[Wiskedjak]

Originally Posted by Uncle Skeleton 

1. If you can accept the "too big to fail" line, then the combination of banks that would fail are collectively "too big."

I can buy the "too big to fail" line. But, if it's so big that it's failure negatively impacts the rest of the nation, then it should be considered infrastructure and should run by the nation. The fate of a nation should not sit in the hands of a few self-interested individuals.

[Eug]

Originally Posted by Uncle Skeleton 

Why? Or did you mean to say if he wants to get a car loan and a mortgage? I have a mortgage and the banking industry wasn't helping me at all with it, even when they were flying high. The only effect I can think of for a crash on people who have mortgages is that sometimes if the banks are in trouble they re-negotiate better terms for borrowers who are in trouble. They aren't as likely to do that after they get bailed out, are they?

Think of it this way. If credit dries up, they may not give you a mortgage at all when you're up for renewal, if your situation isn't an ideal one.

For example (and I'm just making up numbers because I don't have time to do all the calculations at the moment):

Let's say you bought a house with 10% down. You have a stable job, and your credit rating is reasonable, but not stellar. You're not sub-prime, but you're not AAA prime rib either. Because of all the sub-prime mortgages that have defaulted, housing prices in your area have dropped 15%, so that at the end of your mortgage term, you still only have about 10% equity in the home despite all the payments you made over those years.

Come renewal time you bank says, sorry bud, go borrow from someone else. And the next bank says the same. And so on. Eventually you may find a bank to loan to you, but in the meantime you're totally stressed out (as is the rest of the US), and it will be at higher rate if you do finally get that loan.

Tightening up is actually good thing to a certain extent, but the key is that it's all a delicate balance. A quick and severe credit crunch can be catastrophic.

[Wiskedjak]

Originally Posted by Uncle Skeleton 

Is that supposed to be a bad outcome?

I don't think you want a foreign nation, and a potentially hostile one at that, owning your financial infrastructure.

[turtle777]

Originally Posted by Uncle Skeleton 

But more importantly if you want to talk about track records, I'm not in financial trouble, I do have savings, and you're suggesting that I should pay to prop up the guys who just pissed away $700B. Because their track record is so stellar? That makes zero sense. I started this thread to ask people why that makes sense. Your post is definitely pushing me in the opposite direction.

NOT having gotten in trouble with personal finances is great and speaks opositively about that person.

However, the knowledge and understanding HOW to NOT get in trouble with personal finances is NOT the same knowledge and expertise that you'd need to solve the current economic crisis.

So even if someone has a great personal track record of handling his finances well, that doesn't make his "opinion" the right solution.
All he could contribute is how it SHOULD HAVE been handled, but not how to get out of the sh!t we're in right now.

That's why I say, we have (unfortunately) no other choice than hoping and believing that the "experts" (those that by education, experience and acumen should now how to solve this) take a stab at this.

In that regard, the following people I don't consider experts:
* Joe Dumbass
* Joe Smart (who saved all his life)
* politicians
* interest groups
* democrats, socialists and communists

-t

[ebuddy]

Originally Posted by Uncle Skeleton 

Why? Or did you mean to say if he wants to get a car loan and a mortgage? I have a mortgage and the banking industry wasn't helping me at all with it, even when they were flying high. The only effect I can think of for a crash on people who have mortgages is that sometimes if the banks are in trouble they re-negotiate better terms for borrowers who are in trouble. They aren't as likely to do that after they get bailed out, are they?

Edit: actually this is a very good question from my perspective, because I was having a hard time answering Mrs. S. on the very same thing, how does she benefit from a healthy finance industry? She doesn't use credit, doesn't have investments, and is not planning to in the foreseeable future. My only argument to her is that she should want to use those things, because they can make you rich(er). Can you do any better than I did?

LIkely not, but I can parrot the talking points of those I'm not certain I agree with.

Mrs. S' employer likely uses credit as part of their standard business model. If Mrs. S' employer cannot buy in larger bulk, they cannot sell as large a bulk as they used to. This may mean ONLY selling those goods they can afford to keep stocked from the profit of the prior sold-goods. i.e. less goods going to market, less *perceived* profit, less money for Mrs. S and the S-lets or worse; smaller company may not be able to keep her employed at all. You all with savings dwindling due to decreased quantity/increased costs of goods and making less money or unemployed, may not have enough saved to repair the roof on your home. You may seek a loan, but a loan is not available to you. Your roof leaks and causes damage to the load-bearing walls. Major overhaul is required on the structure of the home, but the last bit of savings available went into slapping some cheap roofing material over the holes yourself. Meanwhile, your house plummets in value and upon foreclosure, the home is worth half what it was in terms of market value and half of that again in terms of its shoddy condition. Again, I'm not certain of any of this, but it's the snowball effect I think people are supposing this bail-out avoids.

Personally, I don't see why it should work because all of the above could easily happen regardless. If all of us tighten up and not take new loans, no new money enters the market. You'll have to again decrease regulation so that the current debt to new debt ratio can exceed 1:9, 1:20, 1:40...

[Andrew Stephens]

So, we all know that there are some MAJOR businesses out there whose recent financial performance has been less than impressive (I'm lookin' at YOU FoMoCo). Given that Ford have posted some humdinger losses ($12.7 bill in 2007) and that there recovering and indeed continued existence depends on bank finance, are we looking at a potential second wave of non banking failures as a result of non supportinve banking practice?

Oh I forgot GM's $38.7 bill tanking too. Are these sort of performances now unsustainable even in the short term?

[Uncle Skeleton]

Originally Posted by Wiskedjak 

I can buy the "too big to fail" line. But, if it's so big that it's failure negatively impacts the rest of the nation, then it should be considered infrastructure and should run by the nation. The fate of a nation should not sit in the hands of a few self-interested individuals.

Yes! Thank you. I have been trying to articulate that, but each time I end up deleting it because I couldn't put it into words that didn't sound wrong. Also because I'm not certain I'm correct in thinking this. Does anyone disagree with this post? Namely its correlate, that if you believe the banks (or anything) should be private then it must not be "too big to fail."

[Uncle Skeleton]

Originally Posted by Eug 

Think of it this way. If credit dries up, they may not give you a mortgage at all when you're up for renewal, if your situation isn't an ideal one.

For example (and I'm just making up numbers because I don't have time to do all the calculations at the moment):

Let's say you bought a house with 10% down. You have a stable job, and your credit rating is reasonable, but not stellar. You're not sub-prime, but you're not AAA prime rib either. Because of all the sub-prime mortgages that have defaulted, housing prices in your area have dropped 15%, so that at the end of your mortgage term, you still only have about 10% equity in the home despite all the payments you made over those years.

Come renewal time you bank says, sorry bud, go borrow from someone else. And the next bank says the same. And so on. Eventually you may find a bank to loan to you, but in the meantime you're totally stressed out (as is the rest of the US), and it will be at higher rate if you do finally get that loan.

Tightening up is actually good thing to a certain extent, but the key is that it's all a delicate balance. A quick and severe credit crunch can be catastrophic.

Mortgages here don't have renewals. Got anything else?

I will say that the only thing Mrs. S. did bite on is that our property's value will be lower if no one can afford it because they can't get a mortgage. But that alone is not worth $700B, because aside from the fact that it's completely self-serving, the bailout will just cause inflation and the artificially propped up price of our property will not be worth it.

[Uncle Skeleton]

Originally Posted by Wiskedjak 

I don't think you want a foreign nation, and a potentially hostile one at that, owning your financial infrastructure.

Why? They already own most of our debt and build most of our technology. Closing the barn door after the horse has fled?

[Uncle Skeleton]

Originally Posted by turtle777 

NOT having gotten in trouble with personal finances is great and speaks opositively about that person.

