Oh my - where will it all end? I read the article you referred us to earlier Dave, but I don't pretend to have understood it all or quite what I would know if I did except that the economic outlook is poor. What should a prudent person do?

I anticipate we'll be paying astronomically higher taxes on every front to fund the growing nanny state - which is growing like a malignant tumor. Clearly the message is no one needs to be held accountable for anything - the government (aka taxpayers) will bail everyone out. Hopefully we'll have enough responsible people left with some money to pay the huge tax bill. Hard to imagine how that will all play out since the more that goes toward taxes, the less available to fuel "normal" economic growth. I think the vast majority of the American population has no clue what kind of "house of cards" we're living in. Government intervention has been growing at a rate that is simply not sustainable. I keep wondering what it will take for our elected officials to start making decisions in the best interest of the country's long term stability vs. the individual's electability.

"I keep wondering what it will take for our elected officials to start making decisions in the best interest of the country's long term stability vs. the individual's electability."

The other 80 percent of the people in this country to get off their rears and vote the morons out of office.

Hi Devorah,

What should a prudent person do?

ACTUALLY, that's a simple answer; BE PRUDENT!

If you manage your own finances as a mature adult, you won't be nearly as likely to be trapped by the government's incompetence.

Hi Gibby,

I think the vast majority of the American population has no clue what kind of "house of cards" we're living in. Government intervention has been growing at a rate that is simply not sustainable.

This is indeed a fact, on both accounts.

I keep wondering what it will take for our elected officials to start making decisions in the best interest of the country's long term stability vs. the individual's electability.

We'd have to dramatically redesign the rewards structures we allow to be in place for elected officials.

SOME anti-business (and even pro-business) folks decry the corporate executive compensation plans that allow CEOs and those of similar rank to earn wildly and have wonderful perks while their company fails in profitability and shareholder value plummets.

Yet our elected officials are not only guaranteed secure retirement packages (despite the country's actual financials and actual fundamental results,) they are allowed free reign to incite negative results "all in the name of politics" with no real accountability to the citizenry.

Our founding fathers planned our original government designs to avoid exactly these developments... this isn't the first time a nation has meandered itself into this kind of entrapped trouble, and ours was one of (if not *THE*) first nation ever consciously initiated with the mature foresight to attempt to engineer these risks OUT of our government.

Its been a gradually developing tragedy, in the greatest original Greek tradition of drama, that otherwise-well-meaning forces have gradually and continually eroded away the designs of a consensus of mature, wise, and deeply thoughtful leaders who tried with all their hearts to "beat the gods" and establish binding values & agreements to supercede our humanity in its darkest nature.

Grimly... the volume of voices who believe the founding leaders to be "merely old-minded misguided dominating caucasian slavemasters" has risen... and the fate of following in the traditional cycle of nations (to follow the fall of Greece, Rome, and so many others) is all but locked into our future from here, unfortunately.

As Shakespeare theoretically penned; "Gird your loins!" The impending collapse of our nation will be neither quick, nor pleasant.

Cheers,
Dave Donhoff
Leverage Planner

Dave - I'm curious where you think home mortgages will be 3-4 years down the road. What kind of down payment will a young couple (without much established credit) buying their first home have to come up with? 5-10-20 percent? How about a family of four moving up to a larger home or being transferred. I'm just looking for your best guess - not a "set in stone" prediction.

Hi Turnage,
Currently, although the natural mortgage markets now mostly require at least 5% down, the givernment-subsidized schemes still allow 3% down (and have yet to close the loophole allowing the down-payment schemes to cover the difference for an effect of zero down financing, when the taxpayers are shouldering the risks.)

I do expect that for the most part the credit availability has collapsed as far as it is realistically going to collapse. I don't know how long we'll be "bottomed-out" but I don't think it will get too much worse.

Borrowers will (as they now currently do) have more stringent standards to meet for documentation of employment, income, credit, and reserves. The bottom line is simply; "Live financially responsibly" and you should really be fine... INCLUDING the capability of getting a mortgage for a home, on a truly "make sense" basis.

Cheers,
Dave Donhoff
Leverage Planner

(Not nearly as doom & gloom today... its Friday!)

FHA mortgages which have more flexible terms vs. the typical bank did have higher rates of abandonment but consider all banks/financial institutions (even those with "Stricter" terms are hurting) no figure deserves more praise vs. another. Countrywide & IndyMac probably offer up a variety of FHA and conventional loans so the underwriters are too blame along with the folks who felt "they MUST own a home".

Too bad our federal government wants to reregulate the system now and give life-support to every institution vs. let things naturally sort themselves out and we start a new. Japan suffered badly in the 90s via real estate and have since recovered.

