The Credit Bubble

And Now a Word from the Credit Bubble

From my perspective, we got in trouble lending people all this money to buy these crappy houses (McMansions) they could barely afford. While I worked my way up with small houses I improved and sold for a profit, moved up to a slightly bigger one, improved it and always paid as much as I could, to pay it off quickly (15 year mortgage vs 20-30), those young “entrepreneurs” go out and buy their first house for $350,000 with variable interest rates or balloon payment in five years, and wonder wha hoppen when the house's value dropped into the flooded basement and the bill came due.

Don't Walk This Way

Too many husbands and wife, no less, lost one house, walked away (the wife did) then the husband went and signed a new deed on a new house. What incentive was there to do the right thing and pay off the loan or stay in the house if you can walk with no consequence?

Payment Past Due

And too, the bundling of loans, crappy loans, into those "derivatives", speculating on how high the prices of homes would go, only to find they not only stopped increasing, but fell through the roof into that basement, all those $400,000 homes with swimming pools and stainless steel appliances and granite counter tops suddenly worth less the $250,000. Er…what about the equity loan we took out to buy the BMW, the boat and the jet ski? My parents didn’t believe in borrowing money and while they weren’t as bad as the previous generation who put their savings under their mattresses, they used credit sparingly. They had bank accounts where they stashed money for a year or more and then bought the new car. Only loan they had was the mortgage on their house.

Good Credit?

I believe in having good credit and using it. I use credit cards, but pay the balance in 30 days, no interest. I need a car now, I borrow the money for a year and pay it off early if I can. If a store offers, “NO INTEREST NO MONTLY PAYMENTS” for a year, I put the money to pay it off in the bank every month, so when the loan comes due, I have it to PAY IN FULL. Otherwise, that “No interest, No monthly payments” comes back to bite you with big teeth. The small print reminds you about that. I read it. The difference between me and my folks is , if I want or need something now that I lack the funds for, I don’t mind borrowing it as long as I know I can pay it off quickly. I guess I lack their patience. It pays off if you buy something (like a house) when the market is down, and you buy at a good price using your credit, then sell it when the market improves at a profit. Sometimes waiting works against you as the prices turn skyward. How many people are kicking themselves in the tookus saying they should have bought that house five years ago when the prices were low, and are watching while prices lock them out of the real estate market all together?