However, the knowledge and understanding HOW to NOT get in trouble with personal finances is NOT the same knowledge and expertise that you'd need to solve the current economic crisis.

No. It's less. That is why it should be one of the prerequisites for claiming to know how to solve it. If a person didn't even know how to not get in trouble in the first place, you can be pretty sure they're full of crap when they claim to know how to get out of it. You can't appeal to an authority that is demonstrably less qualified than the average joe.

That's why I say, we have (unfortunately) no other choice than hoping and believing that the "experts" (those that by education, experience and acumen should now how to solve this) take a stab at this.

In that regard, the following people I don't consider experts:
* Joe Dumbass
* Joe Smart (who saved all his life)
* politicians <----------------------------------------------------------------------
* interest groups
* democrats, socialists and communists

Who exactly do you think is pushing the bailout?

Besides which, you still haven't gotten it through your thick skull shell that _there are no experts_. The supposed "experts" are doing even worse then Joe Dumbass. Joe Smart is no expert, but he's still better than the rest of those schmucks.

[Uncle Skeleton]

Originally Posted by ebuddy 

LIkely not, but I can parrot the talking points of those I'm not certain I agree with.

Mrs. S' employer likely uses credit as part of their standard business model. If Mrs. S' employer cannot buy in larger bulk, they cannot sell as large a bulk as they used to. This may mean ONLY selling those goods they can afford to keep stocked from the profit of the prior sold-goods. i.e. less goods going to market, less *perceived* profit, less money for Mrs. S and the S-lets or worse; smaller company may not be able to keep her employed at all. You all with savings dwindling due to decreased quantity/increased costs of goods and making less money or unemployed, may not have enough saved to repair the roof on your home. You may seek a loan, but a loan is not available to you. Your roof leaks and causes damage to the load-bearing walls. Major overhaul is required on the structure of the home, but the last bit of savings available went into slapping some cheap roofing material over the holes yourself. Meanwhile, your house plummets in value and upon foreclosure, the home is worth half what it was in terms of market value and half of that again in terms of its shoddy condition. Again, I'm not certain of any of this, but it's the snowball effect I think people are supposing this bail-out avoids.

Is that the long way of saying "trickle-down economics?" That at least is one term she already knew. She sure doesn't like it though, and I can hardly blame her. As much as I argued against punitively taxing the rich in the cap. gains thread, punitively taxing the poor is not an option.

[Uncle Skeleton]

Originally Posted by Andrew Stephens 

So, we all know that there are some MAJOR businesses out there whose recent financial performance has been less than impressive (I'm lookin' at YOU FoMoCo). Given that Ford have posted some humdinger losses ($12.7 bill in 2007) and that there recovering and indeed continued existence depends on bank finance, are we looking at a potential second wave of non banking failures as a result of non supportinve banking practice?

Oh I forgot GM's $38.7 bill tanking too. Are these sort of performances now unsustainable even in the short term?

So does that mean you agree with Wiskedjak? We can stop the chain reaction by socializing lending?

[Eug]

Originally Posted by Uncle Skeleton 

Mortgages here don't have renewals.

True, but do you have an ARM? Do you ever want to consider refinancing? What happens if your bank fails?

The same applies to other loans for other stuff too. What about a HELOC? What about getting a new car? What about your workplace, do they not use credit at all?

Originally Posted by Uncle Skeleton 

Joe Smart is no expert, but he's still better than the rest of those schmucks.

So what's your solution then?

P.S. I say all of this as someone who has no credit card debt, no loans other than my mortgage (with significant equity in my home), a defined benefit pension plan in a very large and conservatively managed plan so I don't have to worry much about an RRSP (or 401k in your terms), a good amount of savings, and a good job in a field where there is currently a shortage. It's not as if I need to make use of gobs and gobs of personal credit. However, I'm not foolish enough to think I'd be completely immune to a banking system with no credit.

Originally Posted by Uncle Skeleton 

So does that mean you agree with Wiskedjak? We can stop the chain reaction by socializing lending?

Ironically, I've been saying all along that the US and Canada should reduce their prop-uppage of the big three. They've been bleeding money, because their leadership has misread the markets, and their engineers have produced less than stellar products. I suggested that they needed to put up or shut up, even though this tough love could mean lost jobs in the auto sector. However, I was suggesting a slower phase out of that support. That's different than saying fsck 'em let them all fail simply because of a credit crunch.

[Andrew Stephens]

Originally Posted by Uncle Skeleton 

So does that mean you agree with Wiskedjak? We can stop the chain reaction by socializing lending?

I don't know. Even if the banks are thrown this huge lifeline, will they choose to continue to use it to support ailing businesses or will they choose to support themselves and withdraw support from almost lost causes?

[Eug]

Originally Posted by Andrew Stephens 

I don't know. Even if the banks are thrown this huge lifeline, will they choose to continue to use it to support ailing businesses or will they choose to support themselves and withdraw support from almost lost causes?

Well, they have already withdrawn support from almost lost causes. However, they've also withdrawn support from some companies that are alive and (up until recently) well. In fact, that's the main problem which this bailout is attempting to address.

I find it rather disconcerting when an entire US states are finding it difficult to get credit.

[Andrew Stephens]

Originally Posted by Eug 

In fact, that's the main problem which this bailout is attempting to address.

Even if this is the intention, given the banks are massively in a hole, why on earth, once they are topped up with cash, should they restart funds to businesses they have little faith in recouping from, at least in the short/medium term.

[Eug]

Who knows what they'll do, but you can imagine that they're under tremendous pressure to resume lending, considering the alternative to this bailout was potential decimation of (some of) their companies.

BTW, just to reiterate, the bailout is not simply handing the banks cash. The bailout is USA buying "bad" debt from the banks. Part of that debt will probably never be paid back, but a lot of it will.

Remember, banks don't want to buy that kind of debt from each other anymore because they'll probably lose money. Or in the very best of situations, it won't make them money any time soon if they hang onto it. So basically it's just dead assets. Dead not as in completely worthless, but dead as in they can't do anything with them.

Basically what the US government will be doing is taking it off their hands and keeping it, and hoping they can recoup some/much of their value by selling them when the real estate market recovers.

[Uncle Skeleton]

Originally Posted by Eug 

True, but do you have an ARM?

No I don't, I don't support the whole concept of ARMs, and I think they are nothing more than a trick for people who think they're being clever to try to game the system. If every single person who took out an ARM lost that wager and had to take a loss on their home and go back to renting until they could afford a fixed rate mortgage, I wouldn't lose a wink of sleep. In fact, if the government should be enacting any policy changes regarding ARMs, it should be to outlaw them as usurious, certainly not to subsidize them, which is what the bailout amounts to in this context. Same for HELOCs and new car financing. If you want to use them, go right ahead, but I absolutely don't think it should be the role of government to babysit that type of overextending yourself.

So what's your solution then?

Let the failures who failed... fail. They brought this on themselves, and based on what's being said about the credit markets freezing because they can't trust each other, they are continuing to bring it on themselves (why can't they just disclose their books to reinstate trust, if it's so important to their very survival?). I have absolute confidence that lending will resume in a reasonable amount of time, simply because money-lending is one of the world's oldest professions for a reason: it's a gold mine. Even in the worst case scenario, all I see is the government having to do the job themselves, and since it's an inherently profitable endeavor, even a sub-par government attempt at it couldn't cost as much as the bail-out likely will.

However, I'm not foolish enough to think I'd be completely immune to a banking system with no credit.

I'm not seeing how you're vulnerable to the credit system, other than resorting to trickle-down theory, which I think is bogus.

Ironically, I've been saying all along that the US and Canada should reduce their prop-uppage of the big three...However, I was suggesting a slower phase out of that support. That's different than saying fsck 'em let them all fail simply because of a credit crunch.

