"The average Joe Q Public gets zilch"

Who is that? I guess not the one who is about to go into foreclosure because the ARM reset...

qdognj,

I've been watching CNBC this morning so I've heard about Bush's upcoming FHA "bailout" speech. Will be interesting to see what he's got to say? Probably, not much of substance. I don't normally support these "bailout" situations & I've got no idea how it could be structured so that only appropriate (whatever that might be?) loans benefit? The futures sure seem to like the idea though. I've been using Thornburg as a thermometer to guage the illness of the mortgage industry & pre-market activity looks a gap up at the open. We'll see...going to be an intersting day.

I have to disagree with you that "credit card debt usually is a factor in the cause of foreclosue". It may be in this sub-prime mess but normally it's job loss, illness, or divorce that triggers foreclosures. The run-up of CC debt after one of the above triggers does certainly happen but it's the former causing the later...not the other way around. Or, at least that's my experience as a banker. Maybe your foreclosure experience gives you knowledge that I don't have? And yes, down in the trenches of real America $200/month makes a difference in the budget. That's true even if they weren't being squeezed at the grocery store, gas station, & doctor's office.

Whether it's "wise" for people to purchase a home on a tight budget is a subjective question & not one I'm willing to judge. I do know that many Americans have a lot of month left at the end of their money & can't imagine having something like $500-$1,000 leftover to cover large jumps in regularly occuring payments.

/t

"but normally it's job loss, illness, or divorce that triggers foreclosures."

Shhh! You are disturbing the convenient stereotype that this happens mostly to irresponsible people who charge everything on their credit card and unfairly live a life of luxury. Their nerve!

tricia, i enjoy your insight, so my question is whether you think job loss, illness in combination with a bad loan are causing the foreclosures? My research has it that overwhelming CC debt in combination with mortgage reset is causing this mess, now it is possible that illness,job loss spurs CC debt,so perhaps we are both correct...

there are usually multiple reasons for people losing their homes to foreclosure. In my sister's case, her husband lost his job they were able to make payments on the house for several months while he looked for a job, but in the meantime let their health insurance lapse. Two surgeries went on their credit cards, their reserve money ran out, couldn't make house payments and credit card payments, house was foreclosed on. They didn't have a sub prime loan, didn't have an adjustable rate mortgage. They just had a string of bad luck related to losing a job and health issues and weren't able to manage.

I think a bail out is a sticky situation with some people deserving and some not, but how do you determine who is deserving and who is not.

No qdognj, I think this meltdown is unique when we talk about foreclosures in America. Americans have had high CC debt for years & not melted down on their mortgages...until now. Well, we had an up-tick just prior to the BK laws changing to favor the lenders. This go-around, I'm virtually certain it was bad lending & greed responsible.

I live in New England. So, this is an easy comparison for me. I hope it works for others outside this geographic location. IMO, what we have is a "Perfect Storm" scenario where several divergent factors combined to create a monster.

1.) Greenspan easy credit left for two years too long;
2.) Home appreciation reaching levels where ordinary Americans just could no longer relate value to price & so began pulling back on purchasing in rejection of $800K for a 3/2 1960's ranch;
3.) Greed. The temptation to push the envelope at mortgage companies was too great for those CEOs who are either by nature risk takers (or, extra greedy?). They were either too young or forgot the lessons of previous real estate bubbles...or, didn't care & just chose to rake in the bucks while they were available. Hence, we ended up with companies like Countrywide becoming the largest mortgage lender in the country.
4.) Wall Street's desire for higher-yielding securities during the Greenspan years of low yielding fixed rates. A marriage made in H@ll was born between mortgage lenders & Wall Street. It really was a great party while it lasted;
5.) And, the sub-prime borrower. I believe, as a lender, that sub-prime products should be available. We are, afterall, a country that strongly believes in giving folks a second chance. But, and it's a loud "BUT"...;
6.) The sub-prime borrower should have received loan products that helped them reestablish themselves & aided in creating wealth. Instead, they were taken advantage of & steered in huge numbers towards what are, IMO, usurous loans. Yes, there should have been an interest premium (consider it a penalty for previous mistakes) but what we saw was onerous. It's very easy for a slick loan officer to take advantage of a person with limited financial education (which is most Americans, BTW). Many Americans look to bankers (and those they perceive as bankers like mortgage brokers) as somewhat of "father" figures. If my banker says it's OK...well, it must be OK. This trusting nature of Americans combined with lack of financial education was the last low-pressure system we needed to create our "Perfect Storm".

I strongly believe that certain people should be held to higher standards. Bankers & others engaged in making recommendations regarding people's money are a group falling into this category, IMO. Attorneys are another group. We go to these people for help, suggestions, & advice. They should be trustworthy. Clearly, as a group they have failed to honor the fiduciary duty they have to their clients.

Now, we have thousands of sub-prime borrowers who still don't understand what's happened to them! There home was supposed to appreciate, right? That appreciation was supposed to allow them to refinance if they couldn't make the increased rate payments, right? The 6-month pre-payment penalty was "standard", right? No? How can that be? My banker told me....

Then, there are the speculators. I include in this group all of those people who step-laddered from one home to the next every 12-18 months for five years.

More to follow...Bernanke's about to talk!

