The Housing Bubble

Not hardly. Look up “usury” - the term itself goes back to 325 AD.

P.S. Personally I have no problem with usury - just stating that it goes back a long, long time.

I think renter’s point is that in the past it hasn’t been taxpayer subsidized lending to these banks at least to the egregious extent that it is today. The bank could borrow money from people in the form of depositors, but they had to compete to give depositors the interest rate that would entice their deposits.

Exactly - The borrowing that banks are able to take part in, with 1% rates effectively subsidized by anyone who is holding dollars, is something that regular citizens can take no part in. This is a product of the Fed.

Let’s see, now. Who voted to give financial institutions massive bailouts so they wouldn’t face the consequences of their own prolifigate and irresponsible lending? Congress did. And who sent all these Republicrat Congressmen and Senators to Washington?

You did. Unless you are one of the thinking 5% who voted for Ron Paul or other non-Establishment politicians who didn’t go along with the greatest swindle in US history.

So point the finger where it belongs.

You did. Unless you are one of the thinking 5% who voted for Ron Paul or other non-Establishment politicians who didn’t go along with the greatest swindle in US history.

Sweet. I’m off the hook!

Do you think I should feel guilty? You should feel lucky. I had a check for the largest credit-card payment of my life promptly deducted from my account, then credited to someone else’s credit card account, then I had to pay the bill a 2nd time to avoid penalties & interest. The original check eventually surfaced, torn in half, taped together & lacking an endorsement. Took 4 months to square away.

I got burnt by First Union back in the early 90’s. They bounced a check by adding a couple of zeroes to the the amount paid.

I am ashamed to say that it was a $2 dollar check that they ran thru for $200. I was just out of college and that was enough of a difference to make me bounce some other checks.

They would not admit to making a mistake or ever let me see the check in question. They of course bought out Wachovia, took their name and apparently ran things in a similar fashion, until going under.

To Hell with Wachovia, Bank of America and so many others.

I had a BoA card back in 1995. Was in Tucson visiting some friends when I went to an ATM to pull $100 one afternoon before hitting the bars.

Went throught the transaction…except the ATM didn’t spit out the money.

Never got the $100 despite hours of trying.

I don’t have any suggestions but my son’s savings are in the Virginia 529 plan. Pretty much the same choices you described. I’m considering putting half of future savings in the plan and putting half in CDs. I would lose the tax benefit on one half, but (maybe) also decrease the risk of losing principal.

Bad Chile, I share your sentiments. You might look into a Coverdell account. Unlike a 529, you aren’t limited to ten or twelve fund choices - you make the investing decisions (individual stocks, bonds, ETFs, mutual funds, CDs, etc. etc.).

I have a Coverdell through Scottrade, but other brokers offer them as well. (Scottrade was a little sloppy about issuing their Form 5498-ESA this spring - they came out AFTER 4/15 - which is my only complaint about them.)

I like the Coverdell idea. If only we could expand it to 401ks and 403bs, which IMHO, are too heavily weighted toward stocks and bonds. (Thanks for your thoughts, Kim and Bad Chile.)

Thanks for the Coverdell idea - I looked into that and it looks like much better options than a 529 through my primary bank. I had glossed over it because of the yearly contribution limits, just now realized that I probably wouldn’t be contributing that much.

I appreciate it, as does mini-chile. I’ll make sure he does a kegstand in 18 years as a thanks for your advice.

The other benefit of the Coverdell I THINK is that it can be used for high school and grade school of necessary versus college only. We also have one through Scottrade.

They also left out surrogate motherhood, wet-nursing, sale of sperm, ova, and frozen embryos.

Anyone watching HUNG on HBO? nice little montage of the ARM house loan documents, amidst, of course, lots of flesh.

“The sooner FBs default and walk away, the better off they will be.”

Prime, did you not read and assimilate the invaluable information provided by these wonderful, helpful folks? Walking away is a drastic thing to do! It’s important not do drastic things in drastic situations, otherwhise you’ll say drastic too many times and the word will start to sound funny. Better to keep paying the mortgage to go from -$100,000 equity to -$80,000 equity, which is a drastic improvement without doing anything drastic. Drastic.

“so last decade”

LOL! Yep, brave new REIC-controlled world out there. Prime, my point was if it ‘was’ truly a matter of of the trad. reasons one falls begind on their mortgage ( illness, death in the family, lay-off etc. ) these examples given would be typical options.

But I agree, what exactly is it that they’re are supposed to be attempting to ’salvage’ here? Sure as hell isn’t their credit rating. That’s -already- shot to hell, but we need to be consistent so I’m not going to advocate people “just walk away” b/c they stubbed their big toe getting out of the shower?

