My rant about the recession

[bull]

One good thing about the economic downturn is that I'm not getting nearly as much junk mail as before. Anyone else notice you don't see many (if any) credit card applications and mortgage refinance offers these days?

I do have an honest question about the whole mortgage quandary though: why don't these creditors make any effort to attract those with good credit to switch? Seems like any other business would lower their prices (in this case it would be lower interest rates) to attract more solid customers but it seems they're all just sitting on their hands waiting for us to spend money we don't have. Back prior to the early 80s you couldn't get a credit card or a home loan without good credit and now, until recently anyway, my dog could have gotten a Visa card with a $10,000 limit.

IMO this is a correction in the way finances in the US have been conducted for the past 20-30 years or so. Like a forest full of dead wood being cleared by a strong wind, individuals and businesses that have been overleveraged for years are finally being pared. In a nutshell, this country has relied too heavily on credit and debt, from the top down, and now it looks like we're paying the piper.

That and there's nothing for us to base our economy on because we make almost nothing in the US anymore except new homes and a few other odds and ends. And if I understand it correctly isn't/wasn't the economy based on the housing market which is based largely on mortgage debt? And weren't people being told they could buy more house than they could afford? I know we were told that back in 1995 and again in 2000 when we bought our first and second home. In 2000 we were told we could afford a $250,000 house but we knew better and we paid $167k. Even that was tough to manage and in many ways it still is. So how many people believed the Realtors and creditors who told them so spend $100k more than they should? Most of those who are in trouble now would be my guess. Add to that big credit card bills, big car payments and a bunch of other expenses we never used to have (cell phones, internet, cable, $1,500 TV sets, etc.) and it's a recipe for disaster.

Anyway, there's my rant for the day. I hope everyone here is doing well financially. Or at least ok.

[BB1]

What economic downturn. 

[NHCharger]

In 2000 we were told we could afford a $250,000 house but we knew better and we paid $167k. Even that was tough to manage and in many ways it still is. So how many people believed the Realtors and creditors who told them so spend $100k more than they should?

When my wife and I shopped for our first house in 1983 that's the first thing we noticed. After the Realtor "qualified" us she went right to the maximum. when I asked her how would we be able to save any money for a rainy day with that huge payment she looked at me like I had three heads. Realtors income is based on commission so obviously the more you spend the more they make.

What's funny/ironic is that a large part of the cause of this recession is the same as the recession from the early 90's. The banking industry. Last time is was the savings and loan crisis. What bothers me is that the oversight committee's in congress turned a blind eye to what was going on in the banking industry, and now the same people are the ones that are going to "rescue" us. I'm not going to name names and turn this into a political thread, but anyone can do the research and find the truth, not the rhetoric.

It's going to take years for this to all shake out. Most everyone has to take some blame. Too much CC debit, living beyond your means, not reading the fine print on the paper work from the mortgage companies, not saving for a rainy day assuming everything was going to be all peaches and cream for the next fifty years.

[RECHRGD]

When the whole economic system is based upon how much debt you can carry, somethings got to give sooner or later.  We never seem to learn.

[dodgecharger-fan]

So how many people believed the Realtors and creditors who told them so spend $100k more than they should?

When we bought the house we're in now, about 7 years ago, we put in a conditional offer based on selling our old house and obtaining finance. When someone else put in an offer, we had to waive our conditions or walk away.

It took a two minute conversation with the bank that holds my mortgage to get the go ahead. They called it bridging my mortgage, but it amounted to carrying two mortgages up until I sold the old house.

My Realtor fell off his chair when I called him back in less than 20 minutes and waived our conditions. He had never ever had that happen.

I had no real idea. I called the people that could say yes or no and they said yes...  I knew I could handle the payments for about 6 months, but after that, I'd be screwed.

As much as it made me feel like a big wheeler and dealer, I suspected (and now know) that it had more to do with the system than with me.

It was scary, but it all worked out in the end. The really stinky part through it all was all the low-ballers trying to get my house for half the asking price. Their Realtors were floored when the offers were flat out refused rather than signed back with a counter offer... I had my Realtor tell any Realtor approaching him with an offer that they better be serious or they're wasting everyone's time... We sold within 10K of our asking price.

[BigBlackDodge]

In 2000 we were told we could afford a $250,000 house but we knew better and we paid $167k. Even that was tough to manage and in many ways it still is. So how many people believed the Realtors and creditors who told them so spend $100k more than they should?