Here's another great example of "too big to fail" = the gov should take them over. Obviously these companies aren't going to phase themselves out gradually on their own initiative. Does anyone have a counterpoint to this idea yet? It seems like there must be one, otherwise we'd be doing it.

[Eug]

Originally Posted by Uncle Skeleton 

No I don't, I don't support the whole concept of ARMs, and I think they are nothing more than a trick for people who think they're being clever to try to game the system.

That's a very limited way to think of it. There are good ARMs and there are bad ones. Plus if interest rates are high, it's not always a good thing to lock in. Remember, often the lower interest period is many years. By the time those years are up, some people may have already paid down a fair chunk of the principal. (For the record, I have a fixed rate mortgage myself.)

In fact, if the government should be enacting any policy changes regarding ARMs, it should be to outlaw them as usurious, certainly not to subsidize them, which is what the bailout amounts to in this context. Same for HELOCs and new car financing. If you want to use them, go right ahead, but I absolutely don't think it should be the role of government to babysit that type of overextending yourself.

Car financing isn't just overextending yourself. Most people can't just throw down $15000 and buy a car and not think twice about it, even if some of us can. However, cars in North America are often necessities for work or transportation.

Maybe they wouldn't be if the governments built superior public transit, but unfortunately, that isn't the case.

Let the failures who failed... fail. They brought this on themselves, and based on what's being said about the credit markets freezing because they can't trust each other, they are continuing to bring it on themselves (why can't they just disclose their books to reinstate trust, if it's so important to their very survival?).

So, what if it was your bank that failed, and nobody wanted to buy your mortgage, forcing you to refinance, or else just pay off the rest with cash?

I have absolute confidence that lending will resume in a reasonable amount of time, simply because money-lending is one of the world's oldest professions for a reason: it's a gold mine.

Not in this case. Remember, the "gold mine" is what led to all these problems. Anyways, what is "a reasonable amount of time". A year? Two years?

Here's another great example of "too big to fail" = the gov should take them over. Obviously these companies aren't going to phase themselves out gradually on their own initiative. Does anyone have a counterpoint to this idea yet? It seems like there must be one, otherwise we'd be doing it.

No the car makers not going to phase themselves out slowly. However, both our governments have been keeping them going with incentives and tax breaks, etc. What I had been advocating is removing that gradually, because they simply had been underperforming. Either the smarten up, or they die. However, that's a completely different kettle of fish than killing a company by denying them credit.

[Uncle Skeleton]

Originally Posted by Eug 

That's a very limited way to think of it. There are good ARMs and there are bad ones.

Yeah, right, just like there is good gambling and bad gambling. It just depends on whether you happen to be winning or losing. But the subpopulation of people that get tempted to bet their life savings are the reason that gambling is illegal in much of the country. And for most people, the value of their house is a good portion of their life savings, if not more. I didn't say I advocate banning ARMs, I don't, but I did say that IF you insist on getting government involved, then rationally speaking it should be to discourage them, not to encourage.

Plus if interest rates are high, it's not always a good thing to lock in. Remember, often the lower interest period is many years. By the time those years are up, some people may have already paid down a fair chunk of the principal. (For the record, I have a fixed rate mortgage myself.)

That is a complete misrepresentation of ARMs. If interest rates are good when they reset, you could just as easily refinance (this is what the customers are banking on when they sign up, no pun intended). If rates are not good, then you're stuck because refinancing would be about as bad (this is what the banks anticipate). The banks know this, the customers know this, and I'm having a hard time believing that anyone would ever think differently. No one involved actually expects ARMs to be held for the whole 30 years.

Car financing isn't just overextending yourself. Most people can't just throw down $15000 and buy a car and not think twice about it

In that case, it is overextending yourself. Paying more than you can currently afford on a depreciating asset is overextending yourself. I don't expect anyone to make that big a purchase litterally "without thinking twice," but don't you think that if you're doing so on credit, that is a problem? I don't see any reason to think about it differently depending on whether it's cash or credit, unless you don't intend to honor your debts (in which case there is a problem!). Oh yeah, and:

However, cars in North America are often necessities for work or transportation.

Then get a beater. Access to a brand new car is not something the government should be in the business of ensuring, for anyone let alone for everyone.

So, what if it was your bank that failed, and nobody wanted to buy your mortgage, forcing you to refinance, or else just pay off the rest with cash?

That's not how it works. Someone correct me if I'm wrong, but in the unlikely event that my lender fails and there are no other lenders or anyone else left to buy my note, I wouldn't have to pay any more. I think what you're thinking of is if the borrower goes under.

Anyways, what is "a reasonable amount of time". A year? Two years?

Yes, that's about what I was thinking.

[Eug]

Originally Posted by Uncle Skeleton 

In that case, it is overextending yourself. Paying more than you can currently afford on a depreciating asset is overextending yourself. I don't expect anyone to make that big a purchase litterally "without thinking twice," but don't you think that if you're doing so on credit, that is a problem?

Why not extend the same logic to a home purchase? Basically you're saying that since you can't afford to buy a house, you shouldn't own one, at least in a market when homes are depreciating in value.

Then get a beater. Access to a brand new car is not something the government should be in the business of ensuring, for anyone let alone for everyone.

Having owned a beater myself, I will say that is something I wouldn't necessarily recommend. The ongoing repair costs can be killer, it always sucks when you're on your way somewhere important and the car breaks down. I should know, cuz this has happened to me on more than one occasion.

And let's put it in a different perspective. Someone is running a landscaping business. His old (beater) truck is costing him way too much in ongoing maintenance and repairs, and he is extremely uncomfortable using it in his business, because it is unreliable. So he wants to purchase a new (or relatively new) truck for the business. He needs credit. Your view on credit suggests he's irresponsible to try to further his business this way, even though it actually makes good business sense to update the vehicle.

Two years for a credit crunch would be a disaster for the US economy. I'm surprised people can't see that.

Originally Posted by Uncle Skeleton 

Yeah, right, just like there is good gambling and bad gambling. It just depends on whether you happen to be winning or losing. But the subpopulation of people that get tempted to bet their life savings are the reason that gambling is illegal in much of the country. And for most people, the value of their house is a good portion of their life savings, if not more. I didn't say I advocate banning ARMs, I don't, but I did say that IF you insist on getting government involved, then rationally speaking it should be to discourage them, not to encourage.

Thanks. I thought you'd use this argument. You should note that most countries don't even have 30 year term fixed rate mortgages. Some countries will have 3, 5, 10 year terms for fixed rate mortgages, which require refinancing at the end of the term. Despite this, the rate of people losing their homes is WAY lower in some of these places than in the US.

ie. Many countries have "fixed" rate mortgages that essentially function like ARMs in the US with extended initial fixed rate terms, yet they still do better with them than Americans. The reason for this is the more conservative fiscal practices by both the borrowers and the banks... partially because of government oversight and regulation.

[Chuckit]

Originally Posted by Eug 

Why not extend the same logic to a home purchase? Basically you're saying that since you can't afford to buy a house, you shouldn't own one, at least in a market when homes are depreciating in value.

There is no market in which homes are depreciating in value in the long run — well, aside from places that are about to fall into the ocean, I guess.

[Uncle Skeleton]

Originally Posted by Eug 

Why not extend the same logic to a home purchase? Basically you're saying that since you can't afford to buy a house, you shouldn't own one, at least in a market when homes are depreciating in value.

Um, yeah? Sounds like good advice to me.

Having owned a beater myself, I will say that is something I wouldn't necessarily recommend. The ongoing repair costs can be killer, it always sucks when you're on your way somewhere important and the car breaks down. I should know, cuz this has happened to me on more than one occasion.

