At the end of 2007 the market for apartments, homes and condominiums en Baja took a huge fall. This was experienced by many people equally in the construction business as well as people who wanted to sell their homes to realize the increase in value in the last four years.
In this moment, all the buyers from the United States have disappeared. And “Why?” is the question.
It was the result of complex fiscal problems in the housing market and the system that caused the dramatic rise in prices is the cause of the fall in this moment. Without studying the problems, the Mexican market will not be able to recuperate.
First, it is important to understand the causes of the dramatic rise in prices in the USA. In the 1990’s many of the government regulations in the business of mortgages and banks were removed. Without much government oversight and at the same time the lowering of the interest rates by the Treasury Department, the classic models of the last fifty years changed.
For many years, a mortgage was a function of the liquid money of a family after the cost of maintaining normal life. It was estimate that a quarter of the family income went to pay a mortgage, taxes, insurance, and utilities. This formula maintained home prices at a sensible base.
But, without regulation, the models changed. The banks had money available at a price no seen in over fifty years and avarice grabbed the banks, agents, and mortgage companies.
At the same time, the real estate developers saw the opportunity for more money and the prices escalated without regard to reality. If new construction increased, existing home prices increased as well.
In this crazy market, people saw the value of their homes increase annually by thirty, forty and even fifty percent in some parts of the USA. Houses had gained value many times the original cost – like money in the bank, people thought. The agents of mortgage companies called constantly with offers of money and very interesting mortgages with introductory rates and payments less than the original mortgages.
People were able to change their mortgages and realize hundreds of thousands of dollars. And, with this were able to buy condominiums and homes in Mexico, because the prices seemed to be a good deal. This caused those prices to increase as well, without relation to the cost of construction.
But now, the market crashed in the USA with the bankruptcies of the financial sector, Wall Street, the banks and the mortgage companies. With this crash the value of homes in the USA lost two trillion dollars only in the year 2008! Gone are the buyers who are able to buy an overpriced Mexican condominium covered by the equity in their equally overpriced home. They don’t exist.
The rules have changed. No one can have a mortgage without proving income sufficient to cover the cost. The banks are very cautious and don’t want to give mortgages without much proof. Gone are the free-wheeling buyers. The last depression of this magnitude was in 1929 and it took more than 25 years to recover.
It is time for the developers and sellers of real estate who seek North American buyers to take a hard look at their options. Forget Gringos with lots of dollars in their hands, with rare exceptions they no longer exist and I think that for many years they will be an endangered species.To sell to Gringos, many of the prices have to come down more than forty percent or to the level of 2000 with a small increase for inflation for materials and labor. At the end of 2007 the market for apartments, homes and condominiums en Baja took a huge fall. This was experienced by many people equally in the construction business as well as people who wanted to sell their homes to realize the increase in value in the last four years.
In this moment, all the buyers from the United States have disappeared. And “Why?” is the question.
It was the result of complex fiscal problems in the housing market and the system that caused the dramatic rise in prices is the cause of the fall in this moment. Without studying the problems, the Mexican market will not be able to recuperate.
First, it is important to understand the causes of the dramatic rise in prices in the USA. In the 1990’s many of the government regulations in the business of mortgages and banks were removed. Without much government oversight and at the same time the lowering of the interest rates by the Treasury Department, the classic models of the last fifty years changed.
For many years, a mortgage was a function of the liquid money of a family after the cost of maintaining normal life. It was estimate that a quarter of the family income went to pay a mortgage, taxes, insurance, and utilities. This formula maintained home prices at a sensible base.
But, without regulation, the models changed. The banks had money available at a price no seen in over fifty years and avarice grabbed the banks, agents, and mortgage companies.
At the same time, the real estate developers saw the opportunity for more money and the prices escalated without regard to reality. If new construction increased, existing home prices increased as well.
In this crazy market, people saw the value of their homes increase annually by thirty, forty and even fifty percent in some parts of the USA. Houses had gained value many times the original cost – like money in the bank, people thought. The agents of mortgage companies called constantly with offers of money and very interesting mortgages with introductory rates and payments less than the original mortgages.
People were able to change their mortgages and realize hundreds of thousands of dollars. And, with this were able to buy condominiums and homes in Mexico, because the prices seemed to be a good deal. This caused those prices to increase as well, without relation to the cost of construction.
