Arkansas Blog

The stock market is very psychological. But all the 'positive spin' won't make up for the fact that our economy is not healthy.

I am not yet 40, but I am amazed that people honestly believe that something like the Great Depression can not happen again. And when it happens it will be on global scale.

And when people get cold and hungry, then that is when wars start.

I wonder if this will affect the size of new homes? Do people really need a 3000 square foot home with a 3000/month mortage

Scottie is on to something.

I have observed the crazyness of the home sizes. Those are fixed costs far into the future. The energy used to create the building materials is one thing but the energy to heat and cool and light the behemoth is the real drain on society.

When gas shot up in price it was a short term hurt to unload the Suburban at a loss and buy a Sentra but a house is a 30 year deal.

It is very expensive to retool your housing investment.

I expect that it will become as common in west Little Rock to seal off rooms not used and stop airconditioning them as it is in East End to seal off rooms that they can't afford to heat.

Do we really need.?

If your religion teaches that you are inherently superior to other people & that to show God's love you must destroy the world; then yes a 3000 square foot home is the perfect place to start.

"America is the only country that went from barbarism to decadence without civilization in between." Oscar Wild

I don't dismiss yesterday's events as "nothing", but think about this....if you have an IRA or a 401K, will one day's trading really make THAT much of a difference? People only lost money if they sold yesterday for a price lower than their purchase price. That's why most financial advisors recommend a buy and hold strategy. You shouldn't be reacting to every market drop or every market peak. I'm sure that this morning, my 401K looks pretty icky compared to 3 weeks ago. However, in 35 years, when I retire? I doubt yesterday will end up meaning that much.

We built in 1998. 1400 square feet. When we go to parties we find our friends have their thermostats set at 78 or above. We sweat thru the evening waiting to get home. Our mortgage is $650. We couldn't rent a nice two bedroom apt. for that. We have a nice big patio on one side of the house and a big deck on the other where we can entertain 9 months a year. I have never understood the McMansion. Why heat and cool giant rooms you use once a week?

We have looked at our energy consumption for cars but we have done very little with residential or commercial buildings. It is a huge waste. 500 to 700 square feet per person should be plenty for a house. We have super insulation products available that cost a bit more than fiberglas and geothermal heat pumps have been on the market for 25 years. The savings in those two options alone could save over 50 percent.

You're a wise young person, EY. Hope others are listening.

Max:
As one of those quoted yesterday in that story (and as you well know), sometimes our comments are edited down. NO question that the average investment or retirement account dropped yesterday. I reread the article and cannot find any reference to indicate that "the commenters think every bank operating in Arkansas is in blue-ribbon financial condition". Regardless, the fall of Lehman and the BAC/Merrill merger are indicative of our global economic problems but have limited correlation with the condition of our local banks.
I frequently agree with you on many subjects but your criticisms don't really hold up here.

On my name is a list (From The Street. com) of banks listed by name of the weakest and strongest of U.S. banks.

Banks in between with a C rating are not included. We have both weak and strong banks in Ark.

Unfortunately the list is as of March 31, 08. Things could have changed since then.

But you can see the condition of your bank at that date.

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Wall Street crisis is culmination of 28 years of deregulation
By David Lightman | McClatchy Newspapers

"Such troubles were supposed to have been prevented, or at least mitigated, by regulatory systems that the nation began to put in place after the banking system collapsed at the start of the Great Depression.

"Many banks at the time were badly wounded by their personal and financial ties to securities trading. The 1933 Glass-Steagall Act, and later the 1956 Bank Holding Company Act, mandated the separation of banks, insurance companies and securities firms.

"Those and many other federal laws stabilized the banking and securities markets, but by the 1970s, a stumbling U.S. economy led to a change in America's political-economic values. Ronald Reagan led a movement that came to power in 1980 proclaiming faith in free markets and mistrust of government. That conservative philosophy has dominated America for the past 28 years.

(OK BILLARY, THE NEXT PARAGRAPH IS TODAY'S WET DREAM FOR YOU)

"In 1999, President Clinton signed the Financial Services Modernization Act, which tore down Glass-Steagall's reforms by removing the walls separating banks, securities firms and insurers."

It's only fair to note that Senator Bob Dole (R, Kan.) was a co-author of the legislation.

click name

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The Fed can't cut interest rates any more without the dollar collapsing and oil prices going back up.

The problem is this:

Anyone retiring in the shorter term is taking a hit that won't be overcome to any substantial degree before needing the funds.

Anyone retirng in the mid range has to be making adjustments to their retiremnt planning to dove tail in with their expected needs at retirement time. How does one plan without sufficient knowledge of how long and how well will their portfolio rebound.

Those not retiring for 30 years or more would be uneffected.

So in other words 2/3's of future retirees have been tripped up in their planning yesterday. Some well more than others.

Personally in my family we all seem to keep working till the day they cover us with dirt so we are not as effected as most.

My 78 year old Dad is scaling back to part-time now but we don't believe him.

