I don’t get political or financial often because, I try to look at the world with a critical eye. Evaluating ‘big picture’ items like these is impossible without sinking to the level of hopelessly vague generalizations. The problems we are dealing with now are the result of years of compounded bad self-centric decisions from all involved parties. When reading this, realize that the author sees the other side of the coin, but sometimes it’s totally out of hand and you just have to nonsensically vent. Save your flaming hate mail and spam comments for someplace like the google finance message boards where they can be properly savored by like minds.
1. Bush, Paulson and Bernanke proposed this $700bn bailout and congress passed it even though millions voiced their outrage. Then they started disbursing 10’s of billions to banks to ‘get credit moving’ again. Then the banks just kept it and said “well, we have to improve our liquidity first”. At the same time everybody and their mother started saying they needed help too. After slashing the credit lines (and credit scores) of their prime customers for a year straight, Amex requests (and gets approved for) a change of status to become a “Bank Holding Company” so they can apply for a $3.5bn piece of the pie too… Not a month after this all passes, and Paulson and crew want to change all the rules as to how and who they can bail out. Now GM wants even quicker access to their $25bn ‘we screwed up and need to retool all our factories’ loan, and while you’re at it, we’re probably going to need another $25bn just to stay afloat through the end of the year. If we don’t get it we’re going to have to liquidate our operations and 10’s of millions will definitely lose their jobs. As if the Corvette and all the other icons of the GM brands would just instantly cease to exist from the face of the earth if they were forced to sell their brands to new owners… I’m very sorry that mismanagement has brought it to this, but $50bn isn’t going to change anything. 2 decades of selling millions of SUVs at a fantastic markup and you should have socked away a LITTLE cash for r&d or a rainy day. I drive a GM product right now, but if they get a nickel more bailout cash to line their CEO pockets with before they run their corporation into the ground I’ll be damned if they get another nickel of mine. I hope a ton of people feel the same way.
2. These mortgage retoolings are totally ridiculous. I don’t see how millions of people could think that house prices were going to perpetually rise while median incomes were flat or declining against inflation at the same time. As if there wasn’t going to be some day of reckoning when there just wouldn’t be enough new richer buyers who would pay more than you paid. Or the banks wouldn’t run out of cash to lend us. Or the adjustable terms of your loan would catch up and you’d have to start paying a fair percentage of the debt you borrowed. Eventually someone was going to get left holding the bag. It’s called a pyramid scheme. Deal with it. This time I feel worse for the people at the top because there’s a bunch of foreign investors out there who were sold A+++ packaged investments that were nothing but garbage. At least with the dot-com bubble there was many levels of technological innovation fueling the mania. This bubble is just corian countertop, stainless steel appliance adorned crap. Now we’re in a catch-22 where the average joe can’t afford a house, but if the prices drop more, all the bubble-buyers will be more prone to walk on their upside-down mortgages which will result in more foreclosures and a prolonged crisis.
3. We put in an offer on a fixer-upper house last December that was automatically rejected by the ‘insulted’ owners. Well, congratulations to them. They finally sold their house last month for $63,000 less than their precious asking price. Seeing the way home prices have declined (which I factored for in our offer, but was still amazed by the severity of) I’m glad we didn’t get it. I hope the new owners weaseled some help with closing costs, or some cash towards replacement windows or a new furnace. On a related note, The zip code I’ve been systematically observing for the past year and a half is starting to see properties drop in price to a point where they’re moving. I see the words ‘short sale’ tagged on listings MUCH more, and investors are at the point where they are putting cash on the table. Of the 65+ listings I’ve entered into my spreadsheet, ~30% have sold, ~35% have been pulled from the market, and the rest are still listed. The bad part of this is that the ‘moving’ prices are above where I hoped they’d be, so we will probably be saving for a while longer. Houses will never hit the low I was hoping for because inflation will catch up in the meantime. Strike 2 is many of the REOs and investor properties that are being picked up at the lowest prices are being relisted for 100k over what the market is moving right now. That is fine for an investor who has the money to hold a property for several years until he makes his asking price, and it’s good news for all the owners in the neighborhood trying to sell their house since all of the sudden theirs looks “cheap” by comparison to those who have not been paying close attention to the listings in an area for an extended period of time. Strike 2.5 is that we’ll have to pay much more attention to the ratio of ‘owner-occupied’ properties in neighborhoods we are looking at as there are a lot of REOs out there and I’m sure there’s even more rentals than before. I wouldn’t be surprised if many neighborhoods underwent some changes for the worse before this is all over.
4. Another note, I’m surprised that everyone is amazed at the severity of the contraction in retail sales this last quarter. Either 1. You’re broke after filling up all summer long on $4-5 gas and expensive food, and your credit is tapped out because you can’t use your house as an ATM any more, or 2. You’re forced to save for that house you wanted because you realize that the banks are only going to give you a good rate on a loan if you have 20% and spotless credit now, and when houses are as pricey as they still are historically, that’s a lot of coupons to clip. A lot harder to buy stuff when you have to work for the cash. Oh, and I guess it doesn’t help that we’re bleeding jobs at an alarming rate now either.
5. Good thing Exxon-Mobil had another all time profit record this last quarter. No market manipulation here, it was all supply and demand. Don’t even think about removing their tax breaks or r&d subsidies. As far as corporations go they’re as fragile as a Fabrege Egg.
There’s 10’s of millions of us out here who work hard and rub our 2 brain cells together before we go out and spring for big houses and cars and crap we know we can’t afford. Hows about you just send us a reward check just for doing a decent job and trying to keep our head above water while planning for the future? Or better yet, don’t do anything at all. I don’t see any of this getting too much better until the cost of the basics (food, housing, and health care) start getting back in line with historical income percentages, and the way just the broad employment and housing numbers are looking right now, we’ve got a ways to go.