But now, the market crashed in the USA with the bankruptcies of the financial sector, Wall Street, the banks and the mortgage companies. With this crash the value of homes in the USA lost two trillion dollars only in the year 2008! Gone are the buyers who are able to buy an overpriced Mexican condominium covered by the equity in their equally overpriced home. They don’t exist.
The rules have changed. No one can have a mortgage without proving income sufficient to cover the cost. The banks are very cautious and don’t want to give mortgages without much proof. Gone are the free-wheeling buyers. The last depression of this magnitude was in 1929 and it took more than 25 years to recover.
It is time for the developers and sellers of real estate who seek North American buyers to take a hard look at their options. Forget Gringos with lots of dollars in their hands, with rare exceptions they no longer exist and I think that for many years they will be an endangered species.To sell to Gringos, many of the prices have to come down more than forty percent or to the level of 2000 with a small increase for inflation for materials and labor. I know that sounds shocking, but it might be better to have a small return than none at all for the next 20 years!
Wednesday, February 18, 2009
Welfare Queens
Today I again read President Obama’s inauguration speech and thought about his call to Americans to help him right the rotten economy he inherited.
That was coming on the heels of sitting in my doctor’s office reading a real estate magazine called “Dream Homes” for San Diego County. In it are advertised homes for sale. The cheapest I could find was in the high five hundreds. Most of the listings were in the many millions of dollars, from four million up to thirty something as I recall. There were lots of them for sale too; maybe a couple of hundred and just in the one county.
These houses were not for ordinary people, they were for the super affluent, the mega rich who can afford those prices. A plain old millionaire won’t be buying a house for twenty-three million dollars.
Once again, I would like to know, who are the people who can afford to buy these homes? I have been asking the same question since 2004 and no one is ready to give me an answer. Are these the homes of the Chargers? Rock stars? Movie stars? Entrepreneurs?
I think more likely they are the homes of those Wall Street guys Mr. Bush so generously bailed out with taxpayers money. Could they be the homes of the real estate developers who made so much money from the predatory lending practices of the banks and mortgage brokers? Or, are they the homes of the real estate agents who raked in huge commissions on outrageous overpriced deals they pushed on greedy buyers.
Maybe they are the homes of the mortgage brokers who hired bullpens to bombard homeowners with telephone calls enticing them to increase their mortgages or take out equity loans. Still, it could be they are the homes of the auto dealers who put up-charges on popular model cars and pushed leases on buyers rather than letting them buy cars they could own without monthly payments when times got tough.
On the other hand, maybe they are the homes of those who “flipped” one house after the other, using the rapidly expanding equity to jump to the next level as they took advantage of the ever more enticing and exotic bank products.
Or perhaps they could just be the homes of movie stars or producers, e-commerce mavens, song writers, successful business owners, computer game programmers, outstanding surgeons or just brilliant geeks who made better gizmos. These guys don’t bother me; they earned their wealth by creating something, not just scamming money in a wild ride more devastating than any pyramid scheme.
But maybe I’m missing something. Maybe these homes are the correct prices because that is where the demand in the market lies. In the last eight years this country might have produced a continuum of mind boggling affluence no one is really aware of. If so, I would like to know who these people are, wouldn’t you? Are they people we read about in magazines or the tabloids or are they the unsung heroes of commerce, quietly taking their money to the bank in secrecy?
But why are there so many for sale? Are the underpinnings of the rich coming loose too? Are they in the shitter as much as the rest of us? Do they want to renegotiate their mortgages instead of facing foreclosure or is it just no longer politically correct to be so obviously arrogantly entitled?
After all, as we bailout the auto companies, the banks, Wall Street, AIG and on and on, don’t forget that we are bailing out the rich. So far, few of the bank bailouts have filtered down to helping ordinary people in danger of losing their homes. The foreclosures just keep on coming, despite the television advertised scams where companies taking advantage of misery claim to be able to renegotiate mortgages and mortgage balances. Don’t you believe it.
