My rant about the recession

[hutch]

Let the little green men spend the money finding us.

LOL,  right on brother.

[Charger_Fan]

I simply refuse to buy anything on credit.
I gave up any desire to 'keep up with the Joneses', so no need for a new car, huge theater system, massive house (although I would like a massive garage ), etc. I buy old, cheap used cars. If I don't have the money for it, I don't buy it. Period.
And Christmas does NOT get put on any card...Christmas costs do NOT continue past December 24th.
Seeing some of the crap people buy...and the McMansions around here & some of the vehicles people drive amazes me. It makes me smile with the assumption that most of those are financed right to the eyeballs, though.

After what I've been through financially in the last 20 years, there's no way in hell I'm borrowing money for anything again, unless I'm absolutely up against a wall. I finally clued-in about 6 years ago & I have slowly dug myself out from under all my financial crap! Just last October, I jumped on the chance to finally get rid of my 13.6% 2nd mortgage, 7.5% 1st & refinance it all to a 5.5% 15 year mortgage. That is the ONLY debt I have right now & I shortened my mortgage by 4 years. I'm happy as hell!
10 years ago, I would have never dreamed that I could be sitting here today with my house payment as my only credit type debt.

About 3 years ago, I found Dave Ramsey on the radio & discovered that I was already doing a lot of the things he says to do. I don't agree with everything he says, either & feel guilty sometimes that I don't try harder, but then I think back to the rough times & how much better off I am now. Then I feel better.
Sometimes I've pondered borrowing money to restore my Charger...but you know what? I'd rather be debt free a whole lot more than seeing my Charger in fresh paint.

I think these bailouts are a huge mistake & will only serve to compound the problem. These companies (including that friggin' AIG) should have been allowed to fold & let the chips fall where they may. So we go though a rough spell for a while, I think we would have come through the other side in better shape, and far sooner than we will at this rate.
This whole thing is just crazy. I think it's going to get a lot worse before it gets better, too.

[bull]

I think these bailouts are a huge mistake & will only serve to compound the problem. These companies (including that friggin' AIG) should have been allowed to fold & let the chips fall where they may. So we go though a rough spell for a while, I think we would have come through the other side in better shape, and far sooner than we will at this rate.
This whole thing is just crazy. I think it's going to get a lot worse before it gets better, too.

Failure is a part of life and a part of growth, learning and becoming better. Throwing money at the problems is not going to fix them for very long.

[hutch]

http://www.youtube.com/watch?v=fBPmc7JdneY

[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

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.

I agree with what you are saying except the 20% down deal is just not possible by most. They cant save that kind of money.   Theres nothing wrong with buying a house with 0% down. The problem is people buying more house then they can afford and doing it with some funky loan thats caused the problem we are in.  In most times people can buy a house and live in a better hood making a house payment that is less then rent. And as much as people are to blame for living beyond their means  the finance companies are just as much to blame for being stupid to make these loans anyways. But it was ok to do this because our elected officials thought it was a good idea and ok'd this mess we are in now by saying they would back up the loans.


10 years ago when I bought my house we sat down (me and realtor) with the bank and they said how much you make. Checked my credit and said this is how much of a house you can buy. They had some calculation that so much % of your pay check should be used for housing. At that time I thought they were crazy as I couldnt afford that.  I ended up buying a house at half the $ I was qualified for. 10 years later I am still in the house.  My value has went up and its went down some but I havent lost $ yet on this house.

You get a chance to buy a house do it! But do it the right way!

Todd

[Todd Wilson]

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

I enjoy listening to his radio program.  I am like you I agree with most of what he says. His system only works if people are making decent $ with the ability to redirect funds to pay something off. There was a time in my life I was working a job and barely making ends meet. I was single. I had no debt,I had no credit. It was a crap shoot every day if my vehicle would start or not. 2 days before pay day i was digging in the couch cushions scrounging up enough change to go buy a few boxes of the cheap mac and cheese so I could eat. Investing in mutual funds or saving simply wasnt possible.

Todd

[Mike DC]

   

There's nothing theoretically wrong with borrowing money.  Not even with borrowing a large sum, paying very little down, and ultimately committing a lot of money just to interest before it's all said & done.



The problem with too much easy credit is when people start living on credit for everything they purchase, instead of just getting "ahead of the wave" by a few month's worth of salary and then living on earned cash as the norm.  The credit card industry has been working the public into more and more  debt this way in the last few decades and it's getting scary.  That industry has crossed the line into predatory lending a long time ago IMHO.   