There is no way your ongoing repair costs were more than the payments on a new car would have been. Also, there's a middle ground. $5000 is enough to get a reliable vehicle, if it's not doubling as a status symbol. $2000 probably in most cases, if you shop around and use your brain.

And let's put it in a different perspective. Someone is running a landscaping business. His old (beater) truck is costing him way too much in ongoing maintenance and repairs, and he is extremely uncomfortable using it in his business, because it is unreliable. So he wants to purchase a new (or relatively new) truck for the business. He needs credit. Your view on credit suggests he's irresponsible to try to further his business this way, even though it actually makes good business sense to update the vehicle.

It all depends on what you mean by "relatively new." Most trucks 5-8 years old would fill his needs, but I'm having a hard time swallowing your claim that one would cost $15,000. And if his business can't afford $5000-6000 for such an expense, then maybe he doesn't need it that badly. Plus as a business loan, it will be easier to find a lender.

Two years for a credit crunch would be a disaster for the US economy. I'm surprised people can't see that.

I'll tell you what I can see. Compared to what we've been used to over the last 10 years, just living within our means like we should have been doing the whole time would look like "a disaster" to a lot of people. That doesn't mean it really is one. If you take a person that honestly can't afford to drive a brand new Escalade but who's been driving one for a year on credit, and you tell that person they have to give up their Escalade for a used minivan, they'll see it as a disaster. But it's not, it's just reality. Do you know the frog in the boiling water cliché?

Secondly, if there is such an unbelievable demand for credit, someone will step in to provide it. Either new banks, or foreign banks, or the government itself as mentioned earlier. Hell, I'd do it.

You're making it out like the (current) banks have got us by the balls. I think that's just what they want us to think. Why wouldn't they want us to think that?

Thanks. I thought you'd use this argument. You should note that most countries don't even have 30 year term fixed rate mortgages. Some countries will have 3, 5, 10 year terms for fixed rate mortgages, which require refinancing at the end of the term. Despite this, the rate of people losing their homes is WAY lower in some of these places than in the US.

Most countries do a lot of things differently than the US. I bet dollars to doughnuts those countries' credit law landscape is different from the US too, making the "we could live without credit if necessary" issue incomparable with the US. I bet the adjustments in ARM rates are more tightly regulated too, and the "teaser" rates as well. I'm sorry for only talking about the situation in the US in the thread about the US bailout, but I'm not that sorry.

[Eug]

Originally Posted by Uncle Skeleton 

There is no way your ongoing repair costs were more than the payments on a new car would have been. Also, there's a middle ground. $5000 is enough to get a reliable vehicle, if it's not doubling as a status symbol. $2000 probably in most cases, if you shop around and use your brain.

It all depends on what you mean by "relatively new." Most trucks 5-8 years old would fill his needs, but I'm having a hard time swallowing your claim that one would cost $15,000. And if his business can't afford $5000-6000 for such an expense, then maybe he doesn't need it that badly. Plus as a business loan, it will be easier to find a lender.

Well, you're right, $15000 might not be necessary, but $5000 might be a bit low too. However, half decent larger trucks might go for $40000 new depending on the fixins, so even $15000 might be low depending on the needs of the business.

However, you should rethink your last line. That's EXACTLY what this is all about. People are already having problems finding business loans, for businesses that have been historically stable and above board.

Secondly, if there is such an unbelievable demand for credit, someone will step in to provide it. Either new banks, or foreign banks, or the government itself as mentioned earlier. Hell, I'd do it.

No you wouldn't. You'd consider those people to be too high risk. Hell, even the foreign banks are balking at buying US banks in general.

Or are you hoping for the 18% interest of the 80s?

You're making it out like the (current) banks have got us by the balls. I think that's just what they want us to think. Why wouldn't they want us to think that?

They do have you by your balls. You have a mortgage with one don't you?

Most countries do a lot of things differently than the US. I bet dollars to doughnuts those countries' credit law landscape is different from the US too, making the "we could live without credit if necessary" issue incomparable with the US. I bet the adjustments in ARM rates are more tightly regulated too, and the "teaser" rates as well. I'm sorry for only talking about the situation in the US in the thread about the US bailout, but I'm not that sorry.

Exactly. I've been saying for years that US mortgage regulations are stupid and should change. This is a great time to introduce new regulation and oversight in the US, but in the meantime the crisis needs to be addressed.

In any case, the argument is moot, as the bill has already been passed.

[Uncle Skeleton]

Originally Posted by Eug 

Well, you're right, $15000 might not be necessary, but $5000 might be a bit low too. However, half decent larger trucks might go for $40000 new depending on the fixins, so even $15000 might be low depending on the needs of the business.

I'm curious what "fixins" you are thinking of that could possibly be considered "needs of the business," given that you're supposedly arguing for something this hypothetical fellow is having to finance because he doesn't have the money to pay for it.
Edit: btw, the kelley blue book private-party value of a 2000 F150 starts at about $3000-3500.

However, you should rethink your last line. That's EXACTLY what this is all about. People are already having problems finding business loans, for businesses that have been historically stable and above board.

It's interesting that you chose landscaping, because as a big part of the construction boom that fed off the housing boom, landscaping is no doubt in for a big decline due to a glut of newly built homes, even though it has been historically stable and above board (and will be again). In this case, I would be inclined to side with the bank, and say they might know a lot better than the landscaper whether he can afford to grow his business right now or whether he has to cut back.

They do have you by your balls. You have a mortgage with one don't you?

Haha! If that's the way you feel just from a consensual contract like a mortgage, I have to wonder what you think is superior about your goofy Canadian terms. I feel more like I got the upper hand on the bank than vice versa.

In any case, the argument is moot, as the bill has already been passed.

No, it's not moot. Lawmakers are still accountable to their constituencies, and I predict the bailout issue will still have a major impact on the presidential race, and depending on how the people move on it, its implementation could still be entirely up in the air.

[turtle777]

Originally Posted by Uncle Skeleton 

Who exactly do you think is pushing the bailout?

Define "pushing".

What counts for me: business leaders and economists that say that the bailout is the lesser evil.

-t

[Eug]

Originally Posted by Uncle Skeleton 

I'm curious what "fixins" you are thinking of that could possibly be considered "needs of the business," given that you're supposedly arguing for something this hypothetical fellow is having to finance because he doesn't have the money to pay for it.
Edit: btw, the kelley blue book private-party value of a 2000 F150 starts at about $3000-3500.

Errr... That's a 9 year-old truck. Like I said before, often times getting a beater is false economy.

And I guess you've never heard of modifications for specific businesses.

It's interesting that you chose landscaping, because as a big part of the construction boom that fed off the housing boom, landscaping is no doubt in for a big decline due to a glut of newly built homes, even though it has been historically stable and above board (and will be again). In this case, I would be inclined to side with the bank, and say they might know a lot better than the landscaper whether he can afford to grow his business right now or whether he has to cut back.

I thought you said it would be easier for a business to get a loan? You keep changing your argument.

Or to make you happy, we can change it to another business that just happens to need a truck too.

P.S. Getting a new truck doesn't necessarily mean growing a business. It might mean the prevention of loss of business.

Haha! If that's the way you feel just from a consensual contract like a mortgage, I have to wonder what you think is superior about your goofy Canadian terms. I feel more like I got the upper hand on the bank than vice versa.

I guess it's nice you can feel superior. I wonder what your cousin Mack would say if he didn't get his mortgage because the mortgage market tightened up, even though his credit history and credit rating is as good as yours. Do you tell him he deserves that because he's not as smart as you?

It's easy to play smug when you just happened to get lucky and get in at the right time. In any case, I got an excellent deal with my mortgage. Well below posted rates, and flexible repayment plans. But it's still not the same thing as buying a house outright in cash, as I still have to hand over interest to the bank. I don't feel smug about my relatively good deal either. I know I'm fortunate to be in the situation that I am. Some through hard work, but some just through luck and timing.

