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Show me the money


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I know that when it comes to money, I have a very simplistic way of managing it and thinking about it.

I tend not to buy things that I can't afford, waiting till I can afford them and then buying them.

I tend not to use credit cards for credit, but more for the convenience. I do use my American Express card a fair bit, but pay it off when they send me the bill. I'm not happy paying the $35.00 a year fee. But see it as me paying them for the convenience. (I do get a little peeved about all the junk mail they send.)

I have borrowed large amounts of money from banks.

As I see it the risk that the bank takes is not that great.

I use their money to buy real estate.

They have looked at and appraised the value of what it is worth. They know me and know how I have acted in the past.

We talk and at some stage come to an agreement about all the fees they think they want to charge me and what the cost will be for me using their money.

I look at the fees they charge and the interest they charge as the cost of them doing business. I'm not always happy but I know that before I buy what I want to buy I can just say no and walk away with no harm done.

My big hope is that when I decide to sell what ever it was that I bought is that I'll end up ahead covering all the costs that I paid out.If it looks like I'm not going to get what I want or need to cover my costs I'm happy to wait until such a time as I will.

Most times the bank or another bank will get involved and help someone else buy what I'm selling.

While I do see that the bank is maybe taking a risk. I think that if they do their homework and check things out, their risk is not that great.

Like most people in the USA I have invested money in the market, I trusted my financial adviser to help make sure that I made money. I lost a fair amount of money from my 401k and lost money I had invested in other areas.

Of course I'm not happy about that.

But I'd like to know where the money went?

Where is it?

I know I don't have it.

If I were a gambling man (Which I'm not.) and had gambled it, I could see that the casino or who ever had taken my bet would end up with what was once my money.

But this money seems to have just disappeared.

Where'd it go?

Now to make matters worse it seems that because this money has dried up the government is printing more money.

So on top of all the money we all lost and seems to have vaporized. We now owe $36,000 each, our part of the new debt.

Where did all of our money go?

Has it moved overseas?

Is it sitting in a big bank vault in China?

Eamonn

 

 

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See that's the problem with something pumped up and supported by hot air. When the air cools, the whole thing collapses.

 

Greenspan warned against "irrational exuberance" back during the Clinton administration. Financial analysts worried about people using their houses as ATMs. I thought we'd have a huge correction when Bush was elected and the house of cards that Clinton/Rainer/Tyson/etc. built up collapsed but the spending continued. Perhaps Bush felt he had no choice due to the panic felt in the wake of 9-11.

 

Whatever the reason, the result is the same. The "money" disappeared because it never really existed. Most of it was paper value only and even that disappeared when we got down to having to pay real cash for the "assets". An overpriced house (any commodity really) in a heated non-competitive market is just overpriced. An overpriced item in an overbuilt competitive market is a giant sucking chest wound for anyone still paying bills on it.

 

It's the same thing that would have happened to the bank's money if you WEREN'T so responsible but they continued to lend you money as you lived off your credit cards.

 

In answer to your question, SOME of the money is indeed in the People's Republic of China because they bought a lot of the bonds we sold to pay for our spending addiction. They are still buying some of the new bonds to pay for even more spending but demanding better terms because they see we few other choices and no will to reform our ways.

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HICO has it pretty much correct. Except for the Bush thing. I don't think Bush had any more fiscal discipline than any other politician, even less. But he is correct. Your 401(k) is not real money until you sell it for cash. At any given point the assets in the account are worth so much on the market, but don't confuse that with real money. If you havn't cashed in your 401(K) you havn't lost any money...yet. For now it's all "paper" losses.

 

SA

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I recently read something that's really helped me put this whole economy into perspective. It's just one small statistic in the midst of a myriad of statistics, but it's enough to give one pause.

 

Back in 1989, the vacancy rate for office buildings hovered at about the 12% range (that means 12% of available office space was vacant). During the "booming 90's", the vacancy rate for office buildings hovered at about the 12% range. During the "slow but steady growth 2000's" the vacancy rate for office buildings hovered at about 12%. Throughout the 2008 downturn and continuing into the economy of 2009, the vacancy rate for office buildings has been hovering at about - you guessed it - 12%.

