The problem isn't a credit crisis, it's a solvency crisis. Banks would be insane to continue their profligate lending to people who're already as indebted as the average US'ian. And for those who want the state to step in and rescue people from the results of our collective fiscal insanity (and who clearly haven't read Hayek), don't forget that the tax revenues that people what increased to bail people out have to come from the same people who're feeling the debt squeeze to begin with.
Expect more calls for folks "hoarding" money in their savings accounts to invest like good little
At least most of you don't live in the land of Wimpy (California, that is, who's voters think "I'll gladly pay you Tuesday for a hamburger today" is sound fiscal policy. Ugh.), and won't have to watch your state hand out dubious IOUs instead of wages & tax returns.
18 comments:
So far, Texas has escaped relatively unscathed b/c of the damage which happened here in our own little real-estate meltdown-from-hell. The rules here were significantly tightened: option ARM? Check. NINJA option ARM? No-go.
Yeah, so long as they were selling to Texans....
Besides, this's more than just real-estate; the real-estate and commodity bubbles were symptoms of the credit-bubble, not the other way around.
And folks've been hanging themselves with the rope handed to them, big time. You're the historian, you tell me what changed in roughly 1977 -- the creation of the petrodollar regime perhaps?
77?
I'm the wrong type of historian. We go off real cost-of-living accounting? We have a hard oil-price spike. Carter is attacked by an imaginary rabbit...
Yes, they have been royally doing it to themselves. We burned a lot this year -- knowingly-- and are trying to work it down. I don't know if there's any solution, though, except to let people suffer the consequences of their leveraging, as the banks inevitably tighten and tighten the credit card limits.
Well, I think its about time we rolled through something like this. I have no problems "hoarding money". I have seriously looking at how I want to start laying away money with the Household 6 and savings or a good rate CD is the way to go (unless I want to buy mass amounts of silver bars to bury in my backyard). Why the hell should I invest on the advice of the boneheads who in many cases were the people behind this mess in the first place.
The credit market DEFINATELY needs to be tightened. I have a high credit limit with a very low APR. That is due to my rather excellent credit history that sees me pay back everything relatively quick when compared to the average Joe. My wife carries some credit debt and that was our last major financial discussion. She liked having some as it made her track what she was doing. I hate the very thought of debt in any way or form and would rather have a $100 in the bank due to me paying off the old credit card bill than a $1000 plus a large CC bill gathering interest.
Wow, amen to that!
People need to remember that debt is anti-money that grows. It sounds simplistic, but I've known total dunderheads who suddenly get a clue when you say taking a loan is making a money/anti-money pair, only the anti-money side keeps growing -- maybe it's being raised on Star Trek?
Nope, I have to disagree. I think the entire country has been land of Wimpy. The national deficit? Just trying to think about that much money gives me a headache.
Well, the deficit is a different critter. Too much darned spending. We *almost* got to the sweet spot on the Laffer curve, but didn't. And then the Bushies spent money like a 19-year-old in a whorehouse.
For credit cards, yeah. When the average US dude/ette figures out that they're not building an oil refinery, maybe this will change.
Maybe. I think we need to start with some good old fashioned money lessons. I have to say this problem was not really due to the current crop of morons, it is more due to their parents who couldn't teach them some simple values and basic money sense.
"Johnny, if you have $5 and want to buy something for $10 you need to save your money or earn more" instead of "Here is a credit card application, remember you're special so once you are out of college you will immediately land a 6 figure job. So spend away!"
Sheesh, I was handling hundreds of dollars in my summer job (sweet corn whole sale marketing with my sister) by the time I was 10 for crying out loud. How did my sister and I learn about money with this? Disneyland. Like every kid we wanted to go to Disneyland badly, and our mom and dad told us that if could raise and save enough sweet corn money, we could go. We did earn and save, and had a great trip. Now that is a lesson in managing money that any kid could understand.
So why the hell did so many parents miss this step?
I suspect it has something to do with the fact that they send pre-approved credit card offers to 10-year-olds.
