Economic Crisis

[melporcristo]

[quote name='Raphael' post='1656679' date='Sep 16 2008, 09:21 AM']We have an entire generation of selfish adults who never truly grew up; they have no family values and they see one another as means to an end. Now, I ask you...what will happen when this generation does face a true economic crisis?[/quote]

Amen!
I find myself sometimes in that bracket of selfish adults ... spending money on stupid stuff like those pesky .99 cent songs on iTunes ... but then again, I haven't bought music in a while thankfully.

But this reminded me of a funny email I got about the recent candidates on the economy:

[quote]A president's pension currently is $191,300 per year, until he is 80 years old.

Assuming the next president lives to age 80. Sen. McCain would receive ZERO pension as he would reach 80 at the end of two terms as president. Sen. Obama would be retired for 26 years after two terms and would receive $4,973,800 in pension.

Therefore it would certainly make economic sense to elect McCain in November.

How's that for non partisan thinking???[/quote]

... i don't want a debate either ... but i thought this was hilarious & having to do with the economy.

[corban711]

[quote name='melporcristo' post='1657228' date='Sep 17 2008, 12:05 AM']Amen!
I find myself sometimes in that bracket of selfish adults ... spending money on stupid stuff like those pesky .99 cent songs on iTunes ... but then again, I haven't bought music in a while thankfully.

But this reminded me of a funny email I got about the recent candidates on the economy:



... i don't want a debate either ... but i thought this was hilarious & having to do with the economy.[/quote]

[CatherineM]

McCain makes better financial sense. I never thought of it that way. Maybe as a cost saving measure we should raise the age of Presidency from 35 to 65.

I do agree that we have produced a generation of kids who have faced no real adversity, known very little want, and have been told from day one that they are perfect and can do no wrong. As some of you know, I'm in a special treatment program for PTSD. Most of my doctor's other patients are refugee torture survivors from Africa or the Middle East, and soldiers returned from Afghanistan. Most are much younger than I am, even the doctor is. He told me that in his research of PTSD, he found that people from protected backgrounds are much more likely to develop PTSD from much lower traumas because it is all in how we process things. It is a reaction to protect us from trauma outside our normal experience. If our normal experience is sheltered, then it will take a much lower threshold to be a shock to the system.

How are kids going to survive who have never known not having a car or a cellphone? When I tell someone that we don't have a car or cellphone, or even cable TV, they look at me like I'm Amish or something. A couple of years ago, we had this crazy housing boom fueled by the oil sands development. Elderly women on fixed incomes were seeing their rents doubled and then tripled. There was a story about a single mother who couldn't pay her rent increase, and in it they mentioned that she was even going to have to turn off the cable to feed her kids. They made it sound like she was selling a kidney it was so horrific to live without cable. Don't get me wrong, the boom crushed, and continues to crush a lot of people, but I'm still amazed at how upset people were that this woman and her kids were going to have to live without cable. When you go into court for chapter 13 bankruptcy, that's the first thing the judge makes you give up is cable tv and cellphone.

[LouisvilleFan]

[quote name='philothea' post='1656949' date='Sep 16 2008, 08:27 PM']I'm not generally all that optimistic a person, but I think the economy will be fine... and I knew this was going to happen 5 years ago. The American economy is still very strong -- most people are able to buy everything they need, and lots more. When I see "poor" areas full of people driving big gas guzzlers a long way to buy their cigarettes... they're clearly not really all [i]that[/i] bad.

No doubt a bunch of profligate folks are learning some moderately hard lessons about how you can't pay for your house with wishful thinking, and you can't always buy everything that strikes your fancy. And the lenders were incredibly stupid to put themselves at risk with the ridiculous lending practices. But it really shouldn't affect too much else. (Though the stock market is always twitchy. *grumble* Bad time to start living off your IRA, I think.)

What we need for a big recovery, BTW, is some spiffy new technology. So get working, all you smart kids![/quote]

For now the problems are restricted to Wall Street. The threat that concerns everyone is what the failure of Lehman Brothers, AIG, etc. does to liquidity. Companies rely on a daily flow of billions of dollars to balance their accounts, and that flow of money runs through banks and investment firms. All this happens behind the scenes, but if three of our of the major sources of liquidity are suddenly bankrupt and other banks rightly become very cautious about lending out money, then we're in a situation where grocery stores aren't receiving shipments, employees don't get paid, and small businesses and consumers struggle to get loans even for worthwhile purchases.

