My feelings on the economy

Submitted by IntricateGirl on July 2, 2008 - 8:42am.

Posted in | IntricateGirl |

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This post is somewhat in response to Sassy's post about the economy, but I'm going to go off on a tangent here, so I thought it would be best to do my own post. Cheers to Sassys for inspiring the thought.

The economy has been bad for a long time. How long?? Ohh, about 5-6 years by my estimates. I know. That's got a lot of people scratching their heads. Right now, there's a lot of puzzled people looking out in their about to be repossessed driveway at their 6 year old Hummers that they can't afford to drive, and thinking, "Man, six years ago, things were alright. Gas was $1.42 a gallon, I could afford to buy a house and fill it with furniture, and I even got a new SUV to put in the driveway. Life was good six years ago!" Personally, I'm wondering if people are really that blind.

Answer a few questions for me here. How much of a down payment did you put on that house? 5%? 0%? Five percent was the average down payment in 2002. Want to guess what it is historically?? TWENTY PERCENT. That should be a major red flag right there. Lenders have known since the very first home mortgage that the more people have invested in a property, the less likely they are to give it back. If you take two different mortgages, and the only difference between them is that one of them put 20% down, and the other put nothing down, the one who put nothing down is MUCH more likely to default on the loan. Why should that be? Both have exactly the same house, same mortgage, same interest rate... It's because on a $100,000 house, 30 year mortgage, and 7% interest rate, one of them has paid off $20,065.58, and the other has paid off $81.97 in that first month. In other words, the one with the down payment OWNS 20.06558%, and the other owns 0.0008197% of the house. Ummm, OUCH!

Not only could you buy with no down payment, but you could even get an extremely low rate, which translates into low payments. And sure, this was only for a limited time, but it's all good as long as everyone is buying, and property prices are increasing.

But why would people get approved for loans they can't afford? Have any clue how a loan officer makes his money? It's in one of two ways. 1) They are paid a salary and told that they must meet a certain quota in approvals, or 2) They are paid on commission for how many approvals they make. So how motivated do you think they are to approve you, even if you really shouldn't borrow money. Besides, during the housing boom, house-flippers were always willing to buy homes from banks, or at the very worst, the bank gets to write off the amount on its taxes. No lose situation. Except when everyone starts defaulting.

So now, you've got a cheap place to live, and because of your payments, you've got gobs of extra money. You need to buy furniture. You've even got money left over for that Hummer you've been wanting, because that was the ultimate status symbol of the early 2000's. And you realize gas is starting to get a little expensive, but who cares. You've got all this extra money you saved on your mortgage, and all the experts are saying that there's no way it's going to go higher than $1.75 a gallon or $40 a barrel. And when gas does get that outrageously expensive, you'll just park the Hummer for a while. Meanwhile, the guys who sell the oil are using the very simple principle of supply and demand. People want their product, and they are demonstrating it by buying vehicles that use more of their product. Therefore, it's only natural that they would raise the price.

Are we in a recession? Sure. But I believe this will look like the good old days by the time it's all said and done. After all, losing our homes just frees up more money for buying hybrids, and paying for more gas. Everyone is clamoring to get their hands on a hybrid, and everyone is calling for new energy sources such as ethanol. Sorry guys, but the simple truth is, you need to park your car and learn to walk that 15 miles to work. There is no fundamental difference from an economic standpoint between ethanol and oil. Ask for it and it will be provided. Declare it a need, and they'll charge you a lot more for it (and it will make your food cost more too). Supply and demand. Demand hybrid cars, and they will begin to cost more. Supply and demand.

The only way we'll come out of a recession is to change our entire viewpoint. Stop looking at gas and cars as a NEED. Stop building McMansions just because somebody is willing to loan you money for it. Unemployment during the Great Depression was over 25%. And those were the official numbers. How many people just gave up and stopped looking for work? Come on guys! I think we're well on track to break those numbers!

So sure, we can switch from SUVs to hybrids. What does that do to break our oil dependency? And we can switch from oil to ethanol. That will break the oil dependency, but create an ethanol one, and ethanol is NOT without its own serious problems. And despite our own personal and continuous financial fuckups, it somehow ends up being the fault of the government, or the oil industry, or the banking industry, or some other faceless group of people that sit in judgment of us all. Hmph. Grab a mirror, because that's where the problems began and continue.

July 2, 2008 - 10:19am

Now IG I don't know about this...hmmm.

Sassys Says:

http://bloggerparty.com/blog/sassys

Yes some of us do need to look in a mirror, but the facts are that people are greedy and the sharks that sold them a sub-primed house counted on it...is it the fault of the buyer? I don't think so...the banks are even worse, they had to have known that it was risky to allow all those sub-primes. We are greedy, but we are also somewhat gullible. But my point is that living beyond our means is the American way, and the credit card companies knew that when they signed up the first gullible person they could find. So who's fault is it? I do blame the government for not stepping in loooong ago and dealing with the predatory lenders...be they a bank or a credit card company. This is why Washington needs to ween itself off the "special interest groups" and do what they are supposed to do in order to prevent the recession we are now in from happening again 20 years from now.

