30 Years of Debt Down the Drain

Let me refer you, once again, to Karl Denninger's The Market Ticker and his article on the current debt crisis created with the help of greedy consumers and financial institutions. We all want to at least appear wealthy, but money outside of your normal income comes at a price...unless, of course, you're talking about the U.S. dollar's future, which will soon have no value at all. Fact is, those times we once called "prosperity" in the 1980s and 1990s...and the outrageous behavior of the past decade show up in The Foolishness of CNBC's Economic Analysis. Being the fiscal conservative I am, I appreciate the article.

However, in another one of Denninger's rants, McStupid: Mortgage Bankers Association, I disagree with his argument that a 20 percent downpayment on a house is the only way to assure housing does not get into a bubble. That's ultra fiscal conservative and can do harm to the overall economy.

Granted, some people should not be in homes and, yes, many borrowers should not have been homeowners in this crisis, but some people just don't have 20 percent downpayments lying around.

In some instances, fiscally responsible people can invest in a home, make payments and increase their equity by putting 5 percent down. The key is that they show character, capacity and capability to repay their loan. Usually, that's found in credit reports with high scores.

The other fault Denninger has, as does Suze Orman, is that the 15-year loan might have a lower interest rate, pay off the mortgage faster and increase equity 50 percent quicker, but it also does not leave much room for emergencies (i.e. car breakdowns, broken water heaters, broken air conditioners, etc).

Here's a fact--ONE EXTRA MORTGAGE PAYMENT per YEAR, APPLIED TO PRINCIPAL = an 18-YEAR PAYOFF on a 30-YEAR MORTGAGE. That way, you can pay it off when you have the resources or use those funds in case of an emergency. Why are you going to strap yourself into payments that, indeed, you may not be able to afford.

It may not seem this way right now, but homeownership does and will have future advantages. Owning as an investment, for the right reasons, will always be more advantageous than throwing away money each month. And, the right reasons include living in house and making it a home. Not treating a house like it's a stock certificate to be flipped or traded.

Everyone is to blame in this credit crisis, including the borrowers and consumers who, like the wizards of Wall Street, have a human propensity for greed. It's in our nature to want what we can't have and when we can have it, it comes at a cost. And, as Denninger's article and chart point out, we are now deleveraging and paying the price.