Another Great Depression? [Archive] - Women's Cycling Discussion Forums

Mr. Bloom

07-20-2008, 02:15 PM

OakLeaf

07-20-2008, 09:35 PM

A lot of banking regulations were put into place after the Great Depression to hopefully prevent anything that widespread from ever happening again. We may be seeing those safeguards put to the test in the coming months/years.

The worst thing people can do right now is panic.

I don't want to start a panic, but most of those regulations were repealed (http://www.motherjones.com/news/feature/2008/07/where-credit-is-due-timeline.html) beginning in the mid-1970s and continuing at an accelerating pace through the present...

smilingcat

07-20-2008, 10:28 PM

We've had good times for so long, a little bump is a big deal when we've forgotten what difficult is...

When things are good, the media says "this time things are different and they'll always be good"...then pop!

So, when things are bad, the media says "this time things are different and they can't get better"...but they do.

I'll share a portion of a PM I sent to sundial in response to a question she asked regarding bank failures:

Are the banks safe? There are many ways to measure this and many answers to your question...but on a whole, YES...the industry is safe and sound. There are 10,000 banks in America, so far about three or four have failed this year. There will be more...let's say there are 50 more failures...we're still talking about a 99.5% survival rate. The media hypes the .5%, but doesn't celebrate the 99.5%.

Prior to IndyMac's failure last week, the largest failure in some time was in sundials backyard. IndyMac's failure last week was really triggered by some irresponsible politics...but that's a different story.

From a banking perspective, this is EXACTLY how it was in the last real downturn we saw in 1989 to 1991...and I suspect that we'll see it again before I retire in 15 years.

Am I discouraged? I'm CAUTIOUS, but not discouraged.

I don't know where "bottom" is, but I know that we're closer today than two years ago...and after the bottom, things get better.

Dear Mr. Silver,

The 99.5% is the rate of failure in terms of number of banks. It isn't the same when one looks from a perspective of total capitalization etc. $$ instead of number of banks. I'm thinking in terms of 700 S&L in the 90's with Keating 5... Lincoln Savings with $160+ billion loss. and we the tax payer paid out how much?? That's a lot of programs it could have funded.

Anyway, Indy Mac is not a small bank nor is it a large bank. Those who had their money there, hopefully will get their money back or access in REASONABLE amount of time. This is provided Feds can find a buyer with a help from Leman Bros. The run on indy bank amounted to just $1.3billion.

Now of the 10,000 banks if few small one fails its one thing. But someone like Wachovia or WaMu (PLEASE NOTE THIS IN BIG BIG BOLD LETTER, I'M NOT SAYING THEY ARE IN BAD SHAPE. I HAVE NO IDEA WHERE THEY STAND FINANCIALLY) or Citi Group. If any of the big names falter then we would have some problems. Silver lining is that one of the big ones Wells Fargo posted better than expected performance. One of the reasons the market bounced this past week.

And their are the two behemouth 700pound gorillas. Fannie and Freddie... The two will pose major major problems with Feds. Indy is just a small mosquito bite compared to the two. numbers I heard are combined total cost of in excess of $1 trillion ($1000 billion) . And oh our GNP is what?? oh around $11-12 trillion.

Feds have gone or will be going?? to the capitol for authorization to help the two out. This is euphormism for "just print more money". This invariably leads to very strong inflationary pressure. and more pressure on the international market for devaluation of the $$. But if they don't bail out Fannie and Freddie, some other things can happen. And its not good.

to others here, I think Mr. Silver and I may disagree where the bottom is. Well no one has a crystal ball. So he infact may not disagree with me. just matter of symantics. Anyway getting back to market/economy worries. It doesn't hurt to be thrifty. It helps to be saving for the rainy day because you never will have green light through your life. There will always be bumps and bruises.

Do I know where the market is heading? absolutely not. As a proof, I was thinking about GM about week and half ago, it dipped to around $8.90/share, divident at that share price was in excess of 10% (heck of lot better than 3% savings rate) today monday morning, it should get close to $14.00/share. And I didn't. I'm just too chicken. thats nearly 50% gain. But GM board cancelled divident payouts. so its 0% :(. It was necessary though.

So if you are worried, you are not the only one. About 70% of the population are looking glass 3/4 empty. Things will eventually get better so have hope, be cautious and be thrifty.

smilingcat

NbyNW

07-20-2008, 10:50 PM

I don't want to start a panic, but most of those regulations were repealed (http://www.motherjones.com/news/feature/2008/07/where-credit-is-due-timeline.html) beginning in the mid-1970s and continuing at an accelerating pace through the present...

Wow, so nothing happened between 1933 and 1968? huh.
I'm not sure if this timeline's focus on more recent events means that consumer protections are disappearing faster than in the past.

Mr. Bloom

07-21-2008, 03:40 AM

to others here, I think Mr. Silver and I may disagree where the bottom is. Well no one has a crystal ball. So he infact may not disagree with me. just matter of symantics. Anyway getting back to market/economy worries. It doesn't hurt to be thrifty. It helps to be saving for the rainy day because you never will have green light through your life. There will always be bumps and bruises.

smilingcat says this well...;)

mimitabby

07-21-2008, 05:59 AM

Wow, so nothing happened between 1933 and 1968? huh.
I'm not sure if this timeline's focus on more recent events means that consumer protections are disappearing faster than in the past.

yes, that is correct. The banks were very stable for those years. (that was while the people who remembered the mess were still in power!)

