Monday, July 14, 2008

People, really, you need to understand ecconomics...

So, a bank failed this weekend, IndyMac. I found some of the press interesting. Here we have someone that learned a hard lesson from the failure, you are responsible for your money, nobody else:

"We have money we are afraid we are going to lose, I wish we were a little more savvy."

Right on! That is the attitude!

This is what happens when we turn to the government to protect us from everything. We become complacent, and we forget that in the end we are ones responsible for our success or failure.

You might say, hey, how were they supposed to know the bank would fail? Thats a good question. Some economics might have given you a clue. Generally the return on an investment is indicative of it's risk. One school teacher indicated he used IndyMac bank because of the "High interest rates it offered on deposits". One might wonder WHY the bank pays higher interest rates than other banks. This might well be a clear indication that you are taking more risk. It's not full-proof, but it's a good start.

In the end, I'd never put more than 100k in any bank (250k for retirement accounts). It's just bad business.

No doubt we will hear calls for more regulation and controls instead of calls for people educating themselves and understanding some simple economic facts. I'm all for regulation in the form of disclosure, by the way. We need to see all the facts, and then we need to be allowed the opportunity to make our own choices. This is true with banking, mortgages and anything else in this country. I don't need the government to protect me, just to make sure I have the information I need to make informed choices.

Sunday, July 06, 2008

My own measure of the economy....

So, everyone has been hearing how bad things are. The economy, housing, etc... I have my own economic dipstick and it's looking pretty sorry I must say. I am involved in a website called

Here I have a small amount of money parked that I've loaded to various people. Prosper is a unique community. Here you bid on loans, and various bids are combined together to make up a single loan. For example, someone might want to borrow $1000.00. On Prosper I will chip in $50 bucks, and 19 other people will chip in $50 bucks (or maybe some will chip in $100 or $200, whatever is needed). Once the loan is funded it's made.

So, usually with Prosper I always have one person who is like 15 days behind. I've had four people majority default on me in the past, that is the risk you take. Now, though, it's worse than it's ever been. Right now out of 17 loans I have:

11: Current
2: Late (<15d)
1: 1 month late
1: 3 months late
2: 4+ months late

Thats as bad as I've ever seen it. While this isn't a disaster, it certainly demonstrates that some people are finding it rough out there.

We need to turn this economy around. We need to be drilling for oil now. We need to cut taxes more now. We need to deal with the housing crisis now. We need quick resolution on foreclosure issues, quick resolution on adjustable mortgages that are about to have rates adjusted again, making payment impossible for the folks who will be impacted.

There are those that would say that they signed the mortgages, they should have read and understood the cost, the likelihood of a rate increase and how much that increase would be. They believe that we should just let the homeowner melt, and allow a hard, corrective action to occur.

There are those that would propose more regulation, more restriction and control over the mortgage industry.

I suggest both sides are wrong. I suggest that allowing a boat load of mortgages move into foreclosure is not good for this economy long term. It's not good for anyone except a few predatory investors waiting for the destruction to be complete. Foreclosure is not in the best interests of the mortgage companies, already reeling with red ink. To me, it seems that the best solution might well be a re-negotiation between the mortgage holder and the owner, making it possible for the owner to keep his or her house, and keeping the mortgage holders income stream going. A win-win for both in my mind.

Finally, the long term solution to this comes in the form of education and regulation in the sense of disclosure. I don't want to limit what kinds of mortgages are available, I don't want to add more regulation in a already heavily regulated world but we need to make sure that we understand the impacts of the papers we are signing. This is where education and disclosure come hand in hand. Can we require 8 hours of education before any first homeowner purchase? Can we require homeowner 101 be made available in the schools? We need a plan. Who will step up to the problem and make one without dragging us down with further regulation.
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