Ahira's Hangar

Very wise on your part, Av.

(I don't see myself getting a house in the foreseeable future.)

And thanks for those articles, duchess. Helps me make sense out of this nonsensical mess.

I have been trying to find articles that explain what is going on so that an intelligent layman (who is not a follower of the US markets and banking systems) can follow the crisis. I'm glad they are helping.

because when the poop hits the fan, sometimes you just have to laugh

Hey! I found you guys!

I've been renting since we moved back to DC from Denver in early '99. I decided the last time I had to sell a house in a hurry (due to being laid off *again* and not being able to meet the mortgage payment) that I wasn't going to buy another house until:

a) I could buy the place with cash, and if that meant I only got a teeny condo, that was fine by me;
b) I was reasonably certain that I wouldn't be moving again for a *very* long time -- which is to say, not 'til I was in a position to move back to Colorado, which is where I want to retire eventually.

I should be in a position to meet both criteria within the next two years. Not that I'll be ready to retire yet, but I will be ready then to move back to Colorado. I'm hoping that we can time the sale of Mom's house in Indiana so that I can buy in Colorado before prices there start rising again. We'll see.

All of which has nothing to do with the trillion-dollar bailout.... (What? 700 billion, a trillion, oh whatever.... )

They certainly have helped Duchess. I can say stuff in the 'Tank and look like I have some idea of what I'm talking about.

Dunno if I mentioned this here, but in SA last year or so they brought in new credit regulation legislation, which basically says that if someone gives you a loan without verifying your ability to meet the payment, they are liable if you default. It has made it harder to get credit, but personally I think that's a good thing, especially here, where lack of education ect affects the borrowers ability to make informed decisions and they are often at the mercy of the lender.

--A

Yeah, not all of these bad loans here were taken out by people who were going into them to deliberately default. A lot of people were misled by realtors and loan companies - you can afford this! Take out this adjustable rate mortgage, then after a year or so you can refinance to traditional mortgage! And they might have been late on some payments, and couldn't go for a fixed rate mortgage as a result, and when the ARM started going up and up and up, they could no longer afford the house payments at all.

I'm not even sure you could call it greed on the part of the people buying the houses - yeah, they might have gone for a house they couldn't really afford - but the bankers, brokers, and realtors told them that they could. A lot of people put most of the blame on the borrowers, but in reality a lot of the borrowers were flat out lied to by the entire housing industry.

And the thing is - these people could initially afford the payments. It was only when the adjustable rates started shooting up and up and up that they couldn't make the payments anymore.

In this area, the majority of the mortgage defaults have been from people being laid off from their jobs, and that is hardly their fault at all. Our economy started going really bad a couple of years ago here in Michigan (after a couple of years of softening before the bottom started falling out), and it's a lot worse than most of the rest of the country, as too many of our jobs are tied to heavy industry (not just cars and auto parts plants - there are a lot of plants making major applicances, office furniture, etc). Hell, Ann Arbor's largest private employer shut down in the last year, and it was a huge complex of plants and research labs for a big drug manufacturer. That was a boatload of great paying jobs lost - in an industry that most felt was secure.

We've lost tens of thousands of jobs.

As a result, a lot of people have lost their houses.

In some areas of California (such as the city of Stockton), the value of houses has dropped in half of what it was a year or so ago. The banks are refusing to refinance people's mortgages to reflect this new reality. So people are buying a second home in the same neighborhood, claiming they will turn it into a rental. When that mortgage comes through, they move into that "rental" house, and walk away from that first mortgage and house.

And really - what they are doing is illegal - but can you really blame them????

Still no bail out deal: the serious Grilli is already starting to hit the fan - and not even from the biggest bank failure in the history of the world last week in Washington Mutual.

What will happen is this (at least according to leading economists):

the credit markets are drying up rapidly.

As an example:
My Jeep loan is at 0% interest (this loan is a bit over four years old, and has less than a year left).

As of a couple of days ago, you could not get a car loan for less than 15% interest unless you have perfect credit.

This adds thousands of dollars to the loan, and makes it a lot harder for the average person to pay it off.


Obviously this goes across the board - not just cars.

With little to no money in the credit markets, people cannot get car loans. They cannot take out mortgages. They cannot get student loans. They cannot get credit cards.

Businesses cannot get credit, either.

This means that they cannot expand. They cannot build new facilities. In a crisis they cannot get the money to tide them over until things get better.

Business close to the edge cannot get money to help with things like...paying people their salaries.

So then - with no credit, the entire economy starts to freeze up.

People cannot buy large ticket items, which causes a lot of businesses to be stressed/outright fail.

This puts more people out of work.

People will not be paid, so that even more mortgages fail, and some people cannot even buy basics such as food.

Things start to snowball into avalanches of personal and business failures - all of it feeding more and more failures as more and more businesses fail and more and more people become personally bankrupt.

You get the twin demons of value falling on everything from homes to cars so people sell them (if they can sell them at all) at huge losses while interest rates soar to the moon, putting an ever greater squeeze upon everything and everyone.

And because of the interwoven world economies, this new Great Depression spreads worldwide - hitting the Third World the worst, as those countries cannot even buy food and widespread famine begins to stalk the Earth.

Obviously, this is the worst case scenario - but it is still within the realm of possibility.

This is why - repugnant as I find the bailout - it has to be done.

While the US House debates as I type on the bail out deal, this was another financial carnage weekend.

The huge US bank I have been warning everyone about - Wachovia - is being bought out before it could collapse.

Britain had to nationalize a couple of its banks, Belgium had to partially nationalize the biggest bank/insurer in its country & the Netherlands, and the French government is in talks about what to do with a huge failing French bank.

Crazy.

Thanks Duchess. (I hope you don't mind, but I quoted a little bit of your post before last in the 'Tank, where people are also trying to figure out what will happen if this fails. But just a bit of it. )

--A

I think that the best analogy I have heard about what will happen is this:

the economy = car engine
credit = lubrication
without lubrication the engine will sieze up and self destruct

Sounds like a pretty good analogy to me.

Yeah, I guess the bailout is needed at this point. It's the lesser evil. I'm certainly not eager for a global Depression. What galls me is that the economists are pleading for the bailout are probably the same ones who before this crisis sneered at the mere mention of government interference in the glorious free market system. In other words, they love to talk the talk, but when push comes to shove, they aren't any better than the rest of us plebeians on the street.

So, yeah, let's have this bailout over and done with. But wow, there will surely be a lot of angry American citizens - angry voters - after this. (And I share that anger.)

the bail out was voted down by the House

the stock market is in free fall

my friends, we are living in interesting times.

No bailout!!! Really? Wow! I'm surprised as hell.

--A