Crankin

07-21-2008, 09:01 AM

Well, why do people put more than the insured $100 K in a bank account?? I want to say the Dr. Phil line, "What were you thinking?" I mean, who would invest all of that money in an account getting 3% interest? Then they get mad when their savings over the $100K amount may be in jeopardy! I am not one who is super well versed in all things financial, but that message is clearly on the all of the doors and windows of all banks. It seems to me, the more people stand in line and yank their money out, the worse things will get.
I remember thinking the same thing with the Lincoln Thrift debacle. At the time, I lived in Phx and these were on every corner. But it was clear that they were not traditional banks and the accounts weren't insured. Sure, the Keating 5 were real sleazeballs, but again, who would put their money in an institution like that? It was bad enough that I bought my first house from Mr. Keating (Continental Homes), but at least the city of Chandler changed the name of Keating Drive after the scandal.
It wouldn't hurt for everyone to look at their finances and see where things can be tightened up. But I guess I am one of the few who sees the glass as half full. This is a cycle that has happened at least 3 times since I graduated from college.

GLC1968

07-21-2008, 09:16 AM

The worst thing people can do right now is panic.

The best thing people can do right now is pay down their debt as much as possible.

True, on both counts.

The difference between now and the 1930's though is that today's economy is so extremely oil dependent. In addition, our world population is larger and our food supply is very centralized and also oil dependent. Personally, I think things have the potential to be MUCH worse than they were in the first Great Depression. Will it happen? Hard to say. Back then, most people knew how to do things by hand and how to grow their own food. Our nation still had many small and family farmers and our city populations were much less dense. Today, not so much. Financial problems and unemployment aside, I think that food is going to get ridiculously expensive and sparse in the very near future. As it is, people are already starting to have to choose between gas in the car and food on the table. What happens when they have to figure 'heat in the house' into that equation?

Yep, count me in the 'worried' group.

BleeckerSt_Girl

07-21-2008, 10:05 AM

Things actually have the potential for being much worse this time around.

Blueberry

07-21-2008, 10:25 AM

GLC-

Are you guys moved? Have you ridden into work yet? Just curious as to how it's going:)

CA

GLC1968

07-21-2008, 10:59 AM

CA - I just posted about it in the commuting forum! We moved on Saturday. My first commute is tomorrow! :eek:

Katie.Marie

07-21-2008, 11:32 AM

Very discouraging coming out of college with a social work degree that took 5 years! Starting at $30,000 it just not enough for working with social services and anyone in general! :mad:

Mr. SR500

07-21-2008, 12:01 PM

I really wonder how much is media driven. If your told the economy is bad enough, eventually you'll start changing your habits and then things will really turn. My business is SLOW, but it's off-season so I'm hoping for a recovery this fall, but I've had to make changes to account for the lower income and higher expenses we now have. Gas is still cheaper then in Europe, but with coal and natural gas recently going up, we will get hit again this heating season. Who knows, but I'm hoping things will turn around soon.

Crankin

07-21-2008, 12:10 PM

Yes, people have been routinely paying 7-10 dollars a gallon for gas in Europe for a long time. Guess what? They have cars that get good gas mileage, they have good public transportation, and they ride their bikes. When are we going to wake up?
I am still an optimist, even if banks keep giving mortgages to people who can't afford them...

Trek420

07-21-2008, 12:26 PM

I am still an optimist, even if banks keep giving mortgages to people who can't afford them...

Yep, and I just need ONE of those folks to buy my condo, or one of our Bay Area super commuters wising up to the fact that "hey, having a smaller place less than 2 bikeable miles to light rail is smart. I never see my MacMansion anyway with all the hours spent driving" :rolleyes:

But I've noticed even with our tiny patios more of my neighbors are growing vegies. Who knew corn grows well here?

TahoeDirtGirl

07-21-2008, 01:35 PM

I always like to see the good side of things n I'll duck any salmonella peppers (cause we ran out of tomatoes) that people will throw ;)

I think "whatever you would call this financial situation" has a hidden blessing for the USA. It reminds me of the 70s with the gas crisis (I was 4 at the time) and for the most part, it is teaching people how to live 'simply' and with less things. It's getting people to ride bikes to work, hang laundry out to dry and grow tomatoes where ever they can. It is getting people to look at solar energy and alternative energy a little more seriously. Maybe this time we will follow through?

The money part always makes my head whirl, but I'm really good at buying and selling stocks. I buy low and sell high. I'm not being a wise pants about it, I really do. I bought Northwest Airlines at .53 and sold it at almost 7. There are other ones, but I digress.

If you have the cash, invest in some stock that you like. I loved Northwest. There are some stocks I'm eyeballing right now. I guess the bottom could just fall out and everything could crash, but I don't see that I guess.

As far as the FDIC that is one I sometimes don't understand- the banks I have my money in, if they went under, and my $100K was still in the vault, how is the FDIC going to get it for me? That is the part I don't understand, if things are that bad, how is the FDIC going to make everything better? Money is so transparent that it's electronically moved around and around, there really isn't anything kept in a vault....is there?

As an aside, and anybody speak up if they know better, just because you have a second account in the same bank with $100K doesn't mean you are insured. It's only one account per bank per person. Unless it is a 401K or IRA.

Paradox

07-21-2008, 01:45 PM

I really wonder how much is media driven. If your told the economy is bad enough, eventually you'll start changing your habits and then things will really turn.

I think a lot of the anxiety is media-driven, now that we have access to 24/7 constant (bad) news. In prior economic downturns, it didn't seem like all media outlets were competing for the most depressing story. Now, I work in the mortgage/finance industry, so I'm pretty up to date on what's going on in the economy, and no, it is not pretty. But is it any worse than anything the U.S. has been through before? Probably not. Things go in cycles. The dot-com bust hurt a lot of people too.

I found these two things humorous for anyone who wants a less-depressing take on things from the media:

http://www.theonion.com/content/news/recession_plagued_nation_demands

http://calculatedrisk.blogspot.com/2008/07/daily-show-its-stupid-economy.html

Mr. Bloom

07-21-2008, 02:35 PM

I'm about to go out for a ride, so I'll just post this and comment later:

http://money.cnn.com/2008/07/21/news/economy/fdic/index.htm?postversion=2008072104

Zen

07-21-2008, 05:41 PM

All my money is in a mayonnaise jar on the kitchen counter.
As long as I have my dogs, it's safe.