I don’t have anything against rich people, I’d certainly like to be in that category too if given half a chance. But I really don’t get it and think I’m missing something. Has this country progressed to the point where there are so many affluent people who can afford runaway luxury? Think palatial, think chateaux, think lords of the manor… or is it just ordinary folks acting out their fantasies of being so stinking rich they can afford to live well beyond their means? If that’s the case, then we, as taxpayers, have the right to know, since we are the ones who’ll be bailing them out very shortly in the next wave of prime mortgage failures.
Now I really like the term “bailout.” It appeals to my dark sense of humor and is just the kind of bullshit spin we have all been fed for so long it’s nauseating.
Really think about it, if we were bailing out poor people, then it’s called the “dole.” The poor go on welfare and it’s shameful. Bad poor people, how they could be so thoughtless to be poor and cause the other upstanding citizens to have to give them handouts. The term “welfare queens” used to specifically mean poor women, generally black or white trash, sitting at home having a lot of kids to increase their welfare payments. We got enraged about it and made sure it wouldn’t happen. All us taxpayers wanted to know where our money went since it was hard earned. This is all the vocabulary of giving a helping hand to the disadvantaged or, let’s say it openly – the poor!
But it’s all semantics. When we put the rich on the dole it’s called a “bailout.” The truth is the “welfare queens” are now auto makers, bankers and Wall Street brokers, AIG executives to name a few. How times have changed. But no one seems to think of them as on the dole. After all, we were used to thinking of them as the rich. Just get the right mindset and get real. The next time you go to your bank or auto dealer for business, look them in the eye and address them as “you welfare queens.” Now, I admit it might get you a punch in the eye, but let’s be fair, that’s what they are and it’s time we make them realize it - even if they don’t like it.
I didn’t like it when they offered me a car with an up-charge. I think I’m going back to the same Chevrolet dealer and refer to everyone there as welfare queens. What the hell, so what if they don’t like it, it is the truth, their salaries are now paid by me and you – the taxpayers of America. And don’t forget it when next negotiating to buy a car. They need to drop the arrogance and know who’s boss, and it’s you! If everyone who went into a car dealership told the management they were going to write to their local congressman or woman to not go along with the bailouts, it might have some effect. And if nothing else, it might put a little humility into the mix.
When you see the outrageous homes for sale, ask a broker who the owners are. It might give you a new insight on the true state of the Union and who is out there with their hands palm up.
It might be the home of someone now on the dole, with salary limited to only $500,000 a year – bad rich person, now on the dole, bad, bad you can only make a half a million a year, bad! They won’t be able to afford the upkeep on their five to whatever million dollar home so we have to feel sorry for them. Their mortgage can be foreclosed if they can’t dump the place. Be on the watch for short sales on palaces.
This is going to be the next shocker in the mortgage debacle, when the mega million dollar homes get foreclosed, and don’t think it isn’t about to happen. It’s just on the horizon, slipping into sight as the new economic stimulus bill comes into being with salary limitations. Then the next round of banks, mortgages, houses hit the foreclosure trail as the triple A mortgages fail. And it won’t be pretty.
You’ll be able to watch those who thought they were entitled but are now the new welfare queens hit the road. Ersatz chateau furnishings in moving vans pulling into driveways of ersatz tract châteaux developers sold on the cheap when they couldn’t sell for the original seven figure prices they were asking. And the guys next door who bought at the original high price - they’ll be moving out for cheaper seats when they realize their mortgage is much higher than the value of their homes.
So, in the future, we of the middle class, the benighted taxpayer class of America, have to keep our eyes on the people we are now supporting – those on the dole - the poor, and the new class of welfare queens who earned their title of nobility by being rich – our class of arrogance and entitlement - bankers, automakers and Wall Street boys. I hope that gives you a nice warm fuzzy feeling when next you pay your taxes.
That was coming on the heels of sitting in my doctor’s office reading a real estate magazine called “Dream Homes” for San Diego County. In it are advertised homes for sale. The cheapest I could find was in the high five hundreds. Most of the listings were in the many millions of dollars, from four million up to thirty something as I recall. There were lots of them for sale too; maybe a couple of hundred and just in the one county.
These houses were not for ordinary people, they were for the super affluent, the mega rich who can afford those prices. A plain old millionaire won’t be buying a house for twenty-three million dollars.