I am particularly struck by the naivite of so many when it comes to purchasing a mortgage. Many seem to have the opinion that a mortgage is something that ought to be available to all. I disagree with that assumption. Mortgages are (and should be) available to those with money to put down as collateral, those who have a history of sound money management, and those who have a work history that can be documented!

Shame on mortgage brokers/lending institutions who hand out money without bothering to research a borrower's fitness to assume such long-term debt. I'm appalled and infuriated by the havoc deregulation has wrought. Phil Gramm has rather a long history with respect to deregulation... (from the party of fiscal responsibility).

I vacillate between sympathy for ignorant victims and a rather hard-hearted, "survival of the fittest" attitude. The grim reality of money and personal finance is RESPONSIBILITY. If the "deal" seems "too good to be true" it probably is. If you don't fully understand the rules of the game, don't play. There is method of dog training called "nothing in life is free", works slick. We need to start using it with the citizenry, too. ("Smarten up, dummies").

In this day and age there is no way to backtrack and trace crummy loans to their source? yeah, that's right, it's too "expensive" to do that, easier to stick the taxpayer with the bill. Deregulation ain't all it's cracked up to be.

If you want to purchase land or a home you must have money to "put down". And the best indicator of ability to pay a long-term note is the ability to amass the down payment, based on a solid work history. This from a friend who is a loan officer for our locally owned bank (one who turned down several buy-out offers from recently affected "big" banks). Old-fashioned fiscal responsibility works and it teaches patience. A good relationship with a locally owned bank is how communities used to be built. I believe we will return to that philosophy out of necessity.

We are a consumer market. In the past, you couldn't afford a car or bad credit and you didn't get one and rode the bus.

However, at some point lenders/dealers realize they can make lots of money loaning to that poor credit risk so our roads were flooded with new drivers paying up to 3x price for their car. IF we remember the Mitsubishi 0/0 sale which was 0 payments/0 down for about 1-2 yrs. A friend who didn't have money went to the dealership without realizing his credit was not Tier A but the dealership sold him a truck - at super super fees/rates.

The same thing happen to real estate and I can't blame the consumer if you are told over and over own a home for the same price of your rent or 0/0 for 2-4 yrs - without knowledge or friends to dissuade them.

Basic logic - "If it sounds too good to be true there is a reason you should be cautious"

Hi Chelone,

Shame on mortgage brokers/lending institutions who hand out money without bothering to research a borrower's fitness to assume such long-term debt. I'm appalled and infuriated by the havoc deregulation has wrought. Phil Gramm has rather a long history with respect to deregulation... (from the party of fiscal responsibility).

Deregulation didn't cause the current market meltdown, and looking to the government to be better risk-managers than the actual market is a grave disaster begging for a dance.

Mortgage brokers/lenders *ONLY* made loans according to the guidelines that the investors (that was YOUR pension managers) told them they wanted to buy, for retirement income 'yield' accounts. You, along with millions of other baby-boomers (generically... though it is also possible the term "you" fits personally) were DEMANDING greater and greater "yield" to "catch up" with your meager retirement savings that "you" had decimated in the last buble (the stock party.)

The "shame" is a circular one... there is no "end of the line."

========================================

Hi rooseveltl,

A friend who didn't have money went to the dealership without realizing his credit was not Tier A but the dealership sold him a truck - at super super fees/rates.

Right.... and once again the vendor sold that car note off to the Wall Street bond houses who were re-packaging the debt into securities to fulfill the relentless consumer demand for "high yield bonds."

So... who was to blame?

The same thing happen to real estate and I can't blame the consumer if you are told over and over own a home for the same price of your rent or 0/0 for 2-4 yrs - without knowledge or friends to dissuade them.

If you can't blame the consumer... who owns the decision?

We're ALL in the consumer game together.... instead of being in the food chain, we are all in several links of the consumer financial chain. We buy some things, and we demand ivnestments in other things. Some people don't even KNOW they are adding to the speculative mania... but they are... as they "shrewdly shop" the lowest insurance quotes, and unwittingly choose the lowest quoter, who can only afford to stay in business by putting its own reserves into high-yield bonds (which goes right back to pitching your lousy-credit friend who wants a premium car, regardless of reality.)

Just as with our failures to truly be 100% "living green"... none of us can escape our own ownership of our pressure on the natural markets (stocks, real estate, credit, oil, etc. etc.) to continue to cycle to extremes, and then eventually back again.

The bottom line is to live our OWN lives as healthy & balanced as possible... and drop the blame game, it serves nobody.

