Mrs. Winkler Was Right

Many years ago in a Milwaukee schoolroom my first grade teacher Mrs. Winkler worked hard to instill in her young pupils the principles of personal responsibility and proper behavior. She also made sure we girls and boys left her care with a solid grounding in the fundamentals of basic math—Two plus Two equals Four.

Mrs. Winkler’s principles served us well as we moved along in life, but in recent years they began to look outdated. It appeared the fundamentals were changing, and perhaps Two plus Two no longer equaled Four.

It started out innocently enough. Relaxed lending standards, low interest rates and booming real estate were an unbeatable combination, especially on the heels of the stock market decline in 2000 – 2002. People who never before were able to buy a home were encouraged to buy bigger homes than they dreamed possible. Middle income families could buy second homes and investment properties. Institutional investors earned significant returns on mortgage based securities.

All this was through the miracle of financing. Homebuyers could take out loans they didn’t have a prayer of repaying and existing homeowners could borrow and spend their growing home equity.  With housing prices increasing and interest rates low, Two plus Two no longer equaled Four. Through leveraging it became Five or Six or Seven. It was amazing how much farther money could go when the ends no longer had to meet.

We forgot the common sense reality that economic cycles go up—and also down. All of a sudden, the ghost of Mrs. Winkler was back, rapping us on the knuckles with her ruler and proclaiming that once again Two plus Two really must equal Four.

Whether the current mess is the fault of bad companies or irresponsible individuals is irrelevant to the equation. Four it is, whether we like it or not. In fact, with our current economic woes, we have to hope that it won’t wind up any less than Four. Sliding home prices, stagnant wages, growing job losses, and the rising cost of fuel and food are enough to make us wish we could all go back to first grade.

It’s time to call forth the rest of Mrs. Winkler’s good training. Everyone has a stake in the lessons learned. Four sure isn’t as much fun as Five, Six, or Seven were, but if we use our common sense, keep our values in sight, and stay within our budget, we can do great things with Two plus Two equals Four.

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