Nov

25

The Thank God it’s Payday Trap

By admin

When payday comes around, do you often hear your co-workers profess their utter relief that this day has arrived? The exclamation Thank God it’s Payday is unfortunately a popular phrase uttered across the entire country on the first and fifteenth of the month. And it’s pathetic. While sharing the details of your financial status is normally considered to be socially awkward, millions of people across America let everyone within earshot know that they are totally inept at managing their finances with this statement. Many are in the habit of saying it every single payday. Hey – you aren’t one of these people, are you?

If you are, there are a couple of things you need to do – and fast. The first is, quit letting the world know that you are such a financially irresponsible dolt. If you utter that phrase every single payday it’s a safe bet that everyone at your workplace, including your boss, knows you are not capable of handling your own finances. That doesn’t bode well for your chances of future advancement. Most likely the spouses of your more financially responsible co-workers have heard about this as well. If they ever meet you at the office Christmas party they will be thinking: Oh yeah, the stupid spendthrift who is living one step ahead of bankruptcy.

The second thing you need to do is get your financial act together. If you couldn’t comfortably skip your next paycheck entirely then you are doing something really, really wrong. What is going on with you? What are you thinking when you decide to spend money on anything but an absolute necessity if you need each paycheck to keep creditors off your back?

Perhaps you have fallen for the bill of goods being sold by financial institutions offering credit. It’s a pack of lies designed to make a slave out of you for life. They tell you that as long as you have a job you deserve any luxury in life that suits you. Just use that shiny credit card they gave you. It’s a reward for you being so smart and responsible to have gotten a decent job. This extends to car loans and, until very recently, home loans as well.

Maybe you have also bought into the great social hoax that you need to be a homeowner, otherwise you are a second-class citizen. Even though that house payment eats up more than half of your family’s take-home pay. Hey, everybody’s doing it. You don’t want to be a crummy renter, do you? No – you must own your own home! It doesn’t matter what housing prices are or what it does to your expendable income – if the lenders will approve the home loan, buy it! Even if you must sit for three hours in traffic everyday in order to do it.

What does that Godsend of a paycheck which you are so relieved to get on payday really do for you anyway? Allow you to buy groceries, pay the utility bills, make the minimum payment on your credit cards, and then what? Does the $20 extra left in your wallet tempt you to get the latest trick cell phone with all the new gadgets? Can’t you see the patsy you have become?

I am begging you right now to stop with all this nonsense. Sit down and get a grip on your finances. It’s Top Ramen time until you can answer all the following questions with a resounding yes:

1. Do you have 6 months expenses in a savings account (only to be touched for living expenses if you lose your job)?

2. Are you using only one credit card, and are you making at least ten times the minimum payment on that bill every month?

3. Are you presently on track to retire comfortably in your early sixties, with plenty of liquid assets?

If you cannot answer those questions confidently, then you are really acting foolish. You have no business going out to dinner or shopping for a new flat-screen TV until you get a solid grip on your finances. Hopefully by now the myth that ever-increasing home equity will continue to bail you out has been debunked. You do actually have to manage your own money and plan for the future. Otherwise you will be flipping burgers in your eighties to get the rent money for your trailer. Seriously.

If you are by some miracle able to sell your house right now above the zero line, do it. Move into a nice rental at half the monthly housing cost, closer to your work which will save money as well. Drive your car until it actually needs to be replaced, not just until the ashtrays get full. Get your credit cards paid off and then pay the balance off every month. Get fanatical about saving money. Start saving some now (even if it’s just a little) and start to feel the joy of having money in the bank.

In short, start living within your means. Save money for a rainy day. Above all, stay out of consumer debt. That is a trap which has been laid at your feet which is designed to enslave you for life. Don’t fall for it.

Papa Riah

Nov

15

Financial Bailout, Wrong Recipients

By admin

You don’t want to know what’s happening with the $700 billion (with a b) bailout money that was supposed to be earmarked for large financial institution’s foreclosure and mortgage-related losses. Trust me, you really don’t. Especially if you are the type who gets mad when the leaders of your country act foolishly, irresponsibly, and with self-interest as their first priority. This is one time when it’s definitely better to stick your head in the sand. In fact I don’t even want to watch the news any more, especially financial and political news. I’m sure I’m not alone there.

The whole idea behind the bailout was to rescue large financial institutions whose exposure to the subprime mortgage business (and foreclosed properties that can only be unloaded for large losses) was threatening their existence. That’s what it was for. Unfortunately between the time the legislation passed and now, which has only been a matter of weeks, lots of other uses for the money have popped up. Gee, who would have thunk?

Bank of America already received $25 billion (with a b) of that money. Now they are a company that is in good financial health and has never been involved in the mortgage business. They have no bad subprime loans, nor do they own any foreclosed residential homes. BOA is doing just fine charging their customers every time they talk to a teller. So how did they get their hands on that cash? Is it because they have a sign that says Bank on the front of their building? Or do they know the right person somewhere?

Today on television the mayor of Philadelphia made a desperate plea to use the money to bail out city governments – in particular, his city. When it was explained to him that the legislation which allocated the funds would not allow that, he responded that they need to give him some other money then – just like the auto makers are apparently getting. When asked where the money was supposed to come from, he said (and I kid you not) The federal government are the ones who print the money – just print some and give it to us.

