Home

Some reaction to Brian’s “Mortgage Meltdown” entries.  I really don’t refute a thing my cousin has said but I do have some commentary of my own to add.

Disclaimer: I know nothing. Really. So what I’m about to say next may or may not make any economic, or educated, sense.

First some commentary on the insurance companies. Perhaps the reason they’re not bleeding to death like the mortgage companies is because the insurance companies, in many instances, aren’t paying out their claims in the wake of Katrina, Rita and whathaveyou. They’re also pulling up stakes in those risky areas and no longer issuing insurance policies in the Gulf coast region or anywhere that has a 25% chance of flooding within the next 100 years.

The insurance company didn’t lend any money to you with the hopes that you will pay it back. Instead, you’re paying the insurance company in the hopes that they’ll pay you a large chunk of money when disaster strikes. The insurance company however, is banking on the odds to be in their favor, that they’ll collect premiums from you for many years and never have to pay out a claim.

And when you do file a claim, you would have better luck waiting for money from the tooth fairy.

Back in April, my state suffered a repeat spring filled with a lot of rain and a lot of flooding. Rivers literally changed course, roads were flooded out and homes were washed away or damaged beyond repair. One such story involves a customer of a local financial institution who lost her mobile home in the flood. (A good portion of the park she was living in ended up under water).

First, I can’t even comprehend losing everything I own in a flood. The first priority of course is finding another place to live. She did get an apartment, but that was nothing compared to the battle she had to wage with the insurance company and the token aid she got from FEMA.

Since her home was located in a flood zone, and per lending requirements, she had flood insurance. Don’t be fooled by what a “good job” Brownie ever did for FEMA. FEMA doesn’t do jack for people who have endured a flood. This woman got a whopping $640 in aid from FEMA.

But getting a dime out of the insurance company for the loss of the mobile home was like getting blood from a stone. First, the home had to be declared condemned by the town and the town took it’s sweet time doing that. All in all it took over three months to get the money from the insurance company. It went toward paying off the loan and an unsecured home improvement loan. She ended up with about a thousand dollars in her pocket when all was said and done.

She’s lucky, she actually saw the money. But she had to fight like hell to get it and she is an older woman who had also endured the lost of her elderly mother during this time too. There are some stories out of Katrina where people have yet to see any money. Even after two years.

As for the Fed not predicting 9/11 or the length of the Iraq War…. well, no they didn’t have a crystal ball. But after 9/11 President Bush told us to go shopping. Literally. At a time of crisis in our country we were not asked to make any sacrifices, financially or otherwise. We were fat, dumb and happy before 9/11 and we’re just as fat, dumb and happy after 9/11. We went shopping and spent money we don’t even make. (No, not money we haven’t made yet, money we don’t even make to begin with.) We bought homes, cars, big screen tvs, motorcycles, boats and all the toys to our little hearts desire. And who’s worried about tomorrow? We’re not, apparently, as we’re not saving a dime. The savings rate in this country is in the negative. The last time it was that low was during the Depression, when nobody was making hardly a dollar to begin with and what little money was made went to putting food on the table. Now we’re just spending, spending, spending. And we’re not putting food on the table, we’re going out to eat. Oblivious. Hiding behind our “eminence front.”

Looks like the party might be over, or at least severely interrupted. Now we got the fall out of sub-prime loans, the stock market is in flux and the financial analysts on the television are all breathless about the “credit crunch.” Oh gee, well let’s see. The cost of goods in this country is outpacing the wages earned. Hmm….so technically I can’t afford my car, or my house on the wages I make to begin with, but my bank or mortgage company managed to finagle this great loan deal for me so I could, at least, for a few years. But of course, the bank needs to earn income too and most of that comes from the interest I pay and a low interest rate isn’t going to help their bottom line. And there’s no way they would do a low rate fixed loan so I got this thing called an adjustable rate mortgage. So for a couple years I had a nice low rate but woah! It’s jumped up and I can’t afford the payments anymore. My car has been repossessed. My house is being foreclosed on. Why was this house $250,000 to begin with when just 10 years ago it was down around $100,000?

And yet today, the Fed dropped the discount rate. This is the rate that banks pay to the Fed to borrow money (which is then loaned out to customers). The theory is that if the discount rate is cut, then banks can lower their rates to customers a bit and encourage…you guessed it…more freakin’ spending.

Look, let’s be serious. The stock market crash of 1929 was due in part to the purchase of stocks for companies that didn’t exist and in some cases the purchase of legit stock that was outrageously overpriced. With the crash, everything collapsed and the US (along with most of the rest of the world) took a financial butt kicking. Truthfully, had it not been for WWII, we would still be feeling the effects of the Depression. It would have lasted much longer than it did.

So, is now really any different? We’re spending money we don’t even make to begin with, buying things on credit to what? Keep things at the level they are? Why are we doing this? This is insane. We’re bailing a sinking boat with buckets that have holes in them.