I have always had a thing for numbers, so I love the stock market. The last couple weeks have been brutal. Sometimes the best thing to do is walk away so you don't panic and do anything stupid. So I have stopped paying attention to the market which helps keep me focused on the long term and not get caught up in the short term.
But the only thing that can make a bad market worse is really bad politics. The market is tanking partly because of all these people that got stuck w/ super expensive houses with crazy ARM mortgages that have been going up for a while now. Not to mention the flippers who got stuck w/ 5 new condos in Miami that no one has ever lived in.
Several potliticians (Presidential Candidates) have suggested that the government step in and pay for a lot of these bad mortgages. I'm sure it is an easy position to take to gain public support and votes, but this is a terrible policy. There has to be risk w/ reward to prevent these things from happening. You can't allow companies to make a ton of money off of interest only loans, and then bail them out when, surprise, people can't afford to make payments when the loan adjusts. That will only create a bigger problem next time because people (both homebuyers and loan companies) will take more risk knowing that if it goes bad the government will come help.
This is like a kid going to a casino and having their parents say "call if you lose more than $1,000 and I'll come pay." How could you ever expect that kid to manage their money properly and know when to leave? If they are down $100, of course they will keep playing becasue they know their parents will fix it if they get into bigger trouble.
From an economic principle it is terrible, but also from an individual standpoint it is a bad deal for those of us who didn't get into this mess. Politicians have thrown out numbers a large as $200 billion to fix this. That is roughly $2,000 per household in taxes to pay for that. Why should we chip in $2,000 to pay for others mistakes? That means I would have been better off speculating in flipping. There is some chance I would have made a million and if I didn't someone else's taxes will help me out.
I would agree with spending tax money on this IFF (remember math proofs?) the government passes a law saying these ridiculous mortgages are illegal and make sure none of these companies can offer them again. If they say these people were victims of fraud and it was illegal then OK, but don't say it is OK to sell these silly loans and then pay them off when people get in trouble.
I really do feel bad for people who are trouble from an interest only loan or worse a negative amoritization loan, but they should be able to cut their losses and refinance into a 30 year fixed mortgage. And the fact is, if you cannot afford your house w/ a 30 year fixed mortgage, then you cannot afford to live there.
We need to be teaching personal finance in schools. Start w/ bank accounts and balancing a checkbook, work you way into credit cards, school loans, and mortgages.
Students need to learn that the job of any company is to maximize the profits it gets from you. And it doesn't matter if that includes you getting a school loan, buying a house or a car. Same w/ a casino, the job of each game is to make as much money as they can from you. And only through education can you tell what is a good bet vs a bad bet.
It will help students ask the right questions like:
"Why is the Gap telling me all the new clothes I bought last year are now out of style?"
"Why would a financial advisor tell me I need to sell all of my funds and let him pick the new ones?"
"Why do the realtors on House Hunters always ignore the comment and point out something great whenever someone says they don't like something."
1 comment:
Hear hear! Can't say it better myself. I picked a 30 year fixed rate mortgage in 2001 FOR THIS EXACT REASON. Agree with you that education would help... maybe we can teach that instead of making people do all the even number problems from 1-50 and grade them on how many they can get right.
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