Cheers,
Dave Donhoff
Leverage Planner

You are entitled to you opinion, Don. It is not one I share, for the most part.

I believe the deregulation in banking has encouraged the shocking lending practices that have lead to the present circumstance. I am a "shareholder" who' s perfectly content to plunk along with modest returns, carefully investing in riskier vehicles as my research dictates. A studied look at my portfolio would make that clear to someone like yourself.

On a personal level I really couldn't care less about some dub who invests recklessly and leverages everything heavily, but those idiots and their bad habits impact me; hence my desire for regulation in the banking sector.

Chelone,

I'm never surprised when someone auditorily hears my first and last names and then gets confused... but its always a bit astounding when someone does it while the names are in front of them as they type.

ANYWAY....

I believe the deregulation in banking has encouraged the shocking lending practices that have lead to the present circumstance.

OK... how? How has deregulation "encouraged" the "shocking" lending practices???

Support your drama specifically... not with some broadbrush intuitions.

I am a "shareholder" who' s perfectly content to plunk along with modest returns, carefully investing in riskier vehicles as my research dictates. A studied look at my portfolio would make that clear to someone like yourself.

WONDERFUL... if this is in fact true (and I have no reason to doubt it,) then you are pretty much unaffected in the current market mayhem.

That is, if it is indeed true.

On a personal level I really couldn't care less about some dub who invests recklessly and leverages everything heavily, but those idiots and their bad habits impact me; hence my desire for regulation in the banking sector.

So, then, were you lying in the previous paragraph, or just having a forgetful moment... or perhaps "wishing" taht you were actually as cautious & conservative as you say you are?

It can't be both... you were either going along with the mob and engaging in the skullduggery directly or indirectly... and thereby experiencing the results today... or you were not.

Which is/was it then?

Cheers,
Dave Donhoff
Leverage Planner

Dave-"More "unintended consequences" of government playing nanny-saviour..."

Dave, what do you think of the following? Looks like another case of 'the fox watching the henhouse'.

"FDIC Faces Mortgage Mess After Running Failed Bank/WSJ
Subprime Lender Made Problem Loans On Regulators' Watch

It turns out that the U.S. government itself was one of the lenders giving out high-interest, subprime mortgages, some of them predatory, according to government documents filed in federal court.

The unusual situation, which is still bedeviling bank regulators, stems from the 2001 seizure by federal officials of Superior Bank FSB, then a national subprime lender based in Hinsdale, Ill. Rather than immediately shuttering or selling Superior, as it normally does with failed banks, the Federal Deposit Insurance Corp. continued to run the bank's subprime-mortgage business for months as it looked for a buyer. With FDIC people supervising day-to-day operations, Superior funded more than 6,700 new subprime loans worth more than $550 million, according to federal mortgage data.

The FDIC then sold a big chunk of the loans to another bank. That loan pool was afflicted by the same problems for which regulators have faulted the industry: lending to unqualified borrowers, inflated appraisals and poor verification of borrowers' incomes, according to a written report from a government-hired expert. The report said that many of the loans never should have been made in the first place."

A link that might be useful:

predatorylendinglaw.org/dynamics/predatory-lending-6/

Hi Dreamgarden,

Indeed... pure irony thrown to the feet of the "big saviour government" protagonists.

Nobody has truly clean hands in this... there are no "innocents" to defend.

REALITY: There is no drama... we've just gone through a natural cycle, and nobody perpetrated anything against anyone else with any mal intent. The best we can all do is carry one & not waste good effort making much ado of nothing.

Dave Donhoff
Leverage Planner

I believe it is both the owners and banks/investors fault.

Investors are always looking for increased return; that is why you invest in stocks or mutual funds. however there are risks associated with stocks which is why they usually pay out more than fixed investments.

you invest in bonds/money markets/govt backed bonds, etc for safety of principal with some additional interest paid out. for that you accept less return than stocks or stock mutual funds.

there are higher yielding fixed investments (junk bonds, emerging market bonds, etc.) where there is increased risk of default or refinance but you get some addl return. again usually less than stocks over the long term

what happened here is investors were looking for addl return but wanted the benefit of bonds. mortgage rates have been relatively low (compared to what i am not sure) for the past 5-7 years in the 5-6.8% range. the mortgages were made to those with good credit and the belief that they could pay off after 15-30 years.

at those rates investors were taking on a little more risk (homeowners not being able to payoff the mortgages or refinancing early) for not much more return than US Govt bonds, money markets, etc.