Fredwina

07-21-2008, 06:37 PM

I may be stealing mr. S's thunder here, but IndyMac (independent mortgage acceptance Corp.) Bank did most of there business with so-called "liar" (I think the correct term is "stated income" ) and NINA (no income no assets) loans ( basically, no verification was done re:borrower's income or assets). Reminds me of a story on NPR a while. A lady had a gross income of $24k/year, but qualified for a $2000/month mortgage.
Most of folk with $ in in Indymac were there because of their interest - Bring ti mind the old axiom i learned in B-school - the higher the return, the higher the risk.

grey

07-21-2008, 07:20 PM

*snip* it is teaching people how to live 'simply' and with less things. It's getting people to ride bikes to work, hang laundry out to dry and grow tomatoes where ever they can. It is getting people to look at solar energy and alternative energy a little more seriously. Maybe this time we will follow through?

I agree 100%. This year I have really been learning how to can, freeze, and preserve just about everything I grow, and I put in a much larger garden this year. Next year's will be even bigger. I do hang laundry on the line - I actually enjoy it, somehow it doesn't bother me as much to fold laundry as I take it down as it does to pull that big wad of clothes from a dryer. When gas hits $5 a gallon, I hope I'm in good enough shape to finally ride up that mountain for the place I work at on some weekends. It may be brutal, but at least the route home is cake. :D

*snip*As far as the FDIC that is one I sometimes don't understand- the banks I have my money in, if they went under, and my $100K was still in the vault, how is the FDIC going to get it for me? That is the part I don't understand, if things are that bad, how is the FDIC going to make everything better?

As I understand it, the FDIC can return your money to you anytime within 50 years or something like that. They aren't under the gun to give it to you during your lifetime. :rolleyes:

Mr. Bloom

07-22-2008, 02:19 AM

As I understand it, the FDIC can return your money to you anytime within 50 years or something like that. They aren't under the gun to give it to you during your lifetime. :rolleyes:

As a practical matter, I don't believe that this is true for insured deposits. That may be the case for uninsured deposits where the underlying assets (generally loans) of the institution have to be collected first. Uninsured deposits will still have priority to other creditors in liquidation. With Indymac, they've already approved a 50% dividend which means that half of the uninsured deposits are being made available to the account holders (indicating that they believe there's value in the liquidation).

As a practical matter, on insured deposits, the name of the bank simply chanages following the failure...

If anyone knows differently, I welcome the record being set strength.

Keep in mind, when I say "as a practical matter", there's been over 3,000 bank failures in the last 30 years...there's good precedent on their actions/behaviors.

OakLeaf

07-22-2008, 03:26 AM

Water's going to be the big sticking point.

It's easy to learn to grow your own food - even staples aren't TOO terribly hard to thresh, such as many people did when they were panicked about the Y2K bug. And transportation machinery (bicycles, wagons etc.) can last a long time.

Water is another thing. In many parts of the country it's easy enough to build windmills. In other parts, people's water currently comes from as far away as their electricity. (Remember the opening chapter of "Animal, Vegetable, Miracle" on why she decided to move the family back East? And, water was the huge omission from "The Omnivore's Dilemma.")

There used to be a saying "water will be the next oil." Now that we're far enough past peak oil that people are starting to notice, I think we're about to understand that saying.

pll

07-22-2008, 03:48 AM

Liquidity for a small business? Liquidity for a big purchase in the near term?

Well, why do people put more than the insured $100 K in a bank account?? I want to say the Dr. Phil line, "What were you thinking?" I mean, who would invest all of that money in an account getting 3% interest?

tulip

07-22-2008, 03:58 AM

I'm buying a house, as some of you know. This is my third house purchase. It's quite a simple house, and quite a low price, well within my means. My credit is great, and I'm a good catch for a lender! The mortgage payments will be several hundred dollars less than my current rent.

It's been quite a ride to get approved this time around. Yesterday I got official notice of approval by the lender. Part of it may be that it's an FHA loan, but I think that lenders are being super careful and scrutinizing everything. Jeez, when I bought my house in DC (double this house!) it was practically automatic. I was biting my nails over this one...and will continue to do so until they give me the key.

Once I get the key, however, I'm putting in a veggie garden and putting up a clothes line. Oh, and I also have to build a kitchen. Details, details.

Fredwina

07-22-2008, 05:03 AM

with IndyMac, they were giving cashiers check to people who pulled their money out. Some bank were slapping 8 week hold when they were deposited, though.

Jolt

07-22-2008, 05:52 AM

Yes, people have been routinely paying 7-10 dollars a gallon for gas in Europe for a long time. Guess what? They have cars that get good gas mileage, they have good public transportation, and they ride their bikes. When are we going to wake up?

That's been my thought...yes it's a pain that gas prices are going up but it may have some positive results. For example, I heard on the news yesterday that Amtrak's ridership has increased quite a bit on the Downeaster line (and probably others as well). This will hopefully result in expanded service making it a more convenient travel option for more trips. One thing I would really love to see would be an Amtrak route into the White Mountains...it would be so much more relaxing to hop on a train rather than having to drive when we want to hike up there!

GLC1968

07-22-2008, 08:36 AM

All my money is in a mayonnaise jar on the kitchen counter.
As long as I have my dogs, it's safe.

What if the US dollar isn't worth anything in 2 years? The paper may be safe, but it may be just that...paper. ;)

Water's going to be the big sticking point.

It's easy to learn to grow your own food - even staples aren't TOO terribly hard to thresh, such as many people did when they were panicked about the Y2K bug. And transportation machinery (bicycles, wagons etc.) can last a long time.

