Are you changing your behavior in response to current events? - Page 4

Re: Are you changing your behavior in response to current events?

I think that is exactly what Joe Public is worried will happen. That is why I wish more "experts" would chime in. I think the absence of these "experts" in the main stream media is starting to say a lot.

Re: Are you changing your behavior in response to current events?

Great populist rhetoric, but it doesn't really address the situation. Some of the "perps" (as you put it) have already been wiped out; some got out already and are sitting pretty.

And, depending on how you look at it, a lot of the perps aren't even on Wall Street. After all, no one forced anyone to take out that second mortgage to build that pool, or buy that second house with no money down expecting the value to rise for a quick flip and a profit, etc. The only reason the guys on Wall Street had all these questionable mortgages to slice and dice into exotic instruments is because people borrowed the money.

You know, I've refinanced my home three times in the last ten years to take advantage of favorable interest rates. Every time, the lender tried to persuade me to take out more money. Every time, I said no and refinanced only the balance due.

So right off the bat, ID'ing the "perps" brings up a major point for debate -- and that's about as far as I'm willing to take it.

I don't know what you mean by "absence". I see lots of quotes from lots of people. If you mean that there's a lack of definitive pronouncements, I think it reflects the fact that we're in uncharted waters. No one's predicting, because no one knows for sure where we're going.


M.

Re: Are you changing your behavior in response to current events?

I forget who said it, but the following definition sums it up: intelligence is knowing that a tomato is a fruit; wisdom is knowing not to put it in a fruit salad.


Just to give you a taste of what bankers could at one time be like. My great grandfather five times removed was Henry Boase, a guy who rose from humble origins to be head of a large bank. Did he give himself massive bonuses? No. He made sure he and his relatives were well off, and then ploughed the rest of his money into co-founding the Bible Society (producing the first affordable bibles), the London Missionary Society and funding William Wilberforce in his attempts to abolish slavery. And Boase was far from unique - the 19th century is littered with guys like him who believed that having made a stash of cash, they should give and not just take. What do we get now? In the main greedy pigs who only give to charity if it's tax deductible and gives them good PR.

Sorry, just had to have that little rant - it's been a long day

Re: Are you changing your behavior in response to current events?

This is just a bump in the road. Don't expect to see sub-prime mortages and loans for a long, long time (is it really rocket science to understand why SUB-prime is a bad idea?). Just have to weather the storm.

"Why should the government back up the banks who had foolishly bet everything on the housing bubble". Once the promise of free money is gone, it will adjust on it's own after time.

Re: Are you changing your behavior in response to current events?

I guess there are still people who think that. They're in for a rude awakening. The magnitude of what's happening is (or will be) unlike anything this country has seen since World War II. I was confident of that several months ago when Bear Stearns collapsed, and I'm certain of it now that Lehman Brothers, Merrill Lynch, Washington Mutual and Wachovia are all effectively gone.

If you haven't yet felt the effects of it, you will.

M.

Re: Are you changing your behavior in response to current events?

Fannie Mae Eases Credit To Aid Mortgage Lending - New York Times

Notice the date on the article (september 99). Notice the warning in the middle of the article. It's funny how problems can be forseen, but they do nothing until it actually happens. Thanks Bill!

Re: Are you changing your behavior in response to current events?

I took your words as an implication that you did feel that way.
Sorry.




I wasn't talking about mortgage interest rates. I was talking about the unique provision associated with mortgage loans that allows interest to be front-loaded. For most people, this makes the cost of the loan ridiculous indeed, and I doubt tax savings would ever make up for it.




Again, a mortgage is like no other type of consumer debt, so I don't think this a good illustration of your point, although I do understand the logic.

John

Re: Are you changing your behavior in response to current events?

