Is It Time To Plant a Garden?

Granted, I don’t normally use this blog to discuss politics and other similar matters. But on the other hand, I do use it to ramble about whatever is on my mind of late; so I thought I’d just toss out a few morsels of thoughts I have regarding what seems to be a potential meltdown in our financial markets. And for the record, I am really out of my league to even attempt an intelligent dialogue on such a topic. If memory serves me correct, I took Economics 101 in college at ASU in 1979. I remember learning about ‘supply & demand’ and ‘sell low – buy high’. That sums up my expertise on economic matters. Yet, it’s hard to ignore the ‘rumblings’ we hear in the news of late.

It’s not like I have millions of dollars stashed away in a portfolio that I see eroding a way and keeping me up at night pacing the floor in fear wondering what will become of my family and I. But I still feel compelled to try and wrap my brain around what all the hoopla is about and try to understand some of this. I did listen to the President’s speech on Wednesday night and felt he did simplify it as best he could (or his speech writers could) in order for us common folk to better grasp the magnitude of what is happening.

The next day, Lisa emailed me and asked about what I thought of it all and wanting to get my thought on paper, I sent this email to her in response:

What is beginning to ‘click ‘ for me is how we got into this mess.

1. When anyone applies for a loan, auto, home, etc, you are usually told up front how much you’ve been approved for. Like on our home that we built, initially we were told we could borrow like up to $250,000 if we wanted. I thought that was absurd because I knew there was no way we could ‘afford’ a house payment on a loan that big. We knew what we felt we could handle and borrowed accordingly.

But from what I understand now, over the years, in order to stimulate the economy, the guidelines on borrowing were loosened quite a bit. In other words, people who ‘normally’ would not have been given such a line of credit for multiple reasons, were being told they could have at their disposal huge amounts to build their ‘dream homes’. Seems that many folks didn’t think that through and figured since it was being offered, they must be able to afford it and ended up way in over their heads. These were all the loans by the Fannie Mae and Freddie Mac agency that were trying to ‘help the less fortunate’ secure homes that they could never afford.

By doing this, you give a boost to the housing industry which stimulates the economy and in turn, drives up the price of homes.

Lots of folks started going in and buying homes to resell since the market was good and started getting all these loans to finance their ‘get rich schemes’.

Before long, all the people who settle in to these new homes start having to make outrageous payments, especially after a few years when those payments increase to adjustable rates they bought in to. (start at a low rate and then it increases over time) Others who were buying homes for investments to resell, found they couldn’t unload them as quick as they hoped for, or at the escalated price they were needing.

People got to a point where they were just walking away from the homes because they couldn’t afford them. This was a problem in the making for some time now, and from what I understand, the straw that begin to ‘bend’ the camels’ back. Home prices began to drop so now the house that someone purchased for 300K was only worth 200K. Not a good thing. ( Think what happens when you buy a new car for say, 25K and finance it for 5+ years. At some point in time, you end up owing more than what it’s worth which kills you if you want to trade it in for a new car.

2. From our own experiences over the years, we’ve noticed that after we secured a home loan or student loan, that after awhile, we get a notice from some outfit that says our ‘mortgage’ or ‘student loan’ was purchased by some investment group. I guess banks and lending institutions do this…they sell off these loans that are making money because of the interest and sell them in ‘batches’. How and why this is done is still unclear to me, but these larger institutions do this for some profit. The problem is, many of these ‘batches’ they purchased, were bad loans. People stopped paying on them which means their revenue is diminished. And that’s what has caused the ‘house of cards’ to begin to topple.

I’m sure that is a very simplistic explanation of what all is happening, but from what I’ve been reading, it does make it seem understandable.

What Bush and the Gov. is wanting to do, is ‘buy’ all these ‘bad batches’ of loans for the 700billion. It’s not suppose to be a bailout or handout, but rather a ‘loan’. By getting these bad loans off the backs of the Wall Street outfits, it stabilizes the economy and keeps the line of credit going for people and business to keep operating. In the meantime, we the taxpayers, are holding the bag of defunct loans which translates into thousands of pieces of property that over time, should regain some value and can be resold so that the majority of the 700 billion is recuperated.

What makes people nervous is the fact that it was government overseers who got us into this mess to start with- by loosening up lending guidelines in order to stimulate the economy. And why we should believe they can now fix the mess they made by giving the a blank check is the 700 billion dollar question. :-/

I’ve already been hearing questions of concern arise about what to do with money in banks and will we face a ‘great depression’.

God only knows all those answers. Who knows how our society would cope with a major collapse of the way of life we have grown accustomed to. I am often reminded of a comment made by the Apostle Paul who said (and I think I’m paraphrasing here) “If my hope was in this world alone, I would be of all men, most miserable!”