Tricia

I am sorry about your sister but I also think many Americans do take stupid chances because they are ill informed or have poor money habits. Not necessarily spending too much. For example, in the sisters case, letting health insurance lapse

I have a friend whose BIL used to keep his money in a shoe box! He is a trucker, makes a decent salary and is not stupid, he is just poorly educated about money. He bought a 400 AC at HD or Lowes. Did not check the interest on the free credit card they gave him. When after 4 months of paying 100 it was not paid off, he got annoyed and stopped paying. Needless to say it did not help his credit when they wrote it off

Add to that a small crises, like a flood not covered by insurance (claimed he is not on a flood plain so did not need it), a house bought at the top of the market on an ARM and a toddler, and you have a real problem

qdognj, IMO, no doubt that there are folks in trouble due to CC debt....as there always is....however, such issues do not cause the level of foreclosures that are occurring at this time....and, even so, those that are in CC debt invariably have been enabled in such by the legalized loan sharking of the banking industry. As the expression goes, a horse by any other name...

As far as a bailout is concerned...if anyone deserves a bailout...especially since the scammers already got theirs...it is those who were scammed with the blessing of the regulators and the almighty Wall St.

Of course, as the Bush Adminsitration has proven to be terribly challenged when it comes carrying out any initiative successfully, my hopes on this one are not all that high.

Time will tell.

That said, I believe the chief culprit is the bait and switch tactics of the predatory lenders.the exploding armsÂand the prepayment penalty mortgagesÂ..as well allowing the line of HE in place of a down payment.

My guess is that those who were sucked in by these varying schemes, that once their costs started escalating, quickly found that in order to survive they had no choice but to turn to CC for the staples of lifeÂprobably more often than not for those money hogs known as home heating fuel and gasoline. Even electric utility costs have skyrocketedÂwe are now paying almost double monthly over what we are paying four years agoÂwith little if any increase in use.

Last but not leastÂlets not forget the ever escalating property taxesÂ.not only on the value of these homes skyrocketingÂbut also as infrastructure costs escalated in areas with huge building boomsÂresulting in higher property taxes for the homeowner.

We bought our first home 2 years prior to that last RE tankÂand unless I have selective memoryÂthere was nowhere near the foreclosure rate that we see nowÂand credit cards were just a popular in 1990 as they are nowÂ.

There are thousandsÂÂ..if not millions in dire straits right now primarily due to being scammed. CC debt adds to it.,Âbut it is in most cases the result of the fall outÂand not the catalyst.

Where do consumers take responsibility? I can't fathom taking on a mortgage without knowing the terms and possible changes to my payment..People spend more time figuring out whether they want a frappacino or Mocha latte then undersatnding their financial issues..And while i feel bad for those who are in finanicial trouble due to illness and job layoffs, i have no sympathy to those who took on loans they didn't understand, sorry..
And i agree that CC debt is not the sole problem to foreclosures, it is the mortgage debt and resetting of rates AND CC debt that are contributing to foreclosures..The idea of being scammed irks me also..That is an easy crutch to use.I don't doubt there was some roque brokers scamming the uneducated into mortgage products, but there are also many who chose not to understand the mortgage and now claim they were scammed..

So whatever happened to Home Economics in high school? Seems perhaps an unrelated question but we're talking about Americans who don't understand the concept of money. I can only speak of my son's high school, but it's in a wealthier suburb and they don't offer Home Economics at all. I'm not even sure they offer Economics. Fortunately, before we moved from Tucson to Louisville, my son's middle school required all 8th graders to take Economics for a year. My son groused about it (such a teenager!) but we explained to him why understanding Economics (both micro and macro) is so important in every day life. He rolled his eyes at our lectures but hopefully will come to understand why it's important.

Maybe Home Economics needs to be re-instated and not just about carrying "egg babies" or sacks of flour around to understand responsibility. Maybe it should combine a unit with the math class so kids start to understand how all of this works. What the % charged by the credit card companies means, how to interpret a basic sales contract or loan application, how to put together a realistic budget to run a house on a "starter" salary . . . You get my drift.

As a former teacher, it seems to me that we're setting our kids up for failure (and I'm talking generally here - those of us who know how it works (or at least try to figure it out) are hopefully passing it along to our specific kids). We want to make sure they can read and write, but maybe we also need to teach them about how to handle money responsibly. And don't get me started on the lack of "citizenship" classes . . .

The issue is that many people just don't have the ability to understand financial issues...as the paperwork that supports these is often purposely designed to confuse and obfuscate...in addition, there were people who were guilty of nothing but trustwho took out what they believed to be a fixed rate 30 year...only to find out after the fact that it had been switched out...

If one takes into account that the average IQ is 100 give or take.and as you mention, if someone needs to take that much time to decide between coffee drinks, it is easy to see how a professional scam artist well versed and educated in financial fraud can pull one over on them..

The intent was to deceive.
The fact is that more and more business models are based on making a profit via deception. They take advantage of peoples lack of training, knowledge and sophistication in these areas.
They also take advantage of people's trusting nature, and natural aversion of many to avoid confrontation.

Most important...lets not forget that people wrongly assumed....but rightfully so, that this process is supposedly regulated to prevent such activity.because the average person cant be expected to understand the convoluted machinations of someone intent upon fraud.

Buying a home...or financing anything for that matter, should not have to involve reconnaissance and espionage to simply get a fair and legal deal.

It often takes a lot of reading, research, time and perseverance to find out the real deal....those who were subjected to the scams of others who were far more knowledgeable,.. with larceny in the hearts, should not be penalized....as blaming the victim only enables deceptive fraudulent practice even further.

Should have read:
natural aversion of many to confrontation

So...Bernanke "spoke" and...the market goes down, disappointed about not getting thrown the life preserver they demanded -- no rate cut promised. I'm very pleased.

I don't recall what percentage of Americans do NOT own stocks, mutual funds, any such investments, but it is the vast majority. All will suffer if inflation takes root.