Water is another thing. In many parts of the country it's easy enough to build windmills. In other parts, people's water currently comes from as far away as their electricity. (Remember the opening chapter of "Animal, Vegetable, Miracle" on why she decided to move the family back East? And, water was the huge omission from "The Omnivore's Dilemma.")

There used to be a saying "water will be the next oil." Now that we're far enough past peak oil that people are starting to notice, I think we're about to understand that saying.

Very, very true. People can live without comforts but they can't live without water. And we can't grow food without it either, of course.

This is why I find the technology to drive cars on water just laughable. Water is WAY more precious that oil!

Zen

07-22-2008, 10:05 AM

What if the US dollar isn't worth anything in 2 years? The paper may be safe, but it may be just that...paper. ;)

Point being, I'm poor now and can't get much poorer.
there's always oragami :)

Aggie_Ama

07-22-2008, 10:07 AM

I figure I will just move to my husband's grandma's ranch and live in a tent. My Mammaw did it when she was 18 and first married, why not? It is hard to think that in 1936 my Mammaw and Pawpaw just threw up a tent and lived in it for about a year. No one does stuff like that now days. They were tough stock.

Trek420

07-22-2008, 10:16 AM

No one does stuff like that now days. They were tough stock.

Not to contribute to the general "how'd we get in this handbasket and where's it going" tone but this is what I've been trying to say. Not only is there whatever's going on financialy but some argue that climate change (whether you feel it's a hoax, fad or real) may be the most important challenge the world's known.

In my work at the antique store I talk to a lot of folks. A dozen years ago when I started most of those were this "best generation". Coworkers would shake their heads "oh, I'm so sorry you have to talk to old people all day".

I'm having fun, these folks are great. :p I'm so impressed. And the stories? :cool: Impressive.

Are we up to a task like that? I don't think so :(

Aggie_Ama

07-22-2008, 10:38 AM

In my work at the antique store I talk to a lot of folks. A dozen years ago when I started most of those were this "best generation". Coworkers would shake their heads "oh, I'm so sorry you have to talk to old people all day".

I'm having fun, these folks are great. :p I'm so impressed. And the stories? :cool: Impressive.

Are we up to a task like that? I don't think so :(

My favorite customer of all time at Lowe's was a man who came in and would tell me "I am A&M Class of 47. Would have been sooner but this little thing called World War II got in the way. I was going to go to Law School but I became a vet and I was okay at that. The dogs were nice co-workers." I always liked the elderly people at Lowe's a great deal more than the 30-50 crowd that is for sure.

I never get tired of hearing my 90 year old Mammaw and my husband's 80 year old Oma talk about being teens in rural hill country. Those two women could take care of cattle, kill a snake, skin a critter, grow an entire salad and mend your britches. I cannot do one of those things.

Trek420

07-22-2008, 02:59 PM

My favorite customer of all time at Lowe's was a man who came in and would tell me "I am A&M Class of 47. Would have been sooner but this little thing called World War II got in the way. I was going to go to Law School but I became a vet and I was okay at that. The dogs were nice co-workers." I always liked the elderly people at Lowe's a great deal more than the 30-50 crowd that is for sure.

That's one of the things I noticed about this generation. Maybe it was the GI bill but they seem more educated. This is a generation that went to war, came back and went to school :cool:. Regardless of which socks you wear :rolleyes: we are not doing right for our vets.

And the reward of the GI bill was a generation of veterenarians, etc. That was an investment that paid rich rewards as education always does.

Zen

07-22-2008, 03:56 PM

I could actually afford T-Bills!
http://finance.yahoo.com/banking-budgeting/article/105425/Ultra-Safe-Places-to-Stash-Your-Cash
Hey, it's better than nothing.

mimitabby

07-22-2008, 04:05 PM

Yes, when the European union began, I went to Italy and bought some euro's. They were 50 cents each. Now they are worth $1.50 each. Our money is worth less and less on a world level. Between that and the ridiculous prices we pay for medicine, it really is harder and harder for us to survive. Get healthy! ride your bike!! then you won't need as much medicine. That's our plan anyway!

tulip

07-22-2008, 04:39 PM

Those two women could take care of cattle, kill a snake, skin a critter, grow an entire salad and mend your britches. I cannot do one of those things.

Well, I can do all that except skin a critter. That is, assuming cattle are similar to horses and goats. But my Joy of Cooking (1974 edition) has illustrated instructions on how to skin a squirrel, so I could probably learn if I had to. But I'd rather clean a fish.

Zen

07-22-2008, 04:43 PM

I reckon I'd have to live in a commune and let someone else do the skinning :o

Mr. Bloom

07-22-2008, 06:17 PM

Again, I want to add some perspective here relating to the original question.

In the last 30 years, 3,006 banks failed in America. Of course, the failures were clustered about the late 80's and early 90's. The median bank size in that period (not indexed for inflation) was about $56million. Big failures were rare...and will also be rare today. The failures then were caused by three primary things:
- fraud in the early 80's by a Tennessee banker named Jake Butcher
- the oil crash of the late 80's affecting Texas banks
- the real estate crash and recession caused by Desert Storm and the credit crunch.
But, the banking industry survived and came out stronger from the experience.

We may have a recession (depending on how you define that), we will have more bank failures, and we will have uncertainty.

BUT, we have a lot going right and there's no need for panic.

Back to a prediction that I made in a previous thread, our current circumstances, what I anticipate gov't policy response to our current situation, will breed a renewal of inflation pressures unlike what we've seen in nearly 30 years. If we can get out of the business of policing the world, balance the budget, and become productive again, then we have hope.

