President Bush gave a Rose Garden address moments ago to reassure the nation that we can and will get out of this economic crisis. However, since my blog (readership: approximately 10 readers a day) enjoys higher popularity ratings than George W. Bush his speech will be largely ignored. Mark my words, the Dow Jones will continue to fall. In fact, I'm no economist but I wouldn't be surprised if we're looking a DJIA of 7500 by Q1 of 2009.
For the record, while George Bush could've taken a larger role in curtailing this crisis, it is not entirely his fault. It is NOT President Bush's fault that Americans bought houses they couldn't afford on terms they didn't fully understand. Basically what happened was Wall Street wrapped subprime mortgages into bonds with AAA ratings and then sold them to investors all over the world. Meanwhile, they skirted the law by creating credit default swaps, which acted as an insurance policy against these AAA bonds defaulting. However, since the CDS were not labeled as an insurance product, they were not regulated in the same manner. As 6% of American homeowners (and growing!) defaulted on their morgages, the AAA bonds flopped and the CDS weren't there to cover the damages. It's the equivalent of buying a brand new $30,000 car, totalling it, and being told by your insurance company that they are only going to pay you $10,000 for it.
It's easy to get pissed off about irresponsible homeowners and greedy ego-manical tycoons, but your anger will not solve anything. From a personal point of view, the housing boom of the 2000's allowed me to buy my first condo on very favorable terms. 40 years ago there wasn't a bank on the planet who would loan money to a single woman in her 20's who lacked a 20-30% down payment. Unfortunately it only takes a few assholes to ruin it for the rest of us.
This whole boondoogle is going to take months, possibly years, to sort out. There's absolutely nothing you can do to make this problem go away so try to hang in there. Continue to invest in your 401k's and IRA's while stocks are cheap - you may thank yourself in 50 years for doing so. It's also wise to save some money for a rainy day...we're in for a stormy 2009.
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2 comments:
I was on the phone with my mom the other day talking her off the ledge. The situation is a tragedy. We have clients calling us to look over employment agreements because they were once CEOs of companies that had retired and are now looking to freelance consult to make some dinero. It really is going to get worse before it gets better.
Common sense told me to put down 20% when I bought both my first home in the 80's and mysecond in 2000. I too got a great rate and a twenty year mortgage that I plan on paying off in 13 years- which will be in five years from now. Without planning I would be screwed like a lot of people. Common sense is lacking out there.
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