 

So that leads to an obvious question - is the economy really as bad as we think it is? The term I've been hearing quite a bit lately is "regression". Some economists are arguing that we are not in a depression, nor are we going into a depression - that the recession is a recession in name only because that's how we think of downturns - and that what we're really experiencing is a regression to 1990's levels. In a sense, it's a correction of Greenspan's "irrational exuberance" and that what we are experiencing as a recession is a restoration to what the economy should have achieved by now if there weren't the boom and bust bubbles of the 90's and 2000's. There seems to be evidence of that in the stock market. The Dow dropped below the 10K mark, continued to drop, then seemed to level off at the level some economists are arguing is the level it would have reached in the last 20 years through a natural progression.

 

Interesting thoughts I felt.

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Calico --

 

That would fit my theories. I never thought the Dow deserved to be above 10000 -- and frankly it's STILL higher than I think it deserves given our high level of deficit spending that has to get paid sometime. I was expecting a correction anyway around 2001 or 2002 but it took a lot longer to surface than I figured. The spending on the war as well as continued propping up of the housing market by the federal government probably skewed things.

 

In any event, I suspect CNN/NBC/CBS/ABC/NYT/WP/etc. were intentionally playing up the "bad economy" the same way they did in 1992 to sway voters then found themselves unintentionally making the situation worse. On the other hand, I think the Feds are doing exactly the wrong thing for long-term economic health by promoting ever more ineffective deficit spending so I'm still concerned about the underlying problems.

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I think Eamonn is justified in his confusion because it is obvious that the 'best' minds in our leadership failed to anticipate this crisis because they also failed to understand the 'house of cards' itself. Or else they just hoped the collapse would happen on someone else's watch. This has been building for as long as we've lived on deficit spending and as long as we've resisted paying that debt down. I had a glimmer of hope just before Dubya arrived but he blew it badly. I don't have much hope that anyone can fix this one. I sincerely hope I'm wrong about Obama but I think the most he can do is delay it for a while...making it even worse when the bill finally does come due. Or else, we'll crank up the presses and pay for the debt by taxing via devaluation/inflation. In a way, I view this mechanism as the fairest option available because it will punish those of us with savings more than those who will earn a living in the future. As a matter of fact it will take more from those with the most savings. Keep running the presses, let the Chinese paper their walls with greenbacks. If they ever run short of food, they can just buy the midwest.

Eamonn, the numbers in your account were just numbers. At any moment that account had a certain amount of purchasing power, depending on the market prices for whatever you wanted to purchase. You'll notice that as your 401K lost, say, 50% of its value, so has housing in some areas of the country. In this respect your account still has its original purchasing power. Anything that has not decreased in price as much (such as homes and property in this area) has actually experienced some appreciation in value with respect to those other things that have lost value. The problem is that because the banks screwed the pooch, they aren't lending so even property that hasn't lost much value is not easy to purchase. The essential thing to keep in mind is that 'money' is merely a convenience that we use to transfer wealth. The wealth is something that has value. On that basis, the value of part of Florida has diminished with respect to areas in which the real estate market has not been hit as hard. The real estate is the same as before, the values have been (and are continuing to be) readjusted. People and families are caught in the middle but the marketplace has no conscience. It has no sense of purpose other than to optimize the efficiency of transactions. The market has no sense of morality or ethics other than whatever we bring to the transactions as individuals or through our regulations. We've been living a lie. Now we are going to pay for it. Dearly.

Is the economy bad? It's not bad for me. I can survive this thing quite nicely. I won't be able to buy my Cobra but that's just a dream anyway. I'll find a way to make more money. It's not really that hard. Maybe I'll capitalize on the new budget policies. Take a look at Bill Gross's thoughts and his strategy for PIMCO. Of course you need to have something to invest. Catch-22. But if you've got it to invest, the time is right to capitalize on the misfortunes of others. The analogy to evolutionary forces is not by accident. Those who are effective competitors will prosper, those who aren't will perish. Like Gecko said, "Greed is good."

It's bad for some of my friends who recently bought homes for so-called 'fair market value', only to be upside down in less than a year. They sunk their available savings into the down payment and closed just before the market turned. Some of them are now unemployed, unable to re-finance, young families still in school, locking in their losses to the 401Ks by selling to stay afloat. Life isn't very sweet for them right now and things are going to get a lot worse. Anyone ever heard of an OptionARM? http://www.businessweek.com/lifestyle/content/apr2009/bw20090416_103126.htm?campaign_id=rss_daily

The good news is that the one-year delay will allow those of us with something to invest, to prepare to make more money off the unfortunate. But that's the American economic system. Love it or leave it.

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Is the economy really as bad as it seems? I don't think so. Yep my 401K took a hit as did my other investments. Why? Maybe because what they were invested in was overvalued?

