The Grasshopper and the Ant

[dfunde01]

When I looked at the money market rate on some of my retirement investments at 1.98% I think of the childhood fable of the Grasshopper and the Ant. While my wife and I (the Ants) were busting our humps to store corn (money) for the winter (retirement) for all those years the Grasshoppers (sub prime borrowers, credit card addicts, etc) sang and danced through the good times (borrowed every penny they could from home equity, credit cards, etc. to party and splurge) without a care. Come vacation with us, get rid of that old boat and buy new, let's drink and party said our Grasshopper friends while we stuck to our guns as good Ants that we could have any toy that we wanted as long as we had the corn to pay cash up front.

With the Federal Reserve giving money away to the banks to keep the cheap credit flowing I guess I'm lucky to get 1.98% from the banks on Money Market accounts. I'm all for following the example in the fable and let the damn Grasshoppers starve when the snow comes and leave my damn corn alone and let it grow. For some reason Grasshoppers just aren't smart enough to know that winter (layoffs, illness, mortgage problems, accidents)
will come. In nature they get what they deserve, they starve to death.

http://www.dltk-teach.com/fables/grasshopper/mstory.htm

[DonziJon]

When I looked at the money market rate on some of my retirement investments at 1.98% I think of the childhood fable of the Grasshopper and the Ant. While my wife and I (the Ants) were busting our humps to store corn (money) for the winter (retirement) for all those years the Grasshoppers (sub prime borrowers, credit card addicts, etc) sang and danced through the good times (borrowed every penny they could from home equity, credit cards, etc. to party and splurge) without a care. Come vacation with us, get rid of that old boat and buy new, let's drink and party said our Grasshopper friends while we stuck to our guns as good Ants that we could have any toy that we wanted as long as we had the corn to pay cash up front.
With the Federal Reserve giving money away to the banks to keep the cheap credit flowing I guess I'm lucky to get 1.98% from the banks on Money Market accounts. I'm all for following the example in the fable and let the damn Grasshoppers starve when the snow comes and leave my damn corn alone and let it grow. For some reason Grasshoppers just aren't smart enough to know that winter (layoffs, illness, mortgage problems, accidents)
will come. In nature they get what they deserve, they starve to death.
http://www.dltk-teach.com/fables/grasshopper/mstory.htm

I say this...... at Great Risk.. Political Correctness will Crush Me for daring to air my thoughts, ...but I find it stifling to keep my mouth shut. I agree with the Ants assesment. This is not all that complicated. Even a Cave Man can do it.

When you make something like minimum wage... you don't buy a 4,000 square foot house ...even if the bank says ..Go For It................OH WAIT: I Forgot STOOPID.. :hangum:

[zelatore]

While I tend to agree about the housing issues, I will say there are a few exceptions.

I've talked with people who were working in the mortgage business. They've told me they had extra incentives (i.e. cash in their pockets) to put people into high-risk mortgages. So even if you could qualify for a fixed 30 year at x.xx%, the less than scrupulous brokers were trying to push you into something like an interest only or ARM so they could make some extra coin.

Where that's the case, the brokers need to be punished. And harshly.

But the final responsibility still has to rest on the borrower. Whether they were intentionally gambling, thinking they could flip the house or in some other way make money on it by using some sort of exotic mortgage; or they simply borrowed more than they could afford, they still were the ones who signed on the line and promised to pay. What? Didn't read or understand the contract? Sorry - Due Diligence my friend. Unless you can prove to me the lender intentionally lied to or misled you it's your own fault and I don’t have much sympathy. When we bought our house about 5 years ago the banks were willing to lend us much more than what we were comfortable with. And guess what? We didn’t borrow all they offered! Amazing how that works, huh?

As a side note, this weekend I was talking with a guy who has a lot of rentals in the area. One of his houses is rented to a family who simply bought more than they could afford on an interest only mortgage. They could have had a fixed 30 year $500K loan, but instead went with the interest only at $750K. Shortly there after, they couldn't afford it. So they just walked away. The scary part? They plan to buy another house in 2 YEARS!! I can't believe any lender would even talk to them that soon, but apparently if you've got 2 years of solid payments (or rent in this case) under your belt, they're willing to look past a little thing like walking out on a previous mortgage!

