Yesterday I explained that I wanted to lay out what I thought were important priorities for the Presidency 2012-2016. This will be the planks of my platform should I decide to stick with the idea of the run (it will have to be a write-in campaign).
In preparation, I looked back at what I said in 2008. I think the same issues apply, so I'm going to steal heavily from my ideas back then. One difference I notice between 2008 and 2012 is the lack of focus on change. In 2008, almost every candidate was talking change (both the D's and the R's). Well, change happened, we went from a Republican in the White House to a Democrat. Some might say too much changed, some might say too little. But change happened.
My focus will be pretty much the same as last time, with some change thrown in for good measure. Here are the areas I see that need to be addressed for the next four years. This post won't tell you my opinion on any one topic, but instead will list topics I intend to cover later. They will be somewhat in priority order, but that's subject to change (there's that word) later on.
In my platform, I intend to address these topics:
1. National Defense - Iraq is over. Afghanistan will be soon. The current budget outlook for defense means major cuts. We're relying less on boots-on-the-ground and more on drones-in-the-air and special ops. Where do we go from here?
2) Foreign affars - Russia, Pakistan, Iran, India, Europe, Africa, South America, China (including trade) and Mexico (including immigration) - My only update to this list is to add the Middle East (Egypt, Libya, Israel, Syria, etc) and North/South Korea
3) Isolationism vs. becoming entangled in the affairs of other nations - it seems one candidate wants us to pull back and focus on US alone, I'll look at my ideas four years ago and update them.
4) National economy - Jobs, training, mortgages, housing, taxes and spending. I know you think this should be higher. When I look at the economy, I'll explain why it's ranked #4.
5) Healthcare, education and abortion, global warming, carbon credits (hopefully, I'll explain why I grouped these)
6) Points of light - This is an old George H Bush idea. I mentioned it yesterday in a phone conversation with a friend and think it needs to be addressed.
What did I leave out? What do you, the voter and my readers, want me to address?
Showing posts with label Mortgages. Show all posts
Showing posts with label Mortgages. Show all posts
Thursday, January 05, 2012
Tuesday, October 25, 2011
Help for homeowners
Yesterday, President Obama unveiled a "new" plan to help home-owners who may be able to benefit from re-financing (see article here). From what I have read, I think the program is good, but I'm not sure how successful it may be.
The program is designed as an aid to homeowners who want to refinance and take advantage of today's lower rates. Nothing that I have read says it will reduce the amount of the loan, only the interest rate. Let's say someone took out a loan on a $300,000 home in 2004 with a rate of 5.5%. If they had chosen a fixed rate, that's a payment of about $1700. If they can refinance to a 4% loan today, that's a payment of about $1430 and leaves $270 in their pocket.
So who loses the $270? Well, the new program is for people whose loans are owned by Fannie Mae and Freddie Mach, so they are obvious losers in the deal. Also, banks may lose as older loans are paid off earlier. However, banks will get some refinance $$ in their pocket as well as a better loan. If the old loan defaulted, banks were sure to lose.
So what is the down-side to the program? Well, refinancing costs money and some of that burden will be paid by the tax payer. I don't think that's a lot of money (compared to loan defaults), so I think this is a good program overall.
Trouble is, it doesn't address the amount owed. In my example above, I assumed the entire $300,000 would be refinanced. In reality, if they were current, they would only owe $262,000 at this point. But the problem comes in that the value of the house may have dropped. The house may only be worth $200,000 now and in that case, they wouldn't be able to refinance. under today's rules, but would be able to under the new rules.
The program looks like it helps out some people in certain circumstances and therefore I have no objection to it. I'm not overly excited, because it doesn't seem like it will affect many people. Maybe the president is trying to tackle the economic issues in small bites rather than a sweeping program that no one can pass.
The program is designed as an aid to homeowners who want to refinance and take advantage of today's lower rates. Nothing that I have read says it will reduce the amount of the loan, only the interest rate. Let's say someone took out a loan on a $300,000 home in 2004 with a rate of 5.5%. If they had chosen a fixed rate, that's a payment of about $1700. If they can refinance to a 4% loan today, that's a payment of about $1430 and leaves $270 in their pocket.
So who loses the $270? Well, the new program is for people whose loans are owned by Fannie Mae and Freddie Mach, so they are obvious losers in the deal. Also, banks may lose as older loans are paid off earlier. However, banks will get some refinance $$ in their pocket as well as a better loan. If the old loan defaulted, banks were sure to lose.
So what is the down-side to the program? Well, refinancing costs money and some of that burden will be paid by the tax payer. I don't think that's a lot of money (compared to loan defaults), so I think this is a good program overall.
Trouble is, it doesn't address the amount owed. In my example above, I assumed the entire $300,000 would be refinanced. In reality, if they were current, they would only owe $262,000 at this point. But the problem comes in that the value of the house may have dropped. The house may only be worth $200,000 now and in that case, they wouldn't be able to refinance. under today's rules, but would be able to under the new rules.
The program looks like it helps out some people in certain circumstances and therefore I have no objection to it. I'm not overly excited, because it doesn't seem like it will affect many people. Maybe the president is trying to tackle the economic issues in small bites rather than a sweeping program that no one can pass.
Tuesday, October 04, 2011
The President's job speech - Reaction Part 2
This is a continuation of my previous post on the President's job speech. Part 1 is found here.
