The Bailout...

[The Banterer]

Politics aside (including any crap that might've been snuck in), are you for or against it? Why?

I, for one, am against it. I think that with or without, we're in for several rough years economically, but that when the economy does eventually recover, we'll be much better off without it that we would be with it. I am also ideologically opposed to any sort of market interference of this magnitude by the government. It basically undermines capitalism, that there are risks, and sometimes those risks affect innocent people.

[Texas Golfer]

I, too, am against it.

Instead of having the taxpayers buy bad paper, the government should loan the money to the companies to be paid back in installments at a high interest rate.

[Volunteer]

Without the bailout I suspect that we will see a considerable number of bank failures - probably a lot more than we saw in the era of S&L's and the RTC. The associated credit crunch will probably have a very adverse impact on the market as companies will find it more and more difficult to borrow money. The market is ruthless.

It kind of depends on exactly how tight credit becomes, but companies with anything other than a granite strong balance sheet might find it next to impossible to borrow money. This means we'll likely see business failures. In addition to out and out business failures we're likely to see significant downsizing and selling of assets as companies look to conserve/generate cash. I don't think we should be surprised to see household name companies (ex., Ford, GM and etc....) failing or selling off enough assets to end up looking significantly different.

Without the bailout we can expect all this to result in significant unemployment (maybe 8-10%), reduced portfolio values, reduced tax revenues and a significant contraction in the overall economy. Then again maybe nothing happens...........doubtful but possible. All in all, however, my money would be on a rough next few years.

For those with cash, or a strong credit rating, there will be lots of deals to be had. There are reasons to be against the bailout.

[BearChick]

I would prefer to see Congress change some laws to ease pressure on the banks carrying the subprime mortgages rather than just giving them money to bail them out. That doesn't solve the problem. It's just a bandaid.

[BearChick]

Here is a piece Dave Ramsey recently wrote which is more in line with my thinking...

How We Can Clean Up A Lot of the Economic Problems

Remember Enron, WorldCom, Adelphia, and other companies had artificially put assets on the books? They'd say something was worth $10M when they bought it, but eventually it decreased in value, and they never updated the value in the books. That was part of the fraud. Under current laws at that time, they were all convicted and put in jail for fraud.

Then we got all mad and made all these new laws that are coming out the wazoo called Sarbanes-Oxley. It's a huge, massive law but the idea is that we were going to mandate ethics to corporate America because apparently they didn't have any, according to the Enron failure. It's now a total pain in the butt to execute it in a publicly traded company.

It didn't work because you can't cause ethics to happen. However, it does make each company each day restate what their assets are worth if sold on the market. This accounting procedure is mark to market accounting--you need to remember that. It's a good concept and keeps companies from having loaded balance sheets.

How This Affects Us Today
However, it's part of what's caused this in the news now. Merrill Lynch was sitting with $30 billion tied up in sub-prime loans with houses. Stupid! They get what they deserve for doing that, and I'm with you on that. Those houses didn't become worthless all of a sudden because those people couldn't sell their bonds. Since they couldn't sell them, they basically gave them away for 22 cents on the dollar. Now do you think all those houses lost 80% of their value underneath that deal? No, they didn't, so they gave them away for 22 cents on the dollar (about $6 billion total) because there was no market for them. Nobody wants to buy sub-prime bonds because they suck. They're junk bonds. But at 22 cents on the dollar, it's a bargain because even if you foreclosed on every one of the houses in there, you'd probably get $20 billion back out of $30 billion, and so the company that bought those for $6 billion got a deal! But there's no market for them. That's where these companies are stuck. They can't sell this stuff, but accounting-wise, they've had to mark it down to market and it's frozen the marketplace.

Economist Wesbury is saying that if we change that one rule and don't force them to mark down to market value and just let them hold on to all the stuff, and say just on sub-primes for this period of time you can change that rule -- a temporary change -- that'll free the market up. It's seized right now; it's frozen. This will thaw it out and get it going again. He says that'll solve 60% of the problem ... and I think he's right.

That one accounting rule is what made Merrill Lynch sell out. That one accounting rule is what's driving other ones into the dirt. Would you rather let them change their accounting rule or loan them $700 billion for us to buyout their bad paper?

I'd rather them work their own crap out than have us bail them out with $700 billion of our tax dollars.