I feel like hiring some cheerleaders: "Ben! Ben! Hold That Line! Don't Give In and Lower Prime!"

Bush is listening to his contributors: Big Business and Wall Street. (Business *should* take a longer view.)

chisue, I LOVE IT!

Ben! Ben! Hold That Line! Don't Give In and Lower Prime!

Count me in the group that believes lowering prime or running a few of these loans through FHA is not going to fix the situation. As somebody has already noted, the cow has already left the barn!

Hey, has anybody noticed that those car commercials advertising zero interest are now prominently including, "For those who are WELL QUALIFIED"? I do believe we've entered a new era.

/t

Lowering the prime really does not help out those unfortunate to have subprime loans..The teaser rates will float upwards as they readjust.Most were issued so far below prime that a cut will not help them..3% teaser rates will adjust up the maximum,normally 2% annually until they "Level off" with the terms and index they are tied to...

Most adjustable rate mortgages are based off of the LIBOR rate & not prime.

LIBOR stands for "London Inter-Bank Offered Rate." It is based on rates that contributor banks in London offer each other for inter-bank deposits. From a bank's perspective, deposits are simply funds that are loaned to them. So in effect, a LIBOR is a rate at which a fellow London bank can borrow money from other banks. Rate calculations are complex as they incorporate variables such as time, maturity and currency rates. There are hundreds of LIBOR rates reported each month in numerous currencies.

Rates published prior to July 2007 reflect the Fannie Mae LIBOR rate which used a different calculation. Fannie Mae discontinued its use and publication of LIBOR rates at the end of June 2007 and suggested a replacemtent rate using our current methodology, which is similar to the Wall Street Journal LIBOR (WSJ LIBOR).

Now, it's time to listen to Bush...

/t

Yikes...I just listened to HUD Secretary Alfonso Jackson & he's an IDIOT! No, not just a little slow, not just a bit dense, not just one of the dimmer bulbs in the candelier...but a real IDIOT!

/t

RE: Bush's statement. Um...did I miss something (like details)? Or have I yet to atune my ear to Bush-speak?

Well, he used the term "sub-prime" incorrectly when referring to people of low to modest income. So, that made his speech tricky to follow. Imagine that? Our President using English incorrectly!

What I gathered was that folks who are as much as 90-days delinquent will be allowed to refi through HUD. Here's where Bush was confusing...HUD can't guarantee loans to true sub-prime borrowers. Sub-prime refers to one's credit history & not income. One would hope that he realizes the difference. After listening to HUD Secretary Jackson, I'd not bet on it.

Then, he proposed a change to the tax code. Right now, if there is a forgiveness of debt (short sale) that amount is taxed as ordinary income. It could also be a foreclosure that results in a lender not receiving full payment. Anyway, Bush is recommending that the debt forgiveness not be taxed.

/t

Thanks for the interpretation. That helps me understand what he thought he was saying...not that it will certainly work. Reporters covering Bush have resorted to the style of reporters covering Mayor Daley in Chicago. They write what they think he "meant" to say.

waste of time. Bush doesn't understand economics and was only pushed to speak because somebody probably pointed out to him that the relatively few subprime borrowers/investors in trouble have...voting rights! Imagine that, those silly people being able to vote for president.

Realistically, the subprime "mess" is minor. It's a very small percentage of borrowers. What is upsetting the markets is the fact that the equitization of these loan pkgs makes it unclear who is actually going to take the fall for the written-down values. The markets HATE uncertainty and therefore you have more volatility until the dust settles.

As chisue points out, outside of retirement funds, most individuals don't have a lot in the stock market. The majority of money on Wall Street is commercial/institutional. So really, most of this is media hype and "much ado about nothing."

Now the S&L meltdown in the '80's - that stuck the US taxpayer with a HUGE bill. And the various corporations who are sliding out from under their pension obligations and sticking it to (guess who?) the US taxpayer again with billions of dollars of pension payments through the Pension Guaranty Fund (sorry, can't remember its exact name right now) - those are problems people should really get riled about, because those debts are being paid by all of us, and will go right down to our childrens' and grandchildrens' backs.

But hey, that isn't a 'sexy', attention grabbing story, so the media ignores it. But in real terms, just like the growing lack of health insurance, it's a lot more important to the finances of all of us.

chisue: "I don't recall what percentage of Americans do NOT own stocks, mutual funds, any such investments, but it is the vast majority. All will suffer if inflation takes root."

No, chisue, you're wrong. A majority of Americans DO own stock. According to the PBS link below, while only 13% owned stock back in 1980, by 1998 that figure had increased to 52%. It is now well over 60% (although that info isn't in the link below). And with 401(k)s replacing defined benefit retirement plans for most working Americans, I think that more people would be helped by a robust stockmarket than would be hurt by an uptick in the CPI.

This country has gotten to used to the idea that they can be bailed out of any crappy situation. I will be horribly disappointed in governemnt if they make it easy for people to keep their houses when they can't afford them. I agree with many posters, they [people being foreclosed on] should have been better informed and figured out what they really could afford before they signed on the line a instantly became house poor.

Hi Tricia,

Yikes...I just listened to HUD Secretary Alfonso Jackson & he's an IDIOT! No, not just a little slow, not just a bit dense, not just one of the dimmer bulbs in the candelier...but a real IDIOT!

Heheh.... but seriously, you've been around the block (as have I) a while... Alfonso's brilliance is nothing surprising, no?

The idea of loosening FHA guidelines to swallow up a bit of the subprime slime... very bad idea, IMO. It'll be yet another warp to the market that will never be rescinded or phased back, and the markets will then grow around it and end up being a permanent 'tap' (as in a beer keg) to draw out liquidity in exchange for credit risks heaped on the taxpayer's backs.