We are told that the President's bill (which was not released until days after the speech) will give companies an extra tax credit if they hire veterans. While this is a good idea, I'm not sure this will provide a lot of jobs and I don't think it belongs in a jobs bill. Was it added here so that the President could say that anyone who opposes this bill opposes veterans? I shouldn't be so cynical.
The bill offers "companies... a $4,000 tax credit if they hire anyone who has spent more than six months looking for a job." This is like the HIRE act I mentioned in Part 1 of my review, but it brings up an important point: why not limit unemployment benefits to six months as well? This way, you motivate both the employer and the employee.
The President promises us that the "typical working family will get a $1,500 tax cut next year." This is on top of the $2,000 we have already gotten. Anyone know where this comes from? It comes from Social Security payments we all make through payroll deduction. Someone should point out that this actually helps to remove the illusion that Social Security is anything but a tax.
President Obama promises that "the American Jobs Act will not add to the deficit." MSNBC (not exactly an anti-Obama source) in their fact-check of the President's speech explains this by saying "it will only be paid for if a committee he can't control does his bidding." To mis-quote President Truman, "the buck stops there" not with the current president.
Finally, about half-way through his speech, the President admits "this approach is basically the one I've been advocating for months." Nothing new. But pass this bill. Right away.
The speech goes on (my printed copy continues for five more pages), but as he said, there's not much new. The programs outlined are programs the President has been pushing for months or extensions of existing programs created and pushed with the last stimulus package. They didn't work then, and they won't work now. Congress should kill this bill. Right away.
We are told that the President's bill (which was not released until days after the speech) will give companies an extra tax credit if they hire veterans. While this is a good idea, I'm not sure this will provide a lot of jobs and I don't think it belongs in a jobs bill. Was it added here so that the President could say that anyone who opposes this bill opposes veterans? I shouldn't be so cynical.
The bill offers "companies... a $4,000 tax credit if they hire anyone who has spent more than six months looking for a job." This is like the HIRE act I mentioned in Part 1 of my review, but it brings up an important point: why not limit unemployment benefits to six months as well? This way, you motivate both the employer and the employee.
The President promises us that the "typical working family will get a $1,500 tax cut next year." This is on top of the $2,000 we have already gotten. Anyone know where this comes from? It comes from Social Security payments we all make through payroll deduction. Someone should point out that this actually helps to remove the illusion that Social Security is anything but a tax.
President Obama promises that "the American Jobs Act will not add to the deficit." MSNBC (not exactly an anti-Obama source) in their fact-check of the President's speech explains this by saying "it will only be paid for if a committee he can't control does his bidding." To mis-quote President Truman, "the buck stops there" not with the current president.
Finally, about half-way through his speech, the President admits "this approach is basically the one I've been advocating for months." Nothing new. But pass this bill. Right away.
The speech goes on (my printed copy continues for five more pages), but as he said, there's not much new. The programs outlined are programs the President has been pushing for months or extensions of existing programs created and pushed with the last stimulus package. They didn't work then, and they won't work now. Congress should kill this bill. Right away.
Friday, September 30, 2011
The President's job speech - Reaction Part 1
Ok, I'm a little slow in posting my comments to the jobs speech. The President spoke three weeks ago, and I've just gotten around to starting my comments. My apologies if you were waiting. But I promise to complete this fairly quickly. The speech was long, I printed it and it took 10 pages. My response will be long too,
I commented right after the jobs speech that I was glad the President spoke. I should have also said I was impressed with his speech. I was amazed the first time I heard him speak at the 2004 Democratic National Convention. I knew then, that he was going places. He's a good speaker and has good speech writers.
When I read the President's speech (found here), my first impression was that he gets it. He understands. He used words like "an urgent time" and said that we "face an economic crisis." These are strong, but accurate words. He understands that "millions of Americans... don't care about politics," they just want the problem solved. And he understands that the problem is unemployment. If we fix this problem, we fix the economy (and most likely the deficit).
But I begin to have problems when he began to talk about a "compact." He accurately depicted "an America where hard work and responsibility paid off" and where "if you did the right thing, you could make it." But I'm not sure that's a compact. And then he followed by saying that "Washington has not always put [the people's] interests first." While I'm certain that part is true, I'm not sure what, if anything, Washington's role should be in the compact between people and their employers.
After this aside, the President returned to the track that I agree with. He says that "our recovery will be driven not by Washington, but by our businesses and our workers." These kinds of statements give me hope that he may actually see the right way to run this country. But then he began to give details on his plan - The American Jobs Act. He repeatedly tells Congress that they "should pass [this bill] right away." Only there was no bill. For four days. After he had delayed his speech for several days. But right away, they should pass it.
Once President Obama began talking about parts of the to-be-delivered bill, I noticed a familiar refrain. First, he talks about cutting taxes for small businesses that hire new workers. This is similar to the HIRE Act of 2010 that I discussed here. This didn't stimulate hiring then, is there any reason to believe it will work now?
Next the President talks about putting "people to work rebuilding... decaying roads and bridges." Can someone say "shovel ready?" While I do believe transportation costs affect the economy more than any single factor, I don't think that just because "construction companies... [are] waiting to get to work" we should throw good money after bad. This didn't work in the previous stimulus, it won't work now. We may need to rebuild our infrastructure, but let's not call it a jobs program.
President Obama tells us that the American Jobs Act will "repair or modernize at least 35,000 schools." While I agree our schools need help (see here and here for two recent posts on schools), the best help would be for Washington to step away and let the states manage them.