And for bailing out buyers who can’t make their mortgage, I think that just reeks. The only reason I can see to do it is if you can demonstrate to me that the national economy will be worse off by letting all these mortgages go south. In that case, I’ll begrudgingly accept it. But I still don’t think they should just get a free ride. Maybe the recipients of this government-charity should have to do something like community service to ‘pay back’ the taxpayer’s who just bought them a house.

[MOP]

I feel one of the worst moves the Fed made was to deregulate the banks, when they were regulated you managed a decent return. Deregulation did exactly what it was suppose to, get still money moving on the market place. The problem is with lousy rates people turned to other investments which for many presented higher risks. There are still places to be relatively safe, managed funds and offshore accounts. I have a little of both, one of my kids is a VP for Smith Barney. He beat on me for several years to go managed, during my non listening period 1/2 of my sure things went south a couple did well. For the last 10 years my lowest fund gain has been 17%, I still stain my shorts every time the market does dump. I have also opened accounts down in Costa Rica, that has been one of the best moves I have ever made. I was getting 4.8 on a dollar account, when the dollar started to drop my banker down there said shift to colonas. Colonas were paying over 8+, even though the colona has slumped a bit I am still doing will above any state side dollar account. I do pay tax on the offshore but still way ahead of the game. If you are spooked about offshore then look into managed.

[Formula Jr]

We've seen this show before.

http://en.wikipedia.org/wiki/Resolution_Trust_Corporation

And we will see it again........

There is a lot of plus side for individuals with the Grasshopper mentality during bubbles like the last Real Estate Bubble. Bank VPs, which is anyone selling Instruments on Commission, made quite a bit off this. And the news cycle can say more people than ever are owning their homes. A piece of property that is under a mortgage lean, isn't a home. Its a rental that has the potential of becoming a home. But people are not being forced out of "Their Homes." They had a house that they speculated on.

And the buyers that entered into these ARMs will be given a pretty nice fixed rate backed by the Government - ie, taxpayers. "we just didn't see it coming" will be the universal excuse. And the assumption of these mortgages will be because the alternative is too difficult. Our entire country will have just given 50% of the buyers in the last 5 years an interest free loan, that doesn't even need to be payed back under the contract it was written with. The Grasshoppers were right.

The Grasshoppers were right to do what they did because they could, it was legal, and no one was looking over them. The grasshoppers stood to gain 20% appreciation a year in some markets With very little risk.
In a quick study of the Seattle Market two years ago, it became very apparent that near 90% of all the sellers were flipping property. In some cases they didn't even know the most basic facts of what they were selling. Stuff like, where are the real property lines? I guess thats what title insurance is for....

People who can't handle the new terms, will just be evicted, cause they were renting in the first place under the Sub-Prime ARMs. They are not losing their homes. They never had a "home" in the first place, they were renting.

These houses will have the same federal resolution that the last big cycle did. When that is actually admitted, that Uncle Sam picks up the old tab, then you buy and buy everything in sight and as much as you can. Cause the Fed supported interest rate will be nothing compared to the appreciation of the property in a re-stabilized market.

[gcarter]

From someone who was working and watching in the '78-'84 era, this cycle is really a lot less painful...for me at least.
I watched friends at work buy cars and boats at prime +3%.....22% I think. I can't remember mortgage rates, but most folks were getting those crazy, right-off-the-mark, up-side down thingies. Wasn't any way in the world to make it work. The real estate market in Houston was so bad an "OWNER" could walk away and not hear anything from his mortgager for 6-9 months. I remember home auction announcements where 100-150 homes would be auctioned in one day, with at least 1/3 w/no reserve. Oh-yeah, fuel prices were just about where they are right now.
People I knew who had some money were in money market accounts @ 15% interest and the Dow was @ 600+/-.......
I regularly got 15% pay increases and that just covered inflation and kept me static.
Today for me is a lot easier.....I'm due to pay my house off next year, right on time-15 years but on a 30 year mortgage. My business is up 27% this year over last year on a down market . Hoppefully I'll be able to quickly pay off the $80K+ I had to borrow last year to keep it all together.
My home's value has dropped nearly 30% from a high of $400K about 18 months ago but I'm not looking to sell it anyway, and it's still up over 200% from when I bought it.
We're re-organizing our business to be as near a "hands-off" operation as we can make it and through that process it's becoming more valuable.
I don't buy ANYTHING new, I always let someone else take the hit. But I guess now would be a good time to buy a new truck.
I guess it's how you approach the issues and the decisions you make. Business ownership for sure isn't for everyone.