Again though, FB’s need to be consistent. A friend that worked loss mitigation in CA back in the early 90’s said people ( with -zero- employment issues ) were bailing simply b/c they were underwater. And that’s not right either.

“It’s important not do drastic things in drastic situations, otherwhise you’ll say drastic too many times and the word will start to sound funny.”

LOL… Nice, Al!

“Prime, my point was if it ‘was’ truly a matter of of the trad. reasons one falls begind on their mortgage ( illness, death in the family, lay-off etc. ) these examples given would be typical options.”

Gotcha, D—sounds like I mis-interpreted your comment.

Historically, for liquidity problems brought on by life’s hard knocks like the ones you list, the advice does make sense.

What the author is missing is that today’s FB issue is not liquidity, but solvency; the sensible reaction is dramatically different.

Arizona Slim,

I recall back when I first got out of the service in the late 80’s ( back when this was apparently a different country ) the realtor gave you a package of all the things you’d need to get qualified.

Oh, you’re going VA? You’ll need these additional “VA Elgibility Letter” forms! All this before they’d even waste GAS driving you around to look at houses. Affectionately enough, I could never bring myself to destroy those documents! Almost as cool as an old stock certificate all official looking and everything. Maybe I’ll put it up on Ebay under “Antiques”?

Last week, I mentioned that I went to the local media about the mortgage company that originated my home loan. Well, the media must have heard from many other people, because I heard nothing further from them.

But I did write a letter to the Arizona Attorney General’s Office about something else that merits investigation, and that is the mortgage company’s zeal to put me into an ARM. I refused.

After that refusal, their service went down the crapper. To this day, I can’t help but wonder if the service-dive was due to my insistence on a fixed-rate mortgage.

I’ve been big on the return to large down payment.

I got a 0% fixed rate mortgage by putting 100% down. No possibility of foreclosure here. And I always have 100% equity even if the comps go down.

“homes they could afford only if their income went up quickly”

…OR if the house price continued to go up quickly (thus providing a near-infinite sequence of cash-out refi’s, and a sale that each and every one of the FB’s would make JUST at the right moment before the inevitable bust).

In my living room, I have a Copenhagen hutch that I bought used in the late 1980s. It’s still going strong.

Back in the day Ikea made decent, stylish, and reasonably durable stuff at a great price but in the last 10 years their quality as noticably deteriorated.

I cant really find it in my heart to blame them though. They were simply reacting to Americas “throw away” culture like any reasonably sucessfull retailer would. Don’t hate the playa, hate the GAME

Agreed. I’ve seen a few 80’s era solid wood pieces from Ikea that look nice. Nowadays it’s almost all veneer on particle board.

Nice. But in the case of the kid, he gets both a table and something fun to destroy at the end of its lifespan!

Perfect furniture for children!

Muggy,

On my (1) trip there I found myself in a similar predicament. The one in Portland is laid out so confusing ( Euro-hip ) it took me 20 min. to find the Men’s room.

If they’re ‘packed’ likely it’s just a natural extension of all the people down-sizing and husbands moving into the basement b/c they can no longer afford a real divorce.

I went to the Portland IKEA once on lunch break for a “quick” looksee for a nightstand. Wanted to be in and out in a flash. No dice. I think most of those engineers are on staff to deploy the most obstacles possible to keep you physically in that store for as long as possible, even when your mind would accept being back out there stuck in traffic again as an alternative.

There was literally a “people-jam” of about 50 people near the kids section. Nobody was stopping to look at anything, they were just stuck behind everyone else. Totally infuriating.

sleepless,

“No dice”

Exactly. You find yourself in what the military describes as a ( nutt-to-butt ) situation and then wonder if there isn’t another area you’ve skipped over or if perhaps you haven’t “forgotten” something?

Well how could I have “forgotten” anything when I didn’t have a list or agenda to begin with!?

Cool!

There is so much waste in packaging both in the shipping volume and the materials used in the packaging. I’ll have to check out the Apple store next time to look at the boxes! Cool headsup. Thanks.

The US Army used to have an enginering design guide for packaging, but it was mostly concerned with making sure that the contents would survive being dropped, rained on, frozen or left out in the sun, rather than take up minimal space.

A little OT- Back in my minimalist days I used to contemplate owning only inflatable furniture. Inflatable chair, couch, bed, table, etc- they’re all available. Then, when I needed to move, I’d just rent a helium cannister, reinflate my furniture with that, and walk down the street with all my furniture floating above me, tied to a string. In retrospect, I’d probably float away, which would be even cooler and probably somehow symbolic.

Well the problem with it as dorm room furniture is that much of it won’t survive a move. Particle board book cases are OK if you never move them and you’re not constantly reshelving material.

That’s why I was gonna go inflatable.

And I also included the “leave it behind” option.