The speech goes on with a promise to "rehabilitate homes and businesses in communities hardest hit by foreclosures." Wasn't this tried before? Didn't we pass a Mortgage Reform Act to reduce foreclosures? And how's that working out?
(more notes on the speech to come. Please feel free to comment now or wait).
I commented right after the jobs speech that I was glad the President spoke. I should have also said I was impressed with his speech. I was amazed the first time I heard him speak at the 2004 Democratic National Convention. I knew then, that he was going places. He's a good speaker and has good speech writers.
When I read the President's speech (found here), my first impression was that he gets it. He understands. He used words like "an urgent time" and said that we "face an economic crisis." These are strong, but accurate words. He understands that "millions of Americans... don't care about politics," they just want the problem solved. And he understands that the problem is unemployment. If we fix this problem, we fix the economy (and most likely the deficit).
But I begin to have problems when he began to talk about a "compact." He accurately depicted "an America where hard work and responsibility paid off" and where "if you did the right thing, you could make it." But I'm not sure that's a compact. And then he followed by saying that "Washington has not always put [the people's] interests first." While I'm certain that part is true, I'm not sure what, if anything, Washington's role should be in the compact between people and their employers.
After this aside, the President returned to the track that I agree with. He says that "our recovery will be driven not by Washington, but by our businesses and our workers." These kinds of statements give me hope that he may actually see the right way to run this country. But then he began to give details on his plan - The American Jobs Act. He repeatedly tells Congress that they "should pass [this bill] right away." Only there was no bill. For four days. After he had delayed his speech for several days. But right away, they should pass it.
Once President Obama began talking about parts of the to-be-delivered bill, I noticed a familiar refrain. First, he talks about cutting taxes for small businesses that hire new workers. This is similar to the HIRE Act of 2010 that I discussed here. This didn't stimulate hiring then, is there any reason to believe it will work now?
Next the President talks about putting "people to work rebuilding... decaying roads and bridges." Can someone say "shovel ready?" While I do believe transportation costs affect the economy more than any single factor, I don't think that just because "construction companies... [are] waiting to get to work" we should throw good money after bad. This didn't work in the previous stimulus, it won't work now. We may need to rebuild our infrastructure, but let's not call it a jobs program.
President Obama tells us that the American Jobs Act will "repair or modernize at least 35,000 schools." While I agree our schools need help (see here and here for two recent posts on schools), the best help would be for Washington to step away and let the states manage them.
The speech goes on with a promise to "rehabilitate homes and businesses in communities hardest hit by foreclosures." Wasn't this tried before? Didn't we pass a Mortgage Reform Act to reduce foreclosures? And how's that working out?
(more notes on the speech to come. Please feel free to comment now or wait).
Friday, May 29, 2009
Roundup
I'm going to steal an idea from my blog-friend Neil and post a list of other blogs I've seen this week. Maybe I can be Neil's padawan blogger.
Don't forget my contest. You can win a big prize ($5), just for making up a story. Post it in the comments or send me an email. Today's the deadline. The judges will vote tomorrow and the winning story published.
I confess I stole the idea from the contest from (or was inspired by) the Lazy Man and Money. Lazy is one of the blogs I've been reading about practical money management. He received two copies of a book, 10,001 Ways to Live Large on a Small Budget, and is giving one away. Be sure to read the comments, some are funny, some are sad. See his post here.
Another practical money management blog I've been reading is The Simple Dollar. A recent post focused on Quantity Surcharge. You always thought that the bigger bottle of ketchup was cheaper, right?
Probably my favorite blog of late is Free by 50. It's not as much day-to-day practical information, but probes deep on some subjects. Home ownership, foreclosure, subprime lending, etc. Be sure to read several posts to get a feel for the blog.
I first heard Gerri Detweiller on the radio, she focuses on consumer alerts of all types. She's the credit advisor for credit.com. She doesn't blog every day, but her posts are good.
Don't forget my contest. You can win a big prize ($5), just for making up a story. Post it in the comments or send me an email. Today's the deadline. The judges will vote tomorrow and the winning story published.
I confess I stole the idea from the contest from (or was inspired by) the Lazy Man and Money. Lazy is one of the blogs I've been reading about practical money management. He received two copies of a book, 10,001 Ways to Live Large on a Small Budget, and is giving one away. Be sure to read the comments, some are funny, some are sad. See his post here.
Another practical money management blog I've been reading is The Simple Dollar. A recent post focused on Quantity Surcharge. You always thought that the bigger bottle of ketchup was cheaper, right?
Probably my favorite blog of late is Free by 50. It's not as much day-to-day practical information, but probes deep on some subjects. Home ownership, foreclosure, subprime lending, etc. Be sure to read several posts to get a feel for the blog.
I first heard Gerri Detweiller on the radio, she focuses on consumer alerts of all types. She's the credit advisor for credit.com. She doesn't blog every day, but her posts are good.
Wednesday, December 10, 2008
A Rescue Plan! (Diego style)
Ok, watching Go Diego Go with my 2 year old grandson has warped my mind. Everyone is calling the bailout plan a "rescue plan" and my mind switches to a silly video (see here). I get to singing the little song every time I hear it.
Previously, I posted on pyramid schemes (here) and multi-level marketing (here). I also talked a little about profits (here) and said they were a good thing. My goal was to get to this post and after a few interruptions I'm here.
