Archive for the ‘Opinion’ Category

Bank CEOs Hopelessly Addicted to Giving out Mortgages that will never be Paid Back

In Opinion on December 7, 2010 at 8:41 pm

Addiction is a horrible thing. When a person cannot stop him or herself from doing something destructive, even after the person has seen the consequences of their destructive actions, well, that is sad indeed. And people can become addicted to anything. People can even become addicted to giving out mortgage loans that won’t be paid back.
It’s true. Not a lot of people are aware of this addiction; it’s much less common than something like alcoholism, for example. And this particular addiction is usually only found among people who run banks.
Two years ago, you may recall, the world’s entire financial system nearly collapsed because so many people were defaulting on their mortgage loans. If I remember correctly, economic leaders explained the necessity of bailing out the too-big-to-fail financial institutions by saying that the world was, “Looking into the financial abyss,” or something to that effect. Treasury Secretary Tim Geithner said that the bailout was unfair to the public, but “had to be done.”
So you might think that the same banks that nearly failed only two years ago because of mortgage defaults would not be giving out mortgages that are likely to be defaulted upon, what with how doing that nearly bankrupted them and caused us to look into the financial abyss and everything. I mean it’s only been two years!
But no, banks still give out mortgages to people who don’t have enough income to afford the monthly payments. (To read a story about 3 people who took out mortgages just this year, and have never made a single payment, see the blog post, )
Because I’ve never been a banker, I’ve never had the chance to experiment with giving out unaffordable mortgages. I’m glad, because it seems like a real tough monkey to get off your back.
It’s almost comical. Talk about a quick relapse. Only two years since tons of taxpayer money was injected into the financial system to keep huge financial companies from insolvency because of mortgage defaults. And apparently they never quit doing it.
Did the people running our banks miss that on the news? Were the bank CEOs out roaming the streets looking for people to sign up for mortgages when that story came on? “Hey man, hey man, you wanna buy a house? I got the money right here.”
I mean, those people currently running the nation’s banks have to be aware that their own firms nearly collapsed from mortgage defaults, right? Why would they keep doing the same thing that nearly bankrupted their companies only two years ago? All I can think is, giving out mortgage loans that will likely be defaulted upon must be one hell of a drug.
If it’s decided to give more taxpayer money to banks, perhaps the government could require bank executives complete a 12-Step program as a condition.


Real Estate: The Industry that’s too good for Reality

In Opinion on November 25, 2010 at 12:14 pm

I was recently talking to a friend who has been looking for a home to buy, and he told me how houses are priced much higher than he expected them to be.
His words surprised me, considering what’s gone on with real estate: First, the country experienced a massive building boom over the past 15 years. Sprawling subdivisions and large scale condo developments went up all over the place. Many of these brand new dwellings never sold and sit vacant, as asking prices were determined before the housing meltdown, and developers refuse to lower them. With foreclosure rates setting records since 2008, there are tons of vacant, bank-owned homes out there. So all this points to an oversupply. And on top of all that, a great number of people are concerned about the safety of their job. Fear of a job loss is keeping many aspiring home buyers from purchasing, which obviously lowers demand.
With high supply and low demand should come rock bottom prices. At least that’s what my Economics 101 teacher told us. But let’s look at what else is going on with real estate.
There are many news reports of a shadow inventory of vacant homes held by banks. Some reports estimate that banks are only listing for sale about half of all the foreclosed properties they own at a given time, for fear they would need to further lower prices on these homes.
And then there are all the government housing programs. For the past year, the government was giving $8,000 to people as incentives to get them to buy homes. There are government programs where tax dollars are given to people who buy and fix up foreclosed home. And it seems every week there is a new government program earmarking millions of dollars for banks so they will halt or stall foreclosure action.
Taking all this into account, it’s no wonder my friend experienced sticker shock. I advised he keep renting until some semblance of reality returns to the real estate market. Or until the government announces another program that pays people to buy homes.


In Opinion on November 21, 2010 at 10:43 pm

According to the media, $700 billion in public money was given to the financial system two years ago this month. Think about how much money $700 billion really is. These examples should add perspective:

–The international space station, floating through space around the Earth as you read this, cost about $100 billion, according to most estimates, to build and put into orbit. We could have built seven space stations for what we gave the banks.

–$700 billion would pay for 17.5 million people to get a bachelor’s degree, at a cost of $40,000 in total tuition.

–The F-22 stealth fighter jet, called the best fighter jet ever built, cost $361 million apiece, according to the General Accountability Office. We could have gotten 1,939 of these warplanes for our $700 billion.

–It cost China $1.5 billion to build the Shanghai bullet train system. At that cost we could have built several hundred of these super-fast train systems with $700 billion.

–$700 billion would pay for a year of groceries for 140 million American households. (Assuming a grocery bill of $400 per month)

–Not to mention all the medical and scientific research that $700 billion would have paid for.

Automatic Bill Pay

In Opinion on November 9, 2010 at 6:29 pm

Like giving a thief the keys to your home

  One of the most fascinating developments of the 20th century–to me at least–is  automatic bill paying. Forget about cloning people and smart bombs. Automatic bill pay blows my mind. But not in a cool, Lord of the Rings kind of way.
  With automatic bill paying, a person signs up to have some monthly payment, such as a car payment or utility bill, deducted every month automatically. The benefit of automatic bill paying is that it saves time. You don’t have to write out a check, or log into the creditor’s website to make a payment. Hell, you don’t even need to remember that the payment is due, because the creditor takes the money  automatically.
   But think about what is actually happening with automatic bill pay. You’re allowing the creditor to go into your bank account every month and take money from you. It’s like giving them the keys to your bank account. And that just seems nuts.
  When you pay a bill the old fashioned way–by check or online, you’re specifying and authorizing the amount of the payment, and who the money needs to go to. Here, you’re in control of the transaction. With auto bill pay, the payee is in control. 
  Sure it does save a little bit of time. But really, how long does it take to write a check? Creditors include a self-addressed envelope with the bill. You just have to put a stamp on it. And if you’re not into snail-mail, pretty much all creditors accept online payments. You just log into their website, click a few links, and you’re done. In the end, what are you saving with auto bill pay? Five minutes? And what are you giving up? Access to your bank account. That is not an even trade.
  And nevermind the possibility of creditors taking too much money from the bank account. Here’s another common problem with auto bill paying: when you need to stop making the monthly payments, (let’s say you cancel power because you’re moving, or you finish paying your car loan) the creditor doesn’t stop taking the money every month. In my job, I hear a lot about things like this happening. My clients tell me about the time and headaches they’ve endured on the phone with the creditor getting the problem corrected. 
  One of my clients, Julie, told me how the company that financed her car once took two month’s payments from her account. They corrected their mistake and credited her account, but she had to spend an hour on the phone making sure everything was right. I hear about this all the time.
   So you sign up for auto bill pay to save time, but if it takes repeated phone calls to correct mistakes, what are you saving?
   Automatic bill paying reminds me of the guys I’ve seen at the bar who will put a pile of cash on the bartop as they drink. And everytime the guy orders a drink, the bartender picks through the pile of money for what he needs.
   I never understood that either. There’s just something inherently wrong with a stranger rifling through your money.