I guess looking at the glass as 1/2 full. What about the companies that bought those 2 failed banks? I am taking it that they are not in trouble? It seems to me that every time something looses it's "value", there is always someone who will buy it up at the "discount" price. If 1/2(+?) of all the banks fail, won't there be bargain hunters waiting to swoop in? As far as easy credit goes, maybe credit shouldn't be that easy. Anyway you look at it, there will be an "adjustment" that will involve a certain amount of pain.

Re: Are you changing your behavior in response to current events?

Wachovia didn't fail. It sold off its banking operations to Citicorp to avoid a failure. It's a minor distinction, but an important one.

While there is no question that these acquisitions benefited both depositors (by easing the transition) and the government (by sparing the FDIC from having to pay out on claims), that doesn't make them a wash. The disappearance of these institutions from the financial system still represents a loss of liquidity as well as a major reduction in competition.

So, Chase and Citi get bigger. New Yorkers have been watching that happen for years, to the point where we expect the two of them (and Bank of America) to become the only choices in town. Not an appealing prospect if you're just a small customer without a few million to your name -- and I speak from personal experience.

M.

Re: Are you changing your behavior in response to current events?

There are probably more Chase branches than Starbucks in NYC...

--
H

Re: Are you changing your behavior in response to current events?

Steve....check out my post 41 in this thread.

Re: Are you changing your behavior in response to current events?

Alas, I concur. The shake-up isn't just going to affect the banking system. Banks are supposed to lend money (duh ...) and at the moment banks aren't keen to lend money. This is at a time when industrial output and other indices of economic activity are dropping. A credit squeeze will accordingly accelerate a current trend, and the general lack of confidence in the economy will further lower activity. People stop spending and start saving, sucking more money away from trade. And that means even less economic activity. And by now workers are being laid off because there ain't the demand for goods and services, and with fewer people working, there's even less money in the economy. And if there's less trade, then banks are less willing to invest in industry, and ...

I see little now to stop us entering recession.

Oh joy. We've got Russia flexing her muscles, panic about the environment and economic misery. We're back to the seventies - but without the flared trousers or Pink Floyd.

Re: Are you changing your behavior in response to current events?

I miss Pink Floyd

Re: Are you changing your behavior in response to current events?

I'd like to believe this was poorly written. You can't be saying that the only reason the bad loans were made was because people wanted them. The bad loans were also made because those originating the loans were greedy and short sighted. It's bad business practice to loan money to people who have little chance of paying you back. That's not rocket science.

But because a system had been built over the years that allowed those originating the loans to avoid the consequences of making bad loans and, in fact, were rewarded for making them, we've got these bad loans. If the loan originators were rewarded in increments, say when a loan is current after 1, 2, 3, 4, 5 years, you would have seen more honest lending.

Yes, put responsibility on those who wanted the loan, but give a fair share of blame to those who originated the loans. These people were usually smarter and more sophisticated than many of those who borrowed. There was rampant predatory lending.

Re: Are you changing your behavior in response to current events?

You've hit the nail on the head. If your doctor makes a poor diagnosis he can be sued. If your financial adviser allows you to buy an unsuitable investment he can be sued. If your banker puts you in an unsuitable mortgage it is your fault for signing. That don't seem right.
That would be the positive reinforcement side of my negative reinforcement strategy.

Of course - to do that the income for originating the loan the first year would be considerably lower - and the loan industry would be harder to get into - but it has been that way for other industries for years...


Here's another thought - what if only financial planners were allowed to originate mortgages? They already have the liability - they also are more qualified to determine suitability... Hmmmm.

Re: Are you changing your behavior in response to current events?

Don't stop there. I think you've also got to place a lot of blame on the elected federal officials who decided it wasn't "fair" that some people couldn't get loans-- so they decided to "fix" that terrible inequity....

Re: Are you changing your behavior in response to current events?

Home Depot in Florida is now refusing WaMu cards.....

Home Depot Refusing WaMu Cards

Re: Are you changing your behavior in response to current events?