Bad juju... bad economics...

BUT... there's the reality. There's going to be opportunity for the creative, that's the upside.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner

Don't even for one minute thing that this Bush's bailout has anything to do with helping out the homeowner. The fact that the homeowner is going to benefit, is only a bi-product of its real intention, which is to bail out Wallstreet. I am sure that Bear Stearns is relieved and the checks will be in the mail to the DNC and RNC.

bethesda -- Thanks for the link! I was going by what I'd just read on The New Yorker's financial page (James Surowiecki). I can only guess he meant that few depend on the market to finance their daily expenses...???

The link info only goes to 1998, saying 52% own stocks, crediting mainly the end of company pensions and the beginning of 401K's, plus the advent of easily purchased mutual funds.

So, a bit more than half of Americans own stock in some shape or form. An honest and regulated market is more important than I'd thought.

Bush's bailout plan is probably as good as his plan for helping the Katrina vicitms.
Bailing out these companies is wrong. It's time people learn to be responsible for their own choices. I've got to beleive there is a private individual or company waiting for the dust to settle that's going to make out like a bandit on this screw up. Let the chips fall where they may it might be enough to teach the next set of greedy hands to think twice before they decided to act.

Wow,

I don't know where to begin. It is obvious that most folks posting have less than a complete understanding of the current mortgage problem. I read a wonderful blog regarding the situation that explains what happened and why in everyday terms. You can read it by cutting and pasting the link below:

http://jmacsays.blogspot.com/2007_08_01_archive.html

So the government is going to offer aid to those that are 90 days behind and caught in a loan that has re-set to a much higher rate. I have seen some here mention a couple hundred dollars. It is often more than that. Many of the loans were offered with teaser rates that would reset at 5 points over market. That essentially guaranteed the payment would almost double.

Who was to blame? Everyone from the buyer believing what the lender told him, to the appraiser that submitted an appraisal that had little relevance to the market, to the underwriter that just made sure proper paperwork was submitted, to the investor that took the word of the lender, to the officials at the Fed that sat by and watched everything that was going on without stepping in.

Bush's comments that law enforcement will ferret out those that did wrong were only missing the caveat "just as soon as we locate those weapons of mass destruction in Iraq."

The final thing that just got under my skin was the aside that we will bail out these people just like we bailed out the victims of Katrina. Mentioning it is time for people to take responsibility for their own choices.

I can only hope that you were not referring to the people in New Orleans. They were not victims of a hurricane. They were guilty of believing public officials that promised them that they were building those levee's with all the money the federal government sent down there. They were guilty of believing that all the areas adjacent to the levees were safe. They were guilty of believing that in the face of a national disaster, the federal government might find a way to get water to them within less than five days. They were guilty of believing FEMA officials that told them temporary housing would be available. They were guilty of believing that New Orleans is still part of the United States and that they could walk across a bridge to safety after the storm. They were guilty of believing that as residents of Louisiana, they would also be treated as citizens of the United States and not become "refugees" in their own country. They were guilty of believing that the compassion that they shared for one another would be replicated from the leader(?)of the free world down to citizens all across this country.

Please don't embarass anyone else comparing the scoundrels that took advantage of the lending system that was in place with people that did nothing other than believe in those that were elected to protect and serve them.

since we are being so generous....let's also bailout all the gamblers who lost in vegas.

People looked at housing as get rich quick scheme and got in way over their heads hoping for future appreciations....in short they gambled on house prices always going up and lost. If they can be bailed out then why not the gamblers who gamble at a casino?

try99: "People looked at housing as get rich quick scheme and got in way over their heads hoping for future appreciations....in short they gambled on house prices always going up and lost"

While there are a good number of those...not all of them...or even most of them were "flippers". There are far more who were simply scammed into believing that they could a afford a home....or were victims of "bait and switch".
It is unfair to paint every homebuyer that was screwed by this scam with the same brush.

Wall St. was already bailed out by the infusion of billions into the banking system.....and the Wall St./hedge fund crowd were the entities that profited most before the meltdown ..to the tune of billions in their collective coffers.

However, it seems the majority of the grumbling on the bail outs is about the homeowner who can least afford to lose...who has made nothing...and has probably already lost their savings and any credit rating that they may have had.

DH and I have worked very hard for what we have...and...we did it all on our own...so trust me, the thought of someone else who did not take the "respopnsible" road getting bailed out does not sit well with me either....however, its pointless to blame the result...and not the cause.

IMO.....EVERYBODY makes stupid mistakes...especially when it comes to complex finances. Comparing such to gambling in Vegas is simplistic at best.

housing market was a casino until now and flippers/speculators are the players playing with easy credit which was available until recently...some lucky ones did hit jackpots and came out big but now things have changed and they are left holding the bag.

{{gwi:2050133}}

Billions of dollars of subprime loans are at stack here. Many bought in with 0 down and low teaser rate and thought that by the time the rate does adjust upward we will sell our homes and cash in our profits.

Whatever happened to putting 20% down on a 15 or 30 years Fixed loan for a house which is not more than 3 times the annual income?

try99: "People looked at housing as get rich quick scheme and got in way over their heads hoping for future appreciations....in short they gambled on house prices always going up and lost"

While there are a good number of those...not all of them...or even most of them were "flippers". There are far more who were simply scammed into believing that they could a afford a home....or were victims of "bait and switch".
It is unfair to paint every homebuyer that was screwed by this scam with the same brush.

