Here is why I am a progressive - and this is not to nit pick, but currently we have a large concentration of wealth in this country in a relatively few hands. If it is not loosed from those hands who has money to spend. We all know that median family income has decreased since the 70s, so all of the spending we have been doing is debt spending and now we are worried because individuals can't get loans.

 

It is a real question, that I hope someone will show some real insight on, where does spending money come from, and how can it be generated in this economy?

 

I work in public education and the legislature says to raise for me this year - I am not complaining - but I certainly am not going to go out and spend much money either, if I don't spend I don't create a demand so producers don't produce, so where are we? Where does the money come from?

 

First of all median income has not been falling historically in inflation adjusted dollars. See this link:

 

http://en.wikipedia.org/wiki/File:United_States_Income_Distribution_1947-2007.svg

 

As for concentration of wealth. Where is the concentration of wealth? As a government employee, look in the mirror. Governments are the largest concentration consumption of dollars. I really do not mean that a knock. Bless you for being in education and doing a rough job for less pay than many.

 

But look what the federal government did. It authorized the $787,000,000,000 Stimulas Package. They authorized the taking of over $3,000 from each person in the US. Or over $5,000 per NFP (see other post) in the US. Assuming a two earner household, they took over $10,000 from every household in the country. This was not Rockefellers or the Gates or Warren Buffett taking this money this money from the country.

 

The problem is that this money has not been used to create the jobs as it was during FDR and the new deal. You see no new Hoover Dams, no new bridges, no new large scale building projects, no concentrated effort to rebuild the aging bridges that are rusting out and collapsing. At least the 30's New Deal did get people working. The fact is most money went to states to prop up the state and local government payrolls during this down turn.

 

Social security and Medicare take over 17% off the top for most workers. And yes it is that much - ask the self employed or ask a company how they compute their payroll dollars when they are deciding if they should offshore labor - i.e. the company 'match' is assigned to your name though you do not see it. Add in state taxes (for KY probably around 2% for most), add in local taxes (2.25% in Fayette Co., similar in Louisville and other metros), add in property taxes, sales tax, gasoline tax. 25%+ is the real tax rate on workers. And for those making enough where the 15% Social Security tax tops out....well most of them are facing this little thing called the Alternate Minimum Tax (AMT). Oh, and the marriage penalty.

 

When you combine the taxes on any household those taxes are easily and by far the larget destoyer of their wealth and capital making ability. Easily. And with the 'Stimulus' the federal government took another $10,000.

 

Sorry for the rant on Friday afternoon.

"Spending money" (disposable income), in my mind, comes from living below your means. Too many people in this country live above their means.

There are a lot of people who don't even have the means to have the opportunity to live above their means. Through no fault of their own, many have lost their jobs because of the economic issues we are still dealing with-the housing crash, the banking debacle, the auto industry mess.

 

That goes hand-in-hand with the lending/borrowing that led to the meltdown. Many people without the ability to repay home loans were given loans. They didn't repay them and the lenders were compromised. The lenders then had to tighten up credit and that caused another wave of problems as businesses could not access the money that they may have needed to grow or add employees.

 

I am afraid that everything is going to have to correct (reset)...we had a correction in the stock market and the real estate market and now we are seeing it in the job market. All of our expecations are probably going to have to change before the discomfort goes away.

 

I personally am not struggling as much at this point. I, though, never had much disposable income. So, my indicator is that I now don't have to work two jobs. But that has less to do with making more money than it does having finally gotten my kids graduated from high school. :lol: Once my son is married, I actually will finally be in a position to help my parents each month. To me, that is significant since they are struggling and have all their lives.

 

I don't own a home, and most likely never will. I won't be investing in the stock market. And my expectations are to live paying cash for my purchases. The only thing that will change anything is if I win the lottery to the tune of at least a million dollars. Then, I'll buy a house, but I still won't be investing or paying with credit cards.

