Posts Tagged "economy"

Family Belt-tightening Tips – Share Yours!

Posted by Dad on Nov 14, 2008 in Family | 0 comments

OK everyone,

We are in a recession. Not just any recession, a big, long, really bad one. Many of us have not lived through anything similar.  So, it’s time to start tightening our proverbial belts!

I thought it would be a great idea if we helped each other out by sharing our bestest belt tightening ideas.  That way, we can ride this thing out together.

So, what cost saving ideas do you have?

I’ll start with a few of mine.

1. Buy cheapest gas you can find and use an octane booster to bring it back up to high octane levels.  The octane booster will cost you $5-7 bucks but you’ll save much more if you don’t buy the premium gas.
2. Go to Costco or Sam’s Club and look for good deals on food you can eat at home for snacks. We find that we spend a ton of money on snacks for the kids.  Buying in bulk will save you some bucks.
3. Make sure your tires have the proper tire pressure. You’ll get more gallons from your tank.

All the best!

Dads, lets understand what is really the problem with the economy

Posted by Dad on Oct 15, 2008 in The Blog | 0 comments

Government bailouts, multinational programs, tax credits galore, emergency jumper cables for the economy…when will it end!

Well, my fellow dads, don’t get fooled. Recession, credit freeze, gloom and doom are all only the symptoms of what truly ailes the US and even the world at this point- mortgage foreclosures. Plain and simple. And, up to this point, I have not seen any bailout, program or plan that truly addresses this issue. The sad part is that, perhaps, that is the correct course of action.

Please read Ms. Olick’s quick summary of the situation. Of course, she’s absolutely right. Think of it this way, when your kid hasn’t popped in a week, you immediately panick and start to think about an obstruction in the intestines. The course of action is to get that obstruction moving so that the plumbing can get back to doing what it’s supposed to do. Right? Well, in this case, the banks are the obstruction.

You see, the banks approved all these mortgages for people that really couldn’t afford them but were merely looking to flip them for a quick and easy buck. Now that the housing market has stalled, these people find themselves unable to pay the mortgage. They took a gamble and lost. It’s sad.

The banks took that gamble along with the “investor” holding the mortgage because they too thought it would be flipped. The banks lost too but now they don’t want to admit it. They are holding assets (a.k.a. the mortgages) that they recorded on their books at the value it was then, say $100. Now that repayment of that mortgage is in doubt and the value of the collateral (a.k.a. the house) is sinking, they don’t really know the value of their asset. It certainly isn’t $100.

There’s this little accounting rule that banks must follow (for now, anyways) called “mark to market.” Perhaps you’ve heard or read about it? It merely states that banks must adjust the value of their assets to their market value rather than keep them listed at the value they paid for it. This rule has forced banks to take “write-downs” that have amounted to billions of dollars (that’s billions and that’s per institution, folks). As they must maintain certain asset to debt ratios to be a bank, banks are now going out of business because the value of their assets is way below the required ratio (e.g., Lehman Brothers). It’s a vicious circle because banks keep adjusting values down because foreclosures are increasing and property values keep going down but foreclosures are increasing and property values are going down because the banks keep taking losses and the economy is stalling.

What do the banks do?

They stop lending! The CREDIT FREEZE! They’re even afraid to lend to each other for fear that they other will fail to pay back even overnight! This is evidenced by the London Interbank Overnight Rate (Libor) go through the roof as it’s the rate that banks use to lend to each other. Unfortunately, many adjustable rate mortages are tied to the LIBOR so the rates on those skyrockets causing even more foreclosures.

But wait! Aren’t the governments pumping a gazillion dollars into these banks in order to get them lending again? Wouldn’t it be better for banks to do some work out with homeowners instead of letting them go into foreclosure? Would a bank prefer to do a short sale rather than keep a depreciating asset (a house) on it’s books?

Well, remember my previous post on greed? Banks are not doing what they should be doing to help homeowners because they are waiting to see if they can get a better deal with one of the government programs. After all, if they renegotiate a loan or make a short sale they must recognize a true loss on their books. If they wait and sell it as part of a government program they may end up with less of a loss. Who knows?!

Well, my fellow dads, how do you feel about this?

All the best