I don't like giving them any money or any help with my tax dollars. But I'd rather see that than see the whole thing turn completely upside down in a fruit basket turnover than have a whole meltdown or something and freak out here in the middle of the election season. Why don't we just take the FHA insurance program and extend it across these sub-primes? What that means is that you and I are guaranteeing the lender that they're not going to lose as much or any money on those mortgages. Now I don't like guaranteeing them, but I like it better than buying them. In other words, instead of $700 billion in tax-payer debt going out there to bail out these companies, just extend the insurance out. You could probably do that for less than $40 billion. It's like a 95% savings!

If the government insured those mortgages, they would then be marketable. And could sell them. And the companies would stay afloat. And we, the people, don't have to get into the mortgage business. Now we're going to get in there a little bit because of the insurance on those getting foreclosed on. But foreclosures aren't causing this. This is being caused because these companies are frozen and seized up. We've got to let some of the steam come off and put some oil in there to get this thing moving again. We can do that without going into debt $700 billion.

Here's Your Plan
Call your Congressman. Call your Senator. Tell them to change the mark-to-market accounting law and to extend insurance but extend no loans. If they extend loans - if they borrow the money on the national debt in order for us to all go into the mortgage business a trillion dollars - you're going to fire their butts and send them home.

I've talked with several people today, and it's on the tables in Washington, but it's not something you're going to see on TV. If you'll let your Congressmen know you know about this and that you'll vote against them if they don't vote to change the mark-to-market law and you'll contribute your money to make sure they never serve in office again. That's what you need to tell them early and often.

If you're ****ed, this is the time to step up and do something about it, America! You can stop this! It's being railroaded down your throat, but you can stop them if you call them in mass starting now. READY ... SET ... GO!

[atxtraveler]

I am glad the bill got voted down.

[canuckbear]

Dave Ramsey Rules.

[ChipOC]

Great article BC. Thanks for posting.

[Limnos]

Totally against giving people who suck at their jobs our tax money.

Ramsey in '08!

[GigaBear]

Me to this thread -> http://www.talkbass.com/forum/images/smilies/nono.gif

[LIQRinPU]

I am against it.

As long as people have to eat my personal economy will be ok and I have my eyes on some land nearby that may go pretty cheap.

[Bexar Fan]

What exactly happens if a bailout doesn't pass?

What will be the effects on the middle class?

What will be the effects on the average citzen?

Is this a result of anti-trust violations or deregulation?

Discuss.

[GigaBear]

What exactly happens if a bailout doesn't pass?


Many people are saying that even if the bailout does pass, it's not going to make any difference.

Others are saying that without the bailout, our economy as a whole could collapse.

Either way, the thing is GOING to pass so it doesn't matter, it's just a matter of how long it will take before it goes through.



What will be the effects on the middle class?

What will be the effects on the average citzen?



Hard to say, I think, but I think it's much worse than many of us are imagining.

[DONNIE D]

I quit thinking many years ago. Now, I just try and make sure everyday, my money is where I can get my hands on it in 10 minutes or less.

[Bexar Fan]

Many people are saying that even if the bailout does pass, it's not going to make any difference.

Others are saying that without the bailout, our economy as a whole could collapse.

Either way, the thing is GOING to pass so it doesn't matter, it's just a matter of how long it will take before it goes through.





Hard to say, I think, but I think it's much worse than many of us are imagining.
My point really is that if we are thinking of spending $700B, shouldn't we know what will happen if we do, or if we don't?

[KellerBear]

http://www.americanthinker.com/printpage/?url=http://www.americanthinker.com/blog/2008/09/memory_lane_lynching_franklin.html

_MGT_cSi7Rs

[GigaBear]

My point really is that if we are thinking of spending $700B, shouldn't we know what will happen if we do, or if we don't?


Well, I just don't think we CAN know the entire depth of the problem. We don't see the entire balance sheets of these companies/banks, so we can't know how much trouble they are in.


With the amount that this economy depends on credit, what I can say with 100% confidence is that if SOMETHING drastic doesn't happen, our economy is going to go in the tank. When people and businesses can't have lines of credit extended to them and are forced to rely on the actual capital they have, money is simply not spent and businesses can't succeed.

[atxtraveler]

Well, I just don't think we CAN know the entire depth of the problem. We don't see the entire balance sheets of these companies/banks, so we can't know how much trouble they are in.


With the amount that this economy depends on credit, what I can say with 100% confidence is that if SOMETHING drastic doesn't happen, our economy is going to go in the tank. When people and businesses can't have lines of credit extended to them and are forced to rely on the actual capital they have, money is simply not spent and businesses can't succeed.

