1. If Congress passes the $700 billion bailout plan this would be one of the biggest mistakes ever in the history of the United States. It blows my mind to think about how we even got into this situation but its probably why I write about the mortgage industry so much. If this stupid bill gets passed it could ultimately lead to the end of the United States as we know it. What’s that you say, the United States can’t fail? I understand what you are saying. Hey, do you think you could go over to Europe and talk to somebody from the Roman Empire for me? I want you to ask them how the most powerful civilization in the history of the world is doing. Just one person, that’s it. What’s that? There is no Roman Empire anymore? How could this be?
2. I am not sure on the exact numbers but right now China holds some ridiculous amount of the United States debt. When we did not have enough money to lend to from within we called up China and they sent us over a bunch of money. We have been paying interest on that money for quite some time now. The tricky part of this is that China can “call” on that debt to be paid back at any time. This puts us in quite a predicament because if we couldn’t just print up the money in the first place for ourselves how the hell are we going to come up with the money to write a one time lump sum check. We can’t. If this stupid bill gets passed, the U.S Government will now have to figure out some way to run the USA on 19% of the income it gets from income taxes. Yup, that’s right. If this bill gets passed, this bill plus the other expenditures (Defense Department, Department of Education, Border Patrol, Some War Going On In Iraq, You Get The Picture) will now assume 81% of the revenue the IRS collects from taxes. If this does not get you thinking that we are screwed because we are already trillions of dollars in debt than I do not know what will.
3. Worst phone call of all time happens the day after the $700 billion economic dummy plan gets passed from Chinese President Hu Jintao. It goes like this. “Hey George, its Hu,” says Hu. “What up Hu,” says W. “I want my money,” says Hu. “We don’t have your money,” says W. “You bankrupt now,” says Hu. “Crap,” says W. “This better than launching nuclear weapons at you,” says Hu. “…,” says W. Its really that simple. If this bill gets passed, China can call us up and say they want all of their money paid back the very next day. Of course we can’t pay them, because we are already broke, and now we are even more broke. Picture the movie “Pretty Woman” where Richard Gere buys failing businesses and sells the pieces individually and makes a profit. We would have to start doing something like that. Maybe we could sell (give) them Alaska or Hawaii to wipe the slate clean.
4. The only people that win with this bailout is the executives of the mortgage companies and banks that are failing. They have already made a crap ton of money and now they do not even get a slap on the wrist. WTF? Sure, they get fired, but after making $20 million in one year of so called work is not to shabby. There is no need to ever go back to work.
5. The tax payers are not going to get any kind of reward from this. I kept looking at this plan on the NYTimes site and I could not think of how we earn our money back. The problem is that the system is not going to change at all. All that happens is that the U.S Government now owns a bunch of crappy mortgage notes that nobody wanted in the first place.
6. Here is how I believe the U.S Government thinks its going to work in favor for the citizens it cares for. They buy a mortgage note on a property that has been foreclosed on. They are telling us that they are going to charge interest on that loan and get paid back that way. Wait a second. If nobody was paying that mortgage to begin with how are you going to get paid back now? You can’t keep charging interest to nobody. Nobody lives in the home. The bank does not own the home, the U.S Government now owns the home. How does the loan get paid back + interest? I do not see how this happens.
7. The only way I see any part of the loan getting paid back is when the property is sold. Again, how does the U.S Government and the tax payers get paid back and make money? They don’t is the answer. If nobody wanted to buy the home at a discounted value in the first place, then what makes you think somebody is going to step up and buy this home at what is left on the mortgage. Here’s an example. Somebody bought the home in 2004 for $250k and did 100% financing. Times got tough for this couple and they had to foreclose in 2007 because of a loss of job. They still owe $248k on the home but all of the homes around them are also dropping in value and those homes are all now selling for $175k. The home could not of been sold before foreclosure because the balance was to high. Now the Government is going to step in and assume that mortgage note for $248k. They cannot sell the home for $248k. The only offers they are getting are for $165k. In the mean time, somebody needs to be cutting the grass (costs money) checking the pipes (costs money) and maintaining the house (costs money). To keep the house from being fined the U.S Government will need to send somebody to do those things so it does not get fined by the local government where the house is. That is funny. The “Local Man” is sticking it to the “Federal Man.” Anyways, the U.S Government knows they cannot sell the home for what is owed on the house so they sell it for $170k. This comes out to a $248k – $170k = $78k loss. The $170k gets paid back to the $700 Billion dollar loan but with a huge loss, that did not collect any interest at all.