My thought all along on this bail out plan (excuse me Rescue Plan! - Diego is very emphatic) is that it reminds me of a pyramid scheme. Everyone is saying that the problem we have is because of bad home loans. Ok, I've blogged about that too (here, here, here and here). I've been talking about this for over a year. The problem I have now is with our solution.
We've decided that the way to fix the problem is to allow more people to borrow more money. See, the problem before was that they couldn't repay all that they had borrowed, so now we're lending them more. Makes sense, right?
This is like the pyramid scheme. As long as people are buying and selling homes, we can keep the economy flying. Once people stop and look at what they really have, it all falls apart. I really don't like the alternative (lots of foreclosures, depressed home values, layoffs, general depression), but I honestly believe the longer we delay this the worse it will be. Someday, we have to pay the piper and it won't be pretty.
Previously, I posted on pyramid schemes (here) and multi-level marketing (here). I also talked a little about profits (here) and said they were a good thing. My goal was to get to this post and after a few interruptions I'm here.
My thought all along on this bail out plan (excuse me Rescue Plan! - Diego is very emphatic) is that it reminds me of a pyramid scheme. Everyone is saying that the problem we have is because of bad home loans. Ok, I've blogged about that too (here, here, here and here). I've been talking about this for over a year. The problem I have now is with our solution.
We've decided that the way to fix the problem is to allow more people to borrow more money. See, the problem before was that they couldn't repay all that they had borrowed, so now we're lending them more. Makes sense, right?
This is like the pyramid scheme. As long as people are buying and selling homes, we can keep the economy flying. Once people stop and look at what they really have, it all falls apart. I really don't like the alternative (lots of foreclosures, depressed home values, layoffs, general depression), but I honestly believe the longer we delay this the worse it will be. Someday, we have to pay the piper and it won't be pretty.
Thursday, May 08, 2008
subprime - a dirty word
I've blogged in the past about subprime lending, but what does it really mean? Is subprime a dirty word?
First, let me answer the last question. Subprime is not a dirty word. People who borrow money are classified as either "prime" or "subprime". Prime borrowers are ones who have a good credit history, pay all their credit on time and have used credit from time-to-time. The exact definition varies based on who does the defining. Subprime borrowers are ones who have a somewhat tarnished credit history.
Of course, foreclosure, legal judgements, reposessions, bankruptcies or charge-offs do massive damage to your credit history. Also late-payments hurt. Wikipedia says "two or more loan payments paid past 30 days due in the last 12 months, or one or more loan payments paid past 90 days due the last 36 months."
So two late payments or one very late payment means you are classified as "subprime".
So, if it's not a dirty word, what's the big deal? Well, depending on HOW subprime a person is, they may get worse terms on any credit. If you don't need credit, it's no big deal. But if you need/want credit, you may see higher fees, higher interest rates. The idea is that the lender needs these higher fees and rates to offset the higher risk. And of course, they wouldn't take this risk if they didn't think they could get a higher return.
But there are a large number of people who are "subprime" who aren't much "subprime". These people have a few late payments and maybe a few other problems with their credit. They may have trouble getting a loan, but it doesn't say anything about their value as a person.
If you want to read my previous posts click on "My take on sub-prime", "Citibank" or "Foreclosure relief"
First, let me answer the last question. Subprime is not a dirty word. People who borrow money are classified as either "prime" or "subprime". Prime borrowers are ones who have a good credit history, pay all their credit on time and have used credit from time-to-time. The exact definition varies based on who does the defining. Subprime borrowers are ones who have a somewhat tarnished credit history.
Of course, foreclosure, legal judgements, reposessions, bankruptcies or charge-offs do massive damage to your credit history. Also late-payments hurt. Wikipedia says "two or more loan payments paid past 30 days due in the last 12 months, or one or more loan payments paid past 90 days due the last 36 months."
So two late payments or one very late payment means you are classified as "subprime".
So, if it's not a dirty word, what's the big deal? Well, depending on HOW subprime a person is, they may get worse terms on any credit. If you don't need credit, it's no big deal. But if you need/want credit, you may see higher fees, higher interest rates. The idea is that the lender needs these higher fees and rates to offset the higher risk. And of course, they wouldn't take this risk if they didn't think they could get a higher return.
But there are a large number of people who are "subprime" who aren't much "subprime". These people have a few late payments and maybe a few other problems with their credit. They may have trouble getting a loan, but it doesn't say anything about their value as a person.
If you want to read my previous posts click on "My take on sub-prime", "Citibank" or "Foreclosure relief"
Saturday, March 08, 2008
Foreclosure relief
Back on January 28, I asked the question "When is a rebate, not a rebate?"
Now I ask about foreclosure relief. Seems there are two types of people who are being foreclosed on, first the man (or woman) who simply can't afford his (or her) house. Maybe he had some credit problems when he mortgaged the house and had to settle for a so-called subprime loan (I hate that term). Now the payments are going up. Or maybe some other bad luck has hitten, he's maxed out the credit cards, lost a job or other ways pinched. Bottom line, he can't afford the payments.
The second type of foreclosure is the person who looked for bargains, bought homes on the margin, with little or no money down. Now that home prices are falling, he owes more on the house than it's worth and the prices are likely to never (or at least not soon) go back up. His investment has lost money and he is looking to get out. He's decided to stop throwing more money at it and he will just let the house go to foreclosure.
