Money Under A Mattress

And why is it we need banks?

Underwater Homes

This is a very interesting op-ed piece about homes that are "underwater," in other words, the home owner owes more than the house is appraised or can sell in an open market. The question addressed by the commentator is why, in our "free market economy" it seems legitimate for businesses to walk away from assets which are collateralized for more than they are worth, but it is considered a sin, morally wrong, for a homeowner to do the same thing?

What's even more interesting but not addressed in this particular piece, is how it is lenders (think banks) could allow debt on private residences with so little an equity margin. It's like forcing someone to gamble their life's savings at the craps table in Vegas.

While I personally love owning a home (I can have dogs without having to worry!) and would probably do everything possible to keep my home, I can understand folks walking away from a desperate situation, where it seems they will never recover any money. Essentially they are paying rent with interest on the house.

My sense is that in many parts of this