We are pretty screwed with our economy and we have to do something to fix it.
You probably already know this. I'm sure we all know someone who has lost their job or is being furloughed or is struggling to make ends meet. And I know a lot of us have opinions about what should and should not be done to fix it.
As I mentioned last week on my other blog, my favorite NPR show This American Life did a show this weekend on failing banks. TAL explained in laymen's terms how banks work, why they are failing, and why we HAVE to do something to fix it. After listening to the podcast, I feel so strongly that everyone should listen to it that I am hosting a giveaway, detailed later in this post.
Here's the deal. I'm angry, so very angry about the state of our economy. I'm angry at homeowners who took out loans they could not afford. I'm angry at banks for getting paid higher percentage profits for risky loans then getting bailouts when those high-risk loans defaulted. I'm angry at the previous administration for not doing anything when the housing crisis started last year. I'm mad that large portions of my tax money, my 401K money, my 529 money, and my personal investment money are gone.
But after listening to so many Planet Money podcasts, I believe doing nothing is NOT an option. If we let banks fail, taxpayer money will be used to reimburse people through FDIC insurance. If we don't let banks fail, our money goes to banks and homeowners. It is a no win situation. We're going to pay one way or another. I think the best thing we can do as a country is accept we have to do something, accept that people are going to be angry, and move on to fix things.
Here are the details of Laura's Planet Money Giveaway:
Step 1: Download free podcast and listen. It is only free until Sunday so download it now! Or you can stream it live for free.
Step 2: Come back here and leave me a comment on something you learned in the podcast.
Step 3: One random person wins $25.
To further entice you, I will share my favorite part of the podcast. A common misconception of this crisis is the banks need more money to loan more money to stimulate the economy. The following graph is discussed in the podcast, which shows Household Debt vs GDP:
Note there are two years where debt is 100% of GDP: 1929 and 2007. 1929 = stock market crash and beginning of Great Depression. You can find great stuff like this on the Planet Money blog.
10 comments:
Sometimes I feel like I'm always just one step behind you. I just finished listening to this podcast a few minutes before reading this post. It was really upsetting. I didn't know anything about the situation before, so I was really surprised to learn that more loans is a terrible idea. It made me want to listen to Planet Money.
The banks have money to lend. They aren't lending. But if we "force" them to lend we'll end up in another crisis. Also, expect not only all your investment accounts to stay at a loss but your taxes to go up. Here is an interesting take on GDP: http://www.marginalrevolution.com/marginalrevolution/2009/03/how-much-is-a-trillion.html
Wow, thanks for that very informative, albiet depressing, podcast. Basically everything sucks all around, and eventually all of us taxpayers will be paying in the end for all the defaulted morgages that resulted in the failing of the banking system. Although it's mostly our fault for living far beyond our means, deep in debt that we can never pay back. I do agree with you that it's time that something is done about all of this, and the government is the only entity capable of fixing things, even if it is at the taxpayer's expense in the long run.
Dh typed up a timetable of how and when this whole banking crisis began and we talked ourselves blue in the face about it for weeks. This podcast also helped explain it, so thanks!
Thanks, Laura. I'll listen to this at home. I was subscribed to This American Life through iTunes forever ago, but got way far behind in listening and cancelled. You've inspired me to resubscribe, and I've done so through GOOGLE READER!!! Love that thing!
Okay, I listened. Can I laugh that your blog now comes with 1 hour homework?
It was scary, though not shocking. They were pretty funny...I liked the part where the guy said to the other guy pretending to be the banker "and you'd lose you're job...I'd like that!" You hear that a lot about this whole issue, and I can understand the opinion!
As an accountant, I thought they did a really good job with their example of the simple bank/dollhouse loan. It's a confusing concept (the whole accounting balance sheet assets/liabilities/capital stuff)...I took years of course work in it and they managed to cram it into about 10 minutes!
I caught the tail end of the show on NPR this week, but I'm glad that I took the time to go back and listen to the whole thing. Excellent explaination of a balance sheet and mark to market.
I have been almost obsessed with learning about the economic situation. I'm constantly watching or listing to CNN or other news shows.
My husband lost his job (Manufacturing Engineer) in October of last year. We sold our house (at a loss) and moved back to Texas where he found another job in the same industry. Unfortunately, this position is now shaky and he was even asked to take a weeklong furlough after only being there for 4 weeks. We live well within our means, and have come through this ok, but not without sacrifice. That is what infuriates me. We save, we don't have debt, we watch every penny, and we weren't in over our heads when things went downhill. Now, those people who have been living beyond their means will be rewarded. I could go on and on......:-) I know that something has to be done, but it's unfortunate that's it's gotten to this point.
Great post. Maybe you should start a 3rd, Laura's Planet Money blog. I'll read all 3. :-)
Where to start? Thanks in advance if you read to the end. I have tried to keep it as short as possible but Laura hit on something near and dear to me.
First I am disqualifing myself to win anything as I am an Econ teacher by profession and before that a retail loan officer for 3 years.
I just listened to TAL again and WILL find a way to use it in class during my 2 week personal finance unit.