If people signed documents clearly stating the terms of their mortgage, how were they scammed???

Hmm, the best "bailout plan" of all would be to put basic financial education into every high school. It's disgraceful that people who live in the US aren't taught the basics of how to manage their personal finances.

I agree these people weren't 'scammed' in the traditional sense. The social pressure of "buy your home now; you can't lose money on RE the way you can in the stock market" was tremendous after 2001. I can't tell you how many young people I know asked me if they should buy a condo or house ASAP; or if they absolutely didn't have the money, would confess they didn't think they would ever be able to afford one ever after "missing the boat" these last few years.

That social pressure can make people do foolish things. I know this for a fact, since we bought our house during the PREVIOUS housing frenzy, only to see its value drop 25% after the Loma Prieta earthquake. The fact that Loma Prieta was nowhere near our house didn't matter (gee, sorta sounds just like today's stock market); it was people's PERCEPTIONS that changed. Had we been able to withstand the pressures from friends and family for even six more months, we would have been able to buy our house for a lot less than we did pay.

There were a lot of people on these (and other) boards in the last 5 years that were loud in proclaiming, "Oh, you can never lose money in RE the way you do in the stock market!"

The simple truth is, most people have extremely short memories.

I suggest that you and I are as much to blame in the real estate mess as Wall Street, Greenspan, Bernancke or anyone else. We have money to invest in stocks, cds, mutual funds, 401ks, houses. We want our money to make as high a return as possible given our individual level of risk tolerance (if we even have a clear understanding of what that risk tolerance is!). We invest, and then when we aren't getting a high enough return, we move our investments to the next choice in hopes of getting that ever higher return. Is my thinking wrong?

How do you think the pros meet our needs and our greed? Loan products are created, money managers try and enhance returns by taking on higher risk, corporations look for the cheapest source of borrowing so that they can increase profits which means higher stock prices.

Take your own situation and apply it to a globe full of investors. Plenty of blame available and I'd suggest that investors should shoulder some of it.

kec01,

You have brought up the 800 lb. gorrilla in this fight & I agree with you. I confess to not liking a CD rate of 3% & searching for a higher-yielding place to park cash. So, a few years back we benefited from one of the mortgage-backed high yielding funds. Then, we moved that cash to small-cap global funds & did well again. Now, we've moved out of those equities & are sitting securely in either 5.25% CDs or T-Bills to wait out the confusion over who owns what & who's going to get stuck with the bill. With a brother-in-law as an executive stock broker & a husband who's an attorney & banker as well as my own banking experience, I've learned that "Buy & Hold" is a fool's game thrust upon the masses so fund managers & account executives can keep your money to generate fee income. It also gives individuals an excuse to be lazy & not learn to manage/take control of their own destiny. So, we don't let a lot of moss grow under our cash. We actively manage our risk. We moved fully into bonds February 1999 on the strong advice of my BIL. Yep, we missed a lot of the Nasdaq run-up & people accused us of being fools. But, we didn't lose a penny & walked away unscathed by the 2000-2002 recession. Instead of having to switch into a riskier "recovery mode" & try to make-up those lost dot.com dollars we could just continue chugging along towards our retirement goals.

So, you are correct. DH & I are a tiny piece of the speculation. We chose not to buy & flip houses because as a work-out officer I've just seen too many financial disasters. Instead, we took advantage of others flipping by investing in their promissory notes for a couple years. That was before the sub-prime bonanza really took off & the market was mostly speculative flippers.

I agree, in general concept, about needing financial education in our school system. However, it's not really practical at a level above basic home budgeting. Not all people are proficient in the workings of money as a commodity. The same way that I wouldn't replace the light fixture in my dining room so I hire an electrician. I expect that electrician to do a proficient, legal job in replacing my chandelier. I also expect my banker (that would be DH!) to be upfront & forthright in explaining what's happening to my money. And there's the rub...many mortgage lenders forgot that part in the past five years & I maintain it was a breach of fiduciary duty. In the worst cases, it was illegal & people are being prosecuted as we sit here discussing (think Colorado). This happens in every bubble of every sort. It will happen again. I just don't know where the bubble will be.

There's plenty of blame to go around for everybody to have a little piece! But, please, let's not jump on the fireman who doesn't make enough money to save 20% down on a $400K home & so took an adjustable 90/10 mortgage for his family to have a piece of the American Dream. He, most likely, doesn't understand what LIBOR is so he relies on somebody who supposedly does & instead puts his energies into saving yours or my life in a fire.

Many of these "funny money" loans were complicated for a loan closer to understand. It's just neither fair nor reasonable to expect the general public to understand.

I have no sympathy for those who did understand & just made poor or untimely decisions. That's life. Get on with it. But, for those who really didn't understand it grips me to hear people jump all over them like they're idiots. A micro-biologist is not an idiot yet he/she may not be nearly as financially adept as they are in the lab. Again, that's OK. They should be able to trust their bankers. Bankers are supposed to be staid, conservative, slow & easy as she goes, watchful, & always with a bit of a "bearish" attitude to counter-balance irrational exuberance.

Never trust a stock broker! They are not bankers & don't let that name in their title fool you (as in "Investment Banker"). If you're going to play around with equities...remember, you're playing with the Big Boys & it's very wise to learn the rules of the game which are often counter-intuitive & sometimes even illogical.

Bush's little speech was political cover after the Katrina debacle. He was just showing his "compassionate" side. Cripes, he doesn't even know the difference between low & moderate income & sub-prime...he who was born with a silver spoon in his mouth. And, since he has failed at every financial endeavor he's every attempted it's appropriate that he would show sympathy to others.