Some can.... people who choose not to be overly ambitious... and focus on their core business. Take for instance your company Giga.... it is focusing on a couple key markets where the opportunity is the greatest. It chooses not to debt finance entering in the smaller markets where the opportunity is smaller by pre-loading employees into this market. Every business I have been a part of seems to work the same way, build enough savings to tackle a new market.

[DONNIE D]

Some can.... people who choose not to be overly ambitious... and focus on their core business. Take for instance your company Giga.... it is focusing on a couple key markets where the opportunity is the greatest. It chooses not to debt finance entering in the smaller markets where the opportunity is smaller by pre-loading employees into this market. Every business I have been a part of seems to work the same way, build enough savings to tackle a new market.I agree.

Lets look at the core of the problem. Houses.

IMO, the guys that built all the sub-divisions, that now sit empty, told the world, come by from me cheap. If you don't have credit, we'll build you some. Then, they got Joe Blow Banker, (on commission) to overlook the bad stuff, and help out a friend. (when you drink with them, they are now a friend). Joe Blow now has to buy a drink for Sam Cook(buys loans, also on commission) Sam says to Joe "where did you find this flake"? Joe says, don't worry, I've got hundreds more, and my builder buddy can build all you want. Did I fail to mention the salesman that works for the builder? (also on commission) Everbody sees all the dollar signs, and nothing else.
Now, here we sit watching the Goverment try and bail out the very guys that started it. (and talking about paying a commission) !!!:scared:

[atxtraveler]

I just love that the whole premise of this thing was to bring home ownership to people with already proven poor decision making ability.

It is NOT a right to own a home. Many people choose not to, or can not afford to... why try to force this hand.

My A credit rating essentially means nothing these days.

[SoTex]

ARMs, no money down, and even the traditional 30-year loan all play a part in this. They are vehicles used by the greedy to buy something they can't afford. In the end, the bank had the greatest potential for gain due to the set up of the loans and now the banks stand to gain the most through this bailout.

Greed.

[atxtraveler]

SoTex... not everyone on an ARM is greedy. I entered into an ARM when I returned from Australia after two years, since mortgages require you to have 2 year income justification, and Australian employment does not count toward that.

I am however now stuck with this stupid ARM for another year, while I watch the interest rates plummet! Damn pre-payment penalties!

[GigaBear]

As I've said numerous times--poor folks have always wanted money. They've always applied for loans, always tried to live above their means, and always will. Bottom line is that some numbnuts finally decided it was OK to give them those loans. THAT is what has gotten us into this mess---not ARM's.

[Volunteer]

Well, I just don't think we CAN know the entire depth of the problem. We don't see the entire balance sheets of these companies/banks, so we can't know how much trouble they are in.


With the amount that this economy depends on credit, what I can say with 100% confidence is that if SOMETHING drastic doesn't happen, our economy is going to go in the tank. When people and businesses can't have lines of credit extended to them and are forced to rely on the actual capital they have, money is simply not spent and businesses can't succeed.

Go to Edgar On-Line and you can look at all of the SEC filings. Balance sheets, income statements, 8K's and 10Q's are included. Pretty boring generally, but it's available.

[SoTex]

SoTex... not everyone on an ARM is greedy. I entered into an ARM when I returned from Australia after two years, since mortgages require you to have 2 year income justification, and Australian employment does not count toward that.

I am however now stuck with this stupid ARM for another year, while I watch the interest rates plummet! Damn pre-payment penalties!

True, but you could have rented for two years and you wouldn't be worried. I'm not saying you're greedy, but you would have survived had an ARM not been available. The fact the banking industry allowed such a product go to market is pure greed.

I'm ecstatic that we purchased our last two homes on 15 year notes! ECSTATIC! Our prior two were on 30 year traditional fixed mortgages and I hated seeing the first 2-3 years' payments go to interest only (well, about 90%). Our equity depended on the value of the home going up. Now our equity goes up based on what WE pay. What a novel concept.

My sister "had" to get two interest only mortgages to buy a home in San Diego about 5 years ago. Um...ouch! Her situation was/is very common for that area. Homes are/were $800K+ for a home that would be $200K in Texas. Her husband was VP of a med equipment company and just lost his job. It will be cheaper for him to be unemployed for a year rather than selling and moving on at this point due to the fact it would cost them $150K+ to get out of the mortgage assuming they could sell.

