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December 09, 2008

Consumer spending got us into mess

We keep being told by the “experts” that the way out of the recession is consumer spending. Consumer spending is what got us in this mess in the first place.

For several years, personal credit card debt has increased, and now the average credit card debt per household is reaching the $ 9,000 vicinity. The mortgage fiasco wouldn’t have exploded if consumers had examined their personal finances and purchased a home within their needs and means.

So go ahead, consumers, and spend yourselves out of the recession. But before you use your past-due credit card for that iPod, Blackberry, big-screen TV or $200 concert tickets that you just can’t live without, bring that credit card balance down to a manageable amount.

Clyde Houghton



Again, the "rewards" you receiev will be minimal, although I understand your strategy. Seldom does an ARM double your payment, again, the majority of ARMs are LIBOR + a set and ceiling percentage rate over a set amount of time. The federal government via legislation forced lenders to come up with these "packages" and loan money that really should not have been loaned. Of course the entire blame is not on the consumer, however if someone can not understand THIS IS HOW MUCH YOUR PAYMENT IS FOR THIS MANY MONTHS then THIS IS HOW MUCH YOUR PAYMENT MIGHT GO UP AFTER THAT TIME, maybe these individuals should not have mortgages. We took an ARM a couple of years back to get a better interest rate, 3 months prior adjustment time, we refinanced to a fixed rate product. That simple. We are refinancing again. Pub explain what is wrong with paying the deadbeat government in pennies, it is currency the last time I checked. What are you a stalker? Why would you even care what someone looks like? You gonna come get some of this? Come on down chump.


"Paying your taxes with a credit card is not prudent unless you pay it off immediately within a pay period, also you pay an extra 2.5% to the Cunty."

Whether it's prudent or not depends on what benefits the charge can squeeze out of your rewards card. Play their game right and both the county and I can win, the only loser being the credit card company.

If I'd just lost my job and my ARM had been reset to double my house payment, I'd be in real trouble.

On the bright side, if my home's value was declining 25% each year I might successfully appeal my assessed value and lower my taxes though.

Pub 17

Please do, Nice Guy. When they publish your booking photo in Crime Scene we'll at last get a look at you.


BTW - Paying your taxes with a credit card is not prudent unless you pay it off immediately within a pay period, also you pay an extra 2.5% to the Cunty.
I am paying them in person this year, in unwrapped pennies. I will refuse to pay by any other form and will refuse to leave the window until they take it or falsely arrest me for doing nothing wrong.


FICO is not accurate. As I stated, FICO does not take into consideration your income. If someone is on a fixed income of say $1200 net how can they afford $10,000 in credit debt, a house, a new car and all the ancillary entertainment we are entitled to? Credit reporting agencies are not compliant with Federal law and the Feds do not enforce. Why are CRAs allowed to report bonafide incorrect and erroneous data? Happens all the time. Granted FICo incorporates some interpolations that can distinguish spending and paying habits over a course of time but that is all it can do.
You can have perfect credit decades, one screw up by a creditor reporting incorrect BOOM! You're credit score drops 50, 100 or more points. I still question how someone that makes say half of the national median income level can afford twice the median level of credit? We live in a less than median home which is fine with us, we love our home and it is a nice house but we did not sign unknowingly and dumbfoundedly off on a $300,000 house with an income of $50k. Where is the personal responsibility.


There will always be 3% or so that are unemployed, that is a fact. The percentages do not jive with mathematical fundamentals. If 93% of all mortgages are being paid just fine, then how does that 7% bankrupt the entire globe? I find it very hard to fathom.
It sucks people lose their jobs. Mortgages are not doubling, however some ARM products do go up substantially typically using LIBOR + a given percentage with a maximum every 6 months. It is very common to see LIBOR + .25-.5% every 6 months with a maximum not exceed an upfront percentage. This is done during disclosure. If someone is to lame to read a number it SAYS RIGHT IN PRINT NOT TO EXCEED ..%. SImply convert every ARM to a fixed rate product, back off any fees, late charges, etc. Maybe even go as far as to shore their mortgage up to date and roll the payments behind to the back of the loan. At least more people would have or will keep their homes, PROVIDED they do not sit around and fall victim to the "I can't find a jobitis". There are plenty of good paying jobs, maybe not what you WANT to do rather have to do.


