Review of Year 2008

I am saddened by the disastrous financial crisis in 2008 which caused a lot of wealth destruction. It is a wake-up call, not only for Wall Street but also the regulators who have been sleeping on the job.

Nobody seems capable of solving the recession for us. Interest rates have been cut and bailout and loans in billions of dollars have been doled out already. Yet, we are nowhere near the bottom of the market.

In fact, I have enough of the saying: "Things will get worse before it gets better." If politicians and economists earn their stripe and money (and they look recession-proof) by reciting this phrase over and over again, I will consider switching jobs soon.

My wife has been discussing with me whether saving our money has been worth it. The upside of making huge amount of money is limited but we share in the downside when the market collapsed.

Our philosophy has always been prudence with our income and an abhorrence of loans. However, the reckless manner in which the government heaped debts on taxpayers when they bailout financial institutions and propped the housing market is shocking.

The trillions of dollars will come back to haunt us in the form of future taxes. It is ironic that we get creative about pinching our pennies but end up forking huge wads of cash to save those who practice irresponsible lending and borrowing.

By the way, some of our money has been spent on luxurious resorts for AIG executives and huge bonuses for the investment bankers. I don't think it is fair that honest and hardworking people have to be screwed in this manner...

In any case, since we will be having more of the bear market in 2009, let's keep our spirits up by seeking positives from a negative situation. My wife loves the bear poster below and looking at the advantages of being a bear, I can't help but agree. Check it out!

Is Spending Our Way Out of Recession Right?

I saw this article written by jeflin and have been wondering if spending our way out of recession is the right thing to do.

Taking on more debts to put money into the hands of consumers and businesses, in the hope of reviving the economy may be hard to comprehend for some, isn't America in a glory shit hole because of all the debts amassed. What if it cannot service its interest obligations or other countries like China and Japan have had enough and start dumping their Treasury notes?

Granted, debts is what got us into the current mess. Everybody has huge debts from nations, corporations down to the individuals. It is scary that US debts was less than 50 trillion dollars in 2005 and today has ballooned to twice the amount because of all the bailout.

Consumers are also burdened with huge debts in the form of credit cards, auto loans and the ultimate killer, mortgage loans. Coupled with unscrupulous mortgage brokers and investment banks, all these debts are packaged into CDOs and sold to unsuspecting investors.

The housing crisis has caused a lot of houses to be underwater (ie. valuation worth less than the mortgages) and could bring about a wave of foreclosures as owners walk away with little more than a bankruptcy name but leaving banks to abosrb the losses.

But sadly, almost all weapons in the Federal Reserve have been exhausted. It is a path not without danger, to raise more debts in a stimulus package, but the cost of inaction by doing nothing could be far worse. We are a few whiskers away from the Great Depression 2.

The way things have panned out in the stock markets and global economy, the recession is likely to get worse if left unchecked. Already, there are heavy retrenchments going on, Citigroup announced 52000 layoffs, a record number of job loss in recent times. This will shrink Citigroup's work force by 15 percent, and are in addition to 23,000 jobs eliminated between January and September.

I can't blame Citigroup. They hope to slash expenses by as much as 20 percent and having lost $20.3 billion in the past year, it is not expected to return to profitability until 2010. In fact, with Citigroup's stock value plunging, there is a strong possibility of a sale of all or parts of the company.

The situation is likely to get worse before it gets better. I am in support of the stimulus package and spending our way out of recession. Too bad, that we did not accumulate reserves during the fat years and now when we really open up our wallets and spend, we should not shy away and start to hoard money.

Get our finances in order and cut down debts when times are good, not in times of recession.

California Law Offers Repreive On Mortgage Defaults

According to DataQuick, 79,511 homes were lost to foreclosure in California for the three months that ended Sept. 30, a 228% increase over the same period a year earlier and the highest number since the company began tracking foreclosures in 1988.

Fortunately, a new state law appears to be dramatically slowing the foreclosure process -- at least for now. The law effectively blocks lenders from initiating foreclosure proceedings until 30 days after contacting the borrower or making "due diligence" efforts to do so.

However, all is not well. Although there is now a delay in foreclosure actions, it is not expected to prevent widespread mortgage workouts later on.

The first wave of foreclosures, mostly from people who took out adjustable-rate mortgages in 2005 and 2006 that later reset at a higher rate that they could not afford, is probably ending. But with the economy slowing down and expectations of rising unemployment, a new wave of foreclosures could hit early next year.

Read the full article here.