Once again, I would like to know, who are the people who can afford to buy these homes? I have been asking the same question since 2004 and no one is ready to give me an answer. Are these the homes of the Chargers? Rock stars? Movie stars? Entrepreneurs?
I think more likely they are the homes of those Wall Street guys Mr. Bush so generously bailed out with taxpayers money. Could they be the homes of the real estate developers who made so much money from the predatory lending practices of the banks and mortgage brokers? Or, are they the homes of the real estate agents who raked in huge commissions on outrageous overpriced deals they pushed on greedy buyers.
Maybe they are the homes of the mortgage brokers who hired bullpens to bombard homeowners with telephone calls enticing them to increase their mortgages or take out equity loans. Still, it could be they are the homes of the auto dealers who put up-charges on popular model cars and pushed leases on buyers rather than letting them buy cars they could own without monthly payments when times got tough.
On the other hand, maybe they are the homes of those who “flipped” one house after the other, using the rapidly expanding equity to jump to the next level as they took advantage of the ever more enticing and exotic bank products.
Or perhaps they could just be the homes of movie stars or producers, e-commerce mavens, song writers, successful business owners, computer game programmers, outstanding surgeons or just brilliant geeks who made better gizmos. These guys don’t bother me; they earned their wealth by creating something, not just scamming money in a wild ride more devastating than any pyramid scheme.
But maybe I’m missing something. Maybe these homes are the correct prices because that is where the demand in the market lies. In the last eight years this country might have produced a continuum of mind boggling affluence no one is really aware of. If so, I would like to know who these people are, wouldn’t you? Are they people we read about in magazines or the tabloids or are they the unsung heroes of commerce, quietly taking their money to the bank in secrecy?
But why are there so many for sale? Are the underpinnings of the rich coming loose too? Are they in the shitter as much as the rest of us? Do they want to renegotiate their mortgages instead of facing foreclosure or is it just no longer politically correct to be so obviously arrogantly entitled?
After all, as we bailout the auto companies, the banks, Wall Street, AIG and on and on, don’t forget that we are bailing out the rich. So far, few of the bank bailouts have filtered down to helping ordinary people in danger of losing their homes. The foreclosures just keep on coming, despite the television advertised scams where companies taking advantage of misery claim to be able to renegotiate mortgages and mortgage balances. Don’t you believe it.
I don’t have anything against rich people, I’d certainly like to be in that category too if given half a chance. But I really don’t get it and think I’m missing something. Has this country progressed to the point where there are so many affluent people who can afford runaway luxury? Think palatial, think chateaux, think lords of the manor… or is it just ordinary folks acting out their fantasies of being so stinking rich they can afford to live well beyond their means? If that’s the case, then we, as taxpayers, have the right to know, since we are the ones who’ll be bailing them out very shortly in the next wave of prime mortgage failures.
Now I really like the term “bailout.” It appeals to my dark sense of humor and is just the kind of bullshit spin we have all been fed for so long it’s nauseating.
Really think about it, if we were bailing out poor people, then it’s called the “dole.” The poor go on welfare and it’s shameful. Bad poor people, how they could be so thoughtless to be poor and cause the other upstanding citizens to have to give them handouts. The term “welfare queens” used to specifically mean poor women, generally black or white trash, sitting at home having a lot of kids to increase their welfare payments. We got enraged about it and made sure it wouldn’t happen. All us taxpayers wanted to know where our money went since it was hard earned. This is all the vocabulary of giving a helping hand to the disadvantaged or, let’s say it openly – the poor!
But it’s all semantics. When we put the rich on the dole it’s called a “bailout.” The truth is the “welfare queens” are now auto makers, bankers and Wall Street brokers, AIG executives to name a few. How times have changed. But no one seems to think of them as on the dole. After all, we were used to thinking of them as the rich. Just get the right mindset and get real. The next time you go to your bank or auto dealer for business, look them in the eye and address them as “you welfare queens.” Now, I admit it might get you a punch in the eye, but let’s be fair, that’s what they are and it’s time we make them realize it - even if they don’t like it.