July 2, 2008 - 10:58am

I gotta say, Sassys, I do believe it is the responsiblity of

Pussy Willow Says:

the individual to manage their own financial affairs and to think before they spend. Even though the media and the government keep telling us that they will do our thinking for us, in the end, we are the ones that pay the bills, not the media and not the government.

However, the fact that sub-prime mortgages were ever allowed into the marketplace was criminal and I do believe that the people who were sold that bill of goods were not completely responsible. In fact, I think that the mortgage companies who pushed those pieces of trash should be forced to eat them. Anyone who actually stopped and thought about it could see that those things were a financial disaster just waiting to happen. In fact, you wanta talk about plots? I'm thinking sub-primes were a plot to bring the middle-class to its knees so that it would be easier to manage. How else can you justify a loan like that? I mean, really!!!!!

As for those special interest groups, I'd like to introduce them to a special interest of mine - it's called nut-cracking.

July 2, 2008 - 11:10am

As I wrote below, I got one

IntricateGirl Says:

As I wrote below, I got one of those mortgages. I was one of the first people in the country to do so. And I still don't cut myself or anyone else who took one any slack. Either A) you didn't read or understand it, and therefore really didn't have any business signing those 30 pages of documents even if you put 90% down, or B) you thought you found a good deal, and you gambled like it was Vegas.

I recently read about new programs that are allowing people to get mortgages with no money down. STILL. We're not learning.

July 2, 2008 - 11:28am

I'm not completely innocent, IG.

Pussy Willow Says:

I got an 80/20 mortgage - 2 mortgages, one for 80% and one for 20% of the price. Saved me from having to buy mortgage insurance. But I passed on the sub-prime. There was no way I wanted to be readjusting my budget over and over - even if the rates went down, which I didn't really think would happen, anyway - and I sure didn't want to get stuck having to work a second job to make up for an increase that my paycheck wouldn't cover. And I wasn't about to be stuck with new closing costs for refinancing.

I also didn't overbuy. I bought a house that my 2001 budget could afford and, by all rights, my 2008 budget should be doing quite well with.

But, thanks to all the other crap that has gone on with our economy over the past 6 to 8 years, I was out of work for 2 years. That has put my carefully planned budget right into the toilet and I'm left hanging onto shit to keep from drowning.

So, yes, I do hold the people who bought into the sub-primes responsible - but not 100%. Our government allowed those sub-primes to explode like they did and it allowed millions of people to be taken to the cleaners by them. It has also helped to send our economy spiraling into the toilet and I think we're all going to be fighting over turds to hang onto before it's all over.

July 2, 2008 - 11:36am

LOL!

IntricateGirl Says:

"I think we're all going to be fighting over turds to hang onto before it's all over."

Lovely visual, sadly true.

July 2, 2008 - 10:59am

Sadly, I think you just proved my point.

IntricateGirl Says:

"But my point is that living beyond our means is the American way..."

Why? How did we get that way? The American dream used to involve working hard, saving up, and being able to build an empire out of nothing. But now, as you said, we are gullible. We want people to hand us things that we have no business owning because we can always pay for it later.

Am I completely letting businesses off the hook? No. But business is doing what it has always done. They are convincing us that we NEED what they are selling. The difference from past generations is, as consumers, we're not using any common sense in evaluating the WORTH of what they have to offer.

Where is the personal responsibility? This is a question that needs to be asked, and nobody is asking it. Fine. Businesses are to blame. So what? Does that give anyone a place to live?? Say the government does step in and fix everything. I've got a really shitty mortgage. I was one of the first people to get this type of mortgage. But I'm not having any trouble making my payments. Would you like to be responsibile for my mortgage on a house I'm not even living in that's worth half of what I'm paying on it, just because I was stupid in the first place? 'Cause somebody will have to be responsible for it.

Oil is high. So what? Do you honestly believe that OPEC is going to reduce prices just because we think it's pricy? And what would you like government to do about it? The government can't touch a thing without screwing it up, and they can't even get a solid message from the people about what they should do to fix it. People whine that they want cheaper gas, and they want it without their taxes going up, or any other costs expanding. Yeah, like that's a realistic solution. Saying "Give me cheaper gas" is not a solution. It's stating a problem, but missing the HOW.

That doesn't mean that businesses should get a free pass to screw over everyone. But it also doesn't mean that people get a free pass to be as stupid, greedy, and gullible as they want without any consequences. And right now, welcome to the consequences.

Final thought- those who forget history are doomed to repeat it. If somehow the government managed to lower gas prices, save everyone's home, reined in credit card companies, regulated the housing market, and kept our taxes at exactly the same rate, how long do you think it would be before we ended up in exactly the same situation? We'd have gobs of extra money, and entirely new mortgage programs and vehicles to spend that money on, and we'd be more than happy to get suckered in all over again.

July 2, 2008 - 11:55am

Absolutely right, IG!!!

Pussy Willow Says:

When did the American dream become "spend now for tomorrow we may have to eat dirt" or whatever. I was raised on the American dream of hard work, earning your way, paying your own way, not being indebted to anyone, ya-da ya-da, blah-blah.

