Posts Tagged ‘economy’

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.

If You’re Poor, Forget College

Ok, I haven’t done one of these in a while, but I was browsing through my Google Reader today and in comes this post from Frugal Dad.  It’s a post about student loan debt, which I can agree with the author is too high. However, the guy actually says this nonsense:

Do you need to go to college? A college degree not only doesn’t guarantee a job, but it also doesn’t guarantee a high paying job. Before you go to college because “it’s expected of you,” or “that’s what the cool kids do,” you should take a few minutes and try to determine your career goals, what is required to achieve those goals, whether or not you need a college degree, and if it is worth the expense. Many times college isn’t the answer and taking student loans while you try to determine your career goals is a recipe for disaster.

Well, instead of throwing a bunch of opinion out there without any facts to back it up, let’s take a look at some hard numbers. The unemployment rate for those with no degree is 10.1% as compared to only 4.5% for those with a bachelor’s degree. The numbers don’t lie. While the author is correct: a college degree doesn’t guarantee you anything, it just may make finding work a little easier for you. You need every edge you can get these days!

Here’s another fact: many jobs that previously did not require a college degree now require one. For example, an entry level manager trainee position at Enterprise Rent-A-Car, which really is a glorified sales position, requires a college degree.  Not having a degree can seriously limit the number of jobs available to you today.

What troubles me more than the stupid platitudes espoused in this post as well as many other similar ones I have seen since the economy went into the ditch is that we now seem to be “ok” with telling people with humble backgrounds that they need not even try to reach beyond the station to which they were born. Think about what posts like these suggest: you should not go to college if you cannot afford to pay for it yourself, or if your parents cannot afford it. Furthermore, you ought to evaluate any degree you do pursue by its dollar value, not by personal interest or by the desire to look at a career as more than just a way to make money.

Look, I am not going to suggest that college is the answer for everyone or that it can guarantee you anything, because it isn’t and it can’t. However, if you want to go to college and you need to take out a loan to do it, then you ought to be able to do so, regardless of the cost later. Student loans need to be reformed to be in line with what they used to be: an investment in the future. Investments may not pay off and that’s the risk the banks take in loaning the money. Furthermore, repayment terms need to be made easier and interest rates capped. Half the problem with student loans today is how onerous they are to pay back. You shouldn’t have to indenture yourself to the banks for the rest of your life for a chance at a piece of the pie.

Finally, I just want to say that employers also need a reality check. Is it really necessary to require a college degree for a job that pays $30K? Do you really need to limit your pool of qualified employees to those with college degrees? A bit of common sense here would be welcome about now.

Moving For A Chance At Prosperity

Well, my husband and I moved 2,300 miles, from Lancaster, CA, to Winnipeg, Manitoba, Canada for the chance at a better life.  It is difficult for me, as an American, to say this, because I was always taught that people came to America to look for a better life.  For a long while, that was primarily true: many immigrants came for the promise of the American Dream, and many have achieved it.

However, times have changed. The last forty years have seen a weakening in strong labor, the rise of outsourcing, and the big box stores that crowd out the smaller competition. Wall Street has been given free reign to pursue astronomical profits as their due. All of these things, in combination, have made the American Dream nothing more than a myth. Today’s generation will be less prosperous than were their parents, for the first time in decades.

The pundits and politicians alike tell us that this is the “new normal” and we’re just going to have to live with diminished expectations. I hear this and wonder where the America I grew up in went? Where is that can-do spirit that allowed us to put a man on the moon in a single decade? Where did the strong leaders like FDR go, who regularly went before the nation to remind us that “we have nothing to fear but fear itself?”

Well, my husband and I have had enough of it. We’ve had enough of watching our savings and hard work go down the drain as we struggle to make ends meet without work. We’re sick of the politicians playing games with the unemployment lifeline that so many Americans depend on today, and we’re sick of the giveaways to the banks and other vested interests who ruined the economy in one fell swoop.

So, yes, I moved out of the United States to Canada in search for a better life. And guess what? We are on our way there. My husband found work not three weeks after we arrived and we are looking at buying a house here. The economy is thriving…no dearth of jobs…and healthcare that you don’t have to mortgage your firstborn to use.

I’d like to hear from you. How many of you have moved elsewhere (even just to another state) in search of a better future? How many of you are considering it?

Moving To Canada

You may have noticed that I haven’t been writing much for the last couple of weeks. The reason for this is that my husband and I are preparing to move to Winnipeg, Manitoba, where he’s originally from. We live just north of Los Angeles in the lovely state of California right now. We’re leaving on August 23rd, so that means that a lot of my time has to be occupied with fun stuff like packing.

The reason we are moving is quite simple: the economy here is moving nowhere and jobs are scarce. I keep hearing about how we’re in a recovery period right now, but I just don’t see it. My husband has been out of work for two years now (he was in new home construction, so guess where his job went?) and he has been diligently looking for work all this time. In this time period he has had two interviews…only two! There is just not enough work available for everyone who wants a job, it’s that simple.

Canada has weathered the global recession better than most of the G20 and is truly in full recovery mode. Some parts of the country, like the place where we’re headed: Manitoba,  weren’t really affected, and have just continued to experience slow but steady growth.