I'm not, and (if I do say so myself) it was well written. The excerpt you quoted was hedged with a large qualifier that you seem to have read right past ("depending on how you look at it"). It was followed by another one, which you've left off your quote ("So right off the bat, ID'ing the 'perps' brings up a major point for debate"). Moreover, if you bothered to look at the discussion preceding that exchange, you might understand the context for my remarks.

One of the reasons I avoid these discussions is that people with a particular axe to grind go looking for something that vaguely resembles their grindstone -- never mind whether it really is.

As I said on the previous page, both understanding this problem and attempting to solve it involve taking positions (whether overtly or not) on a host of controversial issues that can't really be discussed here. I will leave it at that.

M.

Re: Are you changing your behavior in response to current events?

Way to go Michael. Without expressing an opinion on the actual subject matter, I also thought it was well-written and felt the comment to the contrary was a bit unwarranted.

Not trying to pick a fight, but fair is fair.

John

Re: Are you changing your behavior in response to current events?

The key word that everyone should understand is LEVERAGE.

Let's say you buy a house for 100k and pay cash. The house then appreciates by 1k. You have made 1% on your investment.

If you had put only 10% down (10k), the same 1k increase in home value now represents a 10% return on your investment.

If you had put only 1% down (1k, or leveraged 100x), the 1k increase in home value represents a 100% gain on your initial investment. But the reverse holds true as well. A loss of only 1k in the value of your house, from 100k to 99k, results in a 100% loss in your investment.

Now imagine all the people taking "equity" out of their homes during multiple refinancings (and thus becoming more and more leveraged), and then the financial institutions creating (and passing around to each other) these exotic instruments that no one was properly regulating or valuing--partly because the bonus pool would have been affected. When home values inevitably started falling, the first people hurt were those who could no longer obtain easy money through refinancing, and who also could no longer afford their mortgages as adjustable rates adjusted. But the even bigger problem was that the financial firms that had paid out this money to homeowners finally realized they had literally trillions in exposure and I think they didn't see the domino effect in the bank colapses we are seeing today.

So without delving into restricted territory, I think it's safe to say there is plenty of blame, from Wall Street to Main Street. It is virtually a certainty that less leverage will be allowed in the future, both from the borrower (no more 0% down mortgages) and from the lenders (Goldman is now a bank holding company, which means its allowable leverage will go down from 30-40x to 7-10x).

Re: Are you changing your behavior in response to current events?

(OK if I read/hear Wall St and Main St in the same sentence again, I am gonna shoot someone.)

--
H

Re: Are you changing your behavior in response to current events?

Whew. Too complex for me, and I suspect the same is true for the vast majority of the folks who got into the "leveraging" game. That's exactly why I never played.

I'm not at all attacking your post. I just think most people who got in over their heads did so because they wanted to live beyond their means. Simple as that. Either by buying too much house, or by fancying themselves Real Estate tycoons and buying multiple properties. Of course, there were those who encouraged this irresponsible activity through their late-night infomercials and such, and the banks [for whatever reason] made it pretty easy to play along.

I don't pretend to understand all of the in and outs of this mess, but I do have one strong opinion. People who [have and continue to] live within their means and pay their bills in a timely fashion should not be made to suffer any consequences.

John

Re: Are you changing your behavior in response to current events?

You know what, some of you can say the sky is falling...but for me, the sun will rise tomorrow, and set in the evening. I have my health, my kids, and a woman who loves me. I see people every day who wish they had what i have...my life.
So go ahead and tell me its the worst days since WWII. It could be, i dont know, i dont have a $900,000 mortgage on $35,000 a year!

Just be happy for what you have. Even if you dont have anything. I was in that boat after a divorce. I owned a car...and thats it! Now i have so much to be thankful for. Times change, good and bad.

Re: Are you changing your behavior in response to current events?