‘fess up, Alpha. Tell us about your inflatable girlfriend.

LOL, when I was in college my buds had an inflatable sheep that would be posed with those who checked out early. I’m looking forward to some of my friends becoming politicians and the ensuing blacksheepmail.

alpha-sloth.

“Levels Jerry, just… l-e-v-e-l-s. NO furniture, just, levels”

Alpha-sloth - I’ve lived the ‘inflatable’ dream…

When The Husband and I first came to America, we had no furniture at all. So, after possibly the most comprehsive shoping trip to IKEA in modern history ( a lot of which is still in use a decade later), we decided to buy a blowup sofa and chair set while we waited for our ‘real’ sofas to turn up from IKEA Mongolia, or wherever The Elves make the sofas….

Anyway, not having even a bicycle pump - I blew up the sofa manually (well, technically, orally, but you get my drift) - which took over two hours, and left me dizzy after the first 10 minutes.
By the end I had the lung capactiy of a Pearl Diver….and a blowup monstrosity of a sofa, that the cats would sharpen their claws on….

Anyway, the damn things would deflate slowy over a couple of days - which meant that me or the Husband would have to sit and blow on a little plastic teat situated at ground level - necessitating all sorts of ‘while you’re down there…?‘ jokes.

If you like to wear shorts, and live in a climate where it gets above 70 degrees f - I would caution you not to sit there too long, and then get up quickly - you will lose approx the fist two layers of skin off the back of your legs, unless you get up slowly enough to be counted as a geological age.

Anyway, the real sofas finally came a couple of months later, and we donated our blowup furniture to Goodwill. Hopefully the sofa went on to be a tiny child’s personal Bouncy Castle…

Never tried the Helium route - we had popcorn ceilings, so the results could have been, well, interesting…..

Thanks for the laughs, speedingpullet.

art hurts

LOL - useful art hurts.

Pointless art deserves to be foisted on those that don’t know any better

Then, when I needed to move, I’d just rent a helium cannister, reinflate my furniture with that, and walk down the street with all my furniture floating above me, tied to a string.

Genius.

“Tell us about your inflatable girlfriend”

Bubblez or Squeeky?

Bubblz -she hates when you get it wrong

I had 2 different physical therapists for my 2 injuries on my path to surgery. The first one advised your exercises. The second put me into the weight machines. The weight regimen suits me much better. I must have a tendency for faster muscle atrophy than most people. When my knee feels “lose” or twinges, I have a short session on the machines, and the knee is better within the hour. In between my two injuries, I did a lot of bike riding (10 mile rides), right up to my bucket-handle tear. Then my 2nd therapist told me bike riding wasn’t nearly as good for healthy knees as plain old walking. So I walk for health & bike for fun.

what about swimming ?

what about swimming ? I was told walking was still better than swimming for knee rehab & leg strength.

I don’t think Kim meant “take A leave.” I think it’s just, LEAVE.

“I don’t think Kim meant “take A leave.” I think it’s just, LEAVE.”

Yup… 3% reduction in salary, work free, or hand in your notice.

We chatted about whether most would chose the pay cut (because at least it would reduce income taxes). Raises were always based on a percentage of salary (optimistic future) and unemployment benefits are salary-based (probable future), so its a pretty nifty crap shoot they’ve set up for these J6p folks.

Good point about the workman’s comp issue, desertdweller. I hadn’t thought of that.

This was quite common during the dot com era. Don’t know any company that managed to make good doing this.

Polly:

This is so UNFAIR to those like me who WILL work for FREE…aka Intern to get recent experience on our resume.

But you know the FLSA prevents us from working for free in a for profit company, unless you are a student.

we need to change this badly…let us work 250-300 hours (equivalent to a semester) as an intern then let us go or start paying us….

======================
Why would you work for three weeks for free which is nearly a 6% pay cut (also probably illegal), when you are allowed to only take a 3% cut?

I’m guessing the employees hope the 3 weeks free work (6% pay cut) will only happen once, while the 3% is forever.

You should never, NEVER, EVER work for free.

With one and ONLY one exception; volunteer charity work.

“But you know the FLSA prevents us from working for free in a for profit company, unless you are a student.”

Ahh, she worked for a non-profit. I wonder if that is how they’re skirting the rules, because I had wondered about the legality of that too, Polly.

WRONG ECO:

It should be MY choice if I wanted to work for a radio tv station or a LAW FIRM, and be able to put it on a resume.

This is why so many older people are so screwed,NO recent jobs in your field and on your resume…if no one pays whats wrong with FREE…for a limited time….

Plus Law firms are notorious for age discrimination the worst of any field i have ever tried (recent college grads ONLY)…….you don’t know how many people i have told in the last fast years I’m not too old to dj you kids bar mitzvah but i am too old to work in your law firm.

