http://finance.yahoo.com/expert/article/yo...JDeCl.2G0S7YWsA

I remember years ago, a psychic named Carol Ann Dryer predicted the banks would fail and the country would fall apart. I thought it was ridiculous and over the top. America will always be here, right? Yet it seems to be happening.

Ben is using some financial terms I'm not 100% clear on, but I sure catch his drift.

There are a number of ironies at work here:

Credit default swaps - and the rest of their ilk, derivatives - were designed for the purpose of reducing risk. Banks take on risk in the form of a mortgage/loan/whatev, and banks would swap risks to evenly spread their exposures. All well and good thus far.
However, the go-go-go finance world started making derivatives of derivatives, and these were nothing more than side bets on market behavior. (Derivative being the generic term for a transaction whose value was derived from another transaction)

Derivatives have caused tons of losses - Google Barings Bank and Nick Leeson. By betting on derivatives Leeson single-handedly bankrupted Britain's oldest bank. Orange County went bankrupt in the 90's based on derivative and leverage addictions.

But the biggest irony in all of this is reflective in the LTCM debacle - where a room full of geniuses decided there was a foolproof way to make money and borrowed tons in order to invest it. They lost, big-time, and required a major bail-out. That's what happens when people think they're so smart.

It's all about gambling and betting and it seems to me the laws governing the stock market should be at least as stringent as the laws governing gambling, lotteries, etc. The latter are very strictly controlled by the state but it seems the stock market is as law-free as the old days of the Wild West. Considering the entire economies of countries are hostage to the vagaries of, "Wall Street," shouldn't there be assurances that the houses are run with rigorous controls?

I heard something that startled me this morning. Some banks are lowering your credit card limits while you have them. So if you are at or even under your current limit, you could find yourself suddenly OVER. I don't think that is fair. It's changing the rules after the fact.

I've been in banking for 17 years. I just came through the toughest examination of my career, which includes getting in on the end of S&L and ag crisis as an FDIC examiner in the early 90's. The bank I work for is lucky as we have a fairly well diversified loan portfolio; however, that did not keep the regulators from coming down hard on us. The head examiner hinted that there are several banks in our area, who were invested heavily in commercial real estate, that are poised to fail. That's the next shoe to drop, commercial real estate, (including residential development loans). This is going to effect small, mid-size, and regional banks the hardest. What does this mean to you? Even with the bailout, credit will become difficult to get. Unsecured credit (credit cards), 100% auto financing, and home equity lines of credit are going to disappear. Home prices will drop even further, as borrowers attempt to purchase homes and are turned down when appraisals come in too low. I know I sound like the voice of gloom and doom, but I'm right in the middle of the mess I truly believe things in the US are going to get much worse before they get better.

Not only that, banks also have the right to demand from you to give back the money that they've loaned to you at once, it is not about fair or not fair, it is all in there, in the small print.

Flowergirl, I believe what you're saying. Frankly, I think credit should be difficult to get. It used to be incumbent on the borrower to prove they could reimburse the credit. Over the past several years I noticed people I know in the US were receiving constant upgrades to their credit limits, as well as pre-approved credit cards in the mail from various banks, all unsolicited. In Canada I tried to get an increase on my credit limit for a major expenditure and I had to jump through hoops to get it. Even despite that, Canadians are also overextended in credit to a high degree. There was a recent TV show in which young people were interviewed and they said they use credit-card debt as a kind of parking place for a whole bunch of consumer items they want to buy but can't afford. One couple had a $16k debt and figured they could just go on paying the minimum every month for the rest of their lives and never have to pay off the amount--either go bankrupt (and start over) or die, whichever came first. It was scary!

I think credit is too easy to get and interest rates are too low. What is the incentive for people to save and have a nest egg, and to get ahead of the game instead of always being behind?

When we went loan-shopping to buy our first (and only, thus far) house, lenders told us we could afford a $500K house. That's half a MILLION dollars. We knew there was no way on earth we could handle that kind of mortgage, especially with sizable student loans we were paying off at that time. One lender flat out told us, only half joking, "We don't care if you eat." Thank goodness we didn't listen to them.

FiveO, even as a banker, I agree with you 100%, that credit should be harder to get. That is how we got into this mess in the first place. I should say that I've never been a lending officer, I have only worked on the lending side as a loan reviewer and with the laws effecting lending. Financial deregulation played a huge part in banks getting more involved in riskier lending practices. Banks had to face non-bank, non-regulated competitors who were offering all sorts of fabulous deals like 100% or more car loans at ridiculously low interest rates, credit cards with crazy terms, and of course, all the "liars' loan" mortgage products. To compete, banks often relaxed their lending standards when they really knew better. Regulators, for many years, turned a blind eye to these lending practices, forgetting all the regulations on loan-to-value ratios and appraisal requirements passed after the S&L bailout, instead striking up a "we're from the government and we're here to help" type relationship with bankers. The last several years, examiners focused on money laundering and anti-terrorism measures, information security, and consumer privacy issues. Now, the examiners are full crisis mode, and bankers are feeling the heat (deservingly so, in most cases!).