The problem with large low-down-payment housing loans is when people borrow money on the assumption that the house will appreciate indefinitely.  This is speculation, pure and simple.  It's gambling.  It's no different than borrowing money to buy a bunch of stocks. 

It's not a horrible practice on principle either (at least for those who do it knowingly and can realistically afford it).  But the banking & real estate industries need to stop pitching this idea to home buyers as if this is something other than flat-out gambling.

[89MOPAR]

An example I can give - In Feb 2005 I was buying the house i am in now.  At the time i could maybe come up with maybe 5% of the price, and pay for the closing costs with cash. 
I was offered a loan where you could pay your choice each month...
1.  Principal + interest
2.  Principal only
3.  Interest only
4.  Nothing that month !
of course this was an adjustable rate loan as well, with its own complications of payment vs interest rate vs LIBOR, etc.
   Then I was offered an 80% 1st mortgage @ 5.5% for 30 years, with a 15% 2nd mortgage for 15 years @ 7.5% .
The problem was the 2nd mortgage had a balloon payment of about $22K at the end, basically you were paying interest only on it for 15 years !
  I asked the Mortgage broker where people came up with the money to pay off the balloon payment. She said the mortgage industry wasn't worried, most folks just refinanced in the future to handle the balloon.  Yeah, of course they like that !!  More refinancings meant more origination fees for the broker.

Now say i had gotten the crappy [ for me and America] 1st example of loan.  Where would it be now ?  Sliced and diced into some sort of Collateralized Debt Obligation.  Lots of banks would own little pieces of it.  Lots of other banks and pension funds would be selling insurance swaps, betting some other holder of this debt would fold.  The most part of all this wouldn't be regulated by any agency , since the "default swaps" and "derivatives" were , "too complicated to regulate, would stifle ingenuity if regulated, and the banks would police themselves". [ Actual reasons your Congress used to justify not regulating this crud ]
   Guess what , when people police themselves, GREED takes over.

There is a old legal term called "insurable interest", basically it started back in England a few centuries ago. A Couple of old ladies ran a "retirement home" . They weren't related to their boarders.  They took out insurance policies on the old geezers, than killed them. Then collected the insurance money.  Eventually they were caught.  The law was then made that in order to insure someone [ life insurance] you had to be related.  I would not be allowed to take out life insurance on Bull or Todd Wilson, because I have no insurable interest in them.  I would profit if they died early, and since we aren't related why would i care [ just an example, i love the D-C.com members], in fact I'd be happy for that outcome.
   This is basically what happened with all these default swaps and shitty loans. They got passed on and on. People take out insurance agianst loans being paid back, or insurance against certain companies, that will pay out if that company fails. The total value of the bets is supposed to be 65 TRILLION dollars !!   Almost all unregulated by any state or federal agency.
   How about we limit the amount of times a mortgage can be sold to 2 or 3 times    That might help.
  Does anyone know how much the Secretary of the Treasury made from salary and options while employed at Goldman Sachs [ a huge wall street investment bank / broker] ??   500 MILLION $$  !!
  Do you think there might be a coincidence with that and the fact that about 1 Trillion dollars is now earmarked to help financial firms , yet they can't afford 30 billion to help the BIG 3 Auto Co's
  2 months ago Citigroup corp tried to file a federal lawsuit because they had competition trying to buy Wachovia [ a failing bank ]. Now last month the government guaranteed 300 Billion of Citigroups  debt [ much of it derivative related] ....   Where the heck were they going to get the money to buy the assets of Wachovia
   Its F***N incredible.  There really is two worlds, one for the corporations with the money and political connections, the other for us.

One more tale to relate.  A chiropractor I know used to work for a small Portland financial firm while going thru school.  They specialized in "subprime" finance in credit cards, like the 29% interest rate type, or the "prepaid" type.  At one point they did a mass mailing which specifically was sent [ they buy lists ] to people Known To Have Poor Credit.  Out of 100,000 pieces mailed, they got nearly an 80% return rate of people who wanted a credit card. They had to hire 40+ people to work in the mailroom section.  The owner of the Portland firm sold his company to Household Finance Co - he walked away with 42 million $$.   How many of those folks do you think fell behind on their payments.... Think any of those unpaid balances are being held by firms which are now getting bailouts ??
  Maybe its time to re-instate a Debtors Prison.....
 

[Todd Wilson]

of course this was an adjustable rate loan as well, with its own complications of payment vs interest rate vs LIBOR, etc.
   Then I was offered an 80% 1st mortgage @ 5.5% for 30 years, with a 15% 2nd mortgage for 15 years @ 7.5% .
The problem was the 2nd mortgage had a balloon payment of about $22K at the end, basically you were paying interest only on it for 15 years !
  I asked the Mortgage broker where people came up with the money to pay off the balloon payment. She said the mortgage industry wasn't worried, most folks just refinanced in the future to handle the balloon.  Yeah, of course they like that !!  More refinancings meant more origination fees for the broker.

