Porcupyn's Blog

March 14, 2010

What is wrong with the economy

Filed under: Finance — Porcupyn @ 10:00 pm

Scene 1: At the height of the real estate market:

Prospective Buyer: I want to buy this house; it costs $100,000 to build but is on sale for $200,000. But I have only $5,000 down payment and I don’t know how stable my job is.

Lender (blessed by Wall Street): Don’t you worry. I will put it down that you are making $100,000/year. You don’t need to put any money down, and I can make you an interest only ARM loan that can be easily converted into a Fixed loan. Heck, you can sell the house for $300,000 next year and make $100,000 in one year.
Scene 2: Current real estate market:

Prospective Buyer in Scene 1 is now Prospective Seller.

New Prospective Buyer: I want to buy this house. It costs $150,000 to build, but it is on sale for $100,000. Prospective Seller bought it for $200,000, and is wanting to sell urgently before his loan resets. His lender has approved a Short Sale. I make $100,000/year and have been making it for the last couple of years. I am prepared to put down 20% as a down payment.

Lender (backed by Wall Street, who have been bailed out by the folks on Main Street): Well, as we all know, the property values have been going down recently. We are not sure if the property is going to hold up its value of $100,000 (regardless of how much it costs to build it). I don’t think we can give you a loan unless you come up with $50,000 – banks are refusing to lend in your state.
Scene 3: New Prospective Buyer has given up trying to buy real estate. Prospective Seller is homeless; his lender has foreclosed on his home and has put it up for sale at $75,000 for all-cash offers only.
Guess what is wrong with this picture! First, Wall Street helped the real estate prices spiral out of control, and now, they are helping flush real estate prices down the drain.

The Big Short

Filed under: Finance — Porcupyn @ 6:53 pm

Growing up in India, I remember listening to the commentator(s), towards the end of really close cricket matches, requesting folks with heart conditions to switch off their receivers so they don’t get a heart attack. Well, a similar warning is in order now.

Don’t be deceived. This “short” is really BIG! It is a book by Michael Lewis that documents how Wall Street fleeced Main Street, is fleecing Main Street (with the help of their insiders in Washington) and will continue fleecing Main Street. CBS’s 60 Minutes today featured an interview with Lewis – in keeping with the traditions of those cricket commentators of a generation ago, I feel the need to warn folks with high blood pressure and/or anger management issues to stay away from the program and also from Lewis’ book: The Big Short. Just watching the interview makes the blood boil! I end this post with the first comment that I read, in response to a blog post that links to the above review, and got to agree with:

Part of me wants to read this book (or at least pile it up on my already overladen nightstand), and the other part of me (like my spleen) just d@mn doesn’t want to. The reason is because no matter how long and how loud and how widespread our ranting may be about this subject matter, it appears that there ain’t nuttin’ gonna be done about it and nuttin’ will change.

Anybody got the cojones to do that “revolution” stuff we’ve all read about in school (yet, not in Texas)?


[Updated] For those who want to watch the episode anyway:

Part 1

Part 2

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