Government is talking about some sort of foreclosure relief. In the short term, the banks are offering extensions before they enter the foreclosure process. This isn't really an extension, without this if a consumer contacted his bank he would already get extensions. Banks don't want to foreclose, they have enough houses and look at it as a lose-lose proposition. If they do foreclose, they lose money because they can't sell the house.
The short term solution is good because (hopefully) it will make some consumers wake up. They can re-negotiate their mortgage and possibly keep a house they might would lose. Sure it's a stop-gap, but it will help some.
Longer term, there are calls for banks to "forgive" parts of mortgages. I think this is a bad idea. If a house is now worth less than the mortgage, the bank "forgives" the execess mortgage amount. This rewards buyers who put little down or used bad mortgages. It also invalidates a contract. The buyer signed a contract to pay a certain dollar amount, now he's backing out. If the government forces banks to accept these contract changes, the banks lose and will likely not lend money as quickly in the future.
This mess was created over a period of several years, it will take several years to get out of it. Just because this is an election year doesn't mean an action has to be taken. Some people will lose homes, some people will not be eligible for loans. Some young couple who wants a home will be turned down and they didn't do anything wrong. It's just that now they look like a credit risk.
I encourage the government not to do anything to adjust mortages. I also encourage banks and other financial institutions to look carefully at future customers. Any who walked away from a house should be treated like the risk they are. Those who took out bad mortgages should also be treated as a risk.
Now I ask about foreclosure relief. Seems there are two types of people who are being foreclosed on, first the man (or woman) who simply can't afford his (or her) house. Maybe he had some credit problems when he mortgaged the house and had to settle for a so-called subprime loan (I hate that term). Now the payments are going up. Or maybe some other bad luck has hitten, he's maxed out the credit cards, lost a job or other ways pinched. Bottom line, he can't afford the payments.
The second type of foreclosure is the person who looked for bargains, bought homes on the margin, with little or no money down. Now that home prices are falling, he owes more on the house than it's worth and the prices are likely to never (or at least not soon) go back up. His investment has lost money and he is looking to get out. He's decided to stop throwing more money at it and he will just let the house go to foreclosure.
Government is talking about some sort of foreclosure relief. In the short term, the banks are offering extensions before they enter the foreclosure process. This isn't really an extension, without this if a consumer contacted his bank he would already get extensions. Banks don't want to foreclose, they have enough houses and look at it as a lose-lose proposition. If they do foreclose, they lose money because they can't sell the house.
The short term solution is good because (hopefully) it will make some consumers wake up. They can re-negotiate their mortgage and possibly keep a house they might would lose. Sure it's a stop-gap, but it will help some.
Longer term, there are calls for banks to "forgive" parts of mortgages. I think this is a bad idea. If a house is now worth less than the mortgage, the bank "forgives" the execess mortgage amount. This rewards buyers who put little down or used bad mortgages. It also invalidates a contract. The buyer signed a contract to pay a certain dollar amount, now he's backing out. If the government forces banks to accept these contract changes, the banks lose and will likely not lend money as quickly in the future.
This mess was created over a period of several years, it will take several years to get out of it. Just because this is an election year doesn't mean an action has to be taken. Some people will lose homes, some people will not be eligible for loans. Some young couple who wants a home will be turned down and they didn't do anything wrong. It's just that now they look like a credit risk.
I encourage the government not to do anything to adjust mortages. I also encourage banks and other financial institutions to look carefully at future customers. Any who walked away from a house should be treated like the risk they are. Those who took out bad mortgages should also be treated as a risk.
Friday, February 08, 2008
It's the economy stupid (Platform building #4)
I couldn't resist that headline. For those with a weak memory, that was the mantra of those who swept Clinton-1 into office after Bush-1 led the nation in Iraq-1. When the troops all returned, the economy stumbled. Bush-1 seemed to ignore the issue and lo, the mantra.
Now with the mortgage crisis, rising credit card rates and bank fees (in the paper this week), slowing employment, etc. I'm surprised the mantra isn't gaining more ground than it did 16 years ago. As Bush-2 has taken us into Iraq-2 (which has taken much too long), the American
people have become discontent and the econonmy stands to have a lot of attention this election year.
As a part of my platform building, I too will address the economy. Notice however, that I have placed it as a fourth priority. Yes it's important, but it falls behind defense, foreign affairs and isolationism issues.
So, as a presidential candidate myself, what would I do about the economy (or more accurate, what do I think a presidential candidate should do)? I see the economy as encompassing the subjects of jobs, training, mortgages, housing, taxes and spending.
First, our economy runs on jobs. Jobs that produce something. During the recent economic boom, too many jobs were created that produced nothing. Day traders were the epitomy of the description of our boom. Also, hedge funds and the like. Not that there's anything wrong with
that, it's just that they don't produce anything. When I go to the store to buy an item, I help jobs of several people. There's the salesman in the store who convinces me htat his item is better than his competitors and helps me pick the appropriate size and style for my needs.
There may be a cashier at the store to check me out. There are several managers that also get paid based on my buying something. Then there's the guy who drove the truck to the store and deliverd the items. Back at some factory, there's the guy who made the item. And all the people
that help him.
There's also the guy who built the truck that delivered the item and the guy that built the machines that was used to make the item. Should I go on? Basically, all of these people produced something or sold something that was produced.
