How Did We Not See This Coming?

[Goddess Monica]

A few years ago I started noticing more Humvees and Escalades on the road. I wondered how people could afford them?

A watched shows like "Trading Spaces" and "Flip this House" and saw modest homes transformed into tiny McMansions. I wondered who lives like that?

I saw friends spend thousands to remodel bathrooms, transforming them into mini day spas, complete with Roman tubs and granite flooring. I wondered how they were going to pay for it?

I saw people taking out mortgages for homes worth a quarter of a million dollars after living in 2 bedroom apartments. I wondered who their banker was?

I told my husband we were living in a false economy. I said it wasn't real because all this excessive spending and living was done on credit.

We bought a house within our means. We continued to drive our minivan. We had some credit cards with money owed. We were completely average.

Fast forward 4 years later and the credit card payments that were once manageable are ridiculous, thanks to high interest rates. It takes twice as much to fill our gas tank. Groceries we normally buy seem like a luxury.

What do we get? Letters from credit card companies and the like telling us to pay up! This will go on your credit report, and you'll be screwed!

What happened to our lenders, insurance companies and mortgage companies who drove up the interest rates and lent irresponsibly?

Bail out. The same agencies that wanted NO government regulation or involvement on how their business was run now have their hands out.

Keep going to your second jobs, folks! Wall Street needs that money!

[Shelagh]

This email has been floating around the net....................



Subject: AIG Bailout







I’m against the $85,000,000,000.00 bailout of AIG. Instead, I’m in favor of giving $85,000,000,000 to America in a We Deserve It Dividend.

To make the math simple, let’s assume there are 200,000,000 bonafide U.S. Citizens 18+. Our population is about 301,000,000 +/- counting every man, woman and child, so 200,000,000 might be a fair stab at adults 18 and up.

Divide 200 million adults 18+ into $85 billon - that equals $425,000.00. My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.

Of course, it would NOT be tax free, so let’s assume a tax rate of 30%. Every individual 18+ has to pay $127,500.00 in taxes. That sends $25,500,000,000 right back to Uncle Sam but it means that every adult 18+ has $297,500.00 in their pocket - a husband and wife has $595,000.00.

What would you do with $297,500.00 to $595,000.00 in your family?


Pay off your mortgage – housing crisis solved.
Repay college loans – what a great boost to new grads
Put away money for college – it’ll be there
Save in a bank – create money to loan to entrepreneurs.
Buy a new car – create jobs
Invest in the market – capital drives growth
Pay for your parent’s medical insurance – health care improves
Enable Deadbeat Dads to come clean – or else

Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.

If we’re going to re-distribute wealth let’s really do it...instead of trickling out a puny $1000.00 ( “vote buy” ) economic incentive that is being proposed by one of our candidates for President.

If we’re going to do an $85 billion bailout, let’s bail out every adult U S Citizen 18+!

As for AIG – liquidate it. Sell off its parts. Let American General go back to being American General. Sell off the real estate. Let the private sector bargain hunters cut it up and clean it up.

Here’s my rationale. We deserve it and AIG doesn’t. Sure it’s a crazy idea that can never work but can you imagine the Coast-To-Coast Block Party!

How do you spell Economic Boom?

I trust my fellow adult Americans to know how to use the $85 Billion We Deserve It Dividend more than do the geniuses at AIG or in Washington DC. And remember, The Birk plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.

[Cindy]

Wow, even though I no longer own my home since I lost it...I could go out and BUY one with cash for that amount, and never have to worry about a house payment again. Although...

What would that do for the stock market? Who would buy stock in big banking business who major in loans? They would be completely out of business, because people would not need credit anymore...

If everyone owned their own home, they might actually afford their bills for once, and not depend on the credit crunch.

There is a credit freeze right now, that shows you how 'no credit' can trickle down to the small guy. If we completely whipe out the big guy, we would see something worse than we have now.
What then?

How many businesses would DIE?

[Kelly Fisher]

Then again, how many businesses would start seeing black again because their profits weren't being swallowed whole by their business loan payments?

[Cindy]

They won't get the loan:) The big business won't exist to give them a loan. Could you start a business on 297k? Sure you could...oh wait, you just bought a house. So, you don't have 297k. If you live in Las Vegas, you just bought a house for 200k (if you are lucky). Now, you have 97k to keep your business floating..or starting. Do you buy your house, or do you buy a business? *tick tock tick tock*. Decisions decisions.