THANK YOU LAURA for pointing me to Planet Money. I added them tonight to my blogroll. Big suprise that I now have 3 economic related sites I am following.
Personally I took away a better understanding of how pros/cons of nationalization of banks would work. Banks already operate under regulatory function of the FED but this opens the door to a really scary role of Fed Gov't.
I cannot tell you how many people have asked me why I left a job in banking to teach. Simply put it was a customer named Mike and he was one of my best loan customers.
I was closing another loan for the growing fleet of construction trucks he was building in the red hot 90s economy. As he was signing the paperwork he started to ask questions that made me realize he knew nothing about the obligations he was signing and that if I was unethical I could have taken him to the cleaners with add ons and credit life insurance (which BTW I was required to upsell and made alot of $$$ in incentives if I did).
The more customers I worked with the more that I realized that too many people lacked any sense of financial literary and overbought on credit because it was available and pushed by people like me. One of the worse aspects of my job was contacting the repo company to recoop bad loan collateral incuding houses, cars, and even once 6 air conditioning units during a hot AL summer.
After our move to NC I decided to totally change careers, enter grad school in education and hope to find a way to teach personal finance. It the past 10 years I have written state curriculum that is now used in every high school in NC as part of a required course in Civics. In 2006 I spoke to a packed room at the state social studies conference on how to incorporate my lessons into what teachers already were doing to teach the few :-( required economics objectives to graduate.
I have written a semestser long course in Personal Finance but have yet to find a school that is willing to let me teach it due to already overcrowed core classes.
I have found that much like former bank customers, too many teachers don't understand economics thus gloss over the content in hopes something will trickle down to the kids. Teaching teachers is a true joy knowing they will propagate knowledge to a wider audience that I alone can.
What a diservice to students and to future loan holders, eventual voters to lead them into the darkness and then leave them to fend for themselves.
So what to do??? I will continue to find ways what I truly feel called to teach in some way and hope that I am planting seeds of the importance of financial responsibility.
Second- I will not dwell on what I as a responsible, didn't live beyond my means, seldom keep a credit card balance, SAVER to the extreme have lost due to someone else's stupidity and ignorence.
Instead I have hope that our Gov't will make the right calls in the months ahead and attempt to save our country from total financial collapse. I have faith that other nations of the world will pull together to prevent the domino effect from full realization of the impossible of how bad it can get.
Without the public's support, any Gov't attempt to restart an economy that the breaks are not just slowed but at a total stand still will fail. GDP and Unemployement numbers are enough to want to retreat to a cave. The chart Laura referenced is mighty scary to think we are at the SAME place as in 1929.
What I hope more than anything is that once this does turn around we will be better consumers and remember how bad it got and thus change our perception of credit and money. AMEN!
Wow, I'm finally able to sit and comment on this!
Anyway, thank you for sharing and also for reminding me to add TAL to my Google Reader. Love it!
We were those sub-prime borrowers a few years ago. We bought a 3-family house (which we lived in) and when the house two doors down went up for sale, we bought it also. 100% financing. Not 6 months later we bought another. The rents paid the mortgage and then some but still, 3 loans in 18 months?? THEN, we bought our single family home. 4 loans?? Plus 2 car loans in the same time frame....
At the point that the rents started coming in late we knew we were in over our heads. We sold all three multi-families, made a little money and got out just in time. Just knowing how we could have lost it all from being so far in debt was enough to teach us a pretty good lesson. When the twins were born we downsized big time. We sold our financed cars, cut our credit cards up and sold our too big, never going to be finished home. We bought two used minivans and downsized our monthly mortgage payment so it is within one of our incomes.
I still shake my head thinking about the lenders who lent us that much money. I'm so glad we wised up before it was too late. I hope others have learned their lesson from all this as well.
Glad you posted this. I'm always a few weeks behind listening to TAL podcasts, and this one is so timely. I'm also an accountant and agree that they did an excellent job putting this in layman's terms. One of the most interesting segments to me was the one about the guys buying up the toxic mortgages and then trying to work with the families. Seems like such a great idea for everyone involved.
This whole thing just makes me ANGRY, too. My husband worked for one of the first banks to collapse, and he was in a profitable area that had nothing to do with the securites causing all the problems. Fortunately he was able to find a good job, but it still caused us to move away from our family and friends.
We're savers - the only debt we have is our mortgage - and I can't even bring myself to look at how much we've lost. It makes me ill to see how much of our savings is just disappearing daily. I can console myself a little by reminding myself that we're in the market for the long term and that we're okay for now, but I worry about my parents and Robert's grandparents - they don't have time to recover their losses. Such a frustrating mess.
Um, yeah. Amy and I have been friends for too long. Can I just ditto her comment?
I was surprised by how much I already knew/understood. Turns out that accounting degree and a year working for a lender (Capital One Auto Finance) will teach you a thing or two about loans, funding strategy, collections, and balance sheets.
What I learned about was the "solution" options. Go Private Equity! Yea Private Equity!
I know it can't do it all, but it's a good "free market" partial solution.
But then aren't "those people" going to get mad that the rich are getting richer? "Those people" frustrate me.
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