I didn’t like it when they offered me a car with an up-charge. I think I’m going back to the same Chevrolet dealer and refer to everyone there as welfare queens. What the hell, so what if they don’t like it, it is the truth, their salaries are now paid by me and you – the taxpayers of America. And don’t forget it when next negotiating to buy a car. They need to drop the arrogance and know who’s boss, and it’s you! If everyone who went into a car dealership told the management they were going to write to their local congressman or woman to not go along with the bailouts, it might have some effect. And if nothing else, it might put a little humility into the mix.
When you see the outrageous homes for sale, ask a broker who the owners are. It might give you a new insight on the true state of the Union and who is out there with their hands palm up.
It might be the home of someone now on the dole, with salary limited to only $500,000 a year – bad rich person, now on the dole, bad, bad you can only make a half a million a year, bad! They won’t be able to afford the upkeep on their five to whatever million dollar home so we have to feel sorry for them. Their mortgage can be foreclosed if they can’t dump the place. Be on the watch for short sales on palaces.
This is going to be the next shocker in the mortgage debacle, when the mega million dollar homes get foreclosed, and don’t think it isn’t about to happen. It’s just on the horizon, slipping into sight as the new economic stimulus bill comes into being with salary limitations. Then the next round of banks, mortgages, houses hit the foreclosure trail as the triple A mortgages fail. And it won’t be pretty.
You’ll be able to watch those who thought they were entitled but are now the new welfare queens hit the road. Ersatz chateau furnishings in moving vans pulling into driveways of ersatz tract châteaux developers sold on the cheap when they couldn’t sell for the original seven figure prices they were asking. And the guys next door who bought at the original high price - they’ll be moving out for cheaper seats when they realize their mortgage is much higher than the value of their homes.
So, in the future, we of the middle class, the benighted taxpayer class of America, have to keep our eyes on the people we are now supporting – those on the dole - the poor, and the new class of welfare queens who earned their title of nobility by being rich – our class of arrogance and entitlement - bankers, automakers and Wall Street boys. I hope that gives you a nice warm fuzzy feeling when next you pay your taxes.
Double Screwed
Yesterday I went across the border to attend to some odds and ends. One of my stops was the Bank of America. A small CD had rolled over with me missing it and the Bank kindly put it at the new rate – 1.29% interest and tied up my money for seven months. And this was a high rate for them, in a regular savings account it was .9%!
As I stood at the counter growling, it occurred to me that I had just been twice screwed by the bank. This lovely bank, where I have been doing business for a faithful 27 years is one of the biggest of the Welfare Queens. They are the guys on the dole in the bank bailout, standing palms up in front of our government for tax dollars. Hmmmm.
That means they are using my money, paying me 1.29% interest, and taking money from my tax dollars as well. Am I missing something? There is little or no incentive for me to leave money in the bank. There is no way I’d put my pennies into the stock market right now, not with the same crooks still in charge. In fact, my mattress is looking pretty good at the moment.
After all, a thousand dollars left for a year earns me a whopping $12.90 and if I had $10,000 I could earn $129.00 – a year! Taking it a bit further, it means that $100,000 pays $1,290 and $1,000,000 the munificent sum of $12,900 – a year! Not very interesting for people who worked all their life to put away a nest egg for retirement and hoped to live on the interest, oh, sorry, I mean starve on the interest.
The Federal poverty level is considered to be $10,400 for a family of one and $14,000 for a family of two. Obviously, if a couple scrimped and saved to put a cool mil in the bank for retirement, if they hope to live off just that, it’s dog food and sleeping bags. Even if their house is paid off, the real estate taxes could be more than their income in many areas of the country – forget about little things like food, water and electricity. When my mother passed away, her income was $9,000 a year and her real estate taxes, with discount for her age, were $13,000. A friend of mine, when I mentioned it, replied “Then she should have moved!” Yeah, right! You tell that to a ninety-nine year old woman who’s lived in the same house for almost 70 years.
This is where I think I’m missing something. Where is the incentive for Americans to save? If we were incentivized to put money in the bank, then wouldn’t the banks have money to lend, or am I being too simplistic? That was the old fashioned model. The banks paid us to keep our money with them in the form of a decent interest. They then turned around and used our money for mortgages and loans at a higher rate of interest to make a profit.
It seems to me that if they again paid a decent interest rate, people might start to save and the banks might have money to lend again without being on the dole. That is, if they can also convince us they will use it in a prudent manner. But I’m old fashioned, that was the way it used to work.