They (banks) were forced and threatened and bullied by the govt and people like Obama through organizations like ACORN to give loans to people that didn't qualify.

 

Come on RTS. You're better than just some talking points. :thumb:

 

What percentage were those loans of the defaulted ones?

 

The reality is that the banks were greedy and uncontrolled (even by their own policies) and lent too much out to too many people trying to hook them in. This mess had a LOT less to do with the above than just sheer greed and mis-mangement from the top of the companies on down. :thumb:

Here is the frightning picture

 

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?request_action=wh&graph_name=CE_cesbref1

 

Basically 7,000,000 non-farm jobs lost since January of 2008.

 

 

Lets do some math.

 

7M jobs. Lets assume an average of $50,000 a year in pay.

 

That is $350,000,000,000 or ($350 Billion) of income taken out of the economy on annual basis.

 

Assuming each of those job was making a mortgage payment of $500 a month. The amount of mortgage monies taken out of the economy on an annualized basis is $42,000,000,000 ($42 Billion). The amount of social security dollars is around $52,500,000,000 ($52 Billion). Remember 1/2 by employee and 1/2 by employee or the whole 15.x% if you are self employed. Government non-means tested programs are hurting badly.

 

Payrolls are the key. Not the highly publicized unemployment rate. The Unemployment rate went down in January, but NFP continued to go up. The NFP is not crashing like it did in late 2008 and 2009 but it continues to drop. Until that statistic rises, and rises dramatically there will be no recovery.

 

I think you raise a lot of great points here but your assumption of an average of $50,000 is way high IMO. In most factory/mill jobs (where the largest loss of jobs probably are) the best most made was probably to the tune of $30,000. Some made less and some more depending upon where the job was located and the cost of living there. Down here in our neck of the woods the jobs were furniture and textile and if any made $30,000 it was because they had worked their for 20+ years.

 

Otherwise, I think you are raising the issues well. :thumb:

Come on RTS. You're better than just some talking points. :thumb:

 

What percentage were those loans of the defaulted ones?

 

The reality is that the banks were greedy and uncontrolled (even by their own policies) and lent too much out to too many people trying to hook them in. This mess had a LOT less to do with the above than just sheer greed and mis-mangement from the top of the companies on down. :thumb:

 

Actually, Hatz, on this one RTS is correct. The regulatory beuracracy at Housing and Urban Development changed the rules drastically to loosen the restrictions upon loans to low-income and minority applicants. Drastically. The numbers vary, but the default rate on both home loans and credit cards for applicants who would not have qualified prior to 1994 has been over 75%, compared to less than 30% of other applicants. I am sorry I don't have a link, but my office, which did a large amount of real estate work (that has been shrunk significantly) and commercial litigation, gets regular reports from the title insurers and other underwriters that reports this stuff. It was an ideologically driven regulatory scheme, and it torpedoes the ship.

Actually, Hatz, on this one RTS is correct. The regulatory beuracracy at Housing and Urban Development changed the rules drastically to loosen the restrictions upon loans to low-income and minority applicants. Drastically. The numbers vary, but the default rate on both home loans and credit cards for applicants who would not have qualified prior to 1994 has been over 75%, compared to less than 30% of other applicants. I am sorry I don't have a link, but my office, which did a large amount of real estate work (that has been shrunk significantly) and commercial litigation, gets regular reports from the title insurers and other underwriters that reports this stuff. It was an ideologically driven regulatory scheme, and it torpedoes the ship.

 

Loosening the rules and forcing banks to give loans are two different things. Here in central ky. and I am sure in many other places as well lots of banks are getting cease and desist orders because they were making bad loans. Nobody forced anybody to make a loan. But in the good ol' capital system when regs are loosened greed takes over, on both sides of the loan. If the regs had remained tight many of those loans wouldn't have been made, no housing bubble created, no burst.