8. I do not see how the scenario above does not happen across the board. People are not going to over pay for a house and if people were smart they would wait until 2010 to buy a home. At that time most of the damage will be done with foreclosures and property values will probably have leveled off. Going back to the $700 billion dollar dummy loan. If the U.S Government is going to take a loss on all of these properties and bad mortgages how are they going to make any money. The $700 billion out lie of money will ( if we are lucky) probably get paid back by 50% over the next 30 years. This means that we lost $350 billion plus the interest that the U.S Government could have earned in bank accounts of their own over 30 years. It probably comes out to some ridiculous number like a $1 trillion or more. I think the math looks pretty simple to me, I hope I am missing something. The housing market is not going to change because of this bill. The credit markets are going to get tighter. Less money is going to be lent. The mortgage companies that are remaining are not going to lend money to people with bad credit. They know that they are not going to be able to sell that loan on the secondary mortgage market. So they change all of their underwriting guidelines to make it harder for people to get approved on a mortgage. By harder, I mean the way it was done for 80 years before 2001. There is still plenty of money floating around for people to get a 30 year fixed mortgage. You just need to have credit scores over 720, no mortgage lates, money in the bank, and a solid job history. Its that simple. Banks will fight over you to do business with you and that’s the way it should be. Their will be more mortgage companies going bankrupt even if this $700 billion bailout goes through. There are less first time home buyers in the market. Many are going to just wait it out as long as the market keeps going down. There are less people that can qualify when trying to refinance their home. Many owe more than what their house is worth and no mortgage company will go near that home loan. Those two examples alone are the bread and butter of the mortgage industry. No people buying homes and no people refinancing their homes means less business, which means more layoffs, which means more bankrupt mortgage companies. So, $700 Billion does nothing to save the mortgage industry or to keep it going. All it does is put the U.S Government on the hook for a bunch of crappy loans.
9. I understand that the whole goal of this is to “calm the markets.” I told myself I was not going to do this but I went and checked out my 401k statement this morning and it is down 27% for the year. It was shocking to say the least. I was tempted to take it all out of the stocks that I have and put it into the money market that is earning 2%. Maybe I’ll do that and maybe not. I do not plan on cashing any of that money out for another 30 years (hopefully there will still be something there) so it will probably stay. What worries me is the people that are like my parents age. In their late 50’s and are living off of the dividends in their 401k’s and IRA’s. I am sure they are not happy that 27% of the money they had invested is now gone. Hopefully they moved it all into a mutual fund when they retired so they are not affected by this change in the market. The market will always have its ups and downs. Yesterday the market had its biggest one day loss in its history. Everybody was assuming that the $700 billion dummy plan was going to get passed so investors were assuming what was a safe bet to make on stocks. The market had already planned for it to go through so value was still there. When it did not get passed in afternoon trading people started jumping ship. It was not expected. This morning, the market is up over 2% from its 7% loss yesterday. What is happening is people know if they start buying today they are going to get a big discount on stock prices. Its simple “Buy Low, Sell High.” The market will correct itself but it does not need the U.S Government doing anything.
10. I really hope that this $700 billion economic bailout does not get passed. It would mean that my generation would be paying on it until I am retired. If you look at the wording in the bill, at year 5 there is this statement that baffles me. It says something like “If this bill is not working in the tax payers favor we can make changes to benefit them.” That statement scares the crap out of me. Throw in the towel now before it gets even worse. The U.S Government is working our country to being bankrupt. Do not think it can’t happen. I wonder what Barack Obama and John McCain are thinking right now. It sure would be an accomplishment to be the President that was able to work us out of one of the toughest times in U.S History. Its sad that it is tough because all of this we put on ourselves. The Iraq War, Housing Crisis, all from the U.S Government. Every time I start thinking about this election year and what is going to happen after it I wish there was something more I could do to spread the message about Ron Paul. He was our only shot and the average American did not take the time to educate themselves about the important issues. I hope that this $700 billion economic bailout does not go through for the future of all American citizens.