Comments on: How Bad Were The Loans?

By: Bryan

Bryan — Tue, 23 Sep 2008 05:56:58 +0000

I’m reminded of something Sam Walton [founder of Wal-Mart] said to an interviewer after a big market drop in the 1980s. The interviewer asked how it felt to lose a billion dollars in a day.

Sam told him that he didn’t have the money in the first place, so he couldn’t lose it, and if the interviewer didn’t understand that, he should stay out of the stock market.

The only assets in this mess are the houses. The mortgages are debt contracts. Then they were consolidated and bonds were issued based on the mortgages. Then bonds were consolidated and other paper was issued based on the bonds. This is idiocy, plain and simple. What on earth are big time investors doing betting billions of dollars on the ability of people to pay mortgages when you look at the US job market?

Now, people who are still making some money are being obligated more debt by the government to bail out these idiots. This wasn’t investing, it was gambling.

By: Kryten42

Kryten42 — Tue, 23 Sep 2008 04:06:10 +0000

I know… The problem of course is that it isn’t *money for nothing* in reality, as we know. It’s all numbers on a computer screen, the old *paper shuffle*. It’s fictional money, like my quotes from fictional characters. 😉 The just move debs around in the hopes of having the *actual* money to pay for them sooner or later. And as they saw that *worked* OK, they decided to juggle other fictional money, until they suddenly ran out of hands and all the fictional money balls came crashing down.

Not one of my Uncles or cousins who worked with my Grandfather ever had a loan. They never had a mortgage. Everything they had was paid for, for real. All their kids went to good schools, and they were all taught about the *real World*. The banks hated my family. LOL 😉 I have never had credit, and I never will. If I can’t afford it, I either don’t need it, or I’ll work until I can. My father, on the other hand, was an idiot. He believed in the *something for nothing* BS, or as we used to call it *robbing Peter to pay Paul* syndrome. I have no idea if he’s even still alive, and could care less. 🙂 *shrug*

Most people prefer to live in a fictional World. I prefer reality. Fiction can’t hurt you. Reality will kill you if you ignore it or take it for granted. 🙂

By: Bryan

Bryan — Mon, 22 Sep 2008 20:51:30 +0000

On Wall Street you can get money for nothing, and that’s the problem. As long as they don’t have to work for it, as long as they can receive huge salaries regardless of what happens to their company, there is no incentive to do a good job.

Your Grandfather had vision that stretched out for a lifetime, these guys can’t see beyond the next quarter.

By: Kryten42

Kryten42 — Mon, 22 Sep 2008 17:42:26 +0000

My Grandfather made his money with decades of hard work and sweat and planning. One Uncle worked for a big building company, another worked for a concreting company, another was a cabinet maker, a cousin was a bricklayer, another an electrician… etc. It was all orchestrated by my Grandfather. And at the end of it, they all owned a nice big home fully paid for in a good area, and had money in the bank.

Now, everyone wants a free ride it seems. Most people work hard at their jobs, but don’t seem to want to work as hard on their lives. It’s the same here and everywhere else I know of too. I have no idea when people became stupid enough to believe they could get something for nothing. It’s never been true, and it never will be true.

“Stupid is as stupid does” – Forest Gump. 😉 LOL Wisdom from a purely fictional character. *What a World*(tm)

By: Bryan

Bryan — Mon, 22 Sep 2008 16:22:07 +0000

The problem, Jolly, is that people bought the concept and it was false. If you can’t qualify for a conventional home mortgage, you can’t afford to buy a house. Too many people have been conned into believing that if your mortgage payment is the same as your rent, or even lower, you can afford a house and that simply isn’t true.

In addition to the mortgage you have the expenses of taxes and insurance that are covered by your landlord if you rent, and the costs of repair. If you own a house you have to be able to set aside additional money for any repairs, because they are your responsibility.

If you have to stretch to make mortgage payments, you can’t afford a house, and anyone who claims you can is running a scam.

By: Bryan

Bryan — Mon, 22 Sep 2008 16:14:49 +0000

That is the bottom line, Badtux, the free market at work. Given a stable supply the price has to reflect the ability of the buyers to pay for the commodity. The “magic mortgages” raised the price too far and the market for homes collapsed.

When prices drop enough, the buyers will be back. Until then nothing the government does is going to be effective.

By: jolly

jolly — Mon, 22 Sep 2008 10:20:41 +0000

very informative article.
Homeownership is possible for people with bad credit and no credit history at all thanks in large part to a multitude of loan packages made available by countless lenders. Good people with bad credit can now get approved for mortgages and despite what you may have heard from a well intended but misinformed friend or family members, these loans can be at very competitive rates.

By: Badtux

Badtux — Mon, 22 Sep 2008 05:51:19 +0000

Indeed, the thing is to know your market and what they can afford. The affordability ratio got *way* out of whack, until it was basically impossible for the average person to qualify for a conventional mortgage to buy anything on the market. I mean, the median house price got to $850K here. And the median family income was around $88K. No friggin’ *way* that said family was going to be able to afford the average home here. And look, there are houses I’ve driven by that are, like, in the *ghetto* that sold for $500K+ during the bubble.

Until the housing market returns to the right side of the affordability index, ain’t no margin in doing the buy low sell high thing. Because you’re going to be buying high, selling low. That ain’t how ya make money!

By: Bryan

Bryan — Mon, 22 Sep 2008 05:28:33 +0000

Sweat equity and long term investments should provide a good profit. If you start with a sound structure that is “square”, the money is well spent. My friend would buy houses that were at least 20 years old, and then we would modernize the plumbing and electrical.

The rest of it was cosmetic. There were a couple that really only needed a thorough cleaning inside and out to be salable, but he had his list and followed it.

The big thing was to be willing to climb into the attic and the crawl space underneath to be sure there were no surprises. That’s were you looked for water damage from roof leaks or plumbing. Water is the number one enemy of a building in this area.

The thing is to know your market and what they can afford.

By: Kryten42

Kryten42 — Mon, 22 Sep 2008 05:08:47 +0000

My Grandfather made millions buying-renovating-selling between the mid 50’s and late 70’s. He’d find what he believed would become a growth area but was currently depressed and buy cheap. He’d renovate cheaply (using family as labor and *contacts* he had many of to get materials cheap). Then wait 5 or 10 years, whatever, and sell. I remember one place he got when I was a kid and he paid 600 pounds (before we converted to dollars), and 14 years later, sold it for over $240,000. Cost him peanuts to renovate. Was a two-story Victorian terrace. He somehow knew they would com back in vogue big time, and he was right. He sold about a dozen of them for a massive profit.

He was a dock worker when he started. 🙂

*The good ol’ days!*(tm)