Actually, Hatz, on this one RTS is correct. The regulatory beuracracy at Housing and Urban Development changed the rules drastically to loosen the restrictions upon loans to low-income and minority applicants. Drastically. The numbers vary, but the default rate on both home loans and credit cards for applicants who would not have qualified prior to 1994 has been over 75%, compared to less than 30% of other applicants. I am sorry I don't have a link, but my office, which did a large amount of real estate work (that has been shrunk significantly) and commercial litigation, gets regular reports from the title insurers and other underwriters that reports this stuff. It was an ideologically driven regulatory scheme, and it torpedoes the ship.

:thumb:

Loosening the rules and forcing banks to give loans are two different things. Here in central ky. and I am sure in many other places as well lots of banks are getting cease and desist orders because they were making bad loans. Nobody forced anybody to make a loan. But in the good ol' capital system when regs are loosened greed takes over, on both sides of the loan. If the regs had remained tight many of those loans wouldn't have been made, no housing bubble created, no burst.

 

That is false. I am in Central Kentucky. I'm sorry, but you know not of what you speak.

That is false. I am in Central Kentucky. I'm sorry, but you know not of what you speak.

:thumb: :thumb: :thumb:

That is false. I am in Central Kentucky. I'm sorry, but you know not of what you speak.

 

Nobody walked into a bank and said - "you are going to give this person a loan, whether they qualify or not." What they said is we are going to loosen the rules and you are encouraged to open up your lending practices. However, some of the more "conservative" local banks are getting the cease and desist orders and are not struggling because they continued to follow their historical practices. They were not forced to give anyone a loan.

Some interesting food for thought:

 

Did the American Dream kill the American dream?

 

There a number of articles that show the relationship between income and home prices. The bottom line is that for some time the ratio of new and built housing was a fairly constant ratio of to the average and median income of people. That ratio was at a low point around 1998. But then the ratio took off in '98 or '99 and kept on going into the now famous bubble that is by far greater than any point were this ratio has been tracked.

 

http://www.ritholtz.com/blog/wp-content/uploads/2009/02/avg-house-avg-income.png

 

 

What happened? Maybe the perfect storm of politics and business. Politically (and I believe just humanly) GW wanted to increase minority home ownership. See this USA today article from 2004:

 

http://www.usatoday.com/money/perfi/housing/2004-01-20-fha_x.htm

 

In a bid to boost minority homeownership, President Bush will ask Congress for authority to eliminate the down-payment requirement for Federal Housing Administration loans.

 

In announcing the plan Monday at a home builders show in Las Vegas, Federal Housing Commissioner John Weicher called the proposal the "most significant FHA initiative in more than a decade." It would lead to 150,000 first-time owners annually, he said.

 

Nothing-down options are available on the private mortgage market, but, in general, they require the borrower to have pristine credit. Bush's proposed change would extend the nothing-down option to borrowers with blemished credit.

 

http://www.msnbc.msn.com/id/4568925/

 

"One of the approaches, the American Dream Down Payment Act, will help low-income Americans afford the down payment and closing costs on their first home. Bush is asking Congress to provide $200 million a year for the program. He also proposes to make zero down-payment loans available to first-time buyers whose mortgages are guaranteed by the Federal Housing Administration.

 

In addition, Bush is proposing a tax credit to encourage builders to provide 200,000 affordable homes over five years for low-income families.

 

These and other steps, he said, will push the nation toward his goal of adding 5.5 million new minority home owners by the end of the decade."

 

 

So in 2004 the flood gates opened. 0% down for everyone - good credit, bad credit. Who liked this new policy? Nearly everyone - Banks, who originate the loans; Fanny and Freddie since they will buy the bank originated loans and get bigger and bigger; builders since they are going build more house; people with lower income and with bad credit since they can now buy their own house and live the American dream; existing house owners because their home is now an investment vehicle vs. just a place to live; and lets not for forget - the flippers! The people who - with not money down!!! - could buy a house worth hundrends of thousands of dollars, upgrade it and sell it for a hundred thousand profit. Let the good times roll for everyone in this scenerio. And the good times rolled.