I find it curious how I can always remember being taught by my parents, who were both born at the end of the Great Depression, that you shouldn't buy what you couldn't afford, credit cards are inherently bad, and other Depression-era wisdom that my Grandparents passed on to them. DH's family was the same. Most of our society is just 2 or 3 generations removed from that era yet so many are irresponsible when it comes to money. The coming months/years will no doubt be a very difficult education for a large part of our society.

My FICO score suddenly plummeted for no apparent reason. I was SHOCKED. The explanation I was given is that my cards are up too high (I have used too much of the available credit). Not any more than I had last month, when it was 130 points higher. WTH??

I'm going to guess here, but I would say that FICO formula is already being changed to reflect tightening conditions in the credit market. A higher risk has been assigned to people who appear to be more willing to use credit. These formulas are fluid and can be changed by consumer reporting agencies at any time they perceive a change in overall risk, much like insurance companies update actuarial tables. No consolation, but this isn't insolated instance and no doubt millions have been affected by this same change.

How did you find out what your FICO score was?

We live in an age of rampant consumerism, in a "I-want-it-now" society. It's really no surprise at all that the house of cards is toppling now.

Flowergirl, thanks for elaborating on the situation.


VS, I only have that attitude toward perfume. Everything else can wait!

I have several friends who are in severe credit card debt. They fret all the time about the debt they're in, but continue to make one lousy decision after another. I try to listen with a sympathetic ear, but sometimes I just want to shake them. One friend wept in my car about being in cc debt almost $30, 000. The following week her husband was installing new cabinetry purchased on their new Home Depot credit card. I withhold any advice because I don't think they really want to hear what they need/have to do to get out of debt.

-Noelle

I meant to comment on this. My husband and I chose to live in a modest townhome and not stretch ourselves. Most of our friends took out ARMS and moved on up to homes they had no business buying. At first they thought we were crazy. When they would visit us they'd say things like, "Oh I'm sure someone could find a way to get you into a REAL house." Now, some of these friends tell me they wish they could unload their houses and downsize.

-Noelle

I worry enough about keeping up with my condo homeowner's fees insurance, utilities and property taxes... I can't even begin to fathom how nervous I'd be if I had an oppressive mortgage that could balloon out of control at any moment on top of that. Very worrisome times we live in.

What makes me sick is that at the end of the day, you and I, the American taxpayers will be handed this debt. I can't afford it, I am retired and have a very fixed income, so I don't have any idea what I can do about it. They are figuring a minimum of $10K per household, for real!!!

I know, Char. I am very angry about this whole thing. I live within my means, don't enter into contracts I can't afford, and practice sensible money management...and now I have to pick up the tab for people who make foolish, greedy, irresponsible choices.

It is absolutely rotten isn't it? We're not just picking up the tab for this bailout either. It's trickling down everywhere. I thought my thrift would eventually payoff, but now it looks like I'll be srimping for a long time to come. People like us are the ones nobody seems to talk about.

-Noelle

I heard it would be $7K per person. I don't know that they know the amount for sure. Besides, what are they going to do -- bill us? I think it will just be raising everyone's Federal taxes all around, with some paying a bit more and some a bit less, averaging out to $7K or similar. It's bad enough I live in a state with the highest taxes in the country.

I think we should mete out Saudi Arabian-style justice and flog the greedy criminals in public.

http://www.myfico.com/

You can have it so they email you if there is any change. I got an email that there was a change, expecting it to have gone higher (higher is better) and was shocked when it had plummeted for no apparent reason.

I'm angry about it too! We don't even have a credit card! And have no desire to have one! Outside our mortage, if we can't pay for it - we don't need it and don't get it!

I predict the rate of heart attacks will increase as a result of stress. I watched the PBS special about stress which confirmed that lack of predictability and control in your environment can kill you.

Well, the package didn't pass today ...

Oh, I don't have any credit cards either! I could not afford one. I think this could be starting a trend, next it will be the auto makers wanting to be bailed out, then the credit card companies, then the health care/insurance companies. It's only the beginning. Socialism is here folks.............

Stress kills more people that the average layperson realizes. Many diseases have their basis in stress, Chaya would agree with me on this.........