Finally, there are plenty of ways for people with more than $100,000 to have more FDIC insurance without having to spread it out over several banks. For instance, retire account deposits are insured for $250,000 (a fact that many people don't know....) and there are ways to title accounts that increase the effective amount of insurance coverage (http://www.fdic.gov/deposit/deposits/insuringdeposits/index.html)

smilingcat

07-22-2008, 07:20 PM

Dear Mr. Silver,

Thank you for your link. It doesn't do me any good though.

Is this reasoning more or less accurate as to Wachovia's stock price activity today.

Wall street estimates had Wachovia to lose around $2-2.5 Billion for this quarter. Their earning came out with stated loss in excess of $8.0 Billion. A far cry from the expected. Also they've cut their divident down to 5cents (right move) and their stock jumped around 28% on the news.

So is my assumption correct to say that Wachovia decided to bundle their loss (write-downs) into shortest time span so as to not have a negative report for too many quarters. Meaning they decided to lump the losses together and limit the bad reporting to one or two quarter(s) so that subsequent quarter reports would look good. Reporting going forward then would make it look like Wachovia is over their financial trouble. And this aggressive move makes it a darling on wall street? 28% gain one day is one of the biggest I've ever seen. I just don't have the time to read the 10k reports.

And what about reports of federal regulators making un-announced visit to Wachovia headquarters. Or is this false information?

And what is the difference between Wachovia and WaMu. Besides Mooney threatening a downgrade of WaMu. WaMu reported a loss of only $3Billion or so. And their stock price is in a range where I don't want to touch all that much.

Your thoughts as a banker is of great interest to me.

Thank you,
Smilingcat

Mr. Bloom

07-23-2008, 02:49 AM

The link simply shows that there is a way for normal people to achieve greater than $100,000 in FDIC insurance just in how they title their accounts.

I'll PM some responses to your other questions.

tulip

07-23-2008, 04:29 AM

Gotta agree with Mr. Silver on this. Yes, it's an adjustment, but things were so far out of whack the other way for a while...remember? Did we get so comfy we thought that was normal? Shame on us!

OakLeaf

07-23-2008, 04:55 AM

But my Joy of Cooking (1974 edition) has illustrated instructions on how to skin a squirrel, so I could probably learn if I had to. But I'd rather clean a fish.

See, that's why I had to hang onto my old Joy when I bought the new one (with a lot more vegetarian and ethnic recipes). They deleted the game recipes... and the bartender's guide. ;)

I betcha skinning a squirrel isn't too different from skinning a catfish though. Except for the legs :D

Pax

07-23-2008, 05:39 AM

I'm buying a house, as some of you know. This is my third house purchase. It's quite a simple house, and quite a low price, well within my means. My credit is great, and I'm a good catch for a lender! The mortgage payments will be several hundred dollars less than my current rent...
We're a few weeks ahead of you (we already closed) but our situations are really similar. We could have bought a much bigger house that was further from work but we decided that a smaller/less expensive house that is bikeable/walkable to work, groceries, shopping was a truly sensible choice. It's nice to know that if the economy crashes and burns we'll be able to afford our little house and can leave our cars parked as long as necessary.

smilingcat

07-23-2008, 06:07 AM

The new trend in house purchases is toward smaller and more reasonable sized home and away from McMansions. I think this is a wonderful trend. My house is 1600sq feet. It's a beach bugalow built in 1939. 2 bedroom/1bath...with detached garage. if you've got two small cars it will fit but not todays midsized cars.

Well heck growing up in Utah, with many of my friends coming from a rather large family (6 or more kids), they seemed to have managed just fine with 3bedroom one bath or one-and-half bath sized house. typical square footage was around 1600 sq. feet. And if you grew up in a house with over 2,000 sq feet that was a luxury. BTW, I did ask my friends about the bathroom situation in the morning... My friends said forget about makeup in the bathroom! or doing your hair! 10min/kid and its still one solid hour of bathroom usage in the morning.

smilingcat

Trek420

07-23-2008, 06:17 AM

I'm several years behind both of you. I chose a small place near public transportation options, it was waaaaaay the heck below market value of similar units at the time. Messy, cluttered, crowded, unpainted ... the sellers had done nothing to stage the joint. Their agent was a moron not to tell them what to do (at least de'clutter, fix, clean and paint).

So here I am. :D

:::sigh::: I missed the housing bubble. I coulda done this remodel and sold the joint for over twice what I paid. Silly me. I did back to back to back to back CA AIDS rides, recovered my health and fitness, met Knott :D :) and had some great rides. No regrets.

Meanwhile to my peers/coworkers who chose bigger places in Vacaville, Sacto, Modesto ... with matching huge commutes .... I <3 my tiny 1.5 miles to BART condo.

I think people will always want to live in CA, the housing market will recover slightly somehow at some time. All I need is one person or family who's learned the lesson of living closer to work/transit.

salsabike

07-23-2008, 08:09 AM

http://www.washingtonpost.com/wp-dyn/content/article/2008/07/22/AR2008072202115.html?hpid=opinionsbox1

TahoeDirtGirl

07-23-2008, 09:14 AM

I will have to check out that book (I think it's a book Animal, Mineral, Vegetable?) about water. For a while there, people were paying more per gallon than they were for gas. I think we have probably passed that. I think of that too, that water is often wasted as much as anything. We have water restrictions here in Mass where I am and I think I'm the only one that follows it. I thought that the other people had wells but no, they just don't care.

A few years ago, we hit a housing kaboom in Tahoe. If you had dirt, they would try and build on it. I won't go into the whole TRPA thing, but basically, there weren't many buildable lots so they ...made everything buildable. Building building everywhere. I couldn't understand who was buying these HUGE houses...we finally cornered a real estate agent at the local watering hole and she explained the 'no interest second' that people were taking out on their primary residence and then, either they were just figuring they would sell it in a few years because of the market (people were bidding over the asking price!) or they would just refi it or something before it came 'due' (ie they had to pay more on it or the interest went up). We didn't really get it. You would never really 'own' your house? on just paying interest only? What was going on...and like I said "this can't keep going".