When my wife and I shopped for our first house in 1983 that's the first thing we noticed. After the Realtor "qualified" us she went right to the maximum. when I asked her how would we be able to save any money for a rainy day with that huge payment she looked at me like I had three heads. Realtors income is based on commission so obviously the more you spend the more they make.

What's funny/ironic is that a large part of the cause of this recession is the same as the recession from the early 90's. The banking industry. Last time is was the savings and loan crisis. What bothers me is that the oversight committee's in congress turned a blind eye to what was going on in the banking industry, and now the same people are the ones that are going to "rescue" us. I'm not going to name names and turn this into a political thread, but anyone can do the research and find the truth, not the rhetoric.

It's going to take years for this to all shake out. Most everyone has to take some blame. Too much CC debit, living beyond your means, not reading the fine print on the paper work from the mortgage companies, not saving for a rainy day assuming everything was going to be all peaches and cream for the next fifty years.

100%!

BBD

[RallyeMike]

I hear ya Bull. My credit card solicitations have gone from 6-7 per week to maybe 1. Capital One alone used to send 2-3 per week.

I'm going to guess that the next thing coming after they print all the new money for the bailouts and other programs is inflation like we had in the 80's ?

[Mike DC]

     
We borrow money from China to buy disposable chinese products. 

Washington & Wall Street tell us that doing more of this is a sign that our economy is getting healthier.  Our televisions & houses & SUVs are bigger than we had last year, so we actually believe them.





It all works fine as long as our national debt can be repaid with Monopoly money.   

So in recent years we've tried our best to turn our US dollars into monopoly money by overprinting it. 

   


That policy works fine as long as the public & world doesn't become aware of what we're doing. 

So we've recently stopped releasing any figures on the amount of US dollars that are really in circulation, and we've cooked the books on offical inflation figures.

[bull]

Another thing I wonder about is how they pump this newly printed money into the economy? Do people line up at the mint with paper bags like they do at WalMart on Black Friday? How is this cash distributed?

[Todd Wilson]

Another thing I wonder about is how they pump this newly printed money into the economy? Do people line up at the mint with paper bags like they do at WalMart on Black Friday? How is this cash distributed?

Good question! I'd be glad to have them fill a duffle bag for me! I'd kick start the economy with a few hundred million in cash in my pocket.


Todd

[Mike DC]

Getting it into circulation? 

Hell, that's easy.  The govt just cuts another loan with Asia and then continues to spend more money that it never had. 


It's been going on for decades now.

[71EV2RT]

Yep, We (The United States Govt.) just borrow more foreign money, that will never get paid back. It's enough to make you sick if you think about it too much.

[Mike DC]

Hey, we wouldn't have it any other way.  All we have to do is stop voting for anyone that keeps overspending. 

[PocketThunder]

If you have good credit you can still get a good loan.,   I bought our house back in May and i got a good rate on a 30 year fixed.  I'm living the old fashioned way, moma stays at home full time with our 3 kids and we live on my salary only, and within our means.  (which translates to my Charger fund is zero right now  )  but not for long. 

[hutch]

best best is to never owe anyone money.  If you need to borrow to get a house, then make sure you can put 20% down or you dont have the money to buy the house in the first place. 

Credit Cards are bad unless you are a business and need something fast. But for the everyday joe, getting in debt or using debt as a way to improve your life will always lead to your destruction.

[Todd Wilson]

best best is to never owe anyone money.  If you need to borrow to get a house, then make sure you can put 20% down or you dont have the money to buy the house in the first place. 

Thats not a reasonable thing to say for most people out there.  Stop and think about 20%. It could take 10 years for someone to save 20% on a 100000$ house. They could be 1/3 of the way paid off by the time they get the 20% saved  and the house they were saving for has probably went up in value in 10 years so now they are saving more.  Buying a house is probably the only good thing you can do with credit as long as you get a real loan from a real bank at a fixed rate. And buy a house within your income means. A real bank will only loan you that amount.


Todd

[Mike DC]

 
I've learned a big, simple, valuable lesson from my father about borrowing money:



My father has spent his career in private lending at a major nationwide bank.  He makes a living deciding whether or not to lend HUGE (much more than he'll ever have himself) amounts of money, and what the terms will be. 

And when it comes to his own life & family, he will not borrow money EVER, for ANYTHING he doesn't have to.  He has a loan on his house (almost paid off) and that's it.

