Friday, September 26, 2008


The blogosphere is all over this bailout decision. This is such a scary time in most of our financial lives. That is unless you are debt free & don't have any gov't backed loans.

Here's what I know.

We don't live within our means. And by "we" I mean most Americans. I know many folks who make 50k a year & live in a 400k house. Seriously. Who did that math? What banker looked at those numbers & said "sure! I'll loan you 400k. As a matter of fact, let do it via an 80 / 20 loan or an interest only loan so you can avoid mortgage insurance & you can LIVE YOUR DREAM!" That banker is selling a lifestyle, not arranging responsible mortgage loans. Whatever happened to 3% down or ANYTHING down for that matter. Loan officers are approving people left & right that really have no business getting a loan that size.

Even worse is the fact that the Federal Government hasn't stepped in to say "Whoa...this method of loaning money isn't working. The risks out weigh the benefits." The banker isn't saying it because, he got his money. The Gov't isn't saying it either. People were taking out large loans which (ideally) would mean large amounts of $ coming in. But now, responsible homeowners are being punished because these bankers & govt officials didn't do the jobs they were hired to do.

But I think there's another layer. What about personal responsiblity? Why on earth would I find it ok to get a 400k loan if I only made 50k a year? Several reasons. 1)I think people aren't taught personal responsibility at home. Our parents shelter us when it comes to consequences. 2) We don't have enough knowledge where finances are concerned. Most HS finance courses are developed by credit card companies. Hello? Red flag.

If the Gov't doesn't buy these loans, they could be called. Which means you'll have 30 days -6 months to pay your loan in full. Yes, IN FULL!! Which bank are you going to go to, to get a loan? You won't be able to find one. Many will lose their homes in this situation. Those that have cash on hand will have the opportunity for some great buys at that point.

If the Gov't DOES buy all of these loans, they could hold on to those that are being paid by homeowners. Those that aren't being paid could be sold (yes, maybe at a loss) but that money could be loaned out to recoop that income several times over. Then, when the market picks up again, those loans could be sold to banks at a large profit. I MEAN LARGE. Trillions.

One fear is, the Gov't may find some charity to give the housing to at little or no cost & that income will be lost. Yes, the charity will benefit. Don't think I'm not for charity, but this is a HUGE deal for our economy. Especially when discretionary income is at an all time low.

I don't claim to know everything about this situation, but I do know a lot about the housing market.

Would love any input on this subject...


Wawa said...

I say everyone needs to suffer the consequences. This is just like if your kid got in trouble, do you bail them out or let them suffer the consequences? If you don't let them suffer the consequences they will just repeat it. So I really think it's a black and white situation, not a lot of gray. Sorry if people lose their house, sorry if banks go under and people lose their jobs, but that's the free market -- poor business decisions come back to bite you! We know someone in a situation like this although I don't know if they would qualify for a buy out and the whole time they went down this path we told them they were not making good decisions. Now they seems surprised they are in such a mess. **bangs head**

dearabby said...

I always want to know why we elect the people we do. Why can't we vote for normal, sensible, articulate folks like yourself? I'll be your fundraiser if you ever decide to run!;-)

Jenn said...

my brother works in NYC for a broker dealer... he deals with derivatives directly. I think somewhere between the rage to flip houses for a ridiculous profit and the culture to keep up wih the "Jones'" we got in a mess. it's such a two-edged sword that the bailout also effects people who are financially wise b/c of the affect to their jobs. Scary stuff. great blog!