Worth listening to…

Sometimes I feel totally lost when I think about the economy.  This American Life has recorded two very good podcasts on the current crisis.  One had to do with the mortgage crisis and was recorded a few months ago – episode 355.  And another recorded recently as a followup regarding the current crisis – episode 365.

One response to “Worth listening to…

  1. Well that explained some of the high finance parts of the problem. But even before that the Federal govt decided that home ownership opportunities should be expanded to underserved communities. The way that they did this was to push lending institutions to lower their lending standards so that those who would previously have not been able to qualify for home loans could now qualify. I believe that they even went after banks and other lenders who they felt didn’t lend enough.

    well, it probably sounded like a good idea and being more flexible if lenders could verify the ability to repay was probably good. But not good enough for the feds.

    So they pushed for them to make loans and in order to meet the govt pressure they had to lower standards and that probably led, along with the housing bubble with the rise in prices in many areas that put normal 30 yr fixed mortgages out of the reach of many people. So they got creative. Not only interest only and variable loans, but also ones where people could choose their payments. So many chose the lowest one which didn’t even cover the interest–called negative amortization. The difference got added to the principle.

    Not everyone got caught up in the frenzy of greed described in these reports. There were institutions that didn’t and some of us have been trying to warn clients for several years about the risks of those “creative” mortgages.

    But at the root of a lot of it also is the notion in our society, unlike in previous generations, of using debt. So people are advised by some to borrow to invest. And others just borrow to be able to spend more. So they are spending a high percentage of their income just to pay debt–and those are the ones who are keeping up.

    And it seems like the bailout is all about enabling people at all levels to keep borrowing so they can keep spending so life can continue on without our economy grinding to a halt.

    Kind of scary and in contrast to Biblical teaching about debt.

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