that it was the Tulip Craze (google it). Now my tax dollars are needed to bail out some dodgy paper on Wall Street. How did this happen? Why did this happen?

I'm not qualified to explain all the technicalities though I am begining to understand it. Just like Beanie Babies, people thought (or at least acted like they thought) home prices would go up forever. Beanie Baby prices went up only as long as someone else was willing to pay more for a stupid teddy bear with a tag on its ear. When it got to the point that people weren't willing to pay more for stupid bears then prices quit rising.

Let's say that a Beanie Babies investor borrowed money to buy a house full of these multicolored sundry animals hoping to resell them for a profit. When no one wanted them anymore, or wanted them but thought they were too expensive, the MARKET for beanie babies crashed. Our investor owed money so she tried to sell them for what she paid, but she had paid more than anyone else was willing to pay. Now she was stuck with unwanted inventory of stuffed animals and a bunch of debt. BEANIE BABY BANKRUPTCY!

Back to houses; peoples incomes weren't increasing at the rate of home prices. So prices got higher and higher until people realized they couldn't afford to buy them. Many people who had already bought houses realized they couldn't make the payments especially if they had adjustable interest rates. Whose fault was it? Anyone who borrowed more than they could reasonably afford AND any stupid lender backed by Wall Street that would lend them the money.

The government did its part to contribute to the mess by requiring that loans be given to unqualified borrowers while they (the government) promised to pay back the money when unqualified borrowers couldn't make their payments. Wake up folks, the government gets its money, not to mention its "just powers from the consent of the governed (Declaration of Independence)." That means our tax dollars will bail out the deadbeats, many of whom don't pay any taxes.

Our individual choices all add up to the bigger picture. We all need to practice self retraint and intellectual honesty with ourselves when going into debt for a house, a car, beanie babies, or tulips. Some mistakes will be make if we live this way but they won't add up to trillions of dollars in debt and a potential economic depression.