I’ll even volunteer to dj a zydeco party for free…but NYC is so prejudiced if you are not ghetto!
————————————————–
You should never, NEVER, EVER work for free.

With one and ONLY one exception; volunteer charity work.

Way to think about only yourself. If you work for free, guess what, customers/clients and companies expect others to work for free. So your action causes REAL physical suffering for others.

Secondly, when you work for free, you are by DEFINITION being exploited and helping to perpetuate and endorse an environment of exploitation.

If you cannot or will not see how working for free seriously hurts others, then you are part of the problem.

And third, you are not getting hired because THERE ARE NO JOBS in your area. None. The whole NE is dying and it’s not ever coming back.

And fourth, if you seriously think you’re going to get hired by working for free, you are hopelessly naive and trust me, the company knows it and will use you like the chump that you are.

Sheesh, and people wonder why this country is having problems. And that’s about as polite as I can say it, because what I really have to say on the subject is not fit for publication here.

Way to think about only yourself. If you work for free, guess what, customers/clients and companies expect others to work for free. So your action causes REAL physical suffering for others.

So you’re saying he should let his resume wither for the greater good? I’m going to have to disagree here.

Sure, someone he works for free for might expect him to continue doing so. Other employers are likely to not know what he was paid (if anything).

Experience is a type of compensation. I think it’s reasonable for one to be willing to work for experience, with the hope of getting paid for that kind of work once competency is shown.

I agree that the real problem is staying in a place with no jobs, however, I don’t think it’s reasonable to expect someone to sacrifice for some unproven “greater good”.

ECO:

Please Understand me…its temporary like a student internship without being in school 15-20 hours for 10-15 weeks…250-300 hrs max…that’s all…after that a company must pay you or face stiff penalties.

We NEED a system like this right now. It would make a resume look like its up to date and not have a last job in your field that’s 1 -2 years old.

Its a trade off…and it might hurt students who also work for FREE but who else?

If you say the players are paid too much, then you have to also say that the owners make too much money as well and if it was not for the taxpayers giving them free stadiums, neither would be making any money.

Could watch college sports instead. College baseball world series is always exciting. College football coming up and I can’t wait!

Skip, I certainly never voted for any expenditures on stadiums. I always thought it was a big Gender Gap thing — I don’t know any women who voted for any of this crud. Rob may be crazy but I like his attitude. I’d rather be on the golf course or in a kayak than watching sports on TV or in a stadium.

I would have to start watching TV again to catch even the college games. It’s been 2 1/2 years TV free. Can’t break the record now.

Skip - You are right. I did make mention of the owners above. Nothing is worse for a community than a taxpayer funded stadium. City officials and owners have been trying to get a new one built for a while now in Sacramento. ROI is always negative in my opinion. Especially when you have a perfectly good existing one (but…..but….we need more room for private boxes and extra seats….Boho….give me a break).

Or working AND living with her husband was a bad idea. Most likely though, the kid went to school.

I don’t know about the culture of local accounting firms, but I do know that she had gone back to work as an accountant for a company in the building supplies arena. (And I wonder if she still has a job. Outside of public works, construction isn’t exactly booming these days.)

I had a co-worker take maternity leave and come back to a different job where she only had to work 2 days/week. She quickly found out that even though she was only getting paid for 16hrs/week, she was expected to produce 40+hrs worth of work.

Obamacare will be a disaster to seniors. My Dr. has said that if Obama reduces his reimbursement amounts that he will refuse to accept my Medicare insurance and that I will have to pay him directly and seek reimbursement from the gov. DMV or Post Office any one ?

That’s what I think too.

And, while we’re on this topic, here’s a little letter that I just sent to some members of Congress:

I am a self-employed graphic designer and photographer in Tucson, Arizona.

Throughout my 14 years of fulltime self-employment, health insurance has always been an issue. The insurance choices for the self-employed are limited and full of exclusions. Which means that, like many self-employed people, I avoid doctors and medical tests as much as possible. And so far, I’ve been fortunate.

However, I’m not getting any younger, and I have no idea how much longer my good fortune will last. This is why I favor health care reform that includes a strong public option. This is the option I plan to choose. My reason for this is simple: I do not trust the private health insurance industry to be honest. It’s in the business of denying care and always has been.

Thank you for your time and attention.

I do not trust the private health insurance industry to be honest. But somehow home insurers and auto insurers are generally trusted. What’s the difference? I expect a government-run health system to do about as well as its Indian Health System.

Talk to people along the Gulf Coast about the honesty of home insurers. Post-Katrina, they screwed people over right and left. I’ve heard the stories.

Slim, I’m not trying to be argumentative, but BC/BS of AZ has a wonderfully affordable policy with a $10K deductible (if you can afford to go as “naked” as that).

