Posts Tagged ‘depression’

Foreclosures Are Dragging Down The Economy

Typically, construction jobs and more specifically, new home construction jobs spur economic growth and herald the end of recessions past. This is not happening today, and for very good reason. A recent Huffington Post article cited that thirty percent of home sales were of foreclosed properties. To put it another way, close to a third of all home sales taking place today involve foreclosures. That’s huge, and until foreclosures stop driving the housing market and until the huge inventory of available homes is reduced, home values will continue to decline and developers will not be inclined to build new housing developments.

The foreclosure crisis is a national emergency and clearly, none of the government programs designed to help families in foreclosure are helping enough people to make a difference. The problem is that all of the programs currently available remain voluntary on the part of the banks and are designed to ensure that the banks continue to profit, even if the underlying loan is so poorly underwritten and so poorly constructed as to be ultimately designed to fail.

Priority number one has got to be to stabilize the housing market, and that means stopping foreclosures. I don’t just mean delaying them, because all that does is kick the can down the road, I mean actually doing something that will stop them and keep families in their homes. To do that, the banks are going to have to lump it and a mass loan modification program needs to be implemented.

This will definitely mean that some banks are going to go under. Some banks are so seriously over-leveraged that it is only through governmental efforts to aid them in concealing the true state of their balance sheets that they remain open and profitable. Yes, profitable. The worst banks (Bank of America, Wells Fargo, Chase) remain open and profitable while drowning in a sea of foreclosures. How is that? Because current efforts to staunch the foreclosure crisis have resulted in massive delays that have allowed the banks to essentially ignore “mark to market” rules and over-report their assets and diminish their liabilities. Let’s face it, a thousand homes for which the value has dropped by hundreds of thousands of dollars are not assets. No, they are  huge liabilities, and the banks get to hide this fact. Banks like this deserve to go under.

Now, we’ve heard the arguments against mass modifications: it will create a moral hazard; it will keep people in homes they shouldn’t have been able to buy anyway, it will reward deadbeats, etc. The time for recriminations and blame has passed. The foreclosure crisis is crippling the economy and is in large part the reason why unemployment remains so high and why growth is stagnating.  So what, if a few people get to keep homes that they shouldn’t have been able to buy. Let’s weigh that against the certainty that the United States is falling into a depression the likes of which has not been seen since the 1930’s.

Getting More Income To Pay Debt

Frugal Dad wrote this article on his blog today about how the most important thing you can do to get out of debt was to bring in more income to put solely toward paying off that debt. I can’t argue with with his logic. After all, if  you develop a plan to bring in more money and you also commit to putting those funds towards your debt, well, you’re going to reduce your debt load more quickly.

Having said that, I do take issue with some of his suggestions as to how you should get more income. For one, he suggests that you need to work 70 hours or more a week. While getting out of debt quickly is good, it is not worth the health costs associated with overwork.  There are other costs to think about, and health is the most important. After all, if you lose your health, then all your income will be gone and then where will you be? 

Furthermore, Frugal Dad does acknowledge the weak economy as an impediment to finding “more work” but then dismisses concerns about the economy as “your excuse to staying in debt, limiting your opportunities and stifling your dreams of financial independence.”  I don’t know where this guy has been living, but most people these days would be happy to settle for a life where they can earn a secure, if, modest living. Financial independence is something few ever attain and it is just part and parcel of that stupid Horatio Alger myth that so predominates American culture.

Frugal Dad, newsflash! We’re in a depression. Yes, I said depression because that’s what you call it when there are millions and millions of people out of work and there are five applicants for every one job that exists out there. For those who are lucky enough to remain employed, (and are scared to death that their job may disappear at any time,) their hours are being CUT. If their hours are not being cut, then their WAGES have been reduced, so that even if they are working more HOURS, they aren’t seeing any net increase in income. Please! Optimism is fine, but at some point, you’ve got to face reality.

Frugal Dad has other suggestions on bringing in more income, one of which is blogging. He blogs himself.  While blogging for a living (I do the same thing) is a decent way to make money, it does take time to pick up steam. It can take a solid year before you see any appreciable income from your blogging efforts. You can’t expect to start a blog, throw up some content, and watch the cash start flowing in. To give FG credit, he doesn’t suggest that this is the case, either, but at the same time,  he does make it sound like a panacea for debt.

Look, I understand where FG is coming from, I just think that at this juncture in time, with the economy as bad as it is, his post just comes across as pollyanna-ish and smug. I don’t know about you, but I am finding that my patience has been worn thin with useless platitudes and smarmy tough talk.

Buy VerizonCell Phones and Save. | Thanks to Bank Rates & Reviews, CD Rates and UK Loan
Easy AdSense by Unreal