That is a new twist on buying a house I had not heard of before.  10 years ago when I bought my house there was a program to help people buy a house without a big down payment and I think it was part of the government but you still got a fixed rate loan. Wasnt any BS other then you and the house had to qualify in the program. A first time buyers deal.  It appears it is still easy to get the house the system just put in some more stuff to put money in their pockets quickly.

No need to take out a policy on me. I am gonna live for ever!   


Todd

[Mike DC]

   

Maybe its time to re-instate a Debtors Prison.....

Man, debtors prison never went anywhere.  Just ask anyone who's lived below a certain income bracket for at least a couple years straight.

It's not technically illegal to be broke, but realistically it is.  We just have minor laws criminalizing all kinds of relatively normal behaviors, and then we imprison only those who can't pay the fines. 



And look at the situation when you get paroled from any real crime: 

If you commit a crime that should carry about 2 years, first you'll get a 5-year sentence and then they parole you in 2 years.  Then you have to pay monthly for all kinds of court things.  Ankle bracelets, mandatory "anger management" classes, etc.  If you can't keep up with the payments (which can amount to literally hundreds of dollars a month, and often continue for a couple years until the original sentence time is finished), then this counts as a "violation of parole" and you get re-incarcerated for the rest of the years.

It's an interesting way to treat people who just got out of jail, since the things that drives people into jail in the first place are so often related to being poor. 

[hutch]

   

Maybe its time to re-instate a Debtors Prison.....

Man, debtors prison never went anywhere.  Just ask anyone who's lived below a certain income bracket for at least a couple years straight.

It's not technically illegal to be broke, but realistically it is.  We just have minor laws criminalizing all kinds of relatively normal behaviors, and then we imprison only those who can't pay the fines. 



And look at the situation when you get paroled from any real crime: 

If you commit a crime that should carry about 2 years, first you'll get a 5-year sentence and then they parole you in 2 years.  Then you have to pay monthly for all kinds of court things.  Ankle bracelets, mandatory "anger management" classes, etc.  If you can't keep up with the payments (which can amount to literally hundreds of dollars a month, and often continue for a couple years until the original sentence time is finished), then this counts as a "violation of parole" and you get re-incarcerated for the rest of the years.

It's an interesting way to treat people who just got out of jail, since the things that drives people into jail in the first place are so often related to being poor. 

Debtors Prison was not about being broke, It was about owing money and having no intention of paying it back.  Our culture of using money that is not ours is new.  You should never borrow money if you cant pay it back.   

Inflation of prices and the greed of wanting things you cant afford is what has caused all this mess.  People are worked up that they cant get a loan for a car when the issue is, why do cars cost so much in the first place?  Inflation and central banking have drove this nation into a wall.

[bull]

Inflation of prices and the greed of wanting things you cant afford is what has caused all this mess.  People are worked up that they cant get a loan for a car when the issue is, why do cars cost so much in the first place?  Inflation and central banking have drove this nation into a wall.

The same could probably be said about the insurance industry. IMO this is why a night's stay at the hospital costs more than four nights at the Hilton and a bent fender costs more to fix than many cars are worth. But maybe we shouldn't go there.

[Mike DC]

Debtors Prison was not about being broke, It was about owing money and having no intention of paying it back.  Our culture of using money that is not ours is new.  You should never borrow money if you cant pay it back.   

Inflation of prices and the greed of wanting things you cant afford is what has caused all this mess.  People are worked up that they cant get a loan for a car when the issue is, why do cars cost so much in the first place?  Inflation and central banking have drove this nation into a wall.

Yeah, but if we reinstated Debtors Prison, would there be any fair distinction for the "intent to repay" issue?  I don't think so. 


Eventually the system would be letting Wall Street moguls go free, because the $100 million that they lost for the taxpayers was just an "unintentional business failure."   Meanwhile the system would still be imprisoning the poor bus driver because he "never intended to repay" those $40,000 in medical bills for his wife's cancer treatments. 
 
 
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I agree this current situation is very unfair and frustrating.  But in the big picture, I don't think we want the system moving any farther in the direction of giving out jail time for money owed. 

I think we'd make all kinds of progress if we even just forced some real PERSONAL consequences on the guilty guys right now.  Like when you get convicted of some money-related crime a the Wall Street level like accouting fraud, then you actually get jailed for decades as if you stole that much at gunpoint.