>>Anyone retiring in the shorter term is taking a hit that won't be overcome to any substantial degree before needing the funds.<<

CH, I have not looked at the winners and losers as of this morning. Oh, yes in times like this wise men know where the winners-bargains lie and pounce.

But, people close to retirement should have moved investments from risk portfolio to low risk.

But, hell, I know educated 60 yr olds who are buying that new home or dream home with an 18 year mortgage. I suppose their plan of selling the home later at a large gain may have been recently wiped out.
I can't understand anyone wanting mortgage payments when they turn 75.

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I'm glad I invested all my money in me!

The national debt is almost 10 trillion, not counting may off the book things.
Incomes are down.
Costs are up.
Consumers have record debts.
Consumers are the heart of our economy.
It doesn't take a financial wizard to know that our country is headed downward.

People who work, save and invest get ahead.
People who work, borrow and spend don't.

It works the same for countries.

Elwood, you are correct that close to retirement people should be out of a growth portfolio and into secure and low risk items.

But what I see a lot of is the inablilty to sit on the sidelines when others are making a killing. My father-in-law is in a retirement/resort area and his 70 and 80 year old neighbors can not help themselves when their friends are buying lots and homes and reselling at HEFTY profits.

It is fun watching the envy/conversation at BBQ cookouts. Some old doctor bought his neighbor's place and sold it six months later for 30% higher. Then an old lawyer buys all the lots on his street for $50,000 each and 6 months later starts offering them at $100,000. Everyone said he was nuts, till he sold them all, now he is a visionary genius.

I took a slight hit at the end of the dot com bubble because every time my reasonable side told me that a business model needs to have a point in time that a profit is expected, my greedy/envious side noted that my ignorant cousin was flippin stocks and cursing the capial gains taxes. So I got back in.

I sold securities in the 80's and I would work my a$$ off trying to get clients to take positions when it seemed obvious that prices were low. But no, they always wanted to "hold off" and watch. Then they would call me and say get me some "xyz". And everyother broker int the room was getting the same call.

Each broker had a teritory and when nearly every broker was listing trades on the same day from all over the country we would all shake our heads because we knew we had seen the top and tomorrow all the trades were going to be at a loss.

But we were interested in the YTB of the trades and a good YTB was always worth it.

YTB = Yield to broker.

The New York Times reported this five years ago:

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac - which together have issued more than $1.5 trillion in outstanding debt - is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

This should have been a no-brainer, right? With hindsight, we can see that the Bush administration had accurately diagnosed the problem in the lending market and had a plan to address it. Fannie Mae and Freddie Mac reluctantly supported the plan. However, Democrats objected (emphases mine):

Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

"These two entities - Fannie Mae and Freddie Mac - are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

"I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing," Mr. Watt said.

Sounds a little like the Democratic denial of problems in Social Security, doesn't it? Nothing to see here, no crisis on the horizon. Everybody just move along, now. The Democrats had forced lenders to assume more risk at lower interest rates in the 1990s, as IBD points out today, and they didn't want to countenance an end to their populist policies:

But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street's most revered institutions.

Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.

The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but "predatory."

Yes, the market was fueled by greed and overleveraging in the secondary market for subprimes, vis-a-vis mortgaged-backed securities traded on Wall Street. But the seed was planted in the '90s by Clinton and his social engineers. They were the political catalyst behind this slow-motion financial train wreck.

And it was the Clinton administration that mismanaged the quasi-governmental agencies that over the decades have come to manage the real estate market in America.

It was the Bush administration that wanted to rein in the madness in the credit markets, and the Democrats who wanted to extend the Clinton policies that created the crisis we have now. After the fit hit the shan, as Michelle says, these same Democrats want to shift blame back to the administration that wanted to increase oversight and curtail risk in lending practices while reducing patronage at the giant GSEs.

YEAH! I heard Limbaugh screaming IT'S CLINTON'S FAULT! IT'S CLINTON'S FAULT! this morning too!

Fannie Mae and Freddie Mac one giant Democrat slush fund...PLEEEEASE!

What do you do with a drunken financial system? Click

And yes all the lack of oversight was a Democratic Party plot to make the Republicans look bad and get McCain defeated. It was hatched in the early nineties by tolerant, gay, liberal, promoters of universal health care that were rejected membership in the "Dittoheads" by Rush Limbaugh.

Well, if you can read the above I don't think you have any other option than to blame it where the blame is deserved------the Congress.

The real question is when will the media begin to ask President Bush what his policy is on Wall Street. So far it has been "Paulson this" and "Paulson that." These bailout actions are too big for the nation and for the world for the President to continue not to speak. Nobody voted for Paulson. Bush is the President.

Ok Strangelove, you covered how it can be attributed to Clinton which is only ONE FOURTH correct.

But what about the investments houses which are failing? You completely ignore Bob Dole's role in repealing Glass-Steagall Act.

And most of what I've read in the financial news is that millions of folks were routinely duped by
realtors and mortgage firms to buy into mortgages which in 4-5 years would balloon past their
ability to pay them. That practice could have been regulated. This happened on Bush's watch.

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