The lack of these type jobs has created new problems. The mortgage crisis is one such problem. People have purchased houses, done some work on them and then re-sold them. Now notice that they did some work. They did produce something (a better house). But they flipped the house
hoping to make a quick buck. One of my favorite radio personalities is Dave Ramsey and he often quotes Proverbs 28:22 which says (in my translation) "He who hastens to get rich, will not go unpunished." Many people have bought houses they can't afford, counting on the fact
they could refinance the mortgage before it adjusted. However, when houses around them lost money, they found they could no longer refinance. In many cases, these peopler were talked into the homes by unscrupulous realtors, appraisers and bankers.
How do we build an economy of jobs? Through appropriate taxation. Too many of our taxes focus on taking money from "big business". Instead, we should focus on letting "big business" do what it does best, making something. When they make something, they create jobs. People with
jobs tend to buy things. When they buy things, businesses make more things. This is a good thing.
As a part of this, we should encourage businesses to offer job training. By training their employees, business show re-investment to grow their potential business. It also shows the employee that he should not stop learning.
I have to do an aside hear about the business of education. I have a BS and an MBA degree, my wife has a BS and MA. I have two children with Master's degrees and one that will soon have a BA degree. If you count sons & daughters in law, there are 3 more BA/BS degrees. Can you tell
I think highly of education? But it should be education that PRODUCES something. There are too many "education" facilities that work hard to give you classes, but they work harder to get your money. By getting student loans for you and giving you classes that don't produce
anything, they sentence you to years of poverty paying back that student loan. I heard a lady call in to a radio show that had more than $80,000 in student loan debt to become an oboe player. She will never earn enough as an oboe player to come close to paying that back.
There's nothing wrong with education for fun or personal growth. I've taken classes like this myself. This is called a hobby. But you must be able to pay for it.
Now that I've covered jobs and training and touched on mortgages (more details on mortgages here), all that's left is a little more on housing, taxes and spending.
Housing is a good thing. Everyone should have a house. Or a condo. Or an apartment. But not everyone can afford to BUY a house. The government should help first-time buyers. (Some of my conservative friends just had a heart attack). Part of the help should be to help understand a mortgage. Understand that if you don't pay it back, you will loose. In the past, FHA helped people like this, but I'm not sure they do anymore. I would increase the responsibility of this organization and make home-owners proud to say they use FHA to help buy their home.
Taxes are a bad thing. Unfortunately, they're required. Some people are excited about the "flat tax" or the "fair tax" (which sounds like an oxymoron). I don't get excited about any kind of tax. I also think that congress has never seen a tax it didn't like. I don't think a radical change in the tax methods would help anything and would likely invite more problems. I know a CPA who used to say that he got excited every time that he heard congress talk about "tax simplification", it meant more business for him. Basically, I would work to decrease tax rates and eliminate some taxes without making radical changes.
Spending by the government is another bad thing. The government spends more than it takes in, when I've tried to do that, I've created new problems. Part of our current economic problems have been caused by government spending. Each government program should be evaluated to see if it can be cut or how much it can be cut. But not every program can be cut and some should be increased (e.g. defense). We can't spend our way to prosperity and we can't cut our way there either.
That's my overall economic view. I'd be happy to discuss this with you. Just post your comments here. I'm Randy Barnett, and I approved this message.
Now with the mortgage crisis, rising credit card rates and bank fees (in the paper this week), slowing employment, etc. I'm surprised the mantra isn't gaining more ground than it did 16 years ago. As Bush-2 has taken us into Iraq-2 (which has taken much too long), the American
people have become discontent and the econonmy stands to have a lot of attention this election year.
As a part of my platform building, I too will address the economy. Notice however, that I have placed it as a fourth priority. Yes it's important, but it falls behind defense, foreign affairs and isolationism issues.
So, as a presidential candidate myself, what would I do about the economy (or more accurate, what do I think a presidential candidate should do)? I see the economy as encompassing the subjects of jobs, training, mortgages, housing, taxes and spending.
First, our economy runs on jobs. Jobs that produce something. During the recent economic boom, too many jobs were created that produced nothing. Day traders were the epitomy of the description of our boom. Also, hedge funds and the like. Not that there's anything wrong with
that, it's just that they don't produce anything. When I go to the store to buy an item, I help jobs of several people. There's the salesman in the store who convinces me htat his item is better than his competitors and helps me pick the appropriate size and style for my needs.
There may be a cashier at the store to check me out. There are several managers that also get paid based on my buying something. Then there's the guy who drove the truck to the store and deliverd the items. Back at some factory, there's the guy who made the item. And all the people
that help him.
There's also the guy who built the truck that delivered the item and the guy that built the machines that was used to make the item. Should I go on? Basically, all of these people produced something or sold something that was produced.
The lack of these type jobs has created new problems. The mortgage crisis is one such problem. People have purchased houses, done some work on them and then re-sold them. Now notice that they did some work. They did produce something (a better house). But they flipped the house
hoping to make a quick buck. One of my favorite radio personalities is Dave Ramsey and he often quotes Proverbs 28:22 which says (in my translation) "He who hastens to get rich, will not go unpunished." Many people have bought houses they can't afford, counting on the fact
they could refinance the mortgage before it adjusted. However, when houses around them lost money, they found they could no longer refinance. In many cases, these peopler were talked into the homes by unscrupulous realtors, appraisers and bankers.