[turtle777]

Originally Posted by Uncle Skeleton 

Let the failures who failed... fail. They brought this on themselves,

At the root of this crisis is GREED. Not only Wall Street's, but also Main Street's, trying to live a life they could and should have never been able to afford. Main Street brought this upon us as much as Wall Street did.

So, if you don't bail out the economy, EVERYONE will fail, not just Wall Street.

I really hate all those farking idiots that think that Wall Street could / should completely fail, but expect that their little lives would not be effected. How ****ing naive.

These people show that they have no grasp at all about life and the economy. For them, water comes out of the tap, electricity out of the socket and money out of the ATM. That's how far their understanding goes.

Unfortunately, those idiots are allowed to vote. Aarrrrgh.

-t

[Uncle Skeleton]

Originally Posted by Eug 

Errr... That's a 9 year-old truck. Like I said before, often times getting a beater is false economy.

And like I said before, there's a middle ground. 10 years shouldn't be the EOL for an automobile, but even if you're going to play it safe, $5000 should be enough.

And I guess you've never heard of modifications for specific businesses.

Then you're not talking about transportation, you're talking about industrial equipment.

I thought you said it would be easier for a business to get a loan? You keep changing your argument.

What I meant is that the reason business loans are easier is because they make money rather than consume it. If this situation isn't going to make money and the bank realizes this and the landscaper doesn't, well, reality is what it is.

I guess it's nice you can feel superior. I wonder what your cousin Mack would say if he didn't get his mortgage because the mortgage market tightened up, even though his credit history and credit rating is as good as yours. Do you tell him he deserves that because he's not as smart as you?

I'm going to ignore whatever bizarre projecting you're doing and just say that mortgage standards change all the time, daily even. That doesn't necessarily constitute a disaster.

It's easy to play smug when you just happened to get lucky and get in at the right time. In any case, I got an excellent deal with my mortgage. Well below posted rates, and flexible repayment plans. But it's still not the same thing as buying a house outright in cash, as I still have to hand over interest to the bank. I don't feel smug about my relatively good deal either. I know I'm fortunate to be in the situation that I am. Some through hard work, but some just through luck and timing.

No, you don't feel smug, apparently you feel like they got you by your balls. I still don't understand where that idea came from. I don't feel smug; I was just answering your erroneous suggestion, when you brought it up.

[Eug]

Originally Posted by Uncle Skeleton 

What I meant is that the reason business loans are easier is because they make money rather than consume it. If this situation isn't going to make money and the bank realizes this and the landscaper doesn't, well, reality is what it is.

I'm going to ignore whatever bizarre projecting you're doing and just say that mortgage standards change all the time, daily even. That doesn't necessarily constitute a disaster.

Well, the point is, I'm telling you what the current reality is, and you keep coming up with excuses as to why it's OK.

The bottom line is that there IS a credit crunch, and legitimate businesses are already having trouble obtaining credit, and that credit is necessary for the basic function of businesses.

I do agree one should always be skeptical of various proposed policies, but your suggested solutions to the situation seem shockingly naive, or just purposely obtuse.

What about a person who can't get a mortgage? Meh, things change. He'll get over it.
What about a landscaper who can't get a credit? Meh, he's a landscaper, so he's automatically a bad risk anyway.
What if somebody really needs a truck? Meh, he can just buy a 9 year-old beater.

[Uncle Skeleton]

Originally Posted by turtle777 

At the root of this crisis is GREED. Not only Wall Street's, but also Main Street's, trying to live a life they could and should have never been able to afford. Main Street brought this upon us as much as Wall Street did.

So, if you don't bail out the economy, EVERYONE will fail, not just Wall Street.

That is not a logical progression. It can be everyone's fault but only hurt a few, and it can be a few's fault but hurt everyone. Fault does not imply consequences. Fault only implies sympathy. Fault is why I have no sympathy for the bailout, why I view it with skepticism. I can only wonder what mental malfunction causes you not to view it skeptically.

I really hate all those farking idiots that think that Wall Street could / should completely fail, but expect that their little lives would not be effected. How ****ing naive.

You have such "hate" for those people, who managed to perform better than your admired elite übermenschen simply by not taking the same bait. Is that a note of jealousy I hear? Might you envy the masses, who owe simply thousands and not billions? Don't lash out at your betters from spite, that's just petty. You know, a famous man once uttered words wise beyond his years: "you fool me you can't get fooled again." After a group manages to piss away such a large fortune that they need to ask for a bailout, and the bailout they ask for is simply the largest number they could think of, all this just so they can keep their heads above water, once they do that, they have lost the right to call others naive. Sorry, that ship has sailed, sir.

For them, water comes out of the tap, electricity out of the socket and money out of the ATM. That's how far their understanding goes.

Ha, that's a more sophisticated world-view than the one where money comes out of the gullible taxpayers.

Unfortunately, those idiots are allowed to vote. Aarrrrgh.

Yeah and they pay taxes, too. That earns them the right to question your bone-headed joke of an industry.

[Uncle Skeleton]

Originally Posted by Eug 

Well, the point is, I'm telling you what the current reality is, and you keep coming up with excuses as to why it's OK.

The bottom line is that there IS a credit crunch, and legitimate businesses are already having trouble obtaining credit, and that credit is necessary for the basic function of businesses.

I do agree one should always be skeptical of various proposed policies, but your suggested solutions to the situation seem shockingly naive, or just purposely obtuse.

What about a person who can't get a mortgage? Meh, things change. He'll get over it.
What about a landscaper who can't get a credit? Meh, he's a landscaper, so he's automatically a bad risk anyway.
What if somebody really needs a truck? Meh, he can just buy a 9 year-old beater.

My point is, a $700B bailout going to the most spectacular failures of our society is an absurdity, and you keep going on like it's OK.

The more you talk, the more convinced I am that Wiskedjak was right on. If credit is so necessary for the daily activities of everyone in the nation, then it really should be considered infrastructure. As for the financials, we already know that these people don't have a clue how to conduct themselves, and bailing them out is just pouring good money after bad.

[turtle777]

Originally Posted by Uncle Skeleton 

That is not a logical progression. It can be everyone's fault but only hurt a few, and it can be a few's fault but hurt everyone. Fault does not imply consequences. Fault only implies sympathy. Fault is why I have no sympathy for the bailout, why I view it with skepticism. I can only wonder what mental malfunction causes you not to view it skeptically.

Huh ?



-t

[ebuddy]

I'm hearing some things that frankly bother the sh!t out of me. Yes, Main Street's greed is also apparent in all this, but Wall Street held the purse strings. Let me explain using the examples Eug gave;

Originally Posted by Eug 

What about a person who can't get a mortgage? Meh, things change. He'll get over it.

As opposed to what... we'll give him the mortgage anyway and when he can't pay we'll foreclose on the property he let go to pot? Either way the man is out on the streets right, only this time we've all paid more for the debacle. Maybe hand him another property? What about a person who can't get a mortgage? Seriously.

What about a landscaper who can't get a credit? Meh, he's a landscaper, so he's automatically a bad risk anyway.

What about my plastic hammer business? What if I can't get credit. Nevermind whether or not people need my services, I can't get credit!

What if somebody really needs a truck? Meh, he can just buy a 9 year-old beater.

Is there something somehow wrong with this??? This used to be considered frugal. This used to be considered virtuous. Now we always need new things?

I see people getting annoyed with Uncle's view on this, but I gotta tell ya; we've gotten ourselves entirely too dependent on market forces outside of our scope or control. IMO, as heartless as it appears we've got to rein in, not bail out.