so investors want higher returns but dont want to get into stocks. Research shows that subprime mortgages are about 1-3% above current mortgage rates and the fees associated with them are high as well. with rising house prices if a HO stops paying investors would get their money back through a sale. as money became cheaper to lend they also were lax in underwriting standards to generate those fees.

remember most of these mortgages get sold right away and are not kept on the banks books. that also contributed to the taking on more risk in underwriting. i blame the US Govt (FHA, Fannie, Fredie Mac) for buying these mortgages without due diligence. they should have incorporate stricter lending standards; at a minimum whether HO could afford to pay those mortgages after teaser rates, I/O & ARM period, etc.

now people are buying homes they should not have due to the hype that howme ownership will lead to great wealth. they did not hire attys or read the loan documents (this also happens with people with good credit as well) to see the ridiculous fees they were being charged. they dont want to pay PMI so they do an 80/20 set up.

I strongly believe it is preferrable to pay PMI for a few years then do an 80/20 set up.

its amazing to see people incur the largest purchase of their life and trust so many others to do the work for them (story for another time).

now more and more HO cant afford these mortgages and then default. now the homes are worth less than the mortgage and the investors get nothing so they force the banks to take the mortgages back (usually part of the bond contract) and a cascade effect starts.

on the investors side the loans were mixed with prime mortgages and sold into bonds that paid a little more return (RED FLAG).

i am not against the govt getting involved in mortgages but they should stick to purchasing mortgages to people who can afford them. investors should be not protected from losing their investment with subprime it comes with the terrority also there are HO who simply should never have been in a home they could not afford. if the only way to pay for a home is through these products a red flag should go off.

there is nothing wrong with subprime loans, if the bank/investor wants to generate a higher return that is there right but they should not be mixed with prime mortgages or should taxpayers provide backup for them. that is the risk you take.

just my opinion.

Reading material:

Wall Street Journal
New York Times
Atlantic Journal
New Yorker
NPR news, esp. "Marketplace"
Alternet
MSN "your money" forum (regular participant!)

I'm sorry I screwed your name up. I'm usually pretty good about that, and historicially I've been "on the money" with your's, I think.

My own philosophy about investing (WHEN and how) is very different than your's, Dave (sorry again!). I believe in retiring debts efficiently before the term.

My own portfolio has seen a downturn, but not a terribly precipitous one, frankly. Mostly, I think, because I have paid my major debts in full and now have the option of directing current contributions (that would have be directed to debt/interest payments) to longer term investments.

I am reasonably certain you will find fault with it all. I'm OK with that. I know that the properties I own are owned "free and clear". I know also that my portfolio is reasonably (within my "risk toleranace") conservative relative to the times frames I have in mind.

"Broadbrush" is workin' just fine for me.

Cheers!
Chelone
(bonehead sewing machine jockey)

Chelone

Hi Chelone,

What's with the listing of your magazines? Was that meant for this thread? Or are you saying that all of those are your cause for belief that "deregulation in banking has encouraged the shocking lending practices that have lead to the present circumstance."?

I'm sorry I screwed your name up. I'm usually pretty good about that, and historicially I've been "on the money" with your's, I think.

No worries, no offense taken (the mix-up, as I stated, is so extremely common outside of written communications that I'm virtually never offended by it... no even when an offender points out in hindsight that she *MEANT* it to be offensive at the time ;~) I'm either thick-skinned, or thick-skulled (depending who you ask) that way.

My own philosophy about investing (WHEN and how) is very different than your's, Dave (sorry again!). I believe in retiring debts efficiently before the term.

What do you believe in when the term is too short to efficiently eliminate the leverage, in respect to a person's actual life (not the arbitrarily set term of the loan)?

My own portfolio has seen a downturn, but not a terribly precipitous one, frankly. Mostly, I think, because I have paid my major debts in full and now have the option of directing current contributions (that would have be directed to debt/interest payments) to longer term investments.

If you look at a comparison of a pre-funded sum growing on a compounding basis (even minus the interest charges considered if the funds were from leverage,) versus a "drip-funded" scheme of the same monthly payment... you'll apparently be quite surprised at how dangerous the "eliminate the leverage, then drip the investment" strategy actually is.

I am reasonably certain you will find fault with it all. I'm OK with that. I know that the properties I own are owned "free and clear". I know also that my portfolio is reasonably (within my "risk toleranace") conservative relative to the times frames I have in mind.

I'm glad to know you are blissful. ;~)

"Broadbrush" is workin' just fine for me.

I'll keep that in mind when I see future claims or statements, and pull in the reigns of my accuracy expectations.

Here's to your blissful seasons; that you are confronted by no surprises you weren't anticipating, and that you remain safe without having to be aware!