He will literally buy a brand new $30,000 car with a single check on the day he drives off with it.  Not because he's that rich (this might happen once every 4-7 years), but because he's that unwilling to take out a unnecessary loan over anything. 

[moparstuart]

 
I've learned a big, simple, valuable lesson from my father about borrowing money:



My father has spent his career in private lending at a major nationwide bank.  He makes a living deciding whether or not to lend HUGE (much more than he'll ever have himself) amounts of money, and what the terms will be. 

And when it comes to his own life & family, he will not borrow money EVER, for ANYTHING he doesn't have to.  He has a loan on his house (almost paid off) and that's it.

He will literally buy a brand new $30,000 car with a single check on the day he drives off with it.  Not because he's that rich (this might happen once every 4-7 years), but because he's that unwilling to take out a unnecessary loan over anything. 

We need alot more people in this country like that !!!!!!

[hutch]

best best is to never owe anyone money.  If you need to borrow to get a house, then make sure you can put 20% down or you dont have the money to buy the house in the first place. 

Thats not a reasonable thing to say for most people out there.  Stop and think about 20%. It could take 10 years for someone to save 20% on a 100000$ house. They could be 1/3 of the way paid off by the time they get the 20% saved  and the house they were saving for has probably went up in value in 10 years so now they are saving more.  Buying a house is probably the only good thing you can do with credit as long as you get a real loan from a real bank at a fixed rate. And buy a house within your income means. A real bank will only loan you that amount.


Todd

And thats my point.  When I was first coming up you saved 10 years for a house if you wanted a house.  Everyone living off easy credit is what has caused this mess.  You go buy a house with nothing down and then the house market goes down, you owe more than your house is worth. Then what?  its just like flushing money down the crapper in interest payments and you never end up  building true equity.  A real bank will only loan you 80% loan to value. That's 20% down.    That is in large part what caused this mess.  No one saves anymore or lives within their pay.  People walk up with good credit and buy a house with zero down are the same people that use a credit card to buy a big mac.  Next thing you know, that big mac ends up costing 50 bucks in interest payments before its ever paid off if it is ever paid off.

Save, dont borrow, Its a ponzy deal and its blowing up on us now.

[bull]

I tend to follow the advice of a guy named Dave Ramsey when it comes to debt. http://www.davesays.org/ Basically he says it's ok to have a home loan as long as you are not in debt elsewhere and are working toward paying your house off early. There are areas where I disagree with him but I think his logic would probably win out over mine in those areas if we were to debate.

Here's his baby step plan:

1. $1,000 to start an Emergency Fund
2. Pay off all debt using the Debt Snowball
3. Three to six months of expenses in savings
4. Invest 15 percent of household income into Roth IRAs and pre-tax retirement
5. College funding for children
6. Pay off home early
7. Build wealth and give! Invest in mutual funds and real estate

[Mike DC]

 
The problem these days is that you can't truly avoid the overborrowing trend when EVERYONE else is participating in it.  You can stay out of debt yourself, but you can't avoid the lifestyle problems that come once the cultural average of everything has been reset higher with everyone's deficit spending in mind.


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Say you just want a relatively new house, and you want to live in a nice neighborhood with decent public schools.  You want to buy what you can afford but not overreach.  This sounds like a reasonable goal, doesn't it?  Your parents' generation could do this.  A couple generations ago you could still do that in a small house. 

But not now.  Now that EVERYONE else is overbuying, you can only find small houses in the form of older areas with worse school districts.  You can no longer get the advantages of a new house & decent school districts unless you throw in with everyone else and overbuy yourself a McMansion on borrowed money like they do. 



Just like you used to be able to buy decent sized new cars and trucks for decent amounts of money.  Whereas now you can't refuse to invest in power acessories even if you want to.  If you want a pickup, you're gonna overbuy like everyone else.  And if you can't afford to overbuy a new vehicle then you have to spend almost as much money overbuying a used version.  Of course the used ones are all just as over-optioned as the new ones, and less reliable to boot.




And then there's education.  Just try to find a typical state college that doesn't provide you a huge nice new dorm room in exchange for tuition that's twice what it really needs to be. 



The list goes on and on.  This stuff is literally wrecking our lives and destroying our families.  Our kids wouldn't be so messed up if we were at home raising them, instead of letting the media raise them while we're pulling triple shifts to pay for all this unnecessary garbage. 

