Crisis of Confidence

Bonddad reports that the Federal Reserve is considering an interest rate cut…

Rates are currently at 2%. Rates have dropped from 5.25% to 2% and we are currently in a credit crunch. The interest rate isn’t the problem. The problem is is confidence in whoever you’re lending to. If you think a borrower is about to go bankrupt — or may be bankrupt between the time you lend him money and the time he pays it back — you’re not going to make the loan.

Our whole financial and governmental system is based on confidence. Right now there’s not much of it in either. The question becomes, how do we increase confidence? Accountability.

Accountability, through regulation, open and honest accounting, and by using the good parts of the free market to value things at their actual value, and knowing that based on market forces that value is fluid, rather than some imaginary value that the Treasury Department may divine.

This means that some people are going to lose and some are going to win, but that’s the free market remember? This is the thing that the Republicans have been selling you for 28 years. This is the thing that’s better than government until it fails and asks government to fix it.

The key here is to make sure that the people who were used as cannon fodder for this implosion, people whose credit should have prohibited them from buying houses outside their means, get hurt as little as possible. They did what they have been told to do by the “masters of the Republican free market”, and they wouldn’t have if no one would have been willing to lend to them. Remember, these guys have been taken advantage of. While some would rather blame the victim. The people to blame are the ones who allowed this condition to persist for so long, and that falls squarely on the President and the Republicans in Congress who, up ‘til now, refused to do anything.

We’ve been in a foreclosure mess for at least 3 years. When I bought my home just over 2 years ago, getting a loan was hard. It took a lot of arm-wringing and leg work to get it done, and I’ve got better than average credit. Lenders were already feeling snake-bit. Now that people are losing their jobs left and right, it’s even harder. Two weeks ago, I bought a car to replace the one that was totaled for me. Financing wasn’t a problem, because my old car got totaled and paid off, but the interest rate was high. When I asked about it, I was basically told the old sad break-up tale of, “it’s not you, it’s me”. The Finance guy at the lot told me that the finance company was tightening because of all the people defaulting and that my good credit and payment history meant little in the face of the number of repo’s.

Two weeks later, we have this crisis pop up that no one was warning about. I mean no one was warning about any of it.

We’ve been told for like 9 months now that this is just an economic slowdown, not a crippling financial crisis. We thought it was an economic cold, not financial polio. None of the doctors said a thing about financial polio, why would we think it was that bad?

Like I said in my last post, we want to know what the hell is going on, and if the government doesn’t tell us what’s up, then act like there’s some emergency, we’re going to get pissed.

0 thoughts

  1. Isn’t someone who takes out a large loan to buy a new car living above his means?

    It depends. What is a large car loan? I just took one out for 20k. I didn’t buy a super hot car, I got a Honda Civic. However, I got a better rate for borrowing more than I would have with a higher down-payment. Seem bass-ackwards to you? It did to me. This doesn’t prohibit me from sending in a large 1st payment to lower my debt load, which is what I have done, but shouldn’t institutions reward people who save, or have the funds to lower the risk to said institutions?

    On the home lending front, I spoke to several lenders who wanted to take me down a road that I just wasn’t willing to go down, using the rationale that I would be able to refinance later. Can you imagine what would happen if I was trying to refinance now? It wouldn’t happen.

    How many people got told that crock of shit? How many lenders treated home mortgages like payday loans? Is the consumer to blame for acting on information provided by the lender that was inaccurate, or deceptive? Is anyone doing anything for the people who got bad information, or are they just getting put out on the street?

    This is the problem with the bill the Senate passed last night. They’re only dealing with the effect, not the cause. Confidence will not increase without dealing with the cause, and by extension, the problem will not necessarily get fixed until that happens.

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