Site for Free Markets and Free People

Wednesday, July 06, 2011

Your Next Door Neighbors in Debt

Say you have new neighbors. Typical American family - 2 kids, a dog, both parents work. You happen to notice that the wife drives a Merc and the husband, a Porsche. No big deal - they like cars. As you get to know them you also notice that their children go to the most expensive pre-school in the state. Again, no big deal - good for them - you're glad they're being well-educated. Several times a year the couple ask you to watch their house, as they are ski and golf enthusiasts - often vacationing in the Alps or golfing at Pebble Beach. Again, great that your neighbors know how to enjoy life. Their dog happens to be a rare breed only specially bred by Swiss breeders - again you're happy they have a quality dog.

One day you find out that your neighbors work as volunteers for a homeless shelter, and so their income is minimal. They tell you, however that they have never had a problem getting large bank loans and that they have accumulated over $1 million dollars in debt with minimal income to speak of.

Then one day the bank refuses them additional loans. The couple go from bank to bank but are continually refused. Eventually they seek your advice. You, as a financial planner, look at the couples' expenses and give them a simple remedy - sell the cars, eliminate the luxury vacations, sell the dog, send the kids to public schools, and lastly, they should seek higher paying jobs. The couple say that this is impossible and decide that the best solution is to continue to look for a bank or a loan shark that will help them continue with their lifestyle.

This is obviously a ridiculous situation which most of us cannot envision happening. As ridiculous as this sounds, a similar situation is occurring today. Unfortunately for us, the couples' name is Obama.