So... while we can laugh about how naive and stupid J6Pk is and how stupid it is to suggest we let failures fail, I see the solutions offered here are no different than they've always been and it seems to be founded on a failed premise. Obviously.

[Eug]

Originally Posted by ebuddy 

As opposed to what... we'll give him the mortgage anyway and when he can't pay we'll foreclose on the property he let go to pot? Either way the man is out on the streets right, only this time we've all paid more for the debacle. Maybe hand him another property? What about a person who can't get a mortgage? Seriously.

??? The point is not to hand ANYONE a mortgage. In fact, I've been criticizing the US for YEARS for doing this.

However, things are shifting to the opposite extreme now. People who are safe bets as judged by conventional credit ratings are now not getting mortgages. ie. Even people who are considered prime customers are having trouble getting mortgages. This is NOT a sub-prime issue.

What about my plastic hammer business? What if I can't get credit. Nevermind whether or not people need my services, I can't get credit!

Again, people with legitimate and successful businesses who traditionally would be considered safe bets by the banks are not getting credit.

This is the problem. Why do you persist in creating false facts just to knock them down? Of course idiotic businesses with no chance of survival shouldn't get credit. However, that is not the situation. The situation is unfortunately extremely different today, which is why the legislators are in a panic. I mean you've even got state governments who are having trouble getting credit.

Is there something somehow wrong with this??? This used to be considered frugal. This used to be considered virtuous. Now we always need new things?

Again, you are distorting the truth. Go back and read the posts. I specifically said that one doesn't necessarily need to buy brand new, but I also said that telling people to buy beaters is poor advice. Getting crap just because it's cheap is false economy. I mean this is business 101.

[ebuddy]

Originally Posted by Eug 

??? The point is not to hand ANYONE a mortgage. In fact, I've been criticizing the US for YEARS for doing this.

Is handing bail-out money over to poor stewards of it a different principle or is it doomed to the same failure as handing bail-out money to an unworthy borrower of any kind?

However, things are shifting to the opposite extreme now. People who are safe bets as judged by conventional credit ratings are now not getting mortgages. ie. Even people who are considered prime customers are having trouble getting mortgages. This is NOT a sub-prime issue.

No one with a credit rating in the high 600s + is having trouble getting a reasonable amount of credit. I'll look at any information to suggest otherwise. Now, if someone considered a "prime" credit risk earns $75k a year and wants a $500k home, they may have to dial that back to say... a more modest $250k home. This a crisis makes not. I'm just sayin'.

Again, people with legitimate and successful businesses who traditionally would be considered safe bets by the banks are not getting credit.

Such as?

This is the problem. Why do you persist in creating false facts just to knock them down? Of course idiotic businesses with no chance of survival shouldn't get credit. However, that is not the situation. The situation is unfortunately extremely different today, which is why the legislators are in a panic. I mean you've even got state governments who are having trouble getting credit.

Like California? They've been poor stewards of the resources they do have, why should they get credit? They're not worthy of it.

Again, you are distorting the truth. Go back and read the posts. I specifically said that one doesn't necessarily need to buy brand new, but I also said that telling people to buy beaters is poor advice. Getting crap just because it's cheap is false economy. I mean this is business 101.

Some of us haven't taken economy 101. Are we assuming a 9 year old truck is false economy because we're also assuming it's a beater? A 9 year old truck, if fixed up and maintained by someone who is a good steward of that resource can be exponentially less expensive and equally as reliable as a new truck. I don't see those that have mastered the concepts of economy being any better stewards of money than the guy that shops around, and makes an educated decision on the older truck, spending what he has.

To Uncle's point, the letters that symbolize collegiate credentials and subject matter expertise doesn't mean a damn thing when they've got their hats in their hands asking us schleps to bail them out. Again.

That's common sense 101.

[Eug]

Actually, just be nitpicky, older F150s have a poor repair record, which is probably one reason you can pick them up for cheap. Like I said, false economy.

If you happen to be good with cars you will probably be able to pick out the ones that have been maintained well, and even be able to fix it yourself if things go wrong, but the vast majority people are not truck mechanics. So it can be very helpful to buy something that's reliable, preferably not too expensive to maintain, and having some warranty goes a long way to help that, even if the up front costs may be somewhat higher. That's common sense 101.

No one with a credit rating in the high 600s + is having trouble getting a reasonable amount of credit. I'll look at any information to suggest otherwise. Now, if someone considered a "prime" credit risk earns $75k a year and wants a $500k home, they may have to dial that back to say... a more modest $250k home. This a crisis makes not. I'm just sayin'.

In many places, $250 K buys only a 1 bedroom condo... or else a house in drug-infested ghettos.

[Uncle Skeleton]

Originally Posted by Eug 

I mean you've even got state governments who are having trouble getting credit.

That's because they spend more than they take in. You want some business 101, first day? SPEND LESS THAN YOU MAKE. I know what your excuse for them is going to be too: everyone else is doing it. Well you know what, everyone else is going to fail too. Yeah, there will be some exceptions, but if you leverage yourself out to double your assets, you can't act all surprised when it blows up in your face.

You are insisting that credit is required for modern business, and if you're spending more than your income then I can guarantee you that you won't be able to carry on like that without continued increases in credit. But that is not a good thing. That's just giving you more rope to hang yourself with. I know there are certain industries, farming for example, where you need credit to buy a year's worth of raw materials and you won't see a penny in revenue for 9 more months. But it all boils down to whether you spend more than you make. If you spend more than you make, you're not going to get a mortgage, and that's a good thing. In the recent past, you would have gotten a mortgage and that's a bad thing. You can describe that as a "credit crunch" and I suppose technically you'd be right, but if that's the way you want to play it, then thank god for the credit crunch.

Like ebuddy mentioned, I don't believe that true creditworthy people, who spend less than they take in, are being denied for appropriate loans. If that's the crux of your position, I'd like to see some data.

[ebuddy]

Originally Posted by Eug 

Actually, just be nitpicky, older F150s have a poor repair record, which is probably one reason you can pick them up for cheap. Like I said, false economy.

Bad example. I stated "an educated buying decision" which would exclude those choices that have notoriously poor repair records. There's a wealth of buying guides available from a variety of sources. I'm talking about stewardship. Regardless of what academia might consider "false economy", it is "entirely bogus economy" for an "expert" to lend money out to a horrible credit risk, then lend a multiple of that figure out to others by ratio, and cry to the Feds when the whole thing goes belly-up.

If you happen to be good with cars you will probably be able to pick out the ones that have been maintained well, and even be able to fix it yourself if things go wrong, but the vast majority people are not truck mechanics. So it can be very helpful to buy something that's reliable, preferably not too expensive to maintain, and having some warranty goes a long way to help that, even if the up front costs may be somewhat higher. That's common sense 101.

There's no reason the above summary of "common sense 101" has to exclude a 9 year-old truck. In many cases, you can buy extended warranties to cover higher mileage vehicles. People should know how to check the condition of oil, kick tires, carfax, and spend $50 on pre-purchase inspections.

In many places, $250 K buys only a 1 bedroom condo... or else a house in drug-infested ghettos.

Why? Loosely available credit driving the housing market to such a ridiculous over-valuation that a correction is not only inevitable, but necessary. Correction, not crisis. This is no different than the sky-rocketing costs of healthcare and college. As these things are made more freely available through means other than sound, traditional, monetary stewardship, they become over-valued and at some point a correction will be necessary.