Of course, this is why the Fed is lending out billions and billions of dollars to these companies to protect liquidity, meanwhile removing a lot of restrictions that exist to protect consumers and the economy. Now banks can use stocks as collateral for a loan from the Fed and they're allowed to use your savings to shore up some mortgage lenders' bad loans. There's a lot of free money sloshing around, which means inflation is becoming a greater threat, and the real disaster that we're not seeing yet is probably just being postponed. This stuff hasn't directly affected our lives yet, but it's headed that way.

The good news is, it probably won't be another Great Depression. But it could get pretty messy.

[philothea]

[quote name='melporcristo' post='1657228' date='Sep 17 2008, 12:05 AM']Amen!
I find myself sometimes in that bracket of selfish adults ... spending money on stupid stuff like those pesky .99 cent songs on iTunes ... but then again, I haven't bought music in a while thankfully.[/quote]



Dude.

Buying iTunes, even a WHOLE LOTTA iTunes, isn't even in the ballpark of the kind of selfishness that's led to this problem. More like buying a $700,000 new house through fancy loan shenanigans, when all you can honestly afford is a $300,000 one. Plus two luxury SUVs. And so much other stuff that you can't even fit your big, new SUVs in your big, new garage because it's full.

[philothea]

[quote name='LouisvilleFan' post='1657376' date='Sep 17 2008, 11:26 AM']For now the problems are restricted to Wall Street. The threat that concerns everyone is what the failure of Lehman Brothers, AIG, etc. does to liquidity. Companies rely on a daily flow of billions of dollars to balance their accounts, and that flow of money runs through banks and investment firms. All this happens behind the scenes, but if three of our of the major sources of liquidity are suddenly bankrupt and other banks rightly become very cautious about lending out money, then we're in a situation where grocery stores aren't receiving shipments, employees don't get paid, and small businesses and consumers struggle to get loans even for worthwhile purchases.

Of course, this is why the Fed is lending out billions and billions of dollars to these companies to protect liquidity, meanwhile removing a lot of restrictions that exist to protect consumers and the economy. Now banks can use stocks as collateral for a loan from the Fed and they're allowed to use your savings to shore up some mortgage lenders' bad loans. There's a lot of free money sloshing around, which means inflation is becoming a greater threat, and the real disaster that we're not seeing yet is probably just being postponed. This stuff hasn't directly affected our lives yet, but it's headed that way.

The good news is, it probably won't be another Great Depression. But it could get pretty messy.[/quote]

Yep, yep. Agreed.

I get a little annoyed when people blame "Wall Street" for the problem, and then they get mad at the Fed for bailing the assumed troublemakers out, like they're all just buddies protecting each other's backsides. This is your backside too, people!

There wasn't even, as far as I know, any actual fraud or malfeasance going on. Housing costs just kinda snowballed into unsustainable heights, and all those loans came due at roughly the same time. (Though, dang... mortgage backed securities... ... who ever thought THAT was a good idea? )

[Maggyie]

Interestingly even over all these months of turmoil, the US economy has not technically entered recession even once. Just barely, but no two consecutive quarters of negative growth.

In terms of stocks now is a pretty good time to buy! And a terrible time to sell. It's when you sell that you realize the loss so it's much smarter to just keep your head and sit on what you've got.

[LouisvilleFan]

[quote name='philothea' post='1657381' date='Sep 17 2008, 01:07 PM']Yep, yep. Agreed.

I get a little annoyed when people blame "Wall Street" for the problem, and then they get mad at the Fed for bailing the assumed troublemakers out, like they're all just buddies protecting each other's backsides. This is your backside too, people!

There wasn't even, as far as I know, any actual fraud or malfeasance going on. Housing costs just kinda snowballed into unsustainable heights, and all those loans came due at roughly the same time. (Though, dang... mortgage backed securities... ... who ever thought THAT was a good idea? )[/quote]

Well, mortgaged-backed securities benefit us by enabling the bank or credit union you receive a mortgage from to package your mortgage with a thousand or more others and sell them like a bond. The banks gets the future cash value today and can lend that money back out to other individuals and businesses, instead of being tied up with your mortgage on the books. Perhaps they worked too well and made borrowing too cheap and easy. There are so many players, the blame is difficult to pin on anyone in particular.

Friend of mine who lives a block from me was approved for three times the house that he and his wife bought, and they thought he was crazy for not getting the most house they would let him borrow for. But he knew from his financials what he could actually afford, which is basically a two-bedroom shotgun, and they struggle to pay for that much. Most people, however, don't have that kind of discipline or simply don't know enough about their finances to make those decisions. They figure if the bank says they can afford it, then they can afford it. When you consider that the majority of homebuyers over the last ten years or so have been borrowing $100K or $200K more than they can actually afford, that quickly adds up into the millions and billions across America.