And I guess that's what happened there. My house doubled in value of course, but no one is up for buying anything. There are people just loading up their furniture and shutting the lights out. It's crazy. My friend is telling me her neighbor is raffling off his house that he just HAD TO BUILD and ruin the lot with no intention of living in it. He just wanted to make $$$. So now there is a big ugly house with no one that wants it.

I remember back in the 90s when I bought my first house, they dug up everything on you, wanted all kinds of info, and it was much tougher. When I bought my current house in 2000, I think I just produced a w2 and tax statements for two years. It was over before I knew it.

To me, just that overconsumption was what made me realize this couldn't keep going on. It was like ....debt obesity? Or just waste?? And the more we build and build these huge malls on farmland, makes it less and less likely we will be farming anything on it? Has anyone else noticed that? Someone was reading me a list of stores that will be closing 'underperforming' stores. All I know is that there is a couple of stores that are under construction near me in Mass that aren't even going to open. What a waste...

GLC1968

07-23-2008, 09:46 AM

I remember back in the 90s when I bought my first house, they dug up everything on you, wanted all kinds of info, and it was much tougher. When I bought my current house in 2000, I think I just produced a w2 and tax statements for two years. It was over before I knew it.

We experienced the same thing. I remember my friends moaning about having bounced a check in college and how it was coming back to haunt her when she bought her house in 92!

We bought our first home in 2003 and we basically just signed a piece of paper...it was SO easy even though the price was kind of a stretch for us. Same thing in 2004 when we bought in NC.

We just closed on a house here in OR last month. VERY different experience. We are actually now buying a house that is very much well, well below our means and yet we had to dot every single 'i' and cross every single 't' on the paperwork. They even questioned the dates on a transfer of our downpayment. It left one bank on the 22nd and got credited at the second bank on the 21st (due to a midnight transfer and a difference of time zones) and THIS held up our approval! They wanted a 'reason' for it and proof!! All in all, in some ways the extra scrutiny felt totally unnecessary and yet it made us feel like the industry was finally getting back to the way it SHOULD have been all along.

Pax

07-23-2008, 10:24 AM

We just closed on a house here in OR last month. VERY different experience...
Same here, we transferred $900 from a tiny credit union account to our checking account to help with our closing costs and they wanted print outs and a letter from the credit union saying this happened. They said "we need to know that it wasn't a gift". I'm glad we didn't just bring some money from home and deposit it.

TahoeDirtGirl

07-23-2008, 10:35 AM

I had that same issue when I was buying a house in the 90s. They were trying to figure out if I borrowed money from someone to cover the closing costs. I remember asking when we were purchasing our house in 2000 if they needed a statement of my accounts and they just took the first one and never bothered looking at it again.

There was a very very interesting program on, either MSNBC or PBS (I only get 5 channels, it had to be one of those!) about what happened with the mortgage industry. They showed a speech by Bush where he wanted to see more low income people own their own homes, and so, the mortgage industry began doing 'reverse redlining' where 30 years earlier they had drawn these red lines around undesirable neighborhoods where they didn't want to fund. Now they were going in those lines and funding housing within those lines, but with not the best ideas, such as interest only loans. I wasn't aware of that, my anecdotal experience was with the upper middle class that were just spending out of control and just way over extended on loans and mortgages. I have yet to see any type of information where they compare the salaries of those going up for foreclosures. Is it what they were talking about on this program or is it the upper middle class and their McMansions? I would like to see some kind of demographic on it, I guess I haven't looked hard enough.

It was sad to see people that were really stuck, they had already put money into their houses and soon realized that their payments were going through the roof. I know that everyone should be paying attention and understand the terms and conditions of their loans, but on the other hand, what were these banks thinking? Couldn't they figure out that people weren't going to pay double their payment? That's the part I don't get. Or was it just the fact that the people that were doing left the mortgage business as soon as they made a scad of cash?

firenze11

07-23-2008, 11:12 AM

I keep reading this thread with a certain amount of horror. As a grad student with essentially nothing, the recession is scary enough. Seeing the word depression kinda blows my mind. As a history student, I've always hoped knowledge of the past actually does keep the same mistakes from being repeated (at the very least, the huge, devastating ones). I've done a little reading for the past couple of days (thanks for that article today Salsabike!) and I don't think we're headed for a depression. We do have a lot of work to do and I think many many people just got comfortable with all the things they could get over the past years.

When I graduate next year I'm terrified I won't be able to find a job, or I'll be laid off once I get one like one of my friends just experienced. I've already started looking. I'm reading more and more about how to keep my personal finances in check and stay out of debt. I watch some of my friends use their credit cards like there is free money on them. I know they don't make enough money to support the lifestyles they lead and wonder how much debt they have already gotten into. I'm trying to learn from others' examples, but it's hard when so many people still seem crazy irresponsible.

I think weathering a recession, even if it is a long and difficult recession, is part of the economic cycle. I'm ok with that. It's happened before and it will happen again. Hopefully, the issues this one is dredging up will actually lead to some change.

Besides, I don't really want to have to sleep in a tent on a commune and learn how to skin squirrels. . .but if I have to I better go find a copy of the Joy of Cooking from the 70s.

There was a very very interesting program on, either MSNBC or PBS (I only get 5 channels, it had to be one of those!) about what happened with the mortgage industry. They showed a speech by Bush where he wanted to see more low income people own their own homes, and so, the mortgage industry began doing 'reverse redlining' where 30 years earlier they had drawn these red lines around undesirable neighborhoods where they didn't want to fund. Now they were going in those lines and funding housing within those lines, but with not the best ideas, such as interest only loans.

