Sound of Silence

Free Falling

It's scary out there, the Dow has dropped a couple thousand points in the last few days, the Government just gave AIG even more money despite reports they took their executives to a spa. I guess they needed massages after all that work they did screwing up the company. I'm sorry, they said that company was too big to fail? They couldn't let it happen, yet they let Lehman Brothers down without a second glance. What the hell is Paulson doing anyway, the government approved the "bail out" but as of yesterday he has yet to spend any of it.

I don't care how bad things get, I will NOT shop at Wallmart.

Now that I got that off my chest, I can go back, remember that boring post a few weeks ago about the subprime mortgages. Well, during the debate on Tuesday, McCain said something that interested me, he mentioned that the government should buy people's mortgages, and sell them back to homeowner at what their house is currently worth. Sounds like a plan doesn't it? The question is, is it a good plan, and let me say, some will benefit from this but I'm afraid that it just won't work for most.

Remember that senerio involving the person making 60K qualifying for a loan amount of around 450K to buy a drastically overpriced house? Okay let's revisit it, and lets say for the sake of argument, he recieves a call from McCain, since McCain considers everyone his friend McCain tells him, "My friend, I'll buy your house, and sell it back to you at it's currant value." Houses in his area are now selling for around 350K, naturally he has no money to put down, so he'd be financing the whole amount, which puts his payment around 2100 a month. Just his payment, even if they waive the PMI, and insurance...and remember he makes $4600 a month before taxes. Based on that information he might make it if he foregoes doing anything else. This person will be existing to pay their mortgage which will still be over half of his take home salary.

So what would it take to make this work? That's even more scary.

To make this work, an appraiser would need to appraise his house and all the houses in the neighborhood at far less and how is that fair to everyone else that played by the rules and bought a house they could afford. To work for this individual the appraised amount would have to come in at around $275K...that's down from the orginal price of 480K or a $205K drop in value! Let's not forget he owes a bank far more than that because he's paid only the interest for several years.

Is it fair that my property values should drop because some asshole felt entited to buy a house he couldn't afford in the first place and now can't afford?

Short answer no. Long answer is...longer. Four years ago, we paid a good price for our house, actually an excellent price, just as the market here started going up. Today houses in our neighborhood are worth roughly $200K more and that's in a slow market. In order for some of these people to stay in their homes their values would have to be reduced to a price less than what we paid for our house, effectively wiping out my equity. Now we're lucky that we haven't taken out a home equity loan. But what if we had? Our kitchen and bathrooms do need some attention, so say we had taken out a home equity loan for 50K, since we're handy we did the work ourselves.

Under the adjusted amounts so that asshole could keep his home, we would then owe more than our house is worth, which does figure into your FICO score and our credit would take a serious hit for that. Our interest rates would go up, we'd pay more for insurance, and we couldn't qualify for another loan if we needed it.

Wall Street Blues

Let's face it, i'ts a mess out there but have we hit bottom; I'm thinking we're close but not yet. One would think it's a great time to buy, but the problem is there isn't enough buyers and that drives stock prices down further. Coupled with the S&P downgrading companies left and right, which I think just further complicates the healing process. I mean would invest in a company that's just been downgraded? Probably not, and if a company you invested were downgraded you'd think of selling. It's a natural response. Today the market went down to below 8000 but now is back up to around 8500. It hasn't closed yet so we don't know what will happen. Overnight the Japanese stock market tanked, as did the Ausrailian.

Banking Woes

Banks around the world are in trouble, lets face it, Americans are to blame for it, we can't lend money to other banks overseas, in return they won't lend to us, or anyone else, out of fear. This leads to a shutdown of the global banking markets. Our government's idea is to privatize banks, taking their cues from Europe, now some think this is unheard of but it's happened before in the 1930's during the great depression.

What about Gas Prices?

Oil is like anything else, people will pay only what they will pay. Its true with anything, you're not going to pay six dollars for one piece of fruit, if you can get the same peice of fruit somewhere else for six cents. It's not about bargains, it's about common sense. Housing is another example, someone attaches personal memories to the price of their house, under the idea they will 'not give it away,' and the problem is the same, the house will not be sold.

Compettive pricing is essential, oil prices have dropped because the oil buying counties like this one are going through hard times. Things aren't that rosie in India and China, the two other huge oil consumers, as well as Canada, Europe, South America, Japan, Austrailia are all having financial problems. Once the markets and banks start improving in these countries, oil prices will again go up. Stockpiling oil isn't the answer because right now few companies can get the credit to do it.

It's all about banking.

A friend has said to me that if the United States Sneezes the world gets a cold. Well the US has a bronchitis and the world has gotten pnuemonia.

© 2008 Whimsical Ranter
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