Financial Crisis is Now a Long-Term Planning Situation

Well, from looking down the road filled with rocks ahead, I do honestly think it is entirely possible that this so-called “recession” is going to get a hell of a lot worse, and dive into a depression. Barack Obama is one of the most intelligent people I have seen elected as a leader in a very, very long time. But even with his ability, his sphere of influence, this has gone way past crisis stage and into a long-term butt-ugly situation that is not easily resolved. Thankfully, this time the US does have a leader with some intelligence, considerable ability to listen, watch, and take a good look before jumping into the quick-sands of panic. But he certainly cannot turn this wreck around by himself, which means all of us, including me, need to start planning for a long-term, tough and rocky ride.

Finally Paulson put the truth out, the toxic sludge that became the reason for so much of the “hedge” funds and the credit default swaps taking out Lehman Brothers and crippling the banks in the US and world-wide are NOT going to be bought out. Finally, someone figured out that this maze of stupidity is not worth paying a wooden nickel for. But, that means that those goofs that did get into this whole “funny money pyramid scheme” are now going to have to write down all those losses, if they can even figure out what the losses are. Good grief!

The ripple here is going to continue to hit the mortgages, the loans for cars, and maybe even student loans. Just this last while, another 18 banks went “POOF”!  People are taking their savings out of the banks, mostly because they have no idea whether the banks will even exist later. Treasury bonds are selling more than they have for a long time, even with paltry interest.

The APEC summit just finished, and the leaders figure it will take at least a year and a half to get this whole mess turned. Frankly, with the rate of business bankruptcy just starting to hit, the shaky ground that some of the major industries starting to move like a slow-motion earthquake, I don’t think eighteen months is even close to accurate.

Planning to endure the time ahead is the one thing I can do. Remember when someone asked you at a job interview, “Where do you expect to be in a year from now, with this company?” Well, the question now is, ” Where do I figure on being in two years from now?” Tough to call in some ways because there has NEVER been such a mess, NEVER has been such a phenomenal meltdown involving more than one or two countries. Yep, this lesson is that no country is an island, nor is any person able to do something stupid without the ripple effect going out well beyond known parameters. Congratulations you bunch of greedy jackasses, you sent one massive torpedo and blew a huge hole in all our lives! Don’t darken my door with any of your “innovative” ideas, or you may find that I DO have a pair of steel-toed boots and WILL use those on your butt!

Yep, it means I have to change my plans, work out a plan that takes into account changes in how I deal with money, and definitely how I manage my own income. Fortunately I am one of the few around with no debts to speak of, as I owe less than five hundred bucks right now.  One thing I will not do, though, is take on any credit cards. The banks are raising the interest on the cards to thirty-two percent either December first, or January first. Phooey! The only reason any bank want me to have their credit card is to make sure I go into debt. That is the only reason the cards are offered in the first place. Phooey! Keep them!

At least now I know that those who would make others the pawns in a very greedy, stupid, and ugly money game now are going to have to deal with it, not my tax dollars, not my hard-earned income. That is one relief, and from watching all the posts, I am definitely not alone in my wrath here.

Normal changes with each generation, so what WAS normal, is not normal now. Watch how the rules and normalcy change and learn to move with it. Barking about “how things used to be” is a total waste of time, energy and robs anyone doing that of the means or opportunity to be effective now.

Where do I figure on being? If I plan reasonably well, I should have a roof over my head, a change of job, certainly, and food to eat. Other than these things, the rest is negotiable, subject to change. My own sinking feeling is that this “crisis” is going to carry on well past two years, perhaps as long as five years. THAT does not make me happy, to say the very least.  I will do what I know how, what I can, and do it as well as I can, then let the rest go.

What do you think? Will this go downhill like the world did in the Great Depression or not? I sure as hell hope not.

Going on down the road

The bill is passed, now what?

Business owners, for some reason, think they can run their businesses on credit alone. This crisis may well teach a lot of people they cannot run on credit, cannot use credit to keep the wheels on the car, literally or not. Business owners, even the larger ones, need to revise their plans to ensure they have cash on hand, and keep a healthy balance in the company funds, especially if you honestly intend to pay your employees.

Same goes for those who thought the “streets paved with gold” were not going to turn into brass. The everyday person now understands how easily over-use of credit can cause some spectacular results. The lessons of wall street really don’t differ that much from the rest of us. Do your homework, check out the places you want to put your trust in, your investments, and yes, it means you have to understand what risky investments are, if only to avoid them.

The world economy may well stall out. Hopefully the changes in the bill just passed through the congress and senate will lead to some smarter moves in the treasury, the whole legislative process, and maybe, just maybe, Paulson and the others who apparently were not capable of taking on the lobby groups will find they must work for the taxpayer instead.

Individuals all over the world, myself included, have come to understand that it takes very little to tip the whole financial basket into the sewer, and some will find it tough to climb out again. I have put money away, and I fully intend to keep doing that.

Money specialists and credit advisers have told people for years to put away at LEAST 3 full months of expenses. I know I didn’t, but I am damn sure going to do that now. It may take out spending money on treats, wanting a new computer, maybe postponing some other purchases, but I will do that.

Bonds are now a good investment, so if you have money you do want to earn interest on, put your money there, especially if you have children, a mortgage. Pay off what you can, as I am going to. I want to be able to be as debt free as is humanly possible. It may cause a slowing of the retail markets, but at this point in time, unless I am healthy financially, I am not going shopping. Sorry.