[dfunde01]

We may move closer to the 30's in impact this time around. I fully appreciate the Resolution Trust Era as I was a twenty something stud moving up in Atlanta. I remember my parents and grandmother telling me you don't know what hard times are and they were right. They always knew that hard times could come back and they lived accordingly.

The post World War II generations don't have a clue how bad it was in the 30's and hopefully we never will.

[dfunde01]

"we just didn't see it coming"

The grasshoppers stood to gain 20% appreciation a year in some markets With very little risk.


Hence the old adage "Easy come. Easy go."

[VetteLT193]

I really dislike the way mortgage companies and brokers handled loans. Many parts of the media make things out to be that speculators are the biggest defaulters, but there are a whole lot of people out there that bought homes for themselves and were basically bamboozled into crappy loans.

When it comes down to it, mortgage brokers have sales jobs. Unethical salesman have really screwed families.

Not everyone knows everything there is to know about mortgages and finances. Heck, most of the people that graduate college don't even know how to balance a check book.

I wish Government would spend more money on educating people than regulating things. What our country has come to is the expectation that things are 'safe' because the government regulates every damn thing. If they don't regulate some small sector people get screwed. If everything were de-regulated people would actually take the time to learn things and take personal responsibility.

[zelatore]

I wish Government would spend more money on educating people than regulating things.

Wow. A great statement that can really cover a lot of ground.

I wish the (government, schools, etc) would educate drivers instead of imposing stupid arbitrary speed and traffic laws.

I wish the (government, schools, etc) would educate people about the risks of being outdoors instead of imposing restrictions on what you can do and where you can go in national parks.

I wish the (government, schools, etc) would educate people about manatees or levee erosion instead of imposing miles and miles of un-needed no-wake zones.

I could go on, but I think a broader interpretation is I wish government/schools/etc would help educate people so they would take a little self responsibility instead of living in a nanny-state.

Of course, that will never work as we all know the average Joe on the street isn’t the brightest bulb and far too many of them would rather just sit back and blame somebody else when they do something stupid and cause themselves a problem. While there are some areas where the government should provide protection in the form or regulation, finding the fine line between self-responsibility and governmental oversight is the tough part.

[dfunde01]

I wish that government would let our young people fail in school and be held back. By the time they are adults it is almost impossible to teach someone that there are both positive and negative outcomes that are created by their actions. To those that say those that fail will just drop out I answer that they can replace the illegal aliens working in the fields, cleaning offices and homes, asking if you want to Super Size that, etc. Not everyone should and / or wants to have a degree. By all accounts we already have a shortage of legal unskilled labor. I'm have no pity for the grasshoppers that have brought misfortune upon themselves, misled or not.

[gcarter]

I wish that government would let our young people fail in school and be held back. By the time they are adults it is almost impossible to teach someone that there are both positive and negative outcomes that are created by their actions. To those that say those that fail will just drop out I answer that they can replace the illegal aliens working in the fields, cleaning offices and homes, asking if you want to Super Size that, etc. Not everyone should and / or wants to have a degree. By all accounts we already have a shortage of legal unskilled labor. I'm have no pity for the grasshoppers that have brought misfortune upon themselves, misled or not.
That's a pretty good thought.

[dfunde01]

Speaking of schools. Just saw a news report today that the high school graduation rate in Georgia this year is 58%. The worst in the nation. God help us. GEORGIA the home of the Grasshoppers.

Dave

[MOP]

The level of disrespect in our young is one of our biggest problems and the schools cannot address as their hands are tied, take the time to sit and talk with some of the teachers you know. It is very enlightening to find out how they are treated by both parent and student alike, you will find not good that is for sure. Much can be blamed on parents, but I feel even more can be blamed on the net and the media. I feel there is an ever shrinking cross section of our young that possess much in the way of good values, this by many I speak with is the "Give Me Generation"! We somehow to turn things around so our youth can survive to keep this nation great, to many liberal and draconian laws have brought on a way parental thinking of not my child. Unless parents start supporting teachers it will not improve, things must change as a nation will continue our slide!