Ugly situation, but they're both tough and will be fine. Not because of anything they expect the government to do for them, but because of what they can do for themselves.

[SoTex]

As I've said numerous times--poor folks have always wanted money. They've always applied for loans, always tried to live above their means, and always will. Bottom line is that some numbnuts finally decided it was OK to give them those loans. THAT is what has gotten us into this mess---not ARM's.

How in the heck do you think they got the money? It was interest only loans and ARMs!!! They didn't qualify otherwise! I wonder how many 15 year traditional fixed interest loans are in foreclosure as a percentage relative to the other non-traditional loans. Seriously, does anyone know?

Listen, credit is a HUGE problem in the USA...HUGE. I DON'T use a credit card for ANYTHING personal. I have not really used a credit card at all (except the one for my company that is required) in 8 years. I've gone to Hawaii, Mexico, and even Waco and stayed in hotels and rented cars without one. Anyone who tells you you can't is full of it. I was in Nashville and was going to rent a car and they wouldn't take a debit card so I took 5 steps to the next rental counter and they did. I just looked at the other clerk and shrugged my shoulders.

[Bexar Fan]

As I've said numerous times--poor folks have always wanted money. They've always applied for loans, always tried to live above their means, and always will. Bottom line is that some numbnuts finally decided it was OK to give them those loans. THAT is what has gotten us into this mess---not ARM's.
So it is OK to bail out the numbnuts?

[atxtraveler]

How in the heck do you think they got the money? It was interest only loans and ARMs!!! They didn't qualify otherwise! I wonder how many 15 year traditional fixed interest loans are in foreclosure as a percentage relative to the other non-traditional loans. Seriously, does anyone know?

Listen, credit is a HUGE problem in the USA...HUGE. I DON'T use a credit card for ANYTHING personal. I have not really used a credit card at all (except the one for my company that is required) in 8 years. I've gone to Hawaii, Mexico, and even Waco and stayed in hotels and rented cars without one. Anyone who tells you you can't is full of it. I was in Nashville and was going to rent a car and they wouldn't take a debit card so I took 5 steps to the next rental counter and they did. I just looked at the other clerk and shrugged my shoulders.

You seriously need to get a personal AMEX. You have to pay it off every month, which it sounds like you are responsible enough to do, but it also gives you protection from rental car companies crazy policies, which is important.

[GigaBear]

So it is OK to bail out the numbnuts?


To answer your question, no, it's not OK to bail out the numbnuts, but it's not about bailing out the numbnuts at this point, it's about keeping our ENTIRE credit market--which drives our economy--afloat.


If someone has a better way to do it, I say let's do that instead, but I haven't seen a better way.

[atxtraveler]

To answer your question, no, it's not OK to bail out the numbnuts, but it's not about bailing out the numbnuts at this point, it's about keeping our ENTIRE credit market--which drives our economy--afloat.


If someone has a better way to do it, I say let's do that instead, but I haven't seen a better way.

Lilley is busy talking to people who have taken Econ 101 and will have an answer for you shortly.

[Texas Golfer]

To answer your question, no, it's not OK to bail out the numbnuts, but it's not about bailing out the numbnuts at this point, it's about keeping our ENTIRE credit market--which drives our economy--afloat.


If someone has a better way to do it, I say let's do that instead, but I haven't seen a better way.

I agree that we have to assist in reestablishing confidence in the market but I don't think a bailout is the answer.

I think, instead of the taxpayers buying bad paper, the money should not constitute a bailout but a loan to be paid by the companies in installments with a significant interest rate.

[The Banterer]

To answer your question, no, it's not OK to bail out the numbnuts, but it's not about bailing out the numbnuts at this point, it's about keeping our ENTIRE credit market--which drives our economy--afloat.


If someone has a better way to do it, I say let's do that instead, but I haven't seen a better way.

I think the bailout, while beneficial in the short term, basically dooms us to repeat something of this nature again. IMO, we need to establish that this isn't 'Nam, it's the free market, there are rules.

For anyone thinking about being offended by the 'Nam bit, it's a quote from a movie, and I think it applies here.

[DONNIE D]

Maybe I missed this before, but NOW the truth comes out. These folks are trying to put a bunch of Pork on this bill. If they want to give 700B, then leave it at that. But nooooo, they want to group it in with Insurance, and a few other things. No wonder they can't agree on anything.