For instance, Bank of America is paying me 1.29% interest and charging from 9.99% to 18.99% interest on credit cards. Then, if you are late, the interest can go as high as 52%! One time my husband opened a credit card and forgot about it, he charged a few dollars and forgot to pay the bill. What a shock it was a month or two later when it showed up with Mafia interest! Anyway, it is certainly a profit on my money! Even a mortgage is currently in the 5+% range. Surely, they could eke out another percent or two for my pennies on deposit, couldn’t they?
At the moment, I just feel double screwed, and with no kisses. There I am, standing at the bank fuming about banks being the world’s biggest Welfare Queens, taking a huge government dole, and at the same time not even paying a reasonably viable interest to depositors so they could get more money in the usual way by encouraging savings. If that isn’t a double screw job I don’t know what is.
And there is a third screwing peeking around the corner, way off in the wings - the nasty specter of wild inflation caused by government printing money to cover all these bailouts. Our same poor friends with money in the bank that earns nothing will soon find the buying power of their nest egg sorely decreased. Unless there is a total deflation, they will be left with worthless paper, the result of a life’s work. They can stand in line for the dole next to the rich defrauded by Wall Street scammers and mega crooks. Maybe it will be some consolation, but I don’t think so.
The next screwing is from the auto dealers. I was with a friend the other day who lives near the port and he was telling me about the miles of cars sitting in lots nearby that auto dealers imported from Japan and don’t have a prayer of selling. Since they’ve all made a profit from us for so long, wouldn’t you think they might just be interested in turning that inventory and clearing a buck, even if it was at a loss? After all, automobiles aren’t like fine wines; they don’t really improve with age.
Now I know these are Japanese cars made off shore, but they still compete with automobiles made in the states and in my mind, any deal is often better than none. But no, the cars will sit and rust and we Americans will just keep on paying our own manufacturers to turn more out and let them rust too, sort of like paying the farmers to not plant, or let their crops rot in the fields. Don’t you just love government subsidies?
A few months ago I went into a Hyundai dealer and was looking at a very nice sedan on the lot. The 2009 models were already in but this was an unsold 2007 model. The sticker was $28,000, all tricked out in leather, very nice. I went home and looked it up on Kelly Blue Book and priced it out retail with 50 miles on it. The trade in value was $15,000 and the retail was $17,000 so I went back and offered them $16,000. I figured I could be magnanimous and split the difference.
They looked at me like I was a madwoman. No way! I laughed and walked off the lot sans car. I’ll bet it’s still there. There is nothing more dangerous than an old broad who knows how to research and isn’t afraid of making offers. What the hell, I’ve been turned down plenty in my life, and if someone just happens to go for it, well, what a deal I might make!
This evening I’m going to a real estate auction with my friend Steve. We’re interested in picking up a bargain or two. We figure when it all turns to shit as it’s heading, we can at least plant potatoes on the front lawn or rent it out for a few bucks. People have to live somewhere and they will at least pay some rent, might be a better return on my investment than my 1.29% and give someone a roof over their head at the same time. It seems like a double benefit, a lot better than a double screwing! I might even get a kiss in return at that!
As I stood at the counter growling, it occurred to me that I had just been twice screwed by the bank. This lovely bank, where I have been doing business for a faithful 27 years is one of the biggest of the Welfare Queens. They are the guys on the dole in the bank bailout, standing palms up in front of our government for tax dollars. Hmmmm.
That means they are using my money, paying me 1.29% interest, and taking money from my tax dollars as well. Am I missing something? There is little or no incentive for me to leave money in the bank. There is no way I’d put my pennies into the stock market right now, not with the same crooks still in charge. In fact, my mattress is looking pretty good at the moment.
After all, a thousand dollars left for a year earns me a whopping $12.90 and if I had $10,000 I could earn $129.00 – a year! Taking it a bit further, it means that $100,000 pays $1,290 and $1,000,000 the munificent sum of $12,900 – a year! Not very interesting for people who worked all their life to put away a nest egg for retirement and hoped to live on the interest, oh, sorry, I mean starve on the interest.