“But somehow home insurers and auto insurers are generally trusted. What’s the difference?”

For one, the market for home and auto insurance is MUCH more competitive and subject to much less cronyism. Big health insurance companies more or less have a stranglehold on their market, with the help of lobbyists.

“I expect a government-run health system to do about as well as its Indian Health System.”

Depends what your metric is. Medicare costs 3% to administer. Private insurers average 20%.

BTW: Honesty and insurance companies do not exist. If they need to deny claims and disenroll members to meet a profit point, that’s what they’ll do. It all comes down to whether you feel like battling it out with them in court. Most do not. Needless to say, it’s a system that does not work in favor of citizens.

Depends what your metric is. Medicare’s future financial status is extremely doubtful, to say the least, and the proposed federal health initiative is to be paid for in part with cuts in Medicare spending. Stick with the metric I gave you, IHS. Even its professionals say it gets about 1/2 of what it needs to do its job. When the feds run THAT program properly, I’ll listen to them natter about something bigger and more expensive.

“Medicare’s future financial status is extremely doubtful, to say the least”

As is the finaicial future of any health insurance company without the ability to pass rising costs on the consumers, something Medicare cannot do as easily.

I’m no fan of government run anything, but this doesn’t change that Medicare costs 3% to administer, private insurance averages 20%. The difference is pure waste. Like it or not, government run healthcare, right now, is less wasteful. It’s a fact, like gravity.

Haha, as a Caps season ticket holder I appreciate the comparison. Ovechkin would’ve stayed on the ice and scored 4 goals, though. I whimpered off to the ER.

Get your wisdom teeth removed now! I waited till I was 35 and it was much worse than anyone I knew who had it done earlier. At 35 you’ll need weeks of painkillers while at 18 you’ll need about a day.

Not sure I would agree that it is an “easy 3.75%”.

What’s to guarantee that when it matures, CA doesn’t pay you with…. another IOU???

The Chaplains office has all the Bibles, Korans, or Torahs that the troops need, free of charge.

“Believe in what I believe or die!” That’s just a variation in the “Submit or die!” injunction which is still the biggest power play on the planet.

Nobody expects the Spanish Inquisition!

The Spanish didn’t either.

Inquiring minds want to know.

Or the business end of a geoduck?

Isn’t “Rental Watch” the guy that posted on this blog the other day that he paid $300k for a house and got a deal?

He got a deal alright. lmao.

Still renting (for at least 2 more years). Sorry, not me.

Good going, RW.

Oh, the sniping I will suffer (here at HBB) when I finally buy again…that in itself will provide at least six more months of deterrent.

Sorry bout that RW.

AZ, For some reason I doubt you’ll come on here saying you got a bargain at $300k+.

wasn’t it dude that just bought that home fot 300k?

Yep, you can still make money in this economy if you have both a good eye and a good deal.

But it definitely takes both plus experience.

298K, thank you very much. We haven’t even opened escrow so I haven’t bought the farm yet. I’m trying to decide how much to put down. I could pay cash but that would leave me with very little reserve, and I’d need to sell some precious.

BTW ex, I never said I was getting a bargain.

Ummm…. how is this happening when there is a forclosure moratorium in effect?

Jus’ askin’

Tom

Old news but may bear repeating, in many cases the foreclosure auctions are postponed, re-advertised, and postponed, and postponed.
Also, banks that say they have a loan mod program in place are exempt from a moratorium, in California at least.
RealyTrac, which generaly does a good job showing houses getting NODs or becoming REOs, is real blurry about the transitional auction phase. “Awaiting Update” is what they put during postponements. So if you really want to find out what the status is, you have to do some sleuthing, time consuming if you are looking at multiple properties. I e-mailed RealtyTrac about maybe getting better data; got a boilerplate response, but I tried.
That the properties are being held off the market at what amounts to taxpayer expense is outrageous.

I wish RW. I had some good mentors, but lost my butt (badly. very badly) in another business in the last recession and alas, am still poor.

milkcrate–

You are dead on right regarding the postponements, etc., as well as the difficulty in getting data. The last guy I talked to (who bought the big home for $200k) went through his process with me…very involved. He noted that about 5% of homes on the courthouse steps get sold to third parties, about 50%+ get postponed, and 45% go back to banks.

And then the banks go to unload big groups of homes to investors (buy 20-50 at a time, with some discretions, but often you need to take the dogs with the gems). The bulk purchase is somewhat less profitable than the selective sniping, but still quite lucrative.

The housing bubble is merely a symptom of the failed system. At this point our problems go way beyond just a housing bubble. In reality the housing bubble itself is merely the pin that is pricking the greater Credit Bubble.

Note that

this

is only a small portion of

this.

credit bubble..

