More US Politics: The Economy

[fiasco8]

In light of the recent downturn in the US economy I'd like to see what some people think may be the reason or reason's this is happening.

Some interesting things to note is that home foreclosures are up 57% during January year over years. 9,000,000 home mortgages are upside down, where the home is worth less that what is owed. This is the highest percentage since the great depression.

Reason's such as "X person screwed it up!" are not acceptable. If it was the actions of someone or some group, describe those actions and their effect.

**Notice: I've clearly labeled this US politics in the title. If you have thin skin and don't want to get a little gritty in your discussion or don't think you'll be able to shrug off a differing opinion after an argument, don't bother reading on. This isn't a free pass to be idiots.

As for people being sick of US Politics, this is why I have clearly labeled it. If you want to discuss your country's politics be welcome to create a thread. Honestly, I wouldn't mind hearing about the politics from some countries other than US and Iraq.

So, let's get too it. Where is our economic problem stemming from?

[Sheff159]

it is stemming from credit rates being dropped so low more then a year ago. Causing mortgage companies to offer variable rate mortgages with insanely low interest rates. People who are stupid got these mortgages, and then used them to buy homes far beyond their means.

The prople today, is that where the economy is now, and where interest rates are, these people who got these homes beyone their means with insane VAIRABLE RATE mortgages, now cannot afford to keep their homes. Thus the root of the problem we are in.

/thread

[fiasco8]

Originally Posted by sheff159

it is stemming from credit rates being dropped so low more then a year ago. Causing mortgage companies to offer variable rate mortgages with insanely low interest rates. People who are stupid got these mortgages, and then used them to buy homes far beyond their means.

The prople today, is that where the economy is now, and where interest rates are, these people who got these homes beyone their means with insane VAIRABLE RATE mortgages, now cannot afford to keep their homes. Thus the root of the problem we are in.

/thread

I think that is the most apparent cause/effect problem. Digging even deeper I have to wonder where this reliance on credit has grown from. What happened to the times when people would put half the value of a house down when they bought it?

Cash has really lost it's luster in US society. Employees get perks for pushing credit cards. Companies push their own loans on you to make a double wammy on your wallet.

There are more reasons that I feel like discussing but I don't want my whole load all at once.

[dz06lt]

first let me preface by saying i work in finance

as to your statement about house forclosures the major problem here is that with such low rates people who should have bought a 100k house bought a 200k house bcuz they could afford to with the low pmts at the low variable rate. now that rates have reset back to a normal level the payments went back to where they should have been and now they cant afford to pay.

[fiasco8]

Originally Posted by dz06lt

first let me preface by saying i work in finance

as to your statement about house forclosures the major problem here is that with such low rates people who should have bought a 100k house bought a 200k house bcuz they could afford to with the low pmts at the low variable rate. now that rates have reset back to a normal level the payments went back to where they should have been and now they cant afford to pay.

Thanks for clarifying that dz. I know that any responses we would get from you wouldn't apply to all companies or yours. Since you probably have a better perspective of the financial industry than most of us though I would like to ask your opinion on some things.

Are there scenario examples that mortgage companies demonstrate to their customers about variable interest rates so consumers can see just what position they could possibly be in, in the future?

Do most mortgage companies tell their customers up front(and I don't mean fine print, though everyone should know better than to not read fine print) the possible rates their mortgages can climb to?

Did these mortgage companies know that eventually this bubble was going to pop dropping the prices of home so drastically, later becoming a threat to many consumers?

I guess these beginner questions will make a good start.

[dz06lt]

Originally Posted by fiasco8

Do most mortgage companies tell their customers up front(and I don't mean fine print, though everyone should know better than to not read fine print) the possible rates their mortgages can climb to? Of course i cant speak for all companys but it is the law to fully disclose all terms of any contract to customers. does that mean that some didnt gloss over the facts quite possibly but you cant just blame the companys the customers can be at fault as well. As you know it is human nature to want things some times bigger and better things. And if someone tells you that you can have house A (corner lot more bedrooms bigger yard) or house B (smaller lot and less bedrooms) and the price you pay now for the difference is only X. Which one would you take?? and in taking would you actually listen to all the terms and conditions? no your just thinking about that big yard and impressing your friends and neibors.

Did these mortgage companies know that eventually this bubble was going to pop dropping the prices of home so drastically, later becoming a threat to many consumers? Eventually probably. but again like human nature companys are greedy and if they did their part by explaining the consequences to their customers they would feel they did their part.

I guess these beginner questions will make a good start.

Answers in bold

[fiasco8]

Originally Posted by dz06lt

Answers in bold

Great answers. I think it's safe to assume at this point that a lot of consumers underestimated the risk they were bringing upon themselves. It seems the optimist inside of us got the best of these people.

[fiasco8]

Alright, let's touch on something that hits a little closer to home.

Does anyone think that these housing pains could have been stymied more if wages had kept up better with inflation? After all, every year we hear of companies having to raise prices on products due to the rising costs of make them. Where does this extra cost land? With us. Do we have a choice of charging more for our labor? Not really.

I think this, coupled with risky lending had lead to the housing problem. After all, the less money people have to put on a down payment due to their stagnating wage, the more they rely on credit.

[downphoenix]

I think the housing crisis will be good for our economy in the long run.

The more we as a populace get away from credit because of the downturn, the stronger our economy will be in the long run. Plus with banks being less giving, people will have no choice but to sell homes for cheaper, which is a good thing for a buyer (but not a seller).

We need to get away from "houses" anyway. We need more apartments. But not as sucky ones. And rent to own would be a nice thing to start seeing, allow people to purchase things without having to go against interest ratings and going into debt.

Freezing interest rates is a bad idea. Sure, its good for the people that are in danger of foreclosure, but its worse for the rest of the nation. Those people were unintelligible enough to sign those leases, they need a little sufference. I don't want to here them bitching because I rent, not mortgage or own, so they have it better than I do.

[InsightGoalie]

Originally Posted by fiasco8

I think that is the most apparent cause/effect problem. Digging even deeper I have to wonder where this reliance on credit has grown from. What happened to the times when people would put half the value of a house down when they bought it?

WTF? The average income for a couple is $46k a year. How on that salary are you supposed to come up with half the homes value to put down? Most homes are going to be $100k+ meaning $50k+ down, thats more then the average couple makes for a whole year!