Sunday, November 23, 2008

Credit, lending, and other contributing bits to our financial mess

A lot of people think that a bunch of greedy people were the cause of our present financial situation. That it was all caused by those people living way beyond their means. Well not exactly. It was the result of those at the top our fearless leaders who threw out all of the principles our parents tried to teach us having gone through the Great Depression. Having gone through the longest economic expansions in U.S. history they at the top were deluded into thinking that the good times would roll on forever. They created a climate ripe for disaster and not just for their fellow greedy friends but for the rest of us as well.

When I bought my place the interest rates were through the roof but I knew that this was the only opportunity I would have to own property. Back then the process was rather simple by today's standards. But even before I began looking for a place to call home I looked at what I could afford. The general rule for decades was you could not spend more than 2 1/2 times your annual income. That was the rule of thumb. With that bit of knowledge tucked away I went out and found a place at just under 2 times my annual income. It was the best of the bunch in terms size and price and I figured that would give me some leeway in terms of fluctuations in income. Fast forward to the last ten years. I managed to stay in my place through some pretty tough economic times and was finally able to refinance to a good interest rate on a 15 year fixed. By paying just an extra $100 a month to the principle I was able to pay off the mortgage in 7 years. When I did the refi was when banks were offering up to 125% loans on homes with no upfront fees and all. What had happened? Those at the top had removed all the old rules that we had been living by for the last 80 years. The common sense rules that would tell you that a person in the middle class can not afford to go out and buy a million dollar property. They couldn't afford the taxes much less the monthly payment. But I saw people doing this. Even one coworker last year bought a place for (gulp) $999,000. I'm sure he's long gone from that place unless he has some secret drug lab hidden on the property.

Now we get to credit cards those wonderful nasty necessary evils. A few years back the card companies must have paid Bush a visit or at least made a sizable contribution to his campaign because the next thing you know the bankruptcy laws are changed so that now if you have a major medical bill or job loss and must file as bankrupt you're still on the hook for your credit card bill and I'm sure they'll tack on extra fees just to add insult to injury. And this has nothing to do with people living beyond their means. I've seen people who pay their bills on time and have great credit get screwed. What I noticed was that a few years ago the payment period went from 30 days to 25 then to 20 and some as little as 14. A few even have no grace period at all. Interest accrues once the bill is received. The credit card lawyers must sit around and chuckle when they come up with new terms. I've also noticed that card offers are just now starting to trickle out in the mail but I tell you you wouldn't go for the terms if you were on your death bed because they'd want possession of your corpse and the sheets you're laying on.

So who got us into this mess? Bush and his band of thieves looking out for his interests with the help of his band of frat brother lawyers. You might notice that Obama and company are focused on the real problems for the benefit of all Americans and not just a select few. You remember Bush's base the "haves and the have mores".


BBC said...

I'll tell you who got us into this mess, damn near everyone.

Demeur said...

Except there are a lot of guys out there like you and I who didn't go out and buy McMansions or spend beyond our means and we'll still get screwed.

BBC said...

We can't take down the greed at the top without suffering some ourselves.

Don't worry, it's going to get much more interesting.

I just looked at a slide show of Seattle area pics at the P.I. news site, Freemont area looks like a real hoot.

But the modern monkeys are wanting to tear it all down and replace it with crap.

Anonymous said...

Thank you for your comment. I'll be going through your archives.

Best regards,


PoliShifter said...

BushCo and Republicants created the easy credit and fired up the printing presses. They couldn't print money fast enough and conitnue to do so.

Up until 6 months ago anyone could get any loan from any one without verifiable income. You could say you made $500,000 a year. Stores like Lowes, Home Depot, Sears, Mervins, etc pushed credit cards on everyone. They offered 10% off your purchase if you would just apply.

People could buy homes with no money down. People could buy cars with no money down.

That's not the fault of the people. It's the fault of the bankers who are now being bailed out from the mess they created aided and abetted by Republicants and Bu$hCo

Wayne John said...

I like what I hear from Obama's camp so far on all this. Makes me feel like something might actually be done instead of Bush trying to please his friends.

zirelda said...

Good thoughtful post.

I have one credit card. It's more than I need and I bought a house three years ago and was careful not to spend more than I thought I could afford.

I did not know the 2 1/2 times income rule of thumb. Property prices were sky high then. I can only hope that my house will hold it's value when I have to refinance in April.

Distributorcap said...

there is no doubt this house of cards came crashing down due primarily (But not exclusively) to the greed of wall st and the investment world -- instant satisfaction, something for nothing, get rich quick

lehman leveraged itself 40 to 1 -- how could that not crash -- plus the banks and credit card companies just marketed the free money to death --- it all looked so easy and the good times would never end.

sure there has to be personal responsibility - but human greed - end of discussion.