[SoTex]

You seriously need to get a personal AMEX. You have to pay it off every month, which it sounds like you are responsible enough to do, but it also gives you protection from rental car companies crazy policies, which is important.

So does a debit card. Well, at least my USAA debit card does.

I usually use cash. Here are some facts about using debit or credit cards (from bankrate.com):

A typical credit card purchase ends up costing 112 percent more than if cash were used.
People using credit cards (or debit cards) in fast food restaurants spend up to 50 percent more than when they pay cash.


112% more? 50% more at the point of sale? Here's why. If someone is at the drive through and thinking of grabbing something quick, they might just want a $0.99 burger, but when they get to order they see they have no cash or change. They go ahead and order, but since they're putting it on a card, they get the $3.99 meal.

If I'm paying for something I like seeing how much I'm spending. If I pay with plastic I just sign and I'm off. If I pay with cash then I have to depart with my friends, George Washington, Thomas Jefferson, Abraham Lincoln, Alexander Hamilton, Andrew Jackson, U.S. Grant, Benjamin Franklin, William McKinley, Grover Cleveland, James Madison, Salmon P. Chase, and my personal favorite Woodrow Wilson on the $100,000 dollar bill. Of course I've never met Cleveland, Madison, Chase, or Wilson in person or on paper, but I'd like to. If I did, I wouldn't want to part with them.

[canuckbear]

SoTex,

I assume you are a fellow Dave Ramsey follower? He has saved me thousands of dollars in just the short 2 years I have been on his program. Simpale concept live with in your means and don't use the credit card. (Unless the credit card helps with the gas to Baylor football games).

[SoTex]

Yep. An FPU facilitator for 5 years. Been listening for 8 years. Net worth turned around by triple figures in 3 years.

[canuckbear]

Ain't it great. Paid off 2 cars and 4 student loans early and have 2 CC left. Not sure why I waited until 4 years after college.

[nein51]

Ty, this isnt just a poor person problem (in fact, I would wager that it is much more of an upper middle class problem). The heart of the matter is that "people" want more than they can afford. When I bought the house in Chicago it was on an ARM. I asked what the payment would be whent he ARM expired (they have interest rate caps, I wanted the max payment amount). They said it would be X, I could afford X at that moment, I didnt need to get a raise or cut out bills, it was within the budget. During the 2 year period we paid stupid low interest, under 4%. Some people never bothered to ask the "what COULD my payment be" question. Others just bought FAR more than they could afford, California is just FULL of those.

Allowing people to refi to 50 and 60 year notes is a joke. It is a setup for failure in the future. The problem becomes that you arent paying ANY equity on a note that long. Yes, it allows people to keep their house but if the market ever goes down they will lose it when that downturn comes...or they will NEVER be able to move out of it because they will be upside down.

As to the bailout, Im not for it BUT, and its a big, BUT I think the consequences of not doing it could be complete failure of the banking system. Im generally a free market kind of guy, maybe a complete failure is what is needed.

[atxtraveler]

So does a debit card. Well, at least my USAA debit card does.

I usually use cash. Here are some facts about using debit or credit cards (from bankrate.com):

A typical credit card purchase ends up costing 112 percent more than if cash were used.
People using credit cards (or debit cards) in fast food restaurants spend up to 50 percent more than when they pay cash.


112% more? 50% more at the point of sale? Here's why. If someone is at the drive through and thinking of grabbing something quick, they might just want a $0.99 burger, but when they get to order they see they have no cash or change. They go ahead and order, but since they're putting it on a card, they get the $3.99 meal.

If I'm paying for something I like seeing how much I'm spending. If I pay with plastic I just sign and I'm off. If I pay with cash then I have to depart with my friends, George Washington, Thomas Jefferson, Abraham Lincoln, Alexander Hamilton, Andrew Jackson, U.S. Grant, Benjamin Franklin, William McKinley, Grover Cleveland, James Madison, Salmon P. Chase, and my personal favorite Woodrow Wilson on the $100,000 dollar bill. Of course I've never met Cleveland, Madison, Chase, or Wilson in person or on paper, but I'd like to. If I did, I wouldn't want to part with them.

SoTex... I guess I am totally the exception to your rule. My wife and I use credit cards exclusively, yet still practice the same methods you are talking about. In fact, several times I have got in an argument with a retailer about wanting to charge me a minimum for my AMEX purchase. I tell him if he has a sign up accepting AMEX and is offering a .99 cent burger, then he by his card acceptor's agreement must take that form of payment. My networth has more than tripled also, since I have been married.

