Quote:
Originally Posted by Vampyr
*ahem*
Yeah.
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While off-topic, I'll address this. At the time that I wrote that post, we were not in a recession. We STILL aren't in a recession, technically. A recession is consecutive quarters of negative growth, and last quarter the economy grew by over 3%.
Is it going to continue to grow after the events of the past 2 weeks? Probably not, but thats what happens to things... they change, and in this case very quickly. This is not good, and I'm not anyone really saw things going this poorly. When big business hurts, it cascades down to the rest of us. I don;t even want to look at my 401k right now.
But to your political point, what would help the economy is cutting spending and reducing our debt, and so far the only person talking about cutting spending is McCain, but to be honest neither candidate has a decent budget plan. Obama's is just worse than McCain's, but that doesn't make McCain's good.
Back on Topic
Where to place the blame is a far more tricky situation, though. The root of the issue is that money was far too cheap for far too long, it was lent far too easily, and consumers knowingly took on far too much debt. I teach real estate marketing and technology, and I've seen this situation first hand over the past 2+ years. Here are the culprits, IMO, from the bottom up.
1) The Consumer - People simply bought way too much house, with mortgage products that were intended for investors/flippers and not residential home buyers. Consumers started going after low interest multi-year ARMs, or adjustable rate mortgages. They did so because they required no money down, and had low interest-only payments for the first 5 or so years.
The problem with these is multi-fold. After 5 years the ARM comes due, and the interest rates jump up considerably, severely increasing the monthly burden on the home owner. The worst part, is that with no down payment and interest only payments to that point, they haven't paid off any of the loan and have no equity after the housing market corrected.
So the consumer goes to sell the house that is now worth a little less than what they bought for it. Normally, that would be bad but survivable, but by having not paid off any of the debt, the sale price will not cover what they owe on the home. Here comes foreclosure or short-sale (I can explain if you like), and now the banks and lenders are left holding bag and incurring billions in unpaid debt.
I actually like ARMs. They're great for investors and allows them to keep their overhead down while they renovate and resell the home. They just SUCK for residential home buyers, as we can see.
The Loan Resellers This is not a widely KNOWN area of the industry, but it is a widely USED area. A reseller is like DiTech.com. They offer mortages, but they do not keep them. What happens is that they work with the consumer to get them a loan, and then sell it to a large lending house, like Wells Fargo.
The problem is they make all their money on the closing costs, or fees involved with the initial transaction. After that, they sell it to the big bank and they don;t have to worry about whether or not the loan was a good one that will go to term or be foreclosed on. All the benefits of the transaction, but none of the responsibility for offering a smart choice to the consumer and consulting them instead of selling them.
The Big banks While I believe that that the resellers are the most directly responsible for this situation, if the banks weren't buying them up like candy, the resellers wouldn't have been pushing the bad products. They shoulkd have known better considering in the end, it was their asses on the line. `Nuff said.
The Federal Reserve Bank Cheap money is never good over a long period of time. It creates inflation and and invited both consumers and lenders to overextend themselves. If the fed had RAISED rates when the housing boom was going crazy, none of this would have happened.
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