When a few people spend themselves into credit card indebtedness for an "iPod, Blackberry, big-screen TV or $200 concert tickets" that they just can’t live without, it's their problem.

When millions of people go "past due" just as they lost their jobs and the bank doubled their mortgage payment by resetting their ARM as their home's value dropped by 25%, it's something bigger. It just became "our" problem.

I paid my Jackson County taxes by credit card the other day. I've never purchased an iPod, Blackberry, big-screen TV or $200 concert tickets.

Pub 17

See, Nice Guy, you're at least thinking about this.

FICO modeling is something that the banks pay HUGE bucks to subscribe to, because although they've all tried to reverse-engineer the scores to figure out what they're paying for, they know for sure one thing dead certain: FICO IS PREDICTIVE MORESO THAN ANYTHING ELSE ON THE MARKET.

Also, the government has a HUGE interest in getting people out of rental and into home ownership, nothing noble about it: you can serve a warrant on a homeowner 10X easier than a renter, you have an immoveable asset you can attach for taxes, you have a guy much less tolerant of morons hanging on the corner in front of HIS DAMN HOUSE peddling drugs. Homeowners are IMMENSELY easier for the government to control, because if Lester gets up and boogies from his rental, he forfeits his deposit; if he boogies from HIS DAMN HOUSE he forfeits his equity. Why do you think the Feds aren't nearly as excited about shoving people into mobile homes? No equity, you can pick up and take it with you, owner or not.

Finally, blame the mess on U Chicago and Milt Friedman. They figured out that the market worked best without government distorting information through regulation. That's what Greenspan was confessing to when he said he'd been wrong: he was genuinely shocked when the banks started claiming phony asset value for the unregulated securities they were peddling each other, because they use the assets as basis for the volume of loans they make, which is where the money is. Got very little to do with Frank, Dodd, Ramsey, or anybody else that administered it: just try and imagine any Republican in Congress getting all upset and obstructive to deregulation, and lunch is calling, A.M.F.


"..is as insanely wrongheaded as saying that the birth defects caused by thalidomide are the mother's fault because she should have done her homework, run her own drug tests, and refused to accept the doctor's assertion that thalidomide was safe."

You're really arguing that knowing how much you can afford (something a simple budget will tell you) is the same as understanding pharmacology and biological response? I hope your just taking the contrary position for argument's sake, because if your not, that's really scary.

I wonder how anyone decides if they can afford a new car, a big screen, or dinner at Plaza Three if they always need a "professional" to tell them whether or not they can afford it.


First of all Pub, FICO modeling is bogus to beging with. There is no rhyme or reason to "figuring" someone's credit score. I know people that have NO JOB and NO INCOME that have credit cards with $10,000 credit lines. I know people that are on welfare that have credit. The CRA are not held accountable either, they are allowed to report whatever they choose. The law are not enforced against them. I have a letter from Experian stating they no longer accept certified or notarized documentation of proof of payment as an example. Keep your recipts, they are worthless. Depending on what court you take it to, most likely the documentation even when from a GOVERNMENT agency will be considered hearsay. The FCRA disallows a creditor from disallowing credit based on things like being on wefare which makes no sense, if you are asking for handouts, what business do you have with revolving credit? YOU DON'T!
Lenders are different than brokers who commonly set up the initial mortgage then sell of to a Countrywide, WF, BOA, etc.
I agree that the book of documenttation is intricate and complexed, however, people know at the end of the disclosure where it states MONTHLY PAYMENT is what it is, if someone can not understand what the term MONTHLY PAYMENT is, they should not be utilizing credit. Another point you must understand is what someone "qualifies" for was somewhat mandated BY government. They said make the loans or else, reduce risk assesment, etc. Barney Frank knew what was going on, he did nothing. How much did Fannie Mae and Freddie Mac piss away our OUR money? How much did those entities contribute to politicians, many of whom turned their heads knowing what was going on? I am agreement that mutliple entities are were/are catalyst for this mess, however, consumers are not off the hook.
It sounds like you are advocating loaning money to people that either do not undertsnad how credit works, amortization, APR, etc. Or you are an entitlement thinker that believes some are entitled live at whatver standard they choose while affording someone else to pay for it.