How do we build an economy of jobs? Through appropriate taxation. Too many of our taxes focus on taking money from "big business". Instead, we should focus on letting "big business" do what it does best, making something. When they make something, they create jobs. People with
jobs tend to buy things. When they buy things, businesses make more things. This is a good thing.
As a part of this, we should encourage businesses to offer job training. By training their employees, business show re-investment to grow their potential business. It also shows the employee that he should not stop learning.
I have to do an aside hear about the business of education. I have a BS and an MBA degree, my wife has a BS and MA. I have two children with Master's degrees and one that will soon have a BA degree. If you count sons & daughters in law, there are 3 more BA/BS degrees. Can you tell
I think highly of education? But it should be education that PRODUCES something. There are too many "education" facilities that work hard to give you classes, but they work harder to get your money. By getting student loans for you and giving you classes that don't produce
anything, they sentence you to years of poverty paying back that student loan. I heard a lady call in to a radio show that had more than $80,000 in student loan debt to become an oboe player. She will never earn enough as an oboe player to come close to paying that back.
There's nothing wrong with education for fun or personal growth. I've taken classes like this myself. This is called a hobby. But you must be able to pay for it.
Now that I've covered jobs and training and touched on mortgages (more details on mortgages here), all that's left is a little more on housing, taxes and spending.
Housing is a good thing. Everyone should have a house. Or a condo. Or an apartment. But not everyone can afford to BUY a house. The government should help first-time buyers. (Some of my conservative friends just had a heart attack). Part of the help should be to help understand a mortgage. Understand that if you don't pay it back, you will loose. In the past, FHA helped people like this, but I'm not sure they do anymore. I would increase the responsibility of this organization and make home-owners proud to say they use FHA to help buy their home.
Taxes are a bad thing. Unfortunately, they're required. Some people are excited about the "flat tax" or the "fair tax" (which sounds like an oxymoron). I don't get excited about any kind of tax. I also think that congress has never seen a tax it didn't like. I don't think a radical change in the tax methods would help anything and would likely invite more problems. I know a CPA who used to say that he got excited every time that he heard congress talk about "tax simplification", it meant more business for him. Basically, I would work to decrease tax rates and eliminate some taxes without making radical changes.
Spending by the government is another bad thing. The government spends more than it takes in, when I've tried to do that, I've created new problems. Part of our current economic problems have been caused by government spending. Each government program should be evaluated to see if it can be cut or how much it can be cut. But not every program can be cut and some should be increased (e.g. defense). We can't spend our way to prosperity and we can't cut our way there either.
That's my overall economic view. I'd be happy to discuss this with you. Just post your comments here. I'm Randy Barnett, and I approved this message.
Thursday, November 29, 2007
Citibank - proof the "subprime" lending mess is bigger than you think
Unless you missed it, Citibank (actually parent company Citigroup) got a bail-out yesterday from Abu Dhabi, the investment arm of the Saudi government. The Sauds paid $7.5 billion (yes, Billion) for a 5% stake of Citi. As such, they become Citi's biggest shareholder.
Some will see this as Bush's fault, others as Clinton's. Some will see this as a problem with big oil. Others will see this as an attempt by the middle eastern bloc to control the US. Any or all of those may be valid.
I see this as a sigh that the "subprime" lending mess is bigger than you think. It has impacted one of the top two banks in the nation (depending on how you look at it, Citibank is #1 or #2, Bank of America shares the lead with them).
We can no longer blame the subprime mess on irresponsible banks or irresponsible borrowers. I don't believe there is any simple "fix" for the problem and I believe it will affect us all.
Some will see this as Bush's fault, others as Clinton's. Some will see this as a problem with big oil. Others will see this as an attempt by the middle eastern bloc to control the US. Any or all of those may be valid.
I see this as a sigh that the "subprime" lending mess is bigger than you think. It has impacted one of the top two banks in the nation (depending on how you look at it, Citibank is #1 or #2, Bank of America shares the lead with them).
We can no longer blame the subprime mess on irresponsible banks or irresponsible borrowers. I don't believe there is any simple "fix" for the problem and I believe it will affect us all.
Thursday, September 06, 2007
My take on sub-prime
I've been watching the sub-prime fiasco for some time. The questions are 1) What is sub-prime lending?, 2) Why are lenders in this business? 3) Who loses? 4) Who's to blame? and 5) What can (should) we do about it? The next several paragraphs explore these questions. It's long, but should be easy to read. Please comment.
During my MBA studies, I paid attention to real estate and to legal matters. While I didn't explore either in enough depth to get a real estate license or a law degree, these areas interested me. For my White Collar Crime class, I did a paper on real estate fraud. So I've done some research.
First and foremost, I need to define sub-prime lending. Most lending today is done by a FICO score. If you watch enough TV, you'll see ads about getting your FICO score (don't do it, not worth you money). Basically, you get a score from 0 to 850 that tells your liklihood of repaying a loan. Lenders group everyone into two categories, those with high scores are called "prime" and those with low scores are called "subprime" (sounds like beef). Typically, prime borrowers get good rates and good terms, subprime get higher rates and terms that aren't as good.
Second is why are lenders in this business? Simply put, it's business. Lenders have found that they can make money on these kinds of loans. They may have to increase fees, prevent the borrower from refinancing, increase rates over the life of the loan and anything else. They are taking a higher risk by lending these people money, so they want a higher reward (MBA motto - more risk = more reward).