A solvency crisis makes sense, but it sounds like its not just solvency of the average (above or below the average) citizen and bank that is the issue. If banks require a certain level of currency "cushion" (this has an official term, but I can't remember what it is) before they make loans, and they don't have this cushion because they spent it on over-leveraged deals, then the banks want this cushion back before they make loans again. So basically the current TARP funds have reestablished this cushion, but, due to outstanding IOUs, their 10% capital cushion on paper may still be low and therefore - no loans.
I'm going to sound a bit commie and old school conservative at the same time here, but here goes.
1) People (banks and consumers) forgot the basics of finance and got greedy. Both groups should be held accountable for their actions and suffer the consequences. This means NO further assistance and they have to work their own way out of the mess. If this means massive losses of profits for the next 5 years for said bank, so be it. If this means downsizing a lifestyle back to grad. school living for 5 years, so be it.
2) If option 1 is not possible for the greater economic good of US society, then someone who can handle the "damage" must do so. This means the banks take it on the chin and pay (literally) for making such stupid loans in the first place. Consumer debts are wiped out (never to be repaid) and we start over with tighter regulations and the banks being more conservative about what they actually lend out.
I DO NOT expect either option to come into play here. Instead we will have what has been happening for the past 10-20 years here in the US (and maybe even in the 1st world in general) - the govt. cleans up the mess with magical money and things move forward.
I've been a member of credit unions my whole life, which for the most part are very conservative about money. So while I made practically little to no interest on this saved money during the recent boom times, I am not exposed at all to this mess, nor do I have a current solvency crisis. My only debts are my mortgage and student loans, and I've been working hard on those student loans such that I'll have them paid off before 40, 8 years before they would be if I paid on schedule.
I expect to be solvent on the day I die, but still, being conservative about what one needs to live (money) is not a vice, nor folly when times are good.
I would love to see your opinions come into play, but don't forget that much of the problem is that the government forced many banks into making deals that were simply bad business in the name of fairness. I have zero faith in this same government to be able to fix this issue since they are so busy trying to fix the blame on someone else.
Slight alteration to your list above.
1a. And they went berserkoid going out of control because they had assets parked in financial vehicles which weren't REALLY guaranteed assets, but which were more or less proclaimed to be. (Dodd may be corrupt, if so, meh, but Barney Frank is going to have to watch Patridge Family reruns in a special circle of hell for what he did testifying to FM/FMc's solvency, etc., in front of congress while killing reforms).
Now, there's not a LOT of sympathy on my end for said institution -- these two have been known to be rocky for at least five years before they tanked. So if folks leveraged to the eyeballs... bad.
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My basic wondering is how the short-term paper market is doing, and hoping more people don't wind up unemployed b/c of financing that has nothing to do with their personal situation, and is pure collateral damage trickling in from elsewhere.
As I understand it the short-term paper market was very rocky back in October and November but got better when the Feds went into it and bolstered it because the main banks were not lending to it any more. Unfortunately the banks which needed a cushion didn't loan to short term paper and so there were companies suffering as collateral damage. I have not heard anything about this since then so I assume its better.
I wonder if we'll return to old school money lending. You don't actually get any unless someone has it in their hands to lend to you.
Wow what an idea! Let's jump on that one right away! Yes I am being a wiseguy, but in a positive way. If we actually did it that way we would be a whole lot better off.
Yes, you'd think so wouldn't you....and yet that 1st-15th century model of finance has been greatly out of favor for a long time now. The only finance system today that is probably close to this original model is Islamic (Sharia) finance, which might explain why several non-muslims are interested in it.
No, they're interested in funding it for the sake of market-share. If you look at the cashflows that sharia-approved lending generates, it's exactly the same thing as interest-bearing lending, only with different words attached to the explanation.
Very true, but, you can't sell what you don't have under Sharia-approved banking, nor can you lend what you don't have. Yes - you can get interest through fees, but the whole process is much more conservative and more like 15th century money lending than our current system.
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