Wednesday, September 24, 2008

Financial Crisis

My initial thoughts on the $700 Billion dollar bail out were OK. A few days later I'm swinging my opinion. My personal stock portfolio has declined some 10 - 15%. However I am within 5 months of having my home paid off, I have no significant debt other than one piece of investment property and an auto loan on my home equity line of credit. I am meeting my bills, fulfilling my fiscal obligation, paying taxes and working for a living.

Yesterday on PBS I heard a report that there are roughly 51.4 million first mortgages outstanding in the U.S. Of those 51.4 about 1.2 million are in foreclosure, that is less than 3%. So where is the problem? It lies in the fact that greedy bastards bundled those mortgages together and sold them as an investment instrument to other greedy bastards and now they are unsure of the value of those bundles. Why? Because a bunch of other greedy bastards got into the business of house flipping trying to make a buck quickly. The rise in value of homes in parts of American was unprecedented, and now it appears unwarranted. In the past when home loans were handled in local banks people were forced to save money to get a down payment sufficient to create sound collateral for local banks to loan money. It wasn't all that long ago folks.

When some bright investment person figured out that they could sell bundles of mortgages, get the money from that sale and re-lend the money for more mortgages we entered the era of easy credit. In the feeding frenzy that resulted people got into the business of trying to buy homes low and sell high to turn a profit. Then someone figured out the price of homes was becoming greater than people could afford so lets get creative in devising methods for people to increase their leverage and take greater risk. Come on people, who and the hell would take out a low interest loan that would have some huge payment readjustment within a year thinking they would then be able to make the payments. The purpose was so they could flip the house. So you have greedy people risking all to gain wealth, you have greedy loan originators selling loans to persons who were not credit worthy, selling bundles of loans to greedy investors who didn't know what they were buying.

Caveat emptor means let the buyer beware. Now they ask the rest of us to bail them out. In the meantime some people will walk away with huge "golden parachutes" and I will provide money to bail these greedy shits out. Baloney. Fuck'em all! Free market practices reward risk, but there is a down side to risk and the person taking the risk bears the brunt of that burden. So let them wait and sort out the mess through the foreclosure process. Let credit dry up, this country wasn't founded on credit, nor did it become great on credit. What about the huge amounts of credit tied up in credit cards and student loans. Do I have an obligation to cover everyone else's inability to measure risk and reward. I do not believe so. Will this country survive? Sure, there are 50.2 million borrowers out there making their house payments and trying to contribute to the American dream. It is time for a major readjustment in our way of life.

1 comment:

  1. We had a presentation lately from our 401(k) provider because of the latest market fluctuations. He told us that the rate of savings by Americans went from an all-time high of 25% in 1970 to -1.8% in 2007. That means that bottom line, people are spending more than they bring in.

    The problem with that (outside of the eventual problem that you at some point have to pay those bills) is that our economy is driven by consumer spending. So all incentives are to spend spend spend, thus the upside down savings rate. Yet how do you encourage people to save without negatively impacting the economy?

    You don't. Time for a "correction."