$250k for a 1-bedroom condo in drug-infested shanty town? C'mon Eug. This is right in line with "living within your means". You can get a damn-nice house in my area for $250k and in an extremely safe part of town. Granted, there is no ocean view, but you'll have an awful lot of land to work with. BTW, my own home is worth less than half of our $250k example and I live in an extremely safe area with approximately 1500 sq ft of living space. Why? I bought the home many years ago when things were extremely tight. You know, it was tough for a while all of us sharing one bathroom, but I'm doing much better now, my oldest will be going away to college soon, and gosh the place is so affordable it doesn't make sense to move. I don't struggle with the mortgage like my friends who strapped themselves with mortgages way outside their means.

[Eug]

Originally Posted by Uncle Skeleton 

You are insisting that credit is required for modern business

Yes I am. It is basically the foundation of the entire US economy. That's what we've been trying to tell you.

I know there are certain industries, farming for example, where you need credit to buy a year's worth of raw materials and you won't see a penny in revenue for 9 more months.

Bingo. Similarly, a company that builds consumer products may not see revenue until 3 months after the fact. Without credit, these industries would be in deep trouble, and could even fail... And one of them could be your employer.

[Uncle Skeleton]

Originally Posted by Eug 

Actually, just be nitpicky, older F150s have a poor repair record, which is probably one reason you can pick them up for cheap. Like I said, false economy.

If you happen to be good with cars you will probably be able to pick out the ones that have been maintained well, and even be able to fix it yourself if things go wrong, but the vast majority people are not truck mechanics. So it can be very helpful to buy something that's reliable, preferably not too expensive to maintain, and having some warranty goes a long way to help that, even if the up front costs may be somewhat higher. That's common sense 101.

Ok, let's put this car issue to rest. I shouldn't have said "beater," I was exaggerating. What I meant was an older car in good condition. I'll give my car as an example. It's a '95 so I guess that puts it at 14 years old, 160,000 miles, some cosmetic damage but nothing mechanical (unless you count the power windows). The KBB value is 3700. 3700! This isn't some rare deal, it was never owned by a do-it-yourselfer (it was my dad's, who doesn't do any auto work, and before that it was some high school girl's new). I've had it for 2 years and haven't had a single issue with it. Now I can accept that a pickup truck will experience more wear per year than a commuter coupe, but I can't accept that a 9 year old vehicle is de facto end of life, and I can't accept that you need a 0-3 year old vehicle just to run a business. To me, that kind of judgement is the hallmark of a soon-to-be failed business.

In many places, $250 K buys only a 1 bedroom condo... or else a house in drug-infested ghettos.

So what exactly is your point? I'll tell you what my point is: if that is your situation then you can't afford to own a house. No amount of credit games or creative accounting is going to change the simple fact that if the only houses in your area cost 3x your annual income then you will be a RENTER. Again, bailouts and credit-inflated liquidity are just giving you more rope to hang yourself with.

[Eug]

Originally Posted by Uncle Skeleton 

So what exactly is your point? I'll tell you what my point is: if that is your situation then you can't afford to own a house. No amount of credit games or creative accounting is going to change the simple fact that if the only houses in your area cost 3x your annual income then you will be a RENTER. Again, bailouts and credit-inflated liquidity are just giving you more rope to hang yourself with.

Sorry, again, you're simply ignoring reality. What I am saying is that people who DO qualify under normal circumstances. ie. Good credit history, good pay, stable job, but starting to have trouble getting credit. They CAN afford to buy a house by all reasonable measures, but banks are still scared to give them any money. The only thing they don't have is the entire price of the house up front to buy it in cash.

This is also true for many businesses. I've already said this many times, but it bears repeating. Stable companies with good credit histories and good business plans are being denied credit. This is not about due diligence weeding out the bad risks. This about banks not wanting to lend out money to even good risks. To put it another way, the interbank interest rate has skyrocketed as they don't even want to lend to each other, even with super stable banks.

Now obviously there isn't a complete freeze up, but the problem is there is a hyperreaction in the banking industry that is threatening the basis of your economy. That you don't seem concerned is surprising.

I fully endorse your desire to ask questions, but simply refuting everything that is presented to you as bull doesn't accomplish anything. I think the most valid argument against the bailout is that it may not work, cuz there is a significant chance that it won't. However, what IS already fact is that there is a serious lending freeze up in the industry, which is already causing big problems with people and companies who have good credit histories.

BTW, you brought up renting. As you probably already know, when you CAN afford to buy a reasonable house and you plan on staying put for an extended period of time, buying is often more advisable than renting from a personal finance point of view, esp. if you have a reasonable down payment. ie. In this situation, you would actually SAVE money by buying as opposed to renting... But it's obviously not going to happen if the bank is not going to give you a mortgage. And again, this freeze up is NOT a sub-prime issue.

[turtle777]

Look, I think the current situation and relationship between Wall Street and Main Street is like a crack dealer and his addicts.

Is the crack dealer innocent ? Hell no.

Is the addict just a victim ? That depends on your political views and how much you value personal responsibility.


Disclaimer: as always, this metaphor should NOT be used to anal-yze things to death.

-t

[ebuddy]

Originally Posted by Eug 

Yes I am. It is basically the foundation of the entire US economy. That's what we've been trying to tell you.

Wrong again and the more I hear it, the less convinced I am. Those that have put all their eggs into the income=debt to debt=income ratios basket will always be in debt. Period. Meanwhile, the rest of us own small bait shops, shoe shops, clothiers, homes, etc... They don't have stockholders insisting they grow 10% every year from now to perpetuity and they don't cook books to ensure they do. Why? Because it doesn't make sense. At some point it will catch up to you. We see it time and again and our solutions are always the same, extending the problem to more and more people each time we do it.

Bingo. Similarly, a company that builds consumer products may not see revenue until 3 months after the fact. Without credit, these industries would be in deep trouble, and could even fail... And one of them could be your employer.

I've got a novel idea, how about the folks who own the businesses pocket less, and place a higher proportion of their profits into the next bulk of inventory? They don't today because there are means other than traditional fiscal stewardship available to them. They've become suckling piglets on the nipples of failed principles (and in reality, no principle at all). The outcome is inevitable. They've placed their livelihoods, their employee's livelihoods, and their business into the wrong basket. They will fail now or they will fail later, but make no mistake... they will fail.

Not withstanding, I've yet to see some examples of good credit risks not getting the credit they need.

[Eug]

Well, I don't consider credit to be crack.

I think I have a very conservative style for personal finance, and it sounds like Uncle Skeleton does too. However, both of us use credit, and quite a lot of it too... in the form of mortgages.

This isn't about skid-row and loan sharks. This is about the entire basis of the US economy.

[turtle777]

Originally Posted by Eug 

Well, I don't consider credit to be crack.

It's as addictive, that's for sure

-t

[Eug]

Originally Posted by ebuddy 

Not withstanding, I've yet to see some examples of good credit risks not getting the credit they need.

http://www.lohud.com/apps/pbcs.dll/a...=2008810010338

Claudia Baker, owner of a Rye pet store, All Paws, said business is down in high-end products like dog beds and crystal collars. She wants to bring in new stock that she believes will sell better, such as pet-themed gifts, but she can't get the credit to buy the inventory.

"I wanted to have some more working capital to invest in new lines of merchandise," she said. "But rather than being able to order anything and everything, it's taking more time to fill in more stuff."

In Rockland, tighter access to capital is affecting even profitable businesses with long track records, substantial assets and well-established banking relationships, said Ron Hicks, president and chief executive at Rockland Economic Development Corp.

Tighter lending standards are making it trickier for many businesses to meet day-to-day needs, which can hinder not just the growth but the health of a local economy, Hicks said. If businesses are unable to borrow money to purchase inventory, for example, that leaves them unable to operate, he said. Even if there is demand for a business's goods or services, it might not be able to supply it.

Originally Posted by turtle777 

It's as addictive, that's for sure

Actually, I do use my AmEx to pay for everything, but that's mainly because I make money off it. They pay me 2% on my purchases. However, I never carry a credit card balance.