I listened to this guy on the radio last night and today I emailed my Senator. The fact that my own bank, Washington Mutual, was just taken over was my tipping point. If you are really angry and concerned, you will do the same. Evidently, they are getting bombarded by us angry Americans, which is why the deal stalled. Power to the People!

http://www.globaleconomicanalysis.blogspot.com/

Speaking as someone whose mortgage is from Washington Mutual, I'm a little worried. I'm not in danger of defaulting but in this time of instability, anything could potentially happen. As long as JPMorgan continues to service the loan and lets me pay it off and doesn't change any terms, I'll be happy.

But it does give me pause about putting in the new hardwood floors in my apartment. I have the money in my bank account but given the economic uncertainties, I feel paralyzed.

I heard that some people who've stopped paying haven't gotten any foreclosure notices because the banks don't want any more empty houses sitting and getting moldy or vandalized, And some people have asked the banks to foreclose so they won't have to pay and they won't!

Since the govt will own millions of empty housees, why don't they stick welfare people in there for free instead of paying landlords our tax money? Then rents would drop and people who have lost those houses could live in cheap apartments.

It's at moments like these that my being an unambitious ne'er-do-well in a small apartment, living very modestly within his means.... makes me actually look like the wise one, and not the family "black sheep".

Yes, does anyone remember those slightly cheezy, slightly "underground" paperbacks of the 1970's that had apocalyptic titles like, THE GREAT DEPRESSION OF 2001.

They certainly seemed like a lot of alarmist hooey at the time, didn't they?

Astrologers, of course, know that the planet Pluto (destruction, dramatic change, revolution and reform) has entered the sign of Capricorn (money, banking, governments, "The Establishment", administrations, traditions). Here's what the excellent, seasoned NYC astrologer Michael Lutin has to say:

http://www.youtube.com/watch?v=yAF-l8SQvZE

My aunt, before she died, used to be a chum and client of Lutin's, back in the 1970's.

Very interesting clip. Thanks, r.

Thanks for that clip. Very interesting. About twenty years ago, Gordon Michael Scallion predicted civil war in America, with the US carved up into five different areas. I can see it happening.

$700M/300M people = $2333.33 per person

But what's worse is that this is money we don't have and will increase our national debt. We are going to have to borrow it, from the Chinese and other foreign investors, to perform this bailout. Most of here will be long dead but our children and grandchildren are the ones who will continue to be on the hook for it.

that's kind of eerie, because today my 14 year old son was telling me that the problem with democracy is that at any given time, at least half of the population probably disagrees with your deepest held beliefs and it might be better if we were divided into East America and West America and you could move to one place or the other depending upon your belief system.

I meant $700B!

I heard that the CEO of WAMU, hired Sept. 7 and let go this week, walked away with $18 million for his trouble.

Someone came up with a plan about how to divide things, back in 2004, I believe:




The good thing about this plan for me is that I wouldn't have to move

Looks like they would have to chop off parts of Florida and move them up to Canada, though, which would really upset the retirement communities ;>)

Here's my new plan to solve the credit crisis - take the $700 Billion and divide it equally between every US citizen 18+, that would give each person $300K - the gov't could tax it at 30%, so they get back $200 Billion - each person ends up with $200K - everybody pays off as much as possible of their mortgage and credit card bills and loans - no more foreclosures, people can spend more money out of their paychecks each month since they are no longer paying off credit card debt, the economy is stimulated, people are happy.

Yay! Deme for President!

Will you marry me?

Never mind - I did the math wrong - we each only get $2,333 ....
back to the drawing board ...

My marriage proposal still stands.

Imagine the dismay of all those snowbirds down in Florida from Canada half the year finding themselves right back in the deep-freeze!


Deme, don't give up on that great idea yet. I was thinking the same thing. It wouldn't be only $2,333 if they gave it back per family rather than per person, or some similar formula.

The reason Congress is pushing for a quick bailout is because 56 of them had stakes in AIG, Lehman, Fannie Mae, Freddie Mac, Bear Stearns Cos. or IndyMac -- according to the Center for Responsive Politics. They don't give a damn about us. So email them, people, and tell them we know what they're up to! So many economists have easy solutions that won't bankrupt us all and they are being ignored.

California should be red, not blue. Plenty of men named Jesus live there!

I don't think that you can do anything to resurrect AIG, Bear Stearns, Lehmans,- they are gone, whoever had stakes in them has lost., congressmen included. Easy solutions? - Wishful thinking, I don't believe in easy solutions , unfortunately people borrowed, borrowed and borrowed, to keep the illusion of good life. reality had to catch up eventually. Another huge expense is the money your country spends on importing oil- $700 billions a year! Instead of drilling for oil in the US and putting this money back in to your own economy and keeping your workers employed, you are sending that money to other countries, my take - no matter which party will win, that will have to change.