I will return to daily updates of news and information relating to debt, and making fun of those smug personal finance folks who make stupid statements once we are settled and I can get Internet again. I anticipate that will occur some time in September…the earlier the better.

Debt Collectors Using Facebook?

A recent story in the Arizona Daily Star revealed how one debt collection firm pressured a businessman into paying what he owed based on information gleaned from his Facebook page. The businessman had apparently claimed to be broke and filing for bankruptcy, yet he was stupid enough to post pictures of his new Corvette and pictures of a recent fishing trip to Florida. The debt collector was able to use this information to get the fellow to pay up.

The fellow in this story clearly had the funds to pay what he owed. However, he is not among the majority of people hounded by debt collectors day in and day out in this country. Especially with the economy being as bad as it is. The fact that debt collectors are now sniffing around the social media for information that they can use to put pressure on debtors is concerning.

For one, privacy is at issue. Clearly, the information that people put up on the social media is meant only for people who know them. The fact that debt collection companies have now joined in with prospective employers in sniffing around the Internet for information on people is more than a little creepy. Having said that, if you put your life-story on the Internet for anyone to read, how much privacy can you reasonably expect to have?

For another,  how credible is information that people reveal about themselves on the Internet? Anyone could post stock images of a nice car or home and say that they belong to them. It is called bragging and the relative anonymity of the online world allows for such liberties. Of course, using your real name online reduces this anonymity somewhat, but still, you can be a millionaire online even if your bank account is empty.

I suspect that if the debt collection industry makes searching the Internet for information they can use against debtors to pressure them to pay becomes more widespread, that more than a few court cases will come up about the issue. How the courts will decide is anyone’s guess.

For the time being, I strongly suggest that people who use social media like Facebook and Myspace to share details of their lives change their settings so that only people who know them can access their pages. You don’t need to share your information with the entire world…especially if you value your privacy.

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.

The “New Normal” According To One Fed Official

Sandra Pianalto, the President and CEO of the Federal Reserve Bank of Cleveland has predicted that our recovery from the Great Recession will be slow and that the end result will be a “new normal” where Americans’ expectations for a better life are diminished.  Read the entire article on the Huffington Post here.  A full transcript of Pianalto’s remarks are included in that article.

I don’t know why this is news, exactly.  Anyone out in the real world knows that this “recovery” is slow and most Americans aren’t planning anything farther into the future than how they’re going to pay the power bill when it comes due. 

Many people are now just aiming for ‘financial security’ as their American dream.

This downward shift in expectations isn’t something that has happened overnight. True, during the bubble years, when everyone was able to use cash out of their rapidly burgeoning home equity to buttress them against the effects of low wages and a high cost of living, Americans were able to have a semblance of a stable middle class life.

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A Tale Of Three Families: Do Bad Decisions Lead To Financial Trouble?

A comment left on this entry by About.com’s LaToya Irby got me to thinking about people in financial trouble and how they got there, leaving aside for the moment the catastrophic economy that we’re in today.

In the best of all worlds, no one would ever spend more than they can afford and everyone would be debt free. However, we know that the world is far from perfect and people often make financial decisions based on emotion and necessity.

Consider a young couple with a child living on minimum wage. The husband works two jobs and the wife works one, and together they earn enough money to live with a little extra to spare. They decide to use that little extra bit they’re able to pull in to save towards buying their child an Xbox 360 as a Christmas present. December rolls around and they have the money saved up when disaster strikes. The wife breaks her leg and is out of work for six to eight weeks. Their Xbox 360 fund suddenly becomes a lifeline, but Christmas is still coming and they still want to see their child’s face light up when he opens up his gifts to see that he has a new Xbox 360. The family buys the Xbox on a store credit card.

Then there’s the solidly middle class two earner family. Both parents work in good paying jobs and on that income, they’re able to afford a decent house in a nice neighborhood. They run small balances on their credit cards and are paying part of the tuition for one of their children who is in college and braces for their middle child. Everything is fine until the husband gets laid off. Suddenly, the family’s income is cut in half and they dig into their savings to continue to pay the bills that don’t stop coming simply because of a lost job. Time drags on and the husband can’t find work. His industry has gone under, but the bills keep coming. Now this family is relying on their credit cards to make ends meet.

Finally, there’s the family earning six figures. This family is among the affluent and well-to-do. They live in a large house in a gated community and drive expensive cars. Curiously, just like the middle class family and even like the poor family, when one of the breadwinners no longer has a job, what was a rosy financial picture starts looking dingy and grim.  Because this family had been affluent, there is room for cutting back and for making lifestyle changes to adjust for lower income. They sell their expensive cars and buy cheaper ones. They don’t spend as much money as they are used to. However, some of the bills of the affluent lifestyle remain and can’t be gotten rid of. Among these is the house with the now unaffordable mortgage payment. This once affluent family now faces foreclosure.

These stories are purely hypothetical, but hundreds of them play out daily in real life. In the first case, human emotion and the desire to make a child happy result in what to cold hard facts is an irrational financial choice. In the other cases, it is about continuing to pay the bills that continue to come in the mail even when the income to pay them is no longer there.

To suggest that people in financial trouble got there because of poor decision making is too simplistic. It is never that black or white. Emotions and circumstance play a role and one can’t predict what lies beyond the next turn down the road of life.

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