The Federal poverty level is considered to be $10,400 for a family of one and $14,000 for a family of two. Obviously, if a couple scrimped and saved to put a cool mil in the bank for retirement, if they hope to live off just that, it’s dog food and sleeping bags. Even if their house is paid off, the real estate taxes could be more than their income in many areas of the country – forget about little things like food, water and electricity. When my mother passed away, her income was $9,000 a year and her real estate taxes, with discount for her age, were $13,000. A friend of mine, when I mentioned it, replied “Then she should have moved!” Yeah, right! You tell that to a ninety-nine year old woman who’s lived in the same house for almost 70 years.
This is where I think I’m missing something. Where is the incentive for Americans to save? If we were incentivized to put money in the bank, then wouldn’t the banks have money to lend, or am I being too simplistic? That was the old fashioned model. The banks paid us to keep our money with them in the form of a decent interest. They then turned around and used our money for mortgages and loans at a higher rate of interest to make a profit.
It seems to me that if they again paid a decent interest rate, people might start to save and the banks might have money to lend again without being on the dole. That is, if they can also convince us they will use it in a prudent manner. But I’m old fashioned, that was the way it used to work.
For instance, Bank of America is paying me 1.29% interest and charging from 9.99% to 18.99% interest on credit cards. Then, if you are late, the interest can go as high as 52%! One time my husband opened a credit card and forgot about it, he charged a few dollars and forgot to pay the bill. What a shock it was a month or two later when it showed up with Mafia interest! Anyway, it is certainly a profit on my money! Even a mortgage is currently in the 5+% range. Surely, they could eke out another percent or two for my pennies on deposit, couldn’t they?
At the moment, I just feel double screwed, and with no kisses. There I am, standing at the bank fuming about banks being the world’s biggest Welfare Queens, taking a huge government dole, and at the same time not even paying a reasonably viable interest to depositors so they could get more money in the usual way by encouraging savings. If that isn’t a double screw job I don’t know what is.
And there is a third screwing peeking around the corner, way off in the wings - the nasty specter of wild inflation caused by government printing money to cover all these bailouts. Our same poor friends with money in the bank that earns nothing will soon find the buying power of their nest egg sorely decreased. Unless there is a total deflation, they will be left with worthless paper, the result of a life’s work. They can stand in line for the dole next to the rich defrauded by Wall Street scammers and mega crooks. Maybe it will be some consolation, but I don’t think so.
The next screwing is from the auto dealers. I was with a friend the other day who lives near the port and he was telling me about the miles of cars sitting in lots nearby that auto dealers imported from Japan and don’t have a prayer of selling. Since they’ve all made a profit from us for so long, wouldn’t you think they might just be interested in turning that inventory and clearing a buck, even if it was at a loss? After all, automobiles aren’t like fine wines; they don’t really improve with age.
Now I know these are Japanese cars made off shore, but they still compete with automobiles made in the states and in my mind, any deal is often better than none. But no, the cars will sit and rust and we Americans will just keep on paying our own manufacturers to turn more out and let them rust too, sort of like paying the farmers to not plant, or let their crops rot in the fields. Don’t you just love government subsidies?
A few months ago I went into a Hyundai dealer and was looking at a very nice sedan on the lot. The 2009 models were already in but this was an unsold 2007 model. The sticker was $28,000, all tricked out in leather, very nice. I went home and looked it up on Kelly Blue Book and priced it out retail with 50 miles on it. The trade in value was $15,000 and the retail was $17,000 so I went back and offered them $16,000. I figured I could be magnanimous and split the difference.
They looked at me like I was a madwoman. No way! I laughed and walked off the lot sans car. I’ll bet it’s still there. There is nothing more dangerous than an old broad who knows how to research and isn’t afraid of making offers. What the hell, I’ve been turned down plenty in my life, and if someone just happens to go for it, well, what a deal I might make!
This evening I’m going to a real estate auction with my friend Steve. We’re interested in picking up a bargain or two. We figure when it all turns to shit as it’s heading, we can at least plant potatoes on the front lawn or rent it out for a few bucks. People have to live somewhere and they will at least pay some rent, might be a better return on my investment than my 1.29% and give someone a roof over their head at the same time. It seems like a double benefit, a lot better than a double screwing! I might even get a kiss in return at that!
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