Just doing a quick back-of-the-napkin calculation:
50 million homebuyers * $200,000 in unwarranted loans = $10,000 billion

2007 GDP = $13,808 billion

We'll have to pay the price eventually, and unfortunately a lot of responsible or otherwise innocent people will get punished right along with the guilty parties.

Edited September 17, 2008 by LouisvilleFan

[Norseman82]

The immediate cause of this crisis was brought upon by two problems in the mortgage industry:

1) Availability of ARMs (adjustable rate mortgages)
2) Interest-only mortgages (meaning you did not pay down principal)

These enabled speculation in which people bought property in "hot" areas that they thought they could "flip" in a year or two. However, when prices dropped, people found themselves owing more on the mortgage than what the property was worth. If we remember history, many - if not most - financial crashes in the USA were fueled by some sort of speculation.

Additonally, I remember when I refinanced about 4 years ago. All the lender seemed to care about was whether my current pay was enough to make the payments and whether or not I had enough to pay the refinancing costs. It was so easy it was a joke. Additionally, there is so little due diligence that there were reports of people being able to obtain mortgages using other people's identities.

Edited September 17, 2008 by Norseman82

[CatherineM]

There were a lot of mortgage funny business in Florida. People without incomes getting million dollar loans, little old ladies talked into mortgages to fix their roof, and the money disappears along with the roofer, you name it. Florida attracts riff raff. That's why I moved there in the first place.

[melporcristo]

[quote name='philothea' post='1657378' date='Sep 17 2008, 09:56 AM']

Dude.

Buying iTunes, even a WHOLE LOTTA iTunes, isn't even in the ballpark of the kind of selfishness that's led to this problem. More like buying a $700,000 new house through fancy loan shenanigans, when all you can honestly afford is a $300,000 one. Plus two luxury SUVs. And so much other stuff that you can't even fit your big, new SUVs in your big, new garage because it's full.[/quote]

oh ... phewww.
JK - yea i know, I just wanna be a good witness you know? And I agree - we are over doing it on the splurging in America. This makes me wonder if I really even need a cell phone; I hate the things but bc of safety reasons, I never really wanted to go without one. Now that I'm living in a very small town - I never ever need my cell! Everyone just calls me at my house and visa versa. Also, people here are very simplistic and that calls me on to live even more simpler. They garden and farm their foods, they even barter things Its so old skool but it totally works!

[LouisvilleFan]

This is pretty big news: [url="http://biz.yahoo.com/ap/080918/wall_street.html"]Government will create entity to take on banks' bad debt[/url].

I don't have much memory or knowledge about the S&L crisis of the 80s, so this is the first time I heard about the RTC created by Congress in 1989 to absorb all the bed debt from that snafu and dispose of the assets. This a similar plan. Not sure how I feel about it, especially since the details are yet unknown, but sounds like it amounts to banks writing off a lot of debt, turning over the assets to this entity, and letting the government sell it off over the next few years. Considering the debt is considered worthless anyway and this means the Fed won't be throwing countless billions of dollars at the problem ad inifinitim, it's probably good news.

[philothea]

Oh, excellent! Thanks for the link.

I was getting too depressed to check financial news anymore...

[Autumn Dusk]

I don't think that we're going to go into a depression if people are smart. I think many, for the first time are learning the difference between needs and wants.

For instance, in many college dorms ramen noodle is a joke. You don't eat it becuase you HAVE to, you eat it becuase you LIKE it. Most kids can afford the $1 cup of pre-packaged easy mac any day. Many stock the $2 "Bowl Appitites" without issue. $2 for 10 cents of noodles and maybe a quarter worth of coagulated milk. But it shows that these kids are either being supported by their parents (who have the money to do so) or are scraping by and buying the more expensive junk becuase they don't know any better.

My meals run me about 45 cents to $2.50 Thats for my whole meal, veggie (sometimes meat) and startch and milk/coagulated milk plus a cup of juice. I eat alot of beans, rice & lentils, I eat ramen frequently and other such things. But, say toninight, I splurged and had sourkrout (half can = 50 cents) one fourth of a piece of hilshire farms kielbasa ( at 2.50 for the meat that means I ate 60 cents worth) and then five perogies from a 10 pack (so 50 cents worth of perogies. Then a cup of grape juice (non-corn syrup juice is 2.50 for a half-gallon)...around 50 cents. My entire meal was 2.10 You can't go to any fast food place and get a drink and a value burger for that little. If I eat lentils and rice then I can eat for less than 45 cents even with a few dashes of hot sauce.