I saw a clip about something similar on The Daily Show. Jon had Richard Bitner on the show. He wrote a book called Confessions of a Subprime Lender and was talking about how the whole situation might have worked out if the government had regulated the subprime mortgages/lenders. And that when you let businesses regulate situations like that it just becomes one big casino.

maillotpois

07-23-2008, 11:26 AM

Wow. My in laws gave us a pretty big amount of money for a deposit on our house when we bought in 2004. First it wasn't in our account, then it was. No questions were ever asked. I never really thought much of it, but it sounds like that would raise some eyebrows now.

tulip

07-23-2008, 11:50 AM

Wow. My in laws gave us a pretty big amount of money for a deposit on our house when we bought in 2005. First it wasn't in our account, then it was. No questions were ever asked. I never really thought much of it, but it sounds like that would raise some eyebrows now.

Usually you have to show bank account info for three months prior to your purchase. That's how it's always been for me in my three house purchases. Otherwise it's considered a gift and is treated differently.

GLC1968

07-23-2008, 01:00 PM

Usually you have to show bank account info for three months prior to your purchase. That's how it's always been for me in my three house purchases. Otherwise it's considered a gift and is treated differently.

Unless you could show where it came from (in our case, the sale of our previous home).

When we purchased our first home, we used money received as wedding gifts towards the downpayment. We had to sign paperwork stating that it was from gifts and the largest of the givers had to write a letter as well. This was in 2003 - but we also had no home purchase history and I had very little career related job work (I was just out of my masters program and only employed for a few weeks). Plus, that home was a stretch for us, financially. In retrospect, I still can't believe how easy it was...even with all the things that now would be considered marks against us. And that was only 5 years ago!

Mr. Bloom

07-23-2008, 01:56 PM

When we bought our first house in 1986, they wanted copies of our college diplomas...

We didn't even attend our graduation, but they wanted copies of our diplomas:rolleyes:

maillotpois

07-23-2008, 02:09 PM

Maybe it was just easier for us because our lender is our bank (Wells Fargo). Cut out a step, perhaps.

KnottedYet

07-23-2008, 05:48 PM

I'm a middle-aged single parent who has never owned a house.

I doubt I'd ever be able to buy one, either, cuz just this year I finally started making money at a REAL job and now I make too much to qualify for the downpayment grants our city gives single parents to help them buy their first home!

Of course, when I *did* qualify, I wasn't making enough to actually be able to afford the monthly mortgage payement, regardless of having a grant for the downpayment or not.

boogers.

And as the mortgage crisis comes to fruition, I'll be shoved right out of a mortgage through any bank. And my rent will continue to rise as people can no longer get loans to buy houses so demand for rentals goes up, and I'll never be able to save the $$ for a downpayment unless I start living in my car. (my rent for my apartment has gone up $300/month over the last 4 years)

Zen

07-23-2008, 08:36 PM

I bet you can find a first-time home buyers loan (http://www.hud.gov/buying/comq.cfm) out there somewhere.

Trek420

07-23-2008, 09:10 PM

It's sure a great time to buy a house. :rolleyes: Do you think it could simultaneously be a buyers AND a sellers market? ;)

I'll tell you a funny story, when I got my loan and closed the house sI had to fill out all the forms and jump through hoops including verification of employment. At the antique store I work for that's done by a fax. You wanna know that I work there? HR sends a fax.

The bank insisted, said other employees always gave her a toll free number and a pin code and she called to verify employment.
Trek: No, HR sends you a fax.
Bank: What about the toll free number and pin code?
Trek: That's to verify that I USED to work here, like to check a resume or references.
Bank: But everyone else gave me an 800 number and....
Trek: Was it this? 800-EX-EMPLOY and this pin code
Bank: Yes, they always gave that one
Trek: That's the number to verify that I used to be, no longer am, was, ex employed, fired, retired otherwise no longer there ....
Bank: Oh.
Trek: You've been HAD :o

She thanked me and of course I got a fixed loan.

NbyNW

07-23-2008, 09:38 PM

As a grad student with essentially nothing, the recession is scary enough. Seeing the word depression kinda blows my mind. As a history student, I've always hoped knowledge of the past actually does keep the same mistakes from being repeated (at the very least, the huge, devastating ones).

As a student of history, I've become resigned to the fact that many people don't pay attention to history and make short-sighted decisions. Mistakes get repeated and we wonder why no one saw it coming; when things go well, we take more credit than we deserve.

I've also had the experience of coming out of school during a downcycle. If you're resourceful and flexible, you'll find a way to pay the bills and pay down any school debt. The first job (first few jobs?) might not be the ideal fit for what you went to school for, but even in the best of times it can take a while to find a long-term professional "home."

I think the current situation is really painful for people who are finding they are not able to meet their expenses as planned . . . I work with a woman who has been watching her investments lose value just as she's getting ready to send her daughter to college, and it's going to take a lot more of her savings than she would have expected a year or two ago.

If you have very little, then you have very little to lose. This could be a good time to start doing some long-term planning.

DH and I have talked a lot about how comfortable our life is right now -- we don't live extravagantly but we can definitely find ways to economize -- and on top of that we can make do with a lot less. There's a lot of comfort in knowing that we've done it before as starving 20-somethings with liberal arts degrees, and we could do it again if push comes to shove.

sundial

07-24-2008, 07:30 AM

Our region is known for rice production and an Anheuser-Busch uses rice in the production of their goods.

In our local news last week, Anheuser-Busch was purchased by a Belgium company. What was disconcerting about this was the US dollar was too weak to defend the company against the Belgium buyout. This is what causes me to really think about our state of affairs. What if China steps up to the plate next? Saudi Arabia? What if Muslims get a foot hold on our soil and gains economic control while eroding our democracy?

tulip

07-24-2008, 10:03 AM

What if Muslims get a foot hold on our soil and gains economic control while eroding our democracy?