It would whipe out lenders...or make a HUGE dent if people didn't depend on loans.
Nobody would need a loan for a house, and most people who need a house, don't need a loan for a business (since most folks do not own their own business). So, since not enough people would open their own business, banks would close, jobs would be lost, and it would continue to trickle down the drain til the last person spills the only drop left.
It is already happening NOW, and not a damn one of us has even 1k of that 'hypothetical' money. 300k is bird feed..the average american could spend that in less than one year on a house and a car.

Then what?

Let's not forget what it would do the housing market! It would Bubble to a great extent, since the buyer demand would be much more than seller demand. Then the housing market would SKYROCKET, all the money you just got back from uncle same would go straight to the house.
OMG, the catastrophe in something like that...is far too great to continue to explain here.

[Kelly Fisher]

I was thinking more of existing businesses, not hypothetical future businesses. Even if you are deciding to choose between paying off your mortgage and paying off your business loan, you can divide and conquer and end up being significantly closer to paying off both.

However, this is all just make-believe, because the government would never allow the American people to have that much monetary power in the first place. It doesn't matter what would or wouldn't work, because it would never happen, anyway.

[Cindy]

Kelly, how many people own a business compared to the amount of people getting that 'hypothetical' refund that we will never see? I only know of ONE person who owns their own business. Everyone else I know, that owned one, fizzled.
The reason that it is a hypothetical refund, is because the government has most likely already brainstormed the scenario, and found it to be a great disaster.
Erin, We are closer to the Great Depression Now, more than ever.

[Shelagh]

Good for you, you put quite a bit of thought into that.........that's all it was, food for thought though!

[Erin]

According to Neatorama, this has happened before and will probably happen again.....

http://www.neatorama.com/2008/10/08/10-american-financial-meltdowns...

Admittedly this is an over-simplified outline of events.

[Cindy]

That was a really cool Link Erin:)

[Shelagh]

My closest girlfriend is a lawyer and her father did very well in the banking industry. Bearing in mind that the markets went on a major upswing today, she and I were discussing this financial crisis and I used the word "depression" which she didnt seem to like! ;-)
In any event, here is here answer to me, which I think sums it up rather well. As she has mentioned, the Globe and Mail article is a great read, as are all of the links I have been browsing though on the New York Magazine.

Her email to me:

"Hmm. "Depression" is a very big word. I am no expert, but my father has some international expertise, and he has not used that word to me.

It is not a good time to be in finance. Or to be in a business that directly depends on finance. That goes without saying. But, as my father points out, we have gone nearly a generation since the last major recession. There are tons of people in finance who have literally never experienced a bear market. A market correction was hugely overdue.

So.....

The markets are in incredible flux right now. A lot of major institutions have faltered, or indeed, fallen. It is true that there is a possibility of the world banking system melting down. It will take decades to dig out the damage done in the last six weeks. Having said all that, because the stakes are so high, world leaders are EXTREMELY motivated to do whatever it takes to make sure the world markets do NOT melt down.

The Globe & Mail ran a very interesting article the other day (Saturday, it might have been) comparing the situation now with the situation in 1929. And there are a lot of differences.

Will there be a lot of pain and suffering before this all shakes out? Undoubtedly. Am I livid that those disgusting swine on Wall Street have befouled the global economic nest with their greed and total disregard for ethics? Oh, you bet. But since my father isn't looking to jump out the window, I think it's still safe to buy green bananas.

I think the trick, on a personal level, will be to secure work and once employed, live within your means. Debt will kill you, plain and simple. You're not a wasteful girl, so I am confident you'll be okay. But Irwin is partly right - for a certain type of person, the world has ended. But we don't fit the profile.

Go over to the web site for New York Magazine, which is devoted to the crisis. There is a killer article about a trader on the Street who has lost his job, and it's quite amazing. Those are the people who are panicking right now. These are the Masters of the Universe. They have multiple homes in Manhattan, Connecticut, the Hamptons, a couple of kids in 50K-a-year private schools, flowers delivered daily to their residences -- all leveraged on debt, and all of it now utterly wiped out. My dad mentioned a billionaire who was completely denuded of his fortune."

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GLOBE + MAIL: http://www.theglobeandmail.com/servlet/ ... query=1929

NEW YORK MAGAZINE: http://nymag.com/


http://nymag.com/tags/intel/The%20Greatest%20Depression