As a reader of this blog I hope you understand why that doesn’t work. That crazy mayor might as well print the needed money himself – it will be worth just as much as all American currency will be if the federal government starts printing money to give to every failing entity. Heck, haven’t you made some investment decisions that didn’t work out? Have the government print you some money to bail you out.

The really scary thing is, what the government is actually doing with these bailouts isn’t much different than just printing the money. The effects are going to be the same – they just don’t realize it yet. Or perhaps they don’t care what happens to the next generation in America. By spending more and more money on an unlimited credit line that they have setup for themselves, they are setting a terrible example to the American consumer. The whole system could be bankrupt in our lifetimes, not in our grandchildren’s as we are all planning on. At least consumers have a point where their credit is maxed out. Our government can just keep borrowing – and because they can, they do.

Eventually all this government borrowing and printing money will come home to roost. When it does, expect the US dollar to be worthless – not only overseas but within our own country as well. How are you set on gold coins and gold bars? You might want to stock up on them the way things are going. Either that or you will need chickens, pigs, apples, and ears of corn for currency.

Papa Riah

Sep

26

Financial Bailout: Bad for Everyone

By admin

There is absolutely no segment of society or business which will benefit from the utterly ridiculous $700 billion (with a b) bailout package that our idiotic legislators are arguing out. And I mean nobody. Usually at least the politicians benefit from this kind of thing, but this time the public as a whole is even against it. So the politicians don’t even get credit for trying to save some group of people somewhere, because nobody is buying it this time. Everybody already knows that all we are doing is reimbursing large corporations for gambling losses, billing the taxpayers for it, and as a result inflating the national deficit beyond any hope of ever getting a grip on it again.

But if we don’t do this financial companies will fail. That’s what they say to the criticism. What they don’t understand is that it’s necessary for failing businesses to fail. That is a critical part of capitalism. Throwing billions of dollars at a sinking ship is a gigantic waste of time and resources.

We could be looking at a 1930’s style depression if we do nothing! Yes, we could be. But it’s a huge mistake to try and stop it by putting a $700 billion (with a b) bandaid on a corpse. That money could be used for something good and productive – like say not tacking $700 billion (with a b) on to the federal deficit. You can’t stop financial market cycles, you can only prolong the agony of them and make them worse as a result. Every single time in history any world government has done something to try and influence natural free market cycles it has failed. You are simply better off not interfering.

Think of it like removing a bandaid. You can pull it off in one quick motion with an initial burst of pain that is quickly over, or you can slowly and agonizingly remove it bit-by-bit. Government bailouts are the latter method. If the housing and credit markets were allowed to simply crash (as they were meant to), we’d be at least halfway through the down-cycle by now. Instead we are still sitting at the tip of the iceberg nearly two years into it, burning through unfathomable piles of money in a vain attempt to prevent the inevitable.

Papa Riah knows what he is talking about, by the way. I spent the first six years of this decade as a subprime mortgage lender, a very successful one at that. I started predicting the downfall of the credit markets in 2004, about 2 years too early. Now I collect unemployment checks and write a blog.

The runaway real estate market of this era was only propped up by the exotic financing we were offering. Anybody who could fog a mirror could get a $600,000 home loan with zero down, was not required to show any proof of income, and was given an interest only payment (or even less). So this is how everybody financed their homes, because nobody could actually qualify for the loans on these property values if they had to show their actual income. Now keep in mind that if 50% of your gross income (gross, not net) is going to your house payment you qualified for the loan! But nobody could even do that – so they all went stated income.

Should you now be responsible for making the house payments nobody could ever afford? That’s what your government wants you to do. We all need to come together and make each other’s house payments, otherwise there might be a depression. Do you see what madness this is?

Papa Riah went to lunch with a mortgage broker friend of his last week. I asked him about alternative finance lenders and he replied: What alternative lenders? Fannie, Freddie, and FHA are it now. And at the end of the year the Fannie/Freddie max loan amounts drop back down. (As they should, I might add.)

Get ready for a housing market crash folks. You ain’t seen nothing yet. Nobody can qualify for loans on current home prices. There is no more stated income, no more interest only, no more 50% max debt ratio, and only very high credit scores can get 100% financing now. Bank-owned properties are becoming a larger and larger percentage of homes on the market. In order to sell them the banks must take huge hits. This is killing their bottom line, and $700 billion (with a b) isn’t going to save them because they will be operating at a loss for years to come.

Let the markets crash if they need to. It’s healthy. Trying to manipulate free markets is unhealthy and foolhardy. Letting them correct by themselves gets it over with quicker (and we can then start the silly process all over again). If a depression is due then so be it – seems like once every 100 years or so that needs to happen and we might be just about ready.

The bottom line is: Somebody has to pay. The federal government doesn’t have the money so they’ll have to borrow it from their ever-more-questionable future. If we want to painfully drag out the housing market correction by tacking $700 billion (with a b) on to the deficit then there will come a day when that comes home to roost.

Think a severe housing correction sounds unappealing? Think a 1930’s style depression sounds bad? If we keep putting all of this off into the deficit then when the day comes that we finally have to pay it all off at once things will be much worse than you can ever imagine. How are you going to be set when the U.S. dollar becomes completely worthless and your bank accounts are all suddenly up in smoke? Got any real assets like chickens and pigs to trade?

Papa Riah