 

Why are people losing their homes at record rates? Maybe because they couldn't afford them in the 1st place?

 

And as far as annual fees on credit cards being part of the cost of doing business, I say horsepucky! If I get hit with an annual fee on a credit card, they either waive the fee or I cancel the card. Attributing annual fees to the cost of doing business is just what companies to promote so they can justify them. Bunch of bunk! I use my credit cards a lot & pay them all off monthly. Have been doing this for decades!

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"It's bad for some of my friends who recently bought homes for so-called 'fair market value', only to be upside down in less than a year."

 

Unfortunately true, but at the same time I know folks who have bought homes in the last several months who never could have dreamed of home ownership at the previous inflated prices without mortgaging their financial futures...and they were disciplined enough not to do so not matter how much money the banks were willing to throw at them.

 

Given home prices and current interest rates,(and the tax credit) homes are more affordable now than they have been for quite a while and their seems to be some evidence that homes are selling...just not at the inflated prices folks believed they were worth.

 

But as noted such is the American way. Personally I'd prefer the government stay out of the housing market, tax credits, mortgage interest deductions etc. These types of subsidies improperly influence markets. Among other things this lead to the McMansionization of the housing market and relaxed lending criteria,(eagerly supported by banks, the financial services industry, their lobbyists and politicians of all stripes).

 

 

SA

 

 

 

 

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Ed,

I think we have been lucky, living here in SW- PA.

Property and house prices didn't /haven't changed that much.

That isn't to say that people don't make bad choices.

Last fall, I mentioned to a Realtor that I was thinking of buying something smaller, maybe a condo?

She started sending listing after listing. The homes were all very nice, but they started at about $650,000.

As I say the homes were nice, I'm not sure about them being $650,000 nice?

 

On the local news we hear about local companies laying people off and moving away.

It's kinda sad that in our area this really isn't news anymore. A case of "Been there, done that" all over again.

I'm sure that some firms are using this time of doom and gloom to sweep clean. Which maybe in the long term will be a good thing?

Of course the news doesn't cover the small business's that are hurting or closing because everyone is cutting back and afraid to spend any money.

For my part. I'm trying my best to support the local store and shops, by-passing the big chain-stores. But even then the big stores are cutting back laying off local workers.

As a family we have made some cuts. This year we didn't renew our membership to the club, not so much because of the costs but because we were having a hard time spending the monthly minimum.

I miss popping in for a quick one (Or two!!) But it's not really a big deal for me. Still I know the girls who wait tables are hurting and most of them have small kids.

We have looked at other areas where we thought we might be spending too much. We raised our deductibles on some of our insurance policies, set the thermostat back a little. Packaged our Internet, phone and TV services.

So far we have not cut back on the donations we make to different charities, but will take a long hard look at these this year. I don't know why the FOS campaign in our Council starts in February? They will have to wait till late December before they see anything from me!

I kinda feel bad for not buying an American car. But the truth is there just wasn't an American car out there that I wanted to buy. The German cars were just so much nicer.

 

I'm happy that the price of gas is down.

I got really upset when the local newscasters seemed to treat $4.25 a gal. As a joke! To me it just wasn't funny. Food prices seem to now be fairly stable. The local farmers don't seem to be in such a mad rush to plant as much corn.

My hope is that the people who represent us on local school boards and at the local and state level will see that the money just isn't there for unnecessary projects and not hit us with more taxes.

I think we know that once the money from the stimulus runs out, we are going to be faced with paying for all these new policemen, teachers and the like.

Much as I'd like to see universal health care, I'm just not sure if now is the best time to go for it? But I know that no time is ever going to be a good time. Truth is that I've fallen into the "I'm alright Jack" frame of mind. Which is a sad thing.

Eamonn.

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I wonder if we get to "a chicken in every pot", if PETA will have a fit? Personally, being raised by parents and grandparents of the depression, and being a "50's" latch-key kid, I seem to not be willing to get too careless. We simply only buy what we can afford, even before this current fiasco hit. Use of credit cards only happens if we can pay it off completely. Adjust as needed; fewer movies in the theater (almost none, actually), fewer restaurant visits, more careful planning on driving and covering as many needs on one trip as possible, and even buying basic canned goods and some produce at the "99 Cent Store". Not having ever been particularly bound by fads, I have generally worn my clothes out; yet I still have items that are like new and no shortage of things to wear.

 

Common sense; that thing that seems to have gotten lost to far too many of the more recent generations.

 

JMHO

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