The toxic sludge that is now going to the government I definitely hope (because there is nothing I can do otherwise) will turn into taxes returned, but I am not going to count on it. Call me sceptical.

Regardless, this may be the right time to put aside money, to not fall for some of the sales pitches from mortgage brokers, not to be so trusting when it comes to money. I was, perhaps, lucky, but there will always be someone out there who will twist facts, lie, and connive, so I am putting myself on notice to do my work, research, and find out what they are talking about.

If they come calling, now I will tell them, “Phooey!” take your scams, your lies and take a long, long walk on a very short pier.

After going around the world with news items, blogs, etc. I am confounded. Does anyone in the US save money for their own use? Businesses want credit to just cover daily expenses? To me, borrowing is something to do when I have most of the money I need, not something to use for buying coffee, or to go to a movie, but apparently I am the odd one here.  We all know the banks did not keep much money in their possession, otherwise they would be on solid ground and healthy. Hmmm how very very odd.

Differences in Mortgage Lending and Credit Cards

I live in one of the countries world wide that have gone way over the limit on personal debt. Credit cards and mortgages far over the ability to repay and savings basically non-existent. There will be repercussions coming. When? I don’t know.

The US consumer is not perhaps the worst, but with the way the banking and lending practices are allowed to be basically unregulated or very seldom watched, this makes it a highly volatile situation. What is remarkable in history is that the US is the ONLY country to go through this type of crisis, not once, not twice, but three times and a few lesser crises in between.

Why? Well, from what I can see, the government is seen as an enemy and regulations are seen to bind banks, lending and mortgages to unfavourable levels. Well, if unfavourable is the watchword here, then I would say the current situation is that.

JPMorgan just bought Washington Mutual, after the government seized it. One of the largest banking buys in history. The Treasury and Federal Reserve are trying, maybe in vain, to get a very unfavourable bailout of the lending industry passed using a very vaguely written bill.

Try looking at other countries, and see if those business practices would work for personal lending, mortgages and compare the differences.

In France, for example.

The BBC’s Emma Jane Kirby asks if other nations should take a leaf out of the thrifty Gallic book?
French credit cards are little more than debit cards, so there is no question of simply sticking a couple of flat screen TVs on your credit card and hoping to pay for them later – if there are insufficient funds in your account, your bank will immediately block the transaction.
“People here don’t believe you can just put your debts together and get them refinanced… But in London… it was as if wealth was something you could get from a bank, it’s a sort of miracle people seem to believe in England.
But France still believes in strict rules and regulations,
Finance Minister Christine Lagarde says.
“Expect two conditions – a down payment of 20% of the value of the house plus mortgage [repayments] which will not exceed 30% of income.
“You already have a pretty good safety net there and clearly no real estate financing similar to the sub-prime market that has existed in the US and which has hurt the financial system so much,” Ms Lagarde says.

Here, in Canada, all mortgages must be insured, must be registered and the banks insist on at least a 10% downpayment. This used to be lower, but with the way properties were selling to people who were noticeable way over their limit on the ability to repay, the regulatory agent, CMHC chose to change the qualification level and changed the amortization time. Just a short time ago, mortgages could be repaid over 40 years, now they are limited to 35 years.

Credit cards are still one of the highest risk debts out there, with up to 29% interest, and a lot of people here have done what is considered very high risk. They have put the debts into one consolidation loan, then started charging again on the cards.

North Americans, U.K. residents, are all very high consumers, with extremely high debt levels. This is now coming home to roost, unfortunately.

History has lessons, and I am not going to reiterate all of them. No point. But some of the historical commentary from people living during the Great Crash in 1929 ring ominously.

1929 Here is what happened.

“In August of 1929, the Fed began to tighten the money supply continually by buying more government bonds. At the same time, all the Wall Street giants of the era, including John D. Rockefeller and J.P. Morgan divested from the stockmarket and put all their assets into cash and gold.

Soon thereafter, on October 24, 1929, the large brokerages all simultaneously called in their 24 hour “call-loans.” Brokers and investors were now forced to sell their stocks at any price they could get to cover these loans. The resulting market crash on “Black Thursday” was the beginning of the Great Depression.

The Chairman of the House Banking and Currency Committee, Representative Louis T. Mc Fadden, accused the Fed and international bankers of premeditating the crash. “It was not accidental,” he declared, “it was a carefully contrived occurrence (created by international bankers) to bring about a condition of despair…so that they might emerge as rulers of us all.”

On Sunday, December 23, 1913, two days before Christmas, while most of Congress was on vacation, President Woodrow Wilson signed the Federal Reserve Act into law. Wilson would later express profound regret over his tragic decision, stating:

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world – no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.”

Sound familiar? It is long overdue that the American policy makers, the guy on the street, called for regulation, freedom from the “duress” of a small group of men in Wall Street and the credit markets.

I, personally, would love to see the American voter, worker, business man, corporate CEO outside Wall Street, all demand that regulations be put in place and the funds provided to make sure those regulations were obeyed. Right now there are over 50 different agencies, and consolidating those into a few lesser number would make the whole situation far more effective, far more efficient, and maybe, just maybe, the american taxpayer WOULD find themselves never, ever again facing another meltdown.