/t

Please take warning, I can't do the PC thing and make everything sound like flowers and roses when it's really manure. It's manure and I call it such.

ANY bail out is a bad idea. 'Cept maybe the one that says any pre-payment penalties can be paid back over the next however many years at $5 a month at 0% interest and will be held as a separate loan from the property and be treated as "unsecured" debt.

The American consumer needs to know what their consumerism costs them. AND actually give a darn..... "Saving" them, teaches nothing. Everyone makes them. Stupid mistakes. Some cost a little and you learn, some cost a lot and you learn. Some folks no matter the cost will never learn. And those folks do not deserve a bailout.

The American parent is too busy making the money, and spending every last dime and then some, and then trying to figuring out how to pay all those bills, to teach their children the down side of debt. When they have the perfect working (or not) model. I know a whole lot of children who get to college age, without ever having held a job. They have a cell phone, a car, a driver's license and have no shortage of cash. Their parents bought them everything. And will pay for everything in college as well. So we have a whole lot of young adults, who have no idea about the value of a dollar, have not held a job, feel no need to comparison shop, and think that the CC fairy will pay their CC bills. This is the true debacle.

The public school has enough trouble trying teaching the three R's. I do not think that foisting this additional parental responsibility on them is a good idea. We'd likely end up in more trouble than we are in now. Talk to me when the school is once again accountable to the parents, not the feds.

I'm very curious as to what amount of these ARM, IO and 80/20 loans are on houses that cost LESS than $100,000. And what percentage of those loans are in default. I'm not interested in bailing out the middle class who just acted irresponsibly. Talk to me about the people that are in homes under $100,000.

I have all kinds of questions with those facing foreclosure .... like do they still have a cell phone? Cable tv? Internet? Are they still renting (leasing) a new car? Are they still eating out? Are they shopping at thrift stores now? Or are they more concerned that their "status" will drop if they didn't have those things? Basically what are they "doing without" to ensure that they keep their home? Yes, I do know someone who was facing foreclosure with internet access, cell phones for all, including children, and then they took a vacation. Couldn't afford to pay for the house, but could afford a vacation.... even felt that they "deserved" it. Those folks get zero sympathy from me, as do any others doing the same thing. They do still have the access, the cell phones, and last I knew were planning another vacation, but they no longer have the house. I think that is probably the best thing for them.

Americans are smarter than you all are giving them credit for. Also very spoiled. But let's go with the supposition that no one ever told them to read and understand everything they put their signature on...... If they are all so stupid, then what do you think a bailout will do for them? Teach them that stupid is ok and the government will come along and save them? I think that's a very bad idea. If I can buy a house with one income of less than $30,000 and 6 children, then those folks who have a couple of children and two incomes can make it as well. You may not like it, you may have to say no every now and again, you may have to buy a smaller home, and your children may even *gasp* have to share a room, your children may have to go out and get a job for their spending money, you may have to take your child's cell phone and the cable television out of their room, and out of the house as well, but it can be done. You just may not WANT to. Tough. That my dears, is not my problem.

I'm just plain disgusted with these folks. Yes, I know you feel it's not your fault. Yes, I know you feel it was the big bad bankers. Yes, I know that you didn't know. Yes, I know you feel they took advantage of you. Yes. I know. Someone needs to do some plain talking to these folks. Quit the pretty words and talking about how it's not their fault. Yes. It is. They signed. Perhaps once everyone stops trying to take these folks personal responsibility from them, then they'll be able to get somewhere. Stop trying to make them victims, and let them be responsible adults. Let's get down to the not so pleasant task of telling folks, no you really can't have it all.... at least not until you earn it, and stop toeing the company line of you can have it all, if you just put it all on credit. It's not pleasant to take responsibility for the bad outcomes, but it doesn't make you less responsible. There was no "scam", no "fraud", and no "victim". Just a bad decision. Now decide, do you compound that bad decision by blaming everyone else? Or do you do what you can to fix the problem that bad decision created yourself?

I vote against any bail out, except those that are interested in bailing out themselves.
We have a prime opportunity to "teach" a whole lot of Americans a little about finance right now. Not my chosen method, but the one that presents itself. Like if you make under $50,000, there is NO WAY you can afford a half million dollar house. Like if you cash out all your equity, you are risking your home. Like if it's seems too good to be true, well then someone's lying to you.... or you are lying to yourself. Like if you make a stupid mistake then YOU have to get yourself out of it and suffer the consequences. Until people stop looking for someone to save them and start looking at saving themselves, this will keep happening. And the children will learn as well.... it will be hard not to, when they start living within their parent's means. How folks can say these people are stupid and need to be taught, and talk of taking the number one teaching tool away from them in the same breath is beyond my understanding. I can't agree with that. It's just compounding one stupid mistake with another.

tricae: "But, please, let's not jump on the fireman who doesn't make enough money to save 20% down on a $400K home & so took an adjustable 90/10 mortgage for his family to have a piece of the American Dream. He, most likely, doesn't understand what LIBOR is so he relies on somebody who supposedly does & instead puts his energies into saving yours or my life in a fire."

What happened to the idea that people should live within their means? The market only charges what people are willing to pay. Clearly one person refusing to pay $400K for a home does not change the market. But if collectively people took personal responsibility for their own finances and lived within their income there might be difference. The fireman (my brother) has plenty of choices as to what city his lives in and what second job he chooses. When he is not fighting fires (2 24-hour shifts/week) he has plenty of energy to hold a second job he loves, run marathons across the country, and educate himself on buying a home within his means.