In Canada we can also use debit cards, with withdraw cash directly from our chequing or savings accounts. However, I prefer keeping my cash in a high interest savings account. My particular high interest account doesn't allow direct debit card withdrawls. It's also easier to dispute incorrect charges with a credit card than with a cash debit card.

[ebuddy]

Originally Posted by Eug 

http://www.lohud.com/apps/pbcs.dll/a...=2008810010338

Why didn't you include the statement that prefaced the entire article? There are two of them worth a second glance here;
1) Businesses large and small in the Lower Hudson Valley appeared split yesterday on the likelihood of a disastrous credit freeze that proponents of a Wall Street bailout say will occur if Congress doesn't act quickly.

2)Few companies said they were having serious borrowing problems, but several offered anecdotes that suggested the credit issue weighs on their minds.

Does the above verbiage sound like a crisis to you? Honestly Eug, does it?

Claudia Baker, owner of a Rye pet store, All Paws, said business is down in high-end products like dog beds and crystal collars. She wants to bring in new stock that she believes will sell better, such as pet-themed gifts, but she can't get the credit to buy the inventory.

... what was it you had to say about my "plastic hammer" business venture? I think it was Idiotic businesses with no chance of survival shouldn't get credit. I would argue that a business contingent upon dog beds and crystal collars suffices as the absolute perfect example of my point. Thanks.

"I wanted to have some more working capital to invest in new lines of merchandise," she said. "But rather than being able to order anything and everything, it's taking more time to fill in more stuff."

So... she can no longer order "anything and everything"? With all due respect, cry me a river.

In Rockland, tighter access to capital is affecting even profitable businesses with long track records, substantial assets and well-established banking relationships, said Ron Hicks, president and chief executive at Rockland Economic Development Corp.

Who is it affecting? How much is it affecting them? How "well-established" was the banking relationship? Is a sound banking relationship more important than a successful business model? I don't know. One of the first statements made in the article you cited was "businesses are split" on how they feel about this and "Few companies said they were having serious borrowing problems."
Neither sound like a "crisis" to me and furthermore, a business not able to sell dog beds and crystal collars is none of my business. I know this is heartless and cruel, but...

Tighter lending standards are making it trickier for many businesses to meet day-to-day needs, which can hinder not just the growth but the health of a local economy, Hicks said. If businesses are unable to borrow money to purchase inventory, for example, that leaves them unable to operate, he said. Even if there is demand for a business's goods or services, it might not be able to supply it.[/i]

What I got from the article was that there is anecdotal evidence of some places having a tougher time than usual. This is business. Sometimes business is good, sometimes it is bad. I don't see a crisis, I see a correction. To my original point, this is only a crisis to those whose livelihoods have been entirely contingent on bad paper and nebulous definitions of fiscal policy. For everyone else, it is a necessary correction IMO, or at least I'm becoming more and more convinced of it.

[Eug]

Originally Posted by ebuddy 

Why didn't you include the statement that prefaced the entire article? There are two of them worth a second glance here;
[I]1) Businesses large and small in the Lower Hudson Valley appeared split yesterday on the likelihood of a disastrous credit freeze that proponents of a Wall Street bailout say will occur if Congress doesn't act quickly.

I think that is a valid point. However, my contention is that this is the tip of the iceberg. This has not been an issue until now, and now it is issue. Given all that is happening, it's not hard to see the connection.

We've already even seen this with medium size business here in Canada and again, occasional small business here, which is even more concerning since we our freeze is less severe here than in the US.

The purpose of the bailout is to address this and to prevent a further worsening.

FWIW (which may not be much), I started a thread that predicted the real estate crash years ago. (The link is a thread on this here.)

However, I predicted a modest "bust", not 30% price drops. It would seem the statement by the guy quoted in the original post is appropriate: “Every downturn is longer and deeper than people expect,” he said on a conference call. “We are assuming the worst.”

BTW, when was the last time you were in an urban pet store? Strangely enough, people buy this stuff (and not useless plastic hammers, except as toys), but stores also have to change with the needs of their customers. If they don't they may go under, which is definitely not a good thing for your local economy... esp. if you happen to work there.

[Uncle Skeleton]

Originally Posted by Eug 

Sorry, again, you're simply ignoring reality. What I am saying is that people who DO qualify under normal circumstances. ie. Good credit history, good pay, stable job, but starting to have trouble getting credit. They CAN afford to buy a house by all reasonable measures, but banks are still scared to give them any money. The only thing they don't have is the entire price of the house up front to buy it in cash.

There's a real undercurrent of entitlement in your words, as if a family is entitled to own a "good" house just because they're a "good" family. If times are tough, why can't they get a *smaller* house than the one they think they're entitled to, or one further away if they insist on size? Why can't they get a condo, and for god's sake why can't they RENT? Any of those outcomes are possible, and none of them would constitute a crisis, unless it's a crisis of entitlement. BTW, it's you who forgot that you were answering about the 75-thousandaire who wants a 500K house.

This is also true for many businesses. I've already said this many times, but it bears repeating. Stable companies with good credit histories and good business plans are being denied credit.

Speaking of repeating ourselves: show some data. I don't believe you.

Now obviously there isn't a complete freeze up, but the problem is there is a hyperreaction in the banking industry that is threatening the basis of your economy. That you don't seem concerned is surprising.

It's concerning, it's just not concerning enough to warrant a $700B money-grab for those who are traditionally the wealthiest people in the country. Again repeating myself, I can't believe you don't find that concerning. We need a little belt-tightening, everyone knows it, they just don't want to do it. Your only contention seems to be that the belts are now "too" tight. I don't believe that's the case (and that is why I'm asking you for data). Similarly, we all agree that the lack of a bailout will lead to some shrinkage in the lending industry. But I don't believe you that the shrinkage will be 100%. I don't even believe that the shrinkage of lending will be more than the level of shrinkage that is appropriate for our borrowing. We need to borrow less than we have been, and the banks are going to be lending less than they have been. You haven't convinced me that the reduction in the latter is critically more than the reduction in the former.

BTW, you brought up renting. As you probably already know, when you CAN afford to buy a reasonable house and you plan on staying put for an extended period of time, buying is often more advisable than renting from a personal finance point of view, esp. if you have a reasonable down payment. ie. In this situation, you would actually SAVE money by buying as opposed to renting... But it's obviously not going to happen if the bank is not going to give you a mortgage. And again, this freeze up is NOT a sub-prime issue.

Ok, in a down market, buying will not beat renting for a LONG time (and since you're talking about the long haul, what's so disastrous about buying a few years from now instead of now?). I don't blame the bank for strict lending practices in that situation. In an up market, there is no freeze up, unless you're talking about "freezing up" back to the saner levels of before the madness started. IOW, show me some data.

I think I have a very conservative style for personal finance, and it sounds like Uncle Skeleton does too. However, both of us use credit, and quite a lot of it too... in the form of mortgages.

Ok, you need a little reality check. Yes, I have a mortgage, because the option was there and I took it. If there was no mortgage available to me, or if mortgages cost 10% like they have for much of history, I wouldn't have taken it because it would have been better to rent. THAT WOULD NOT BE A CRISIS. Here's another example: I have $19K in credit card debt right now, because I took some juicy offers at 0% with no fees, and I'm collecting interest on them for a year. That's not because I need them, it's because the option is there and I took it. But if those 0% offers dried up, THAT WOULD NOT BE A CRISIS. Just because an option is better off for you, doesn't mean you need that option to survive. Just because buying a house on leverage would be better than renting, that doesn't mean you're entitled to buy on leverage, and that doesn't mean that renting would be some sort of catastrophe. I agree, all other things being equal, that the government should try to make it possible for more people to own their homes. But all other things are not equal, it's as simple as that.