 

But what happened? GWB indicated his goal was to increase minority ownership. Did that happen? Lets see...

 

http://www.infoplease.com/ipa/A0883976.html

 

Black ownership percentage 2003 - 2007

 

48.1 49.1 48.2 47.9 47.2 - Peak - 2004 (49.1%), down 1.9% in 2007.

 

The answer - NO. Black ownership by percentage went down after implementing this policy and Blacks faired the worst overall between 2004 and 2007. Sadly, the 10-20 % down was looked at a racist policy vs. what it really was - a financial risk management policy. When this basic policy was removed, the gates flew open to easy money and who got trampled on in the stampede? Black families mostly. But a lot of other people made tons of money on the way in this stampede. Banks, builders, Fannie/Freddie, owners who had capital gains and sold near the top, construction workers, etc. But the goal of increased minority ownership FAILED.

 

 

 

 

Here is another article that describes the current overall bubble problem. It is a good read.

 

http://www.oftwominds.com/blogfeb10/high-cost-housing02-10.html

 

As for acemona's comment and Hearsay's response - remember FHA sets policy, Freddie and Fannie then buy the FHA loans from the banks that originate them. So loans are always originated via non-government banks, credit unions, etc. For more see here:

 

http://www.examiner.com/x-619-Real-Estate-Examiner~y2008m8d18-Fannie-Mae-Freddie-Mac-and-FHA-what-are-the-differences

 

 

 

There was termendious pressure on the banks to lend money to minorities under the new policy. If they did not they were labeled rascist and shredded in the press and in political statements. Yes, the banks were forced to lend in situations that they knew were very risky. I assume this what Hearsay is indicating.

For all those saying people need to spend, spend, and spend some more. We got into this mess in this first place because people were doing that way above their means. It was only a matter of time before this happened. Some people aren't smart enough to realize just because you can get approved for a $300,000 home loan doesn't mean you should get a home that expensive. Banks are lending money but they have just tightened restrictions a lot and who can blame them. No one is paying backs the loans from before so why would they lend them out again? A lot of people are having problems with their mortgages because home prices were so over inflated 5 years ago and that is going to take more than a few years to fix. So many people are upside down on their mortgages that it is going to take 10 years of payments and the value increasing for them to be back to where they were. Honestly I have no idea where the spending is going to come from. And yes Hearsay is dead on. I consider this more of a correction than an "Economic Disaster".

Edited February 13, 201016 yr by HammerTime

Nobody walked into a bank and said - "you are going to give this person a loan, whether they qualify or not." What they said is we are going to loosen the rules and you are encouraged to open up your lending practices. However, some of the more "conservative" local banks are getting the cease and desist orders and are not struggling because they continued to follow their historical practices. They were not forced to give anyone a loan.

 

I am sorry, Ace, but you are wrong. The banks (I represent two) were told "you are going to approve these 10 applications, or we are going to revoke certain licensing you have and prevent you from engaging in secondary market transactions." In addition, the regulations were written that for violations of the mandatory lending requirements, the damages included attorney fees, so violating them could be particularly costly.

 

Leatherneck does exactly this kind of work, and is best able to speak to it.

I am sorry, Ace, but you are wrong. The banks (I represent two) were told "you are going to approve these 10 applications, or we are going to revoke certain licensing you have and prevent you from engaging in secondary market transactions." In addition, the regulations were written that for violations of the mandatory lending requirements, the damages included attorney fees, so violating them could be particularly costly.

 

Leatherneck does exactly this kind of work, and is best able to speak to it.

 

Okay, how were many of the local banks then able to avoid some of the bad debt? Were they not part of this program?

Okay, how were many of the local banks then able to avoid some of the bad debt? Were they not part of this program?

I would guess because they sell their loans.