[bakerhillpins]

If you have good credit you can still get a good loan.,   I bought our house back in May and i got a good rate on a 30 year fixed.  I'm living the old fashioned way, moma stays at home full time with our 3 kids and we live on my salary only, and within our means.  (which translates to my Charger fund is zero right now  )  but not for long. 

We are doing the same thing with the family and finances. That is why I don't own a Charger. Yet! 
Now that all there kids are in school the wife has a part time job where she works from home, so we have some extra income to help get a few projects paid for and she works the hours that are convenient for us.

Bryan

[bakerhillpins]

I tend to follow the advice of a guy named Dave Ramsey when it comes to debt. http://www.davesays.org/ Basically he says it's ok to have a home loan as long as you are not in debt elsewhere and are working toward paying your house off early. There are areas where I disagree with him but I think his logic would probably win out over mine in those areas if we were to debate.

Here's his baby step plan:

1. $1,000 to start an Emergency Fund
2. Pay off all debt using the Debt Snowball
3. Three to six months of expenses in savings
4. Invest 15 percent of household income into Roth IRAs and pre-tax retirement
5. College funding for children
6. Pay off home early
7. Build wealth and give! Invest in mutual funds and real estate

Good advice. The wife and I didn't buy a house until we paid off all of our loans, cars/CC included. Then we bought the house taking advantage of little down but ignored the "qualified" limit and stuck with our own. We have been able to buy our cars with cash and even leveraged a 0% CC cash advance for a year to buy our minivan. It was wicked cool, buy it with cash from the CC and leave our $30k in a high interest account for a year. We got PAID for our car loan! 

I always have put away 10-20% of income for retirement and some for the Kids college. If you can avoid debt you can really take advantage of the system. But its hard to do and you have to give up on that consumerism that lots of folks practice.

Bryan

[RECHRGD]

 
The list goes on and on.  This stuff is literally wrecking our lives and destroying our families.  Our kids wouldn't be so messed up if we were at home raising them, instead of letting the media raise them while we're pulling triple shifts to pay for all this unnecessary garbage. 

I totally agree!  As most of you know, I'm a old fart.  When growing up in the 50's & 60's easy credit was just coming into it's own and my parents fell right into the trap.  We had a beautiful home in a nice neighborhood, new cars and all the latest stuff.  When it was all said and done, Dad died at 59 with nothing.  The bank had the house, their one car was 5 years old and there was no insurance for Mom.  She had to start all over.
What makes it even worse today is that everything changes so fast that what you buy today is considered junk tomorrow.  Your two year old computer won't run the latest programs, your TV won't pick up digital signals, every room in your house is not pre-wired for all the latest electronic information and entertainment technology, your cell phone doesn't have a camera, your almost new car doesn't have side airbags or onstar.  Now everybody is convinced that we should all turn GREEN because the sky will fall if we don't.  Forget that the planet has been heating and cooling since the beginning of time.  We must all buy more efficient cars, home a/c and heat units, light bulbs, laundry detergent and bla, bla, bla.  Ever notice that the more efficient products cost twice as much as the old standard stuff?  Everything is a money grab.  Oh, and while we are at it we better get some solar panels and wind generators to supplement that evil power off of the utility grid.  By the time your payback for the initial investment is done, the systems will most likely need total replacement.  I could keep going here, but you get the point.  We're toast.    Bob

[bull]

We must all buy more efficient cars, home a/c and heat units, light bulbs, laundry detergent and bla, bla, bla.  Ever notice that the more efficient products cost twice as much as the old standard stuff?  Everything is a money grab.  Oh, and while we are at it we better get some solar panels and wind generators to supplement that evil power off of the utility grid.  By the time your payback for the initial investment is done, the systems will most likely need total replacement.  I could keep going here, but you get the point.  We're toast.    Bob

It's the latest fad and the latest way for people to make money. The green movement is the newest hot business opportunity right now. There are a lot of guilty people out there and they'll spend big money to feel better about themselves. I say let them spend all they want on the green products and maybe the mediocre results will make them happy. Meanwhile the rest of us can conduct business as usual. Let them pay for it all. It reminds me of that SETI (Search for Extraterrestrial Intelligence) BS. Why are we spending all this money on searching the heavens for alien life? I say let the aliens pay for it. Let the little green men spend the money finding us.