I vote “Nay” for the bailout

After watching the full coverage of Paulson and Bernanke, first before a Senate committee and the following day a House committee, and then watching the president’s speech on the economy — I’m even more convinced this bailout would be hideous, at best.

They keep talking in generalities, not once explaining how in the world the failure to buy bad mortgages and other bad debts would affect me here on Main Street.

Seriously, I just don’t see it.

I have a mortgage with a fairly great fixed interest rate. I could have shaved one or two points off of that great rate by gambling on an adjustable rate — but I passed.

I know people who took the gamble, and unlike this picture Washington is trying to depict of many who got into mortgages they just didn’t understand — trust me — most knew exactly what the gamble was.

Fortunately, the people I know still have jobs, and even though some of their intial rates a few years back have now gone up — they are able to make ends meet by tightening their belts a little.

No one I know is running around saying “Oh my gosh, I was tricked — I didn’t know what I was signing!”

The reality is that anyone who sits in their lawyer’s office during a closing has to be deaf, blind and flat-out stupid — all together at the same time — to not know how much they’re expected to pay, as I began to find it to the brink of being nauseating how many times it was explained to me how much I was putting down, what my rate was, and how much my payments were — and I had a fixed rate.

While I am truly sympathetic to people who have lost their jobs in this terrible economy, or have experienced a dramatic financial hardship due to illness or some other unexpected event in their lives — I do not have sympathy for people who bought McMansions, when their budget only allowed for a two-bedroom ranch.

Or, for that matter, people who bought two-bedroom ranches, when their budget only allowed for a studio apartment.

Nor do I want to help bailout the predatory lending companies who allowed — and in some cases, encouraged — people to buy homes over their means.

In fact, I think our economy would do a whole lot better without such companies hanging around.

And I think those living in homes they can’t afford, shouldn’t be subsidized to do so.

Everyone needs to get real here.

The “everyone who wants to own a home in America, will be able to own their own home under my leadership” Bush administration pledge has led to this meltdown.

Good — let it melt all the way down and dissipate into thin air.

Then, perhaps, we can get back on track with the values and leadership of those who built this great nation by telling people to save their money until they have a 20 percent downpayment for a home. 

Here’s some other great investment advice my mother drummed in my head from an early age, that would have prevented this meltdown if more people heeded it:

Don’t buy more than you can afford.

Don’t charge what you can’t pay for today.

And, finally — pay your own bills!

In truth, I’m very frugal. While I could easily own a top-of-the-line shiny SUV, I’m very happy to toot around in my little Hyundai Tiburon with nearly 100K miles on it. I take care of it, and it runs well.

Better yet, it’s paid for.

I have a friend who has bought three different SUVs over the 8 years since I’ve had my car – and he asks me why I don’t get a new one. I explained my car has been paid-off for five years now and inquired how much he has been making in payments over that same 5-year period, plus the added cost of insurance, as well as how much he lost during his last trade-in.

When he figured it all out it, he paid around $23,000 in car payments , paid about $10,000 in car insurance, and he lost $10,000 in his last trade-in.

In total, over the past five years, while I’ve shelved out approximately $5,000 in car insurance and another $2,000 in car repairs, for a total of $7,000 to drive my Hyundai — he has shelved out $43,000 to drive fancy SUVs — a difference of $36,000 over a five-year period.

I asked him if he realized how much that $36,000 would be worth if he had instead put it in a simple MoneyMarket account, or some other conservative investment over the next 20 years?

He told me he didn’t want the answer — and I told him that was the answer as to why I’ve stayed in my little Tiburon for 8 years.

And that’s how I look at the mortgage crisis.

Just as I don’t feel it’s my place to tell my friend what car to climb in to get from Point A to Point B — it’s not my place to tell people which home or mortgage they should go with.

However, just as I believe if my friend could no longer afford his fancy SUV that he should sell it, take the loss, and save his money to buy something within his budget — I think people who purchased homes they couldn’t afford, or assumed they would be promoted from file clerk to CEO within the five-years until their larger mortgage payments kicked-in — should do the same.

And the banks, investment and equity lenders who gave people loans they couldn’t afford would do us all a world of good if they hung “out of business” signs on their front doors.

My vote is still for no bailout — though my hunch is despite the pandering to the cameras by legislators — a good chunk of money is going to be handed over to Bernanke and Paulson.

From a trading standpoint — if you are hedging this bailout as a trade, my gutt will tell me to take the peak when it comes, as there will likely be another pullback to reality.

But, as I always caution — don’t base any of your investment decisions on anything you read here — do your own due diligence, or hire a professional to do it for you.


2 Responses

  1. I just stopped by your blog and thought I would say hello. I like your site design. Looking forward to reading more down the road.

  2. Absolutely brilliant. I couldn’t have said it better myself – and I have tried!



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