I get your point however, that some people are not as responsible with their money as I am. I just happen to enjoy the "greed" you label me with while I am on an island in the South Pacific thanks to all those airline miles.

Oh... one edit on that.... I also ALWAYS offer to accept cash from friends and then put the whole bill on my credit card. If you are a cash kind of guy, please sit next to me at dinner!

[ChipOC]

I use a credit card for purchases online, otherwise it is cash or a debit card. The only debt we have is a student loan and our mortgage and we pay extra every month on both. We've paid cash for both of our vehicles, maxed out 401ks, a years worth of funding 529s for both young ones, and money waiting to be invested for another year waiting for the market to bottom out. Course it helps having two incomes, but not buying on credit will keep you out of serious problems.

This bailout is junk. The market needs a correction as housing is over inflated. Just look at California. Offer either insurance or high interest loans. I really like Dave Ramsey's plan. It allows for fixing the rule and a modest bailout.

[atxtraveler]

California is ridiculous. I lived out there for my first 18 years, and I can tell you, the price our home growing up appreciated over 600% in less than 10 years. I am so glad my mother sold and moved to Texas at the peak. It will afford my daughter to go to Baylor (the only place in Texas to experience the same sort of inflation).

[Texas Golfer]

I pay off every credit card each billing statement. But, all too often, people don't have the discipline to do that and the interest keeps them in debt for a lifetime.

[nein51]

I pay off every credit card each billing statement. But, all too often, people don't have the discipline to do that and the interest keeps them in debt for a lifetime.Which is the fault of the consumer, not the "evil" bank. Same is true of the housing situation.

Until either the median prices of homes come down or the median income goes up this problem will re-occur.

Let me help...if you make 60k (which is 5k/mo before taxes) you cannot possibly afford a 400k home. You might be able to buy it...but you cant afford it.

[Texas Golfer]

Which is the fault of the consumer, not the "evil" bank. Same is true of the housing situation.

Until either the median prices of homes come down or the median income goes up this problem will re-occur.

Let me help...if you make 60k (which is 5k/mo before taxes) you cannot possibly afford a 400k home. You might be able to buy it...but you cant afford it.

I agree wholeheartedly. Even though my commission was based on the price of the home, as a real estate broker, I ALWAYS advised my home buyers to buy what they could afford, not what they "qualified" for.

[atxtraveler]

Wow... I always wondered what all the people on my block did for a living that they all have the flashy cars and expensive houses. Now I know... they just have big ARMs.

[ChipOC]

Wow... I always wondered what all the people on my block did for a living that they all have the flashy cars and expensive houses. Now I know... they just have big ARMs.
The parents of one of Wyatt's friends have a nice home and drive a Lexus SUV and a Mercedes. I noticed that the tires on the Lexus were almost bald and responded that he knew, but was waiting for his next check to be able to go get new ones.

[Texas Golfer]

Maybe I missed this before, but NOW the truth comes out. These folks are trying to put a bunch of Pork on this bill. If they want to give 700B, then leave it at that. But nooooo, they want to group it in with Insurance, and a few other things. No wonder they can't agree on anything.

No kidding! This bill is being marketed as a national emergency but along with the bailout, the bill includes:

- money for research on wooden arrows designed for children

- money for wool research

- money for American Samoa

- money for auto race track subsidies

This is a pork parade and the hogs are at the trough.

[nein51]

Wow... I always wondered what all the people on my block did for a living that they all have the flashy cars and expensive houses. Now I know... they just have big ARMs.
The average family income in LA County is under 70k for whites and 60k for non-whites, the median home value is a touch over 350k dollars. Now, roughly 80% of people in LA County but there shouldnt be a lot of home buyers with those economics.

[SoTex]

Ty, this isnt just a poor person problem (in fact, I would wager that it is much more of an upper middle class problem). The heart of the matter is that "people" want more than they can afford. When I bought the house in Chicago it was on an ARM. I asked what the payment would be whent he ARM expired (they have interest rate caps, I wanted the max payment amount). They said it would be X, I could afford X at that moment, I didnt need to get a raise or cut out bills, it was within the budget. During the 2 year period we paid stupid low interest, under 4%. Some people never bothered to ask the "what COULD my payment be" question. Others just bought FAR more than they could afford, California is just FULL of those.