Dave Donhoff
Leverage Planner

The current economic mess was caused by the corruption of our society. More destroyers then builders for the last few years.

As homes continue to be foreclosed and dumped on the market the credit markets will have to price in that risk. As price rises relative to risk fewer people will be able to buy homes accelerating the fall. Risk begets higher prices and a weaker economy which brings more risk.

Some still cling to the notion they have good investments. As in the last Depression when wealth is concentrated in the hands of so few they don't have a market to invest in. Until decent paying jobs are available to most people the economy will not recover. As our government is starting to discover citizens without money don't pay taxes.

Anecdotally... ear-to-the-ground hubbub is that Las Vegas real estate appears to be done bleeding, and common folk are more often chit-chatting about a "clean bank repo" they bought to move into in the high 100's or low 200's...

As in all cycles, nothing is forever and bear markets tend to be shorter (but exponentially scarier) than bulls.

Cheers,
Dave Donhoff
Leverage Planner

Dave: "Anecdotally... ear-to-the-ground hubbub is that Las Vegas real estate appears to be done bleeding...."

I subscribe to that theory as well, and in fact, I'm taking a house-hunting trip out to LV in September.

I think the frothier markets in LV, LA, etc are bottoming out. Most are down 35-40% now, the banks seem to be capitulating and moving foreclosures at fire sale prices. Prices are now back to ~10x annual rental income and starting to look attractive again. I don't see prices appreciating for a quite some time, thanks to increasing interest rates and general economic malaise.

I think part of the problem is the credit system. Credit scoring is nonsense. Years ago, loans were underwritten following certain guidelines. If a person had a bad period following unemployment or a serious illness, the underwriter looked at the facts and made a determination. Then credit scoring arrived, but of course now people who had problems in the past were pretty much locked out. The answer was subprime lending. AT first, nearly all buyers were told the scores were very low (liars). Eloan ended this process by giving people access to their score. Thank God. Next, housing in certain areas increased dramatically. Buyers turned to crazy loans in order to afford these expensive homes (NY, CA etc). The market declined and people are now upside down. In a traditional mortgage, they could ride it out, but these 0% type mortgages increase in this situation beyond the ability of many people to pay for them. Now we have job loss. I live in a small Midwestern town. A GM plant has closed. Thousand of good paying jobs are gone. There will be foreclosures not because the people were given loans improperly, but because their circumstance has changed. It's a terrible situation.

Another here that thinks LV is looking attractive...especially the condo market. We're also planning a trip using a long weekend get-a-way as an excuse to nose around a bit. Does anybody know of a nice condo/hotel development near the Strip?

Right now, on realtor.com, there are 3,400 condo units listed! It's mindboggling.

/tricia

Tricia, I've been reseaching The Signature at MGM Grand. It's a condo/hotel and is a joint venture between MGM & Turnberry. I've been following the prices there ever since I walked through a model unit during the preconstruction phase several years ago. All three buildings were sold out before they were built - mostly by investors. As you can imagine, there is now a fire sale, with many investors trying to bail out of their "investment" after the plunge in real estate out there. I plan on staying in a unit on my trip next month in order to get an "up close and personal" view of how the property is being run. (Although I'm not sure yet whether I will rent from the management firm or from an individual owner.)

The condo fee includes all of the MGM hotel amenities, as well as specific amenities just for the Signature owners, such as an owners-only pool at the resort. Valet parking is also included.

I'm also planning on checking out the new City Center devlopment which also is being built by MGM Mirage and which is directly across the street from the MGM Grand.

Here is a link that might be useful: The Signature at MGM Grand

Wow, Dave! I've been warned off making "controversial" comments here! And here you go doubting the wisdom and beneficence the State.

Not that I think there's any question that the housing "crisis" is just the end result of 30 years of government intervention in the market in the pursuit of home ownership for everyone. And now that the bubble bursts, the permanent criminal class, i.e., Congress, is in a rush to "bail out" the defaulters. Though it's likely it will be well-heeled speculators that will be the biggest winners.

Here is a link that might be useful: The CRA scam and its defenders

"I keep wondering what it will take for our elected officials to start making decisions in the best interest of the country's long term stability vs. the individual's electability."

Two words: TERM LIMITS

Our nation's founders never intended for our elected officials to make careers out of their elected positions.

2 terms for senators, 4 terms for representatives, 2 terms for governors, 8 years total for state and local elected officials. When it is no longer necessary for elected officials to appeal to the least common denominator to keep their job, we may actually get enough people elected who will tell us all what we don't want to hear: save more, spend less, and prepare for the coming austerity.