Pub 17

And you walk right past the essential point. Consumers didn't create ARM's, they don't have the first clue as to how figure their own credit score (since as you know that's some of the most closely held proprietary information on the planet) and they have no idea what rules a bank uses to qualify them on a mortgage.

So a professional (the bank) tells the consumer that we have a product that will get you into the house you want, your credit score qualifies you, and the method WE as an institution use to invest our depositor's money in mortgages says you're qualified. Unless the consumer is lying about their income in a way that the professional is unable to discern, blaming the consumer saying, "They should have done their homework better, they should have known they couldn't afford it, and nobody held a gun to their head when they signed those papers," is as insanely wrongheaded as saying that the birth defects caused by thalidomide are the mother's fault because she should have done her homework, run her own drug tests, and refused to accept the doctor's assertion that thalidomide was safe.

A professional is a professional is a professional. They get paid more than laymen because they're legally responsible for their actions as professional. Why is this so hard to understand?


Viet-vet not all corporations are equal nor do they all operate under equal forecasting and protocols. Some businesses require intense cash flow, retail as an example is a tough racket when discretionary spedning is down. I think the point here is that the one of the catalyst of this perceived financial crisis became about due to irresponsible lenders and consumers. No one FORCED someone to take credit, pre-approved or not. No one forced anyone to purchase a home on an ARM. It seemed that when they saw these ARMs hitting and people scrambling, they should have just cut the greed factor and converted every ARM to a fixed rate product, they could have easily used LIBOR + a reasonable interest rate and this would have contended with some of the market. There is however no way for someone that does not have the income to pay what they do not have, regardless of governemnt intevention, that is to say without implementing subsidies. 93% of mortgages are paid as agreed, 93% of Americans that are and willing (note the definition of employable per the DOL) are employed. Are things tight in some scenarios and situations? Sure, however, we see people that really play the hype for more than what it is. If things are so bad, how can ANYONE justify eating out, or even going to a retail store like NFM, Wal-Mart or Cabela's, how can ANYONE afford to go to a casino? One would think if things are this much of a crisis, would these establishments be completely dead? personally we are fortunate so far, we have not experienced this increase of consumables that supposedly is bankrupting households. My wife does good on budgeting, sometime we simply cutback or go generic versus designer. If you can not afford Nike, then wear something esle.


Granted, we're a nation addicted to buying stuff. We're the addicts and the credit card companies are the dealers. Everyone is to blame, but in the end, when a drug addict or alcoholic cleans up, it isn't because the dealer goes away.

When I'm out shopping and a store clerk offers me a discount on my purchase for signing up for their credit card, I always decline. Sometimes they press the sales pitch, and I always tell them I'd rather pay 15% more on one purchase than get saddled with the junk mail and security risks that come with having another credit card.

It's all about personal responsiblilty. Notify the CC companies that you want their offers to stop, and don't get sucked in by point-of-purchase sales pitches for new cards. In other words, JUST SAY NO.

T. Hanson

And credit companies should not be blamed for pre-approving another account for those people that are not even paying off the first one?

Or how bout when they stick their pre-approval letters in the sacks at a college book store where Freshmen have not the slightest idea on how to manage credit?

Those who overspend on credit should be punished, but I have not love loss for the credit companies that gave that line of credit to begin with.

On a separate note, I watched "Trading Places" with Eddy Murphy and Dan Ackroyd last week. There was a line Dan showed how powerful and rich he was by showing his wallet full of credit cards, his line "They just don't give these out to anyone." Movie was made in 1983.


We'll get out of this mess when corporate leaders stop running scared from the big investors ... when they start thinking about creating long-term growth and meaningful value, instead of paper profits for the next quarter.

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