Allowing people to refi to 50 and 60 year notes is a joke. It is a setup for failure in the future. The problem becomes that you arent paying ANY equity on a note that long. Yes, it allows people to keep their house but if the market ever goes down they will lose it when that downturn comes...or they will NEVER be able to move out of it because they will be upside down.

As to the bailout, Im not for it BUT, and its a big, BUT I think the consequences of not doing it could be complete failure of the banking system. Im generally a free market kind of guy, maybe a complete failure is what is needed.

You used the ARM as a smart consumer could/should. I still think the ideal is a 15 year fixed, but I can see where an ARM can work. Unfortunately you and others on here are the exception in our society, but you already know that.

SoTex... I guess I am totally the exception to your rule. (Yes, you are!)My wife and I use credit cards exclusively, yet still practice the same methods you are talking about. In fact, several times I have got in an argument with a retailer about wanting to charge me a minimum for my AMEX purchase. I tell him if he has a sign up accepting AMEX and is offering a .99 cent burger, then he by his card acceptor's agreement must take that form of payment. My networth has more than tripled also, since I have been married.

I get your point however, that some people are not as responsible with their money as I am. I just happen to enjoy the "greed" you label me with (did not intend to label YOU as greedy, just the practice of how most people use credit - to buy things they can't afford. As you stated, you're the exception.)while I am on an island in the South Pacific thanks to all those airline miles.(and I've enjoyed the same trips by using cash and saving up or by exceeding sales goals)

Oh... one edit on that.... I also ALWAYS offer to accept cash from friends and then put the whole bill on my credit card. If you are a cash kind of guy, please sit next to me at dinner!(I am unless I'm on an expense account, just ask nein!)

I hope that clears things up.

[nein51]

He is faultlessly a cash buyer...but dont let him kid you, neither shy away from a good Expense Report dinner :D

[SoTex]

To do so would be just plain stupid, wouldn't it?

[BearChick]

Ain't it great. Paid off 2 cars and 4 student loans early and have 2 CC left. Not sure why I waited until 4 years after college.

We're debt snowballing. The credit cards will be done this month and there's not much left on my car. Hooray for Dave.

Sadly, my copy of TMMO was one of the bookshelf casualties at the house. It succumbed to a case of toxic mold and couldn't be saved.

And as the bailout goes, I really don't know when I have been this disappointed in Congress for passing this thing tonight.

And as for the housing discussion, when I bought my house in Austin, I was approved for more than $250K. Go figure. I bought a house I could afford and knew what my payment and my rate were going to lock at. (I didn't have an ARM per se, the builder bought down 2 points the first year and 1 the second) It's just a matter of being responsible, which most folks arent/

[nein51]

No offense to Ramsey followers but the guy is rich teaching common sense. There is nothing he preaches that is anything other than completely common sense.

[SoTex]

Common sense that isn't so common anymore. Not only that, but there are other aspects of human dynamics that are addressed. Having illustrations reminding you of why common sense works or the accountability of the group or just reinforcement of what we already know. Everyone knows you shouldn't finance a cheeseburger, but people do it anyway. So much for common sense.

[atxtraveler]

Common sense that isn't so common anymore. Not only that, but there are other aspects of human dynamics that are addressed. Having illustrations reminding you of why common sense works or the accountability of the group or just reinforcement of what we already know. Everyone knows you shouldn't finance a cheeseburger, but people do it anyway. So much for common sense.

I don't know... haven't you ever had the 18 dollar hotel burger?

[SoTex]

I don't know... haven't you ever had the 18 dollar hotel burger?

Yep, but it was on an expense account. ;) :thumbup:

[DONNIE D]

The parents of one of Wyatt's friends have a nice home and drive a Lexus SUV and a Mercedes. I noticed that the tires on the Lexus were almost bald and responded that he knew, but was waiting for his next check to be able to go get new ones.Keeping up with the Jones!!!

[canuckbear]

No offense to Ramsey followers but the guy is rich teaching common sense. There is nothing he preaches that is anything other than completely common sense.

Common sense went out the window for a lot of Americans a long time ago. That's why people are suing for burns sustained while ironing their clothes while wearing them.

But I do agree what he teaches is common sense but it works when you do.

Nontheless, SoTex is right there is a whole lot more to it then just paying cash for everything. It's worth teh read if you haven't already.