Another part of the answer to why lender are in this business is that borrowers are in this business. In the past (and somewhat now that the crisis is upon us), subprime borrows simply couldn't get a loan. They weren't able to buy houses at all. Now, thanks to subprime lending, we have the highest home ownership rate in history.
So third is who loses when the subprime industry falters? Well the borrower is the one who is most affected. The borrower who can't pay his mortgage loses his house, trashes his credit and makes the next house even harder for him to buy. His family is rooted up out of his house and his part of the American dream becomes a nightmare.
The lender also loses. Sure they make up for it on other borrowers, but they lose for each borrower who goes under. And in the long run, some subprime lenders will fail. This means the stock-holders lose their investment. Other companies who have supported the lender (including mortgage brokers, appraisers, real estate agents, etc) also lose. Jobs will be lost, mothers will go home to report that they have to look for another job. And because credit tightens up, prospective home buyers everywhere will pay more interest for their mortgages.
One additional loser is the renter. Since mortgages have been so easy, many renters purchased homes. Less apartments have been built and now, the renters are returning. So the supply of rentable space has decreased and the demand has increased. Guess what happens to the average rent payment? (it goes up).
So the next question is who's to blame? The republicans or the democrats? The borrower or the lender? Big business or the little man? Simply put, there's enough blame for everyone. As mentioned earlier, the low rates and easy credit has given us the highest home ownership rate in a long time. More importantly, low income families have benefitted the most from the easy credit situation. They are likely now to lose the most. Everyone who takes credit for the former, also gets credit for the latter. Our capitalist society (in which I gladly participate) means when there is a need, someone will fill it in search of a dollar. So the lender is simply filling a need. Big business is finding a way to help the little man. Could they do it with better terms? Sure, but less people would get loans.
Now, what can we do about it? First and foremost, I believe in personal responsibility. The borrower needs to learn the ins & outs of mortgages (at least HIS mortgage) before he applies. He also needs to practice some discipline, show the lender that he will indeed pay his bills on time and wait for a home until he can actually afford one. Lending terms need to be policed a little better. This burdens me to say this, I typically avoid most legislative changes. But some of the terms in these subprime loans are simply wrong. The purpose is to trap the borrower. Only by cleaning up the laws can lenders be held accountable.
Please post your comments here.
During my MBA studies, I paid attention to real estate and to legal matters. While I didn't explore either in enough depth to get a real estate license or a law degree, these areas interested me. For my White Collar Crime class, I did a paper on real estate fraud. So I've done some research.
First and foremost, I need to define sub-prime lending. Most lending today is done by a FICO score. If you watch enough TV, you'll see ads about getting your FICO score (don't do it, not worth you money). Basically, you get a score from 0 to 850 that tells your liklihood of repaying a loan. Lenders group everyone into two categories, those with high scores are called "prime" and those with low scores are called "subprime" (sounds like beef). Typically, prime borrowers get good rates and good terms, subprime get higher rates and terms that aren't as good.
Second is why are lenders in this business? Simply put, it's business. Lenders have found that they can make money on these kinds of loans. They may have to increase fees, prevent the borrower from refinancing, increase rates over the life of the loan and anything else. They are taking a higher risk by lending these people money, so they want a higher reward (MBA motto - more risk = more reward).
Another part of the answer to why lender are in this business is that borrowers are in this business. In the past (and somewhat now that the crisis is upon us), subprime borrows simply couldn't get a loan. They weren't able to buy houses at all. Now, thanks to subprime lending, we have the highest home ownership rate in history.
So third is who loses when the subprime industry falters? Well the borrower is the one who is most affected. The borrower who can't pay his mortgage loses his house, trashes his credit and makes the next house even harder for him to buy. His family is rooted up out of his house and his part of the American dream becomes a nightmare.
The lender also loses. Sure they make up for it on other borrowers, but they lose for each borrower who goes under. And in the long run, some subprime lenders will fail. This means the stock-holders lose their investment. Other companies who have supported the lender (including mortgage brokers, appraisers, real estate agents, etc) also lose. Jobs will be lost, mothers will go home to report that they have to look for another job. And because credit tightens up, prospective home buyers everywhere will pay more interest for their mortgages.
One additional loser is the renter. Since mortgages have been so easy, many renters purchased homes. Less apartments have been built and now, the renters are returning. So the supply of rentable space has decreased and the demand has increased. Guess what happens to the average rent payment? (it goes up).
So the next question is who's to blame? The republicans or the democrats? The borrower or the lender? Big business or the little man? Simply put, there's enough blame for everyone. As mentioned earlier, the low rates and easy credit has given us the highest home ownership rate in a long time. More importantly, low income families have benefitted the most from the easy credit situation. They are likely now to lose the most. Everyone who takes credit for the former, also gets credit for the latter. Our capitalist society (in which I gladly participate) means when there is a need, someone will fill it in search of a dollar. So the lender is simply filling a need. Big business is finding a way to help the little man. Could they do it with better terms? Sure, but less people would get loans.
Now, what can we do about it? First and foremost, I believe in personal responsibility. The borrower needs to learn the ins & outs of mortgages (at least HIS mortgage) before he applies. He also needs to practice some discipline, show the lender that he will indeed pay his bills on time and wait for a home until he can actually afford one. Lending terms need to be policed a little better. This burdens me to say this, I typically avoid most legislative changes. But some of the terms in these subprime loans are simply wrong. The purpose is to trap the borrower. Only by cleaning up the laws can lenders be held accountable.
Please post your comments here.
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