Speaking of which, all this talked about people trusting other people to make sense of finances for them or that the public schools should be educationing people on personal finance is a bit ridiculous. We sign our names to the contract and payment schedules. To me, it is our responsibility to educate ourselves...and we have plenty of free opportunities to do so. The public library gives everyone access to a plethora of books/magazines on home buying, home building, personal finance, etc.

This whole situation is very frustrating. Especially as I sit in a one bedroom apartment, with a leaking pipe and broken airconditioner, because my husband and I have taken the time to live frugally in order to save enough for a 20% downpayment for a 15-year fixed mortgage in order to buy or build our first home. We have been watching the market for three years, frustrated that subprime mortgages were allowing people in our area to buy more house than they could afford, changing market dynamics, and forcing housing prices higher and higher. At any point we could have said, let's just go ahead, this is how things are going to be if we live here. But we didn't. And we won't. If we cannot live within our means here, we will have to move elsewhere. I do not expect the government, or anyone else, to help subsidize our decision to own a home.

Love the last post by the way, momto6. I couldn't agree more.

Oops...just realized "educationing" was a typo, should have been "educating"...please excuse me! :)

"There was no "scam", no "fraud", and no "victim"."
There are numerous reports of scams, fraud and victims, and those are the ones that should be helped.

http://washington.bizjournals.com/denver/stories/2006/04/17/story3.html

http://www.csmonitor.com/2006/1214/p02s01-usec.html

http://www.irs.gov/newsroom/article/0,,id=136208,00.html

http://www.saltlakespeaks.com/2007/06/04/utah-real-estate-fraud-alert/

GREAT post momto6-

What's really sad is the expectations of these 'coddled children' in today's work environment. I know a new employee who was bichin' about making "only" $45K a year to start (zero experience). Private school, designer wardrobe, trendy loft rental, BMW...now she can't pay for what her parents gave for free (LOL). Poor little princess! She now plans to get daddy to buy her a master's (private, of course). Funny thing is - with some overtime, she could easily pull 60K (not too shabby in DFW). Imagine! Working harder to get the finer things...

We want to give our kids the best, but what have we really given them? Insatiable want regardless of cost. STATUS. Want to teach your kids finance? Don't give them anything. On that note - I'm going to go take away some toys from my toddlers right now...

Upon closer examination it doesn't sound like Mr. Bush's plan will save very many from foreclosure. Suspending the income tax on debt forgiveness? That's a move that should make a few, less than truthful, speculators happy. Although, I'm not sure how many American homeowners are even aware of the tax ramifications of debt forgiveness actions such as foreclosure or short selling.

My biggest problem with a real bailout effort is trying to separate the woefully ignorant from the willfully ignorant.
Just how would that work? Take the story of the poor 84 year old grandmother who was preyed upon by ruthless lenders. She's losing her home of 40 years. Her cash-out refi is resetting and she can no longer afford the higher payment. Of course, the media underplays that Grandma cashed-out to the tune of $664,000 and invested her chunk into a business venture that went south. Grandma sounds like one of the willfully ignorant. Every time I read a victim story, I want to know: "What did you do with the money?"

The woefully ignorant might do better using the civil justice system like so many other victims of shysters and frauds.

Momto6, kyhome, mudbelly...you raise a larger issue about our increasingly myopic financial sense. We look at the responsible and frugal nature of our parents and grandparents and forget that we are now about 3-4 generations removed from the Great Depression. Maybe we've become victims of our own prosperity? As a nation, maybe we've forgotten about or redfined risk. Columnist Robert Samuelson had some interesting thoughts on the subject last week.

ok, muddbelly: Hard to tell if you are just yanking my chain.... but if your toddler has a cell phone then yes, you are giving them too much, and taking away a few "toys" is probably in order. The toddlers will have more fun with the box it came in anyway. =0)

I never said don't give your kids ANYthing... I said it don't give them EVERYthing. Obviously you can't teach you child by not giving them anything, anymore than you can teach them by giving them everything. There's a balance that must be achieved. Having your child expect the best is fine, so long as you have also taught them to pay for it.

I pay for a week long summer camp for two of my children (the others have not expressed a wish to attend), if they would like to go to another camp during the summer, they have to pay for half the camp fees for that additional camp. I give my 12yo "spending money" for camp (not as much as he wishes I would), but my 15yo must earn and bring his own. The 12yo can also earn his own and add it to what we give him. Next year and the year after we will only match the funds that he earns. Then when he's 15, he'll be earning all his own spending money. For this particular camp, we will pay for it until they no longer desire to attend, because it is a camp my husband and I actively want them to attend.

Yes, we want to give our children the best of everything. By that I mean the BEST of EVERYthing. Not just the best stuff. My young children are probably a little spoiled, but as my children enter middle school and high school level learning, then I figure it's my job to make them into productive members of society, not future welfare recipients. Productive members of society work. It's just a fact of life. I want my children to be able to survive after I can't bail them out anymore, and the only way to do that is to teach them well, and to be there when they fall and teach them how to get back up. I'd much rather it be when they're 15 and it's a summer camp they're missing out on because they didn't budget well, than when they're 24-25 and it's a house that's in foreclosure. I know mine is not a popular opinion. I simply do not care. In the future, my children will be the ones who are doing the bailing out, not those in need of it.

berniek: Yes, the second, third, and fourth articles are about actual criminal fraud. I could not get to the first, for some reason it kept freezing up my computer. But that is not the category of folks I was talking about. Still, I must say the only victims of those frauds were the folks who had their names and personal information used without their knowledge or consent... and the lending institutions. Everyone else knowingly lied in some form which doesn't make them victims, it makes them accomplices.