[canuckbear]

[QUOTE=BearChick;22792]We're debt snowballing. The credit cards will be done this month and there's not much left on my car. Hooray for Dave.

Sadly, my copy of TMMO was one of the bookshelf casualties at the house. It succumbed to a case of toxic mold and couldn't be saved.



Bearchick,

Keep it up you are almost there. My sister and her husband just finished 1 month ago. Her husband is a family minister at their church and they have their first child on the way. Talk about great timing.

[nein51]

Canuckbear, I have read some portions. I would listen to him on the radio but his voice drives me insane to the point where I want to kill people. Cash only wasnt what I was referring to.

After years of bad spending, bad debt and an ex who spent more than I made faster than I could make it I finally decided I had enough. I cut up all the credit cards, save one that I use for business expense that gets reimbursed weekly, I dont owe monthly payments on anything (thus I drive an old POS truck) except my student loans and 6 more payments on my ex's car. When her car is paid, I will add that to the student loans until they are paid off.

It is not rocket science. Get out of debt, save monthly, make smarter decisions.

[canuckbear]

Canuckbear, I have read some portions. I would listen to him on the radio but his voice drives me insane to the point where I want to kill people. Cash only wasnt what I was referring to.

After years of bad spending, bad debt and an ex who spent more than I made faster than I could make it I finally decided I had enough. I cut up all the credit cards, save one that I use for business expense that gets reimbursed weekly, I dont owe monthly payments on anything (thus I drive an old POS truck) except my student loans and 6 more payments on my ex's car. When her car is paid, I will add that to the student loans until they are paid off.

It is not rocket science. Get out of debt, save monthly, make smarter decisions.

My friend you are in good shape. I wish I would have had your sense starting back in High School. Unfortunately it took me reading the book to really understand the concept and the importance of this concept.

I heard somewhere, not sure if it was Ramsey or not, but today's generation wants, what took our parent's 20 years to get, right now. There in lies the problem. That goes for houses and Big Screen TV's.

[BearChick]

No, it's not rocket science. But it is counter-intuitive to our culture today. I like the guy and I listen to him on radio a lot. I've learned a lot of things beyond just the common sense tag from listening to him. This is helpful because math and finance ain't my thing.

[KellerBear]

My friend you are in good shape. I wish I would have had your sense starting back in High School. Unfortunately it took me reading the book to really understand the concept and the importance of this concept.

I heard somewhere, not sure if it was Ramsey or not, but today's generation wants, what took our parent's 20 years to get, right now. There in lies the problem. That goes for houses and Big Screen TV's.

Some people that listen to Ramsey, like me, found themselves having to pay for college out of their own pockets. I had to rack up some good credit card debt to stay afloat and to stay at Baylor. As of next month, I will have paid every credit card off.

I know it is "common sense", but if we don't teach a basics "finance" course in high school, how do you expect children to graduate knowing anything about how it works?

[canuckbear]

Some people that listen to Ramsey, like me, found themselves having to pay for college out of their own pockets. I had to rack up some good credit card debt to stay afloat and to stay at Baylor. As of next month, I will have paid every credit card off.

I know it is "common sense", but if we don't teach a basics "finance" course in high school, how do you expect children to graduate knowing anything about how it works?



KellerBear,

Same situation here. My dad was a Pastor, not a whole lot of money in that profession for the most part he did what he could. Student Loans and credit cards helped me through, granted I used my CC for stuff I definitely didn't need at the time.

Congrats on paying all the Credit Cards off next month. "Freeeeedom"

[BaylorGuy314]

I agree with DR most of the time. Every once in a while I disagree, but that's usually because he is trying to create a solution to fit a wide array of people.

For example, if I am going to buy something no matter what, and I can finance it for 0% at no additional cost (built in or otherwise), it is wise of me to take the zero percent offer and put the money I would've spent in some safe investment where it could earn interest. Time value of money says I make more doing it this way than paying cash upfront and putting what would've been the monthly payment away in an investment each month.

Of course, DR would never recommend this, because most people wouldn't put the money away...or they wouldn't put the same amount away. They'd finance it at 0%, stick half of what they intended in investments, then miss a few payments, lose the 0% offer and be stuck with payments on something at a new rate of 20% and not have the cash to pay it down.

The reality is most people:

1. Don't realize how much they spend on crap when they don't see the greenbacks leaving the wallet
2. Can't, without external help, create a budget where they actually pay down debt and grow their liquid assets