Draw me a rough outline of your ideal system.. the one where credit can be controlled.

Are there banks? Are there private businesses? Is price competition allowed? Does the use of other people’s money have value beyond that amount of money? Is anyone allowed to borrow anything?
Can it function in a world where countries with hundreds of millions of people compete with each other in open markets?

Joe:

How is giving money to CIT not controlling credit?

big v .. I’m not the person in this conversation who is proposing that credit be controlled..

My premise is that you can’t control it and still maintain anything approaching a free society. If I want to lend my money to a deadbeat, based on crappy collateral, that’s my business.
Whether I’m a business or an individual, I have a right to be stupid with my money. No higher authority should have power over what I do with my money.

The sorts of governments and social systems who do have such authority are complete failures.

Joe:

Do I misunderstand you? It sounds like you’re supporting welfare for Cit group. If we give these guys money, then we are controlling credit by forcing credit to be available through Cit group on Cit group’s terms. Wouldn’t it be better to let the free market decide what credit will be available, through what lender and under what terms?

You know, when you do business with a client, you have to consider the risk of nonpayment. If Cit group’s clients don’t get paid, then they can stand in line with the rest of vendors who occasionally don’t get paid and have to write off the loss. I know it sucks, but that’s part of the due diligence that one has to do before entering into a contract. If we are really worried about the well-being of said vendors, then maybe we can pay them directly and let Cit group sup its dirt.

As I mentioned below, the down-line consequences of enabling Cit group’s reckless behavior would be worse than the consequences of that behavior itself.

big v, yes you misunderstand me.

Do I like government intervention? No.
Is govt intervening with the bailouts? Yes.

Given the choice between govt intervention and economic collapse, which do I choose? Intervention.

Draw me a rough outline of your ideal system.. the one where credit can be controlled.

Are there banks? Are there private businesses? Is price competition allowed? Does the use of other people’s money have value beyond that amount of money? Is anyone allowed to borrow anything?
Can it function in a world where countries with hundreds of millions of people compete with each other in open markets?

My ideal system involves no fiat currency and no fractional-reserve system.

It definitely includes banks of course (somehow some people think for some reason that “banks” = “fractional reserve lending”), and it includes lending and all that good stuff. The purpose of banks is to store money, and to facilitate transactions between lenders and borrowers - i.e. bring liquidity to the system. However you don’t need fractional reserve to do this.

What it does do is limit the amount of outstanding credit to only that which people are actually willing to lend. All loans are based on time deposits only, which limits the amount of available credit. People would generally get credit only when they need it (gasp), and not use credit for some sort of convoluted investment strategy - i.e. trying to borrow at one rate and turn around and invest the borrowed funds into something else at a higher rate. So in essence only the end users of the funds are the ones doing the borrowing.

That’s a sane banking system.

The Bank of Amsterdam in the 17th and 18th centuries is a good example of such a system, done right and successfully. The system failed when - surprise - they moved to fractional reserve banking.

The reason why there are so few examples, including none today, is that it doesn’t make enough money for those in power. The amount of money they can extract from average Joe’s in such a system is limited, so the PTB will do whatever it takes to ensure that such a system is not created, or is killed if it is created. It’s unfortunate.

Big V: CIT is not Citigroup

joey: The key difference is not whether or not credit is controlled, but what is the nature of the control. The problem with banking is that it has to have some measure of opaqueness for privacy reasons. That means that the only way to have a good banking system is for some third party to regulate the banks, to ensure they don’t commit outright fraud (e.g. Ponzi schemes). So *some* level of regulation is necessary.

One big question is - should the third party doing the regulation be the government, or should it be some other entity (e.g. ratings agencies or whatever). To be honest I struggle with that myself.

To you point about the banks being able to lend to whomever they want - sure, no problem. That’s independent though of the actual *level* of control (e.g. fractional reserve or vs. full reserve I discuss above). Even in a conservative full-reserve lending system a bank can choose to lend in a high-risk manner. However in doing so - the investors normally would (and should) demand a higher interest rate to compensate for that risk.

The problem with the housing bubble is that even high-risk borrowers got extremely low interest rates. The banks didn’t care though, since they generally make most of the loans, or didn’t hold many of the loans they made, and even if they did they knew that the government (i.e. taxpayers) had their backs vis a vis the bailouts.

The reason why there are so few examples, including none today, is that it doesn’t make enough money for those in power. I think a more fundamental reason is that gold-based currency and a prohibition of fractional reserve lending put a stranglehold on economic growth that (1) was possible under slightly more lenient conditions and (2) would have been sustainable had the financial system been properly regulated. People are still free to abstain from dealing in fiat currency and avoid borrowing or lending such in a fractional reserve system. They are also free to drink muddy water & sleep in hollow logs.

