Sub-prime Bail Out

[Aliantha]

yes, that'd probably be right. Here we call them variable rate mortgages...which is what we have although we don't exactly have a mortgage as such. We have a line of credit...but it amounts to the same thing in the end.

[Aliantha]

We call that initial low rate a honeymoon rate and it normally last for 1 to 2 years and then you're at normal variable rates.

I don't see why arm loans should be more subject to stupid borrowers. In fact, variable rate loans are far more popular in Oz than fixed. I suspect that will change shortly though with market trends the way they are. That is to say, I think if you could get a good fixed rate at the moment you'd be wise because interest rates here are steadily climbing and they're about to go through the roof (in my opinion).

That being said though, if you can't afford an extra $100 per month to cover higher interest rates, you shouldn't be taking out the loan. In fact it is my personal opinion tht if you're not paying off at least $500 more than the minimum of your loan per month, you should rethink what you're doing. It's stupid to take out a loan that you can only just afford.

I don't think the government or anyone else should be offering people bail out deals although I do see the consequences of not trying to prop up the market. The problem is, it is just a prop up, and sooner rather than later, the stilts are going to cave in, and the more bad risks you have sitting on them, the worse the crash is going to be.

I believe banks should immediately address their lending criteria and slowly tighten the belt on existing mortgages that're in default. In this way, the damage would be less than it will be in the future if banks continue to employ these delaying tactics.

[TheMercenary]

We have 1 year, 2 year, 5 year and 7 year ARMs (I believe) where rates will stay steady for that initial "year" period and then the sky is the limit.

Wiki has a whole thing about them:

http://en.wikipedia.org/wiki/Adjustable_rate_mortgage

[tw]

This economy is now full of adjustable rate whatevers.

These loans were important so that people who could never own a home could, instead, buy one. Or so that people could buy homes larger than they could afford. These groups cannot refinance because they could not afford the home in the first place. And now they cannot sell them because housing prices were significantly inflated by these ARMs and by Fed interest rates that were too low.

Meanwhile getting people into homes no matter what may be widespread. Fannie Mae and Sally Mae may be under investigation by the NY Attorney General.

Another looming problem resided in credit cards. In America, everyone is familiar with the Capital One credit card. Get everyone to transfer their credit card debts to Capital One with its low interest rates. Then when they miss anything completely unrelated to that Credit Card (ie the electric company bill is late), then that Credit Card interest rate increases massively. Now these debtors have seriously increasing debts.

GM is also guilty of playing such games. To maintain sales of poor products, GM simply tapped on of their remaining profit centers - GMAC - their financing company. By offering loans at zero percent, GMAC was simply giving free rebates on grossly overpriced GM cars. When do those losses appear? Four and more years later. Today GM admitted that GMAC is no longer a profit center. Duh-h-h-h.

GM was mortgaging GMAC on a hope that GM profits from cars would return. Maybe if car guys were designing their cars. Now GMAC is no longer a profit center.

GM was holding back on massive losses in a hope that GM would be able to write those losses off on those future profits. Well those not lying to themselves should have seen products not be profitable. GM had to finally concede to those losses - could no longer play spread sheet games to mask those losses. What surprised analysts are how much larger those losses are. Another money game exposed - along with these Adjustable Rate Mortgages and the looming credit card crisis.

[glatt]

So I try to look at news like this and think about how it applies to me.

I've been mulling over the idea of buying a new digital tv set. Most consumer electronics come down in price over time, so I expected that if I am patient, and hold off as long as possible, I'll be able to get a medium sized high-def digital TV for a fair price.

BUT, if the dollar is falling, and will continue to fall, should I grab a new TV now? Maybe the future exchange rate will be so unfavorable in a year or two that I won't be able to afford a new TV.

Thoughts?

[lookout123]

buy it with today's dollars but pay it back with the value of future dollars. 0% financing.

[tw]

Originally Posted by glatt

I've been mulling over the idea of buying a new digital tv set. Most consumer electronics come down in price over time, so I expected that if I am patient, and hold off as long as possible, I'll be able to get a medium sized high-def digital TV for a fair price.

Prices on digital TVs too a sharp dive this past year. Many were selling TVs at slim profits - some were being sold at losses last Christmas. Prices are not likely to go much lower for the next few years. You will need a new tech TV by Feb 2009.

However, with the threat of recession looming, will that $600 TV be a cost burden? This is no time to have credit card debts.

[lookout123]

recessionary periods help those with fixed income sources (teachers, salaried people) play catch up with those that have variable or cyclical income. (sales, services)

credit cards are excellent tools in the hands of disciplined individual. the fact that he hasn't already purchased it on a credit card and has given future value consideration would indicate a disciplined individual.

[Shawnee123]

Originally Posted by tw

You will need a new tech TV by Feb 2009.

~snip

There will be converter boxes for non-digital TVs.

[glatt]

Originally Posted by tw

However, with the threat of recession looming, will that $600 TV be a cost burden? This is no time to have credit card debts.

True. I wouldn't go into debt to get a stupid tv, but I would be dipping into savings. I can afford it, but part of me recoils at the idea of spending that much (more like $800) on a tv.

[Radar]

The role of the U.S. Government isn't to defend people who bought more house than they could afford. The markets take care of themselves. The government should not intervene. The more people who lose their houses, the more affordable houses become and others who act more responsibly and don't have as much money will be able to buy them at the lower price.

I don't see why responsible people should be taxed to pay for the irresponsibility of others and also don't see how the government should be involved at all.

When the government meddles in the markets, we have disaster. That is what caused the great depression in America. When markets are allowed to adjust naturally without intervention, we have normal cycles.

[DanaC]

The markets take care of themselves.

Except that they don't. Government has always meddled in the market, it's just that it usually meddles on behalf of big business and lobby interests.

[Radar]

Unhampered Free-Markets ALWAYS take care of themselves and have never failed. Only when government involves itself do things fail. Anyone with even the slightest knowledge of economics knows this.

The invisible hand absolutely exists and absolutely works 100% of the time. The hard part is keeping government out of the markets. The more government involvement (especially in regulations) the worse off the economy, and the less freedom people have.

Socialism is always wrong.

[TheMercenary]

Originally Posted by Radar

Unhampered Free-Markets ALWAYS take care of themselves and have never failed. Only when government involves itself do things fail. Anyone with even the slightest knowledge of economics knows this.

I am not sure I would agree completely. The system where government is involved in the markets is actually an important aspect. Regulations which control how companies can and cannot act are in important factor in controlling fraud and abuse. It is not perfect but I think it is better. Take for example Enron. A number of new rules and regulations were developed to hold CEO's more responsible for the bottom lines reported to the shareholders and those that trade on the stock in the various exchanges. There are other examples I am sure. It is important that we go after crooked companies and hold them responsible, it is the responsiblity of Government to do that.

[DanaC]

The invisible hand absolutely exists and absolutely works 100% of the time.

I do not believe it has been truly tested, anymore than I believe communism has been truly tested. Even the most hands off gvernments aren't actually hands off. Rules and laws relating to trade are skewed in favour of a particular class and even in a predominately laissez faire government such as America's there are such things as trade protectionism, subsidies and corporate welfare.