I was speaking of those who signed up for a higher interest rate than they qualified for, who got an ARM, or an IO loan, and possibly some of those with 80/20 loans that they are now finding that they can not pay while maintaining their current lifestyle. Those who are yelling "fraud" because they did not get the best rate/loan type/terms and now it's time to pay the piper. Those that overbought. Those are the folks that I refuse to call "victim", or believe that they were "scammed" or that there was "fraud", they simply made a bad decision.

"Now, we've moved out of those equities & are sitting securely in either 5.25% CDs or T-Bills to wait out the confusion over who owns what & who's going to get stuck with the bill. ........ We actively manage our risk."
------------------------------------
Even with CDs, investors can still be irresponsible and not pay a price. Country Wide offers one of the best CD rates (for obviously good reasons).

Why bother with more "sound" banks who pay lower rates? After all, the FDIC will hold our hand and bail us out if we invest up to $100,000 irresponsibly.....Right?

Triciae Then, we moved that cash to small-cap global funds & did well again. Now, we've moved out of those equities & are sitting securely in either 5.25% CDs or T-Bills to wait out the confusion over who owns what & who's going to get stuck with the bill

So Triciae, you are completely out of equities even foreign ones? I also think you stance against buying and holding is interesting. What about in taxable accounts? A relative in April 1987 before the October crash, it was impulse. Although he thought it was a brilliant move then, he recently calculated that if he had simply held and not had to pay taxes then, he actually would have done better in the long run. He seems to have great sell instincts, he sold Cisco in late 1999, early 2000 at over 80 per share

I am reluctant to buy now too but only because I never buy in September or October. Still I wonder if it will be safe to buy in November or will we still be in a shakeout. Finally is it inflation or recession that is the bigger danger or perhaps as in the 70s, both

As for the original question. I read absolutely everything always and even I get a sense from DH and everyone else at the table that they are impatient with me and want to get things over with. I can only imagine what would happen to a less sophisticated purchaser. Yes the ones who took the money and ran deserve no sympathy. However in my area a starter home was more than 400k. If someone is employed as a policeman, how can they afford it? Do you really want someone protecting your life who has to spend 15 hours a week commuting because he cannot afford anything closer

As for cell phone internet and cable and car leases, many of those are contracts which cannot be walked away from without penalties. I agree that the vacation was over the top. Mom of 6, do you really support 6 kids on a total household income of 30k? That is amazing

saphire: I read everything as well.... I am VERY careful of anything I place my signature on. I have noticed that folks think you should just trust them and sign. I don't know that it's sophisticated, so much as careful. =0)

Cops, firemen, soldiers, and teachers.... why is it that those we want the most from, we pay the least? Many cities do not want their people to live outside the area that they are protecting..... I think NYC was one of those, until they realized that they did not pay their folks enough to live within the city limits. So did they pay them more? No, just changed the laws so they could live further away.

15 hours a week? What 1.5 hours each way? Wow. That would be a little excessive. It stinks, but can be done. Is it optimum? No, but then again, do you want a cop busting drug runners that has a home in foreclosure?

What is "starter" about a half million dollar house? I know some houses in some communities are absolutely outrageous, but that isn't a starter home. Are you seriously talking about a small 1 bdr/1 bath house? A true "starter"? I thought those went out of style and got torn down for McMansions. Or do you mean that those are just the cheapest houses on the market? Wow. The simple answer is that they can't afford it. If I was their "financial advisor", I'd tell them to move somewhere where they could afford to live or plan on paying rent forever.

I would not be against a bailout plan that said all the cancellation fees could be paid off at $5 a month, for as long as it takes. To me, that would be a hand up instead of the hand out. That could actually benefit the homeowners that are interested in helping themselves. Even though it would mess up my credit, I'd still be calling the companies and telling them that I couldn't afford their services and I was canceling them, and that I would pay them a little each month until they were paid off. My credit would not be as messed up as if I had lost a house and my family would still have somewhere to live.

Thanks saphire. Though I don't see anything amazing about it. It's just life. But I have never been one to keep up with the Jones'. I don't even know anyone named Jones. =0) There are a whole lot of folks who get by on what we made at the time and even on far less. Like I said, it's just life. I figure the Jones' whoever they are are so busy trying to stay ahead of everyone else, that they can't even enjoy what they have. =0)

Gail Marks Jarvis, writing in today's Chicago Tribune Business Section, says balanced (stocks and bonds) funds have sunk 6% since mid July, on avarage; mutual funds in small cap stocks are down 8%; international mutuals also down 8%; emerging market funds down 10%.

She says that over 20 year periods mutual funds gained an average of 12% per year. However investors moving in and out of them captured only an average of 4%.

She's providing these stats and urging investors to check Morningstar to see how their individual funds are doing against the average mutual fund in the same category (small-cap, mid-cap, large-cap, whatever).

Personal message: Ladies, do not keep any good jewelry at home in your bedroom. We were burgled -- Thursday afternoon we think. It was a quick in-and-out, only my jewelry and my DH's watch were taken; no cash, no silver.

Unfortunately, I had one piece of uninsured jewelry out of the vault and it's gone; another is insured. None of it is "replaceable", all sentimental as well as $$ value. Police dusted; we gave our prints for comparison; State Farm notified. I'll never see these things again -- probably already in Europe or S. America. Boo-hoo. Don't let it be you! (So, where IS a good place to keep things you wear a lot? The freezer?)

One funny part: I'd like to have seen the look on the thief's face when he opened what appears to be a jewelry box only to find some keepsakes, like my first lipstick and DS's baby teeth!