People would generally get credit only when they need it (gasp)…

Packman.. Can I be Credit Czar? The guy that decides when people need credit and when they don’t? The one that writes the rules lenders must follow?

Pay’s gotta be good for such a powerful position.. lots of responsibility..
——–
As I read it, your proposed system puts further limits on free enterprise and deliberately stifles economic growth. It transfers personal decision making and responsibility to some higher govt authority. It treats it’s citizens and business like children by hiding all the sharp economic knives.. .. my gut objects.

The whole idea of a free system is not for some central entity to decide who does and who doesn’t get credit. The central entity just sets the rules, and others who actually do the lending make the decisions of who does and doesn’t get loans, based on their vested knowledge of the borrowers’ qualifications.

Sports is a good analogy. The third party (e.g. government) is like the referees, and the borrowers and lenders are the teams on each side. The referee’s job is not to play the game, just to make sure the rules are followed.

The problem comes when the referee starts playing the game - i.e. the way the Federal government is into the lending game; then the game becomes rigged and eventually breaks down.

Right now it’s Lenders/Fed 100, Borrowers 3 in the fourth quarter. Not looking too good.

What the heck is full reserve banking? If you have X dollars in deposits and have to keep X dollars in reserve, where do you get the money to lend out?

Jus’ askin’

Tom

Given the choice between govt intervention and economic collapse, which do I choose? Intervention.

Will you be surprised when you end up with collapse anyway, after giving away the store to prevent it?

Key concept is that there are two kinds of deposits - “demand deposits” and “time deposits”. These concepts exist today actually and there are specific reserve rules for them; they’re just not full-reserve.

“Demand deposits” are things like checking accounts - very liquid, and making very little or even no interest. These are not supposed to be “investments” by their nature, but instead just a safe place to park your liquid money.

“Time deposits” are things like CD’s, Money Markets, credit union shares, etc. These are investments by their nature, and are expected to make some interest. It is expected and known that this money will be lent out, which is where the investment interest comes from. This is true either for full-reserve or fractional-reserve banking. Thus lending still occurs in a full-reserve system.

The difference then is for demand deposits. In a full reserve system these aren’t supposed to be lent out, whereas in a fractional reserve system a fraction of the demand deposits can be lent out. Generally the fraction is 90%, maintaining 10% in reserve.

The central entity just sets the rules..

Who actually made the rules in this current system? In the broadest sense, we the people made the rules, and have adjusted them as deemed necessary for a couple centuries.

Govt and the people often join forces against business interests. Business and citizens somethings unite against government. A special interest, like a Union, might find reason to fight against all three.
The nature of alliances changes with time and conditions.
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Where are we today? Is business and govt conspiring against common citizens? One could look at it that way..

On the other hand, could it be that govt supports business as an intermediate step in the goal of protecting people’s jobs? To avoid further unemployment?
It’s not unfathomable…

Is Wall Street’s business so intertwined in all things economic that it’s collapse would severely impact the average person’s daily life?
Is Wall Street’s health directly connected to the health and welfare of every community in the country? It’s not hard to see things that way..

Although many are still in denial, or fail to grasp the seriousness of the situation, the fact is that we are in the middle of a storm in the middle of the sea, and taking on water fast.
Perhaps the ship was poorly built and is fundamentally flawed, and that’s why we’re in this mess… but that can wait. We’d be smartest if we join forces and concentrate all our efforts on staying afloat, imho.

Packman..

The banks didn’t care though, since they generally make most of the loans, or didn’t hold many of the loans they made, and even if they did they knew that the government (i.e. taxpayers) had their backs vis a vis the bailouts.

I find it hard to believe a bank would confidently risk destruction because the govt would then hand them just enough cash to save their asses from total annihilation..

I find it easy to believe that banks, investors, government, joe6pk, wall street, et al believed property prices would continue to rise and rise.. and implosion caught them all by surprise.

Given the choice between govt intervention and economic collapse, which do I choose? Intervention.
Will you be surprised when you end up with collapse anyway, after giving away the store to prevent it?

Carl.. Nobody can foresee the results of our actions (or inaction). I think it’s far more likely that the economy will collapse without intervention than with it..

Few people try to argue that point. Few deny that govt intervention is delaying collapse. Some elements have certainly been rescued, so it’s moot..

But i think you know that, and the real purpose of your post was to inject that we are somehow “giving away the store”.. to the big business fat cats and banksters.. the thieving, lazy wealthy who are screwing over us poor working folk..

That kinda class-warfare propaganda was already old back in the ’30s, in the last depression.. and it’s wasted on me. There’s nothing new under the sun..