That is true, but complicated. To a certain degree, many of the things we take for granted in life are available due to the "sins" of others. The credit card you enjoy (assuming you pay it off each month) might not be possible if not for the multitude of people who pay the 24% to carry a balance. The ticket price at the theater would be higher if people stopped buying the overpriced concessions. Certain taxes might be higher if there weren't smokers paying the high tobacco taxes.

It only becomes a problem when the "sinners" run into trouble and are no longer able to subsidize the "saints." In the current dilemma, the worry is that practically all the banks are exposed and won't be around to service anyone, even the people judged to be good risks.

Re: Are you changing your behavior in response to current events?

This is what I don't buy into. There will always be someone with money wanting to invest and make money by interest while watching his HT. There will always be someone with money waiting to take advantage of someone who is down on their luck. As banks fail, there will be others taking them over. The banking system may not be as it is now, (and maybe it shouldn't be) but there will always be banks.

I was watching the news and someone was saying that McDonalds for instance may not be able to pay their employees if the system fails. If worse came to worse, why can't they do it the old fashion way and pay cash out of the register. (If the weekly cash flow in is not enough, maybe they have too many people sitting around instead of wiping off tables.) I have a really hard time believing that companies would throw their arms in the air and give up. The game will change, but there will always be players.

I lost a house to foreclosure in the early 90s. My son went through brain surgery. I was unemployed for 9 months in 2001 and wiped out all my savings. I agree with RickER, I have my family and things are good. As written on the dollar bills - In God We Trust. Not Wall St. or the government. No matter what happens with this bill, I am convinced that hard times are ahead. I have been through many before and I will manage through these also.

Re: Are you changing your behavior in response to current events?

Interesting perspective, and most of us have spent time in that "sinner" slot you describe. I would call it childish myself, but in any case, it's when we spend too much time in that slot that we find ourselves in a real hole.

I won't act as if I never played the credit game. Years ago, I did. But I never got in over my head, and I eventually saw the light and got out altogether. My CC's are now truly only a convenience. These guys could all fold tomorrow and I wouldn't really care. Same goes for all other credit providers. If I can't pay cash for it, I don't buy it. Now I just need to get this mortgage monkey off my back. As I see it, there's just no safer, more peaceful place to be [on earth] than completely debt free.

John

Re: Are you changing your behavior in response to current events?

What makes you so certain that, if the U.S. financial system had crumbled to that extent, the cash would still be worth anything? Most cash is just paper.

And even if the cash still had value, there isn't enough cash in the system to run an economy this size. Not even close. That's like the episode of The Beverly Hillbillies where the Clampetts went to Mr. Drysdale and wanted to see their $40 million (or whatever the number was). Most of the value in an advanced economic system isn't piled up somewhere in a vault.

I didn't say it's "the worst days" since WWII. I said that what's happening to the financial system now is the biggest transformation since WWII, and I stand by that assessment.

I have no idea how bad it will or won't get. No one does.

M.

Re: Are you changing your behavior in response to current events?

I guess I prepared for today back in 2005 when I quit my job and started preparing for the worst. I knew things would be dark for a time so I sold off stuff and moved to where the cost of living was cheap. It's really a trip to pay cash for a house. It's also neat that I can drive down the road and barter with farmers for food. Ammo and canned goods are about as useful as gold when the stuff hits the fan.

Little known facts: Idaho is spud king, but also a huge producer of stone fruit, onions, wheat, corn, beef, and is the 3rd largest dairy producer behind CA and WI. Idaho also produces fine wine and is the premier producer of Kobe beef outside Japan. With our hydro and nuke plants we could go "off grid" and actually do quite well. My county's irrigation system is so old that it's all gravity fed out to the individual's lot line.

Re: Are you changing your behavior in response to current events?

Except that the monetary system, as constituted by the bankers, requires debt to function. If everybody was debt-free then the economy would be in a depression because, under the banker system, debt is money: no debt = no money. Why do you think the privateers are so worried about the financial system collapsing? No one wants to lend to one another because they are scared they won't be paid back. No lending is a contraction in the money supply and we know where that leads.