Frankly, I think we bought into the "South Fork" and "Dynasty" fantasies a little too damned much. We've lost our heads over cheap Chinese crap and even now, when people are literally having to choose between nutritious food and cheaper, filler food with little nutritional value, they are still stocking up on cheap crap from Walmart. I see shopping carts packed full of useless junk that will be thrown in a closet and forgotten in 3 days just cause they gotta have "stuff." And next week they'll pack their shopping carts full of different stuff - cause they need more "stuff." (We miss you, George.)

And don't get me started on the Hummers. I've started counting the number of brand new SUVs I see on the road - and not the SUVs that get better mileage. Last week alone I saw 11 new dealer tags on bright, shiny new SUVs rolling down the road. WTF? Maybe they're buying them so they can live in them.

July 3, 2008 - 12:51pm

Well sure IG

Sassys Says:

http://bloggerparty.com/blog/sassys
and then lets not forget that in this little mix is the fact that I blame our Government and Big Business also for the lack of decent paying jobs that have been shipped overseas. So is it the idiot consumer who wants desperately to keep up with the Jones' nowadays known as the Ghandis...hello, it is not the fact that we over spend, it's the fact that we are used to having a flexible enough economy, to spend. This economic downfall hit us long before we knew it was coming....but I can tell you who did know it was coming...the Banks and our Government! The banks will say "oh no it wasn't our fault, we didn't think this would happen"...well it did happen and now due to their greed we are now seeing every type of creditor closing ranks and blaming Joe Blow...I don't buy it...and I do buy stuff:(

July 3, 2008 - 12:55pm

And another thing IG

Sassys Says:

http://bloggerparty.com/blog/sassys

We are creating new history every single day...we will repeat this but only because if there's one thing that is constant it is greed and corruption at the highest levels...so IF we are stupid enough to vote in another moron aka Bush/McCain then hell yeah this will indeed be repeated.

July 3, 2008 - 11:13am

Ok, to defend the Hummer

spookyyank Says:

Let's not forget, my dear friends, that when the world ends by zombie uprising or killer virus, my happy ass will first be hitting the nearest Hummer lot! Thank God I'm in LA! Ya, and people say having TANKS in the city is dumb!

In all seriousness, I'm with you 100% IG! I'm really getting tired of the Governement being blamed for things that we are too stupid to avoid. It's all about personal accountability. I've never owned a house or had a mortgage, but I'd damn well make sure I understood the details of anything before I signed it. And, if my eyes got all big and I was suckered because I jumped too soon - well, that's bad on ME. I think the folks I've seen on the news who are near to being homeless because of it *should* get some kind of help. Most of them are hard working people who had these beautiful homes dangled in front of them - the homes they'd always dreamed of. BUT, it was their fault for not understanding - for not making sure they understood - for leaving the details to someone else to figure out and explain to them.

Ya, the American dream used to be something to be proud of. The freedom to make something out of nothing. But, since the 80's it's become an excuse to be ignorant and lazy. "I live beyond my means because it's the dream and how I'm supposed to live! And, it's my God given right to live in a big house that I can't afford because in the end, the government will bail me out!". I mean, come on! The "dream" never included free rides or even big houses. What it always was supposed to mean was the CHANCE and the freedom to pursue a good life. Being an American meant you could own a business, have a *nice* home and pursue your dreams. And, all of that came with hard work! Not everything for nothing.

All in all it should be a lesson to everyone. It probably won't be, but it should be. I know I've learned from it. I'd love to own a home someday and look at this as a great lesson in how the dream can turn into a nightmare if you're not careful.
But, what's sadder is how so many of us were around for past recessions and still haven't learned a fucking thing! And, like the past, we whine and lament over the government - at fault for some, but not all of it - and refuse to take any resposibility ourselves.

Personally, I can't wait for the super flu that wipes out most of the world! That way I can kick back with Gary Sinise in my no-mortgage-house, with my Hummer in the drive and ABBA on my stereo!

Oh yes....there will be ABBA.....

STALKING EDGAR ON MYSPACE

HOME OF 'STALKING EDGAR' THE MOVIE

July 3, 2008 - 12:00pm

"No more f*cking ABBA!!"

IntricateGirl Says:

Nah. Forget the new Hummers. Zombies will peel them open like a Pepsi can. I'm going for the International 7300 CXT- the ride that made Ashton Kutcher look like he was driving a clown car. I've heard it described as looking like a semi going doggy style on a Dodge, and I can't come up with a better description.

Yep. I knew what I was getting into with my mortgage. I still haven't figured out how I'm getting out though.

Now, I'm not entirely opposed to programs that would help out. And it's not just because I'd benefit from them, because I probably won't be eligible. I'm making my payments, and it looks like I will be able to continue to do so. It doesn't matter that my payments are more than the house is worth- that's my problem. But now, you've got a situation where people need to learn a lesson about their past behaviors, experience a little hurt, but do so without letting the economy completely go to hell. If we get in a period of stagflation, we're in trouble. And that will very seriously affect not only the people who caused the problems, but those who acted responsibly, and our children, and other countries. So, it's a delicate balance. And it's going to involve a lot of really difficult, uncomfortable decisions.