Joey,

I think you’re making some false assumptions:
1) If these companies go bankrupt, the economy will collapse. Just because banksters predict doom if they go under and politicians believe them doesn’t make it true.
2) If these companies go bankrupt, it will hurt everyone instead of just Wallstreet.
3) That government intervention can prevent more economic hardship that it will cause.

Al …
Tell me how you know that any of the 3 assumptions you listed are false?

Seems to me that any thinking person would try to prevent it. Think a little more. You are assuming without evidence that the way to prevent economic collapse is known and reliable, and that this is the way that is being tried. “When in worry, fear, or doubt, run in circles, scream and shout” is not a workable option. Many other less ridiculous options are not workable either. Perhaps the only workable option is to mitigate the pain, but that is not the way that is being tried.

tresbo..??
Any thinking person would try to prevent it!
I didn’t “assume” the efforts would be successful. All I said was they would TRY.

A lotta people around here would not even try. A few are drolling over the possibility of collapse and, given the opportunity, would actively encourage it. They do encourage it here in the blog.

I once called such people economic anarchists and got earful in return.. but if the shoe fits, wear it.

Still suffering through a -35% decrease in pay. 6yrs & counting.
And I know many many others who have either seen a decline in business revenue, pay reductions, or total benefit reductions, both and or health insurance costs ore complete loss of that said benefit. I know many MD’s, DDS,Chiropractors and other professionals, attys who have seen drop in business.

Another biz affected, less weddings. Contrary to what the tv shows illustrate.

Nearby hotel normally has 15 weddings minimum by this time per yr, so far, the hotel has had 3.

That’s why I use “2000 Flushes”– “Cause flushing sure beats brushing!”

“2000 Flushes” (TM) They’re litigious.

Meth is the number one drug problem in America and it’s huge. Why? Because it’s way cheaper than cocaine.

But how else are you going to work 60 hours every week because you haven’t had a raise in 6 years and the only jobs available to you are paying even less?

I have no use for hard core drug addicts. They’re useless and worthless.

Meth problem is in the finest neighborhoods too.
Don’t think the gated properties are immune.
Nobody bothers their neighbors, so you could cook for much longer.

True, but are you gonna be that nice when you find out it WAS a meth lab. I guess you could always play dumb. ” I swear, bro, I never noticed anything. Guess they played it cool.”

” I swear, bro, I never noticed anything.”

Works for politicians and CEOs.

Ha “No one could have known”!

Depends on whether they were customers or not.

Okay, I’ve thought it out. You approach the neighbors as if it’s known that it’s a meth lab house. “Yeah we’ll have to do a trash out. These meth labs are a real mess.”
If they say “Bill and Edna? Are you crazy?” then you’re safe. If they say “Yeah, we knew it’d be bad. Thank god they’re gone though,” then don’t buy.

Always research the history of the property you are about to buy.

Always.

Another accepted scam that isn’t a scam is older citizens who buy buy buy buy off those shopping channels on tv.
My MD, has mother who has garage full of shopping channel stuff.

Boredom and loneliness makes seniors really easy targets.

hope this ends up where it is supposed to…sorry if not.

testing

If the Fed is audited, will they have to come clean on the degree to which they may have colluded with GS to transform middle America’s pension savings into GS managers’ bonus payments?

Exactly wmbz. Exactly.

P.B.
I guess my question would be, if and that’s a huge IF, the FED were to at some point to surrender to an audit, who would do it?

How on Gods green earth would they know what the numbers are? The trail would be so twisted it would give an auditor vertigo. If they can’t get to the bottom of fannies books, the FED will blow their, who ever would give it a shot’s mind.

Al Capone was far more honest than this crowd of thieves!

Of course they are ‘legal’ and trustworthy, because they are backed by the full ‘faith’ of our congress.

The screw America first crowd… it is a very small club.

“…who would do it?”

I would certainly hope Ron Paul would be involved.

http://www.ronpaul.com/on-the-issues/audit-the-federal-reserve-hr-1207/

Ron Paul is leading the effort to audit the Fed. Not surprisingly.

Take a look at this photo set from today’s HuffyPo:

http://www.huffingtonpost.com/2009/07/14/capture-the-recession_n_231488.html

Note the bailout photo. Patience is starting to wear thin.

Nice, ‘zona!

The chilling pic for me is the subway shot with the paper with the headline of a job loss every 30 secs. Note the guy standing and especially the guy sitting to the left of the person with the paper. Look a little nervous?

I also “liked” the Grand Opening/Store Closing photo!

The “wheres my f*****g bailout” photo is top ranked!

This country is mortgaging the future wealth of its children in order to prop up house prices now.

Something tells me those future children aren’t going to be very forgiving towards the “I’m entitled now!” generations who are bequeathing them such massive problems and debts.

Being at the back end of one of those generations, I’m not so forgiving myself.

Whoever can survive the most years in old age on dry dog food wins.