WHOA THERE, NELLY! You are treading on dangerous ground with that one. I suggest that the moderators nip this in the bud.

Or at least Zen should bring out her most heat-resistant mitts.

Trek420

07-24-2008, 11:01 AM

Yep, let's calm down. This is not about religion, race or country of origin etc. And I don't see what anyones religion has to do with democracy :confused:

There have been Muslims in America for a looooooong time, paying taxes, building companies and in public service. We're a diverse country .... and discussion group :)

Duck on Wheels

07-24-2008, 11:45 AM

And as for ruining democracy ... what's functionally left of the Bill of Rights nowadays anyway? According to my "disappearing civil liberties mug" (http://www.uncommongoods.com/item/item.jsp?itemId=13857) the NRA has managed to keep the 2nd amendment intact, and the 3rd still holds (no billetting of soldiers within the US). Property expropriation still requires compensation, and I haven't seen any cases of double indemnity yet. But the rest pretty much went down the drain in the "Patriot" Act. It may be like in the Middle Ages, that we have to count on the Muslims to archive all our old scientific and political knowledge until we lighten up enough to ask for it back. ;)

Geonz

07-24-2008, 02:33 PM

I do have concerns that other countries - having nothing to do with their religion - might already have economic roots. Yes, the foreigners getting the big beer company says something.
This means there might be even tougher times, tyrannies, nuclear war... I'm going to do my darndest regardless to keep my morals from being swallowed by my fear or anybody else's.
We have nothing to fear but fear itself. Fear drives people to be willing to support horrible things like wars and terrorism... and finding a way to categorize other peoples as something threatening and evil to justify the harm done to them.
Einstein said "Nationalism is an infantile disease. It is the measles of mankind." Or something like that. Boy, do I wish there were a vaccine.

Tuckervill

07-24-2008, 02:50 PM

WHOA THERE, NELLY! You are treading on dangerous ground with that one. I suggest that the moderators nip this in the bud.

Or at least Zen should bring out her most heat-resistant mitts.

I think she meant Islamists, not Muslims.

Karen

Grog

07-24-2008, 03:22 PM

I do have concerns that other countries - having nothing to do with their religion - might already have economic roots. Yes, the foreigners getting the big beer company says something.

The United States has had pretty deep "economic roots" in most if not all countries of the world since the Second World War. That has not necessarily meant tyranny for all the countries involved, although it has meant that for some. Americans (well, especially the richest of Americans) have reaped the benefits of a globalized economy for a while. Unfortunately, I am afraid that it is not the richest Americans who will pay the price when it is realized that globalization is not a one-way street...

sundial

07-24-2008, 03:33 PM

I think she meant Islamists, not Muslims.

Karen

Yes, Karen is correct. I should add I meant Islamic extremists. Sorry about the confusion.

Mr. Bloom

07-24-2008, 04:57 PM

OakLeaf

07-24-2008, 05:06 PM

Isn't it interesting how we often confuse or stereotype nationality or politics with religion.

Israeli does not necessarily mean Jewish (and vice-versa)

Arab does not necessarily mean Muslim (and vice-versa)

American does not necessarily mean Christian...

And neither Israeli nor Jewish means Zionist. And many (most?) of the American Founding Fathers were not Christian.

It's infuriating and sad when outsiders make these stereotypes. It's even more so when insiders exploit them.

smilingcat

07-24-2008, 05:31 PM

extremist views no matter who or what it is, is generally not good.

Islamic extremist are not the views of average Muslims. The average Muslim's concern is really no different than yours or mine. Quality of life, pursuit of happiness. Good education for your children...

As for Muslim extremists and their views, similar thing can be said about Christian extremists too. Look to the middle ages with Crusaders killing and pillaging. And bringing war and destruction to the Moors in Spain. Moors were actually more civilized than the Crusaders. Moors had utensils forks, table knives spoons... schools, libraries.. while the crusaders were still eating out of a bowl with bread and breaking food with their small knives used for hunting, warfare ...

King Phillip II of Spain was a meglomania and who used Christianity to conqure most of Europe. and oh not to forget, the Inquisitions. Do you dare to challange the words of GOD?? Look at Galileo

They are the faces of extremists and its not just limited to Muslims.

We also have extremists within Hindu religion... Buddhism unfortunately, is considered religion. It really should be considered a philosphy since it does not directly infer an omnipotent being of any kind. Nor does it have a central being whose wishes we try to live by. (okay so as it developed, pantheon of "gods" were created along the way.)

words, words and words. My understanding is the following

Islam is the name of the religion.
Muslim is the term applied to those practicing the Islamic belief.

Back to the depression related conversation

One of you was asking about the "crazy idea of interest only mortgage payment"

Here is a simple explanation:

This form of loan should only be used by those who have the ability to pay off the note in one lump sum. If you are able to secure a low enough interest rate, you are effectively freeing up the maximum amount of money from your loan. The money you didn't use to pay the principle can be used to finance other income bearing activity i.e. purchasing stocks with divident payout. If your loan interest is at 5% and you can get 8% return on your investment. you are coming out ahead by 3%.

So your loan is $1million. keeping it as a simple interest rate you would be paying $50,000 in interest only. but the same $1million would get you $80,000 in divident. You made $30,000 by borrowing money. And it didn't take into account of tax deduction on your loan. Clearly, the less money you spend on servicing the loan, the more money you will have from the divident payment. And this is one way of leveraging your money.

This is the basic premise of a interest only payment. It should never be used to get you to qualify for more money than you can really afford. Unfortunately, the basic principle and the reason behind the interest only loan was lost to those eager to qualify for a bigger loan. and they got into big trouble (because they had no hope of generating money for the principle. Their only hope is that the increase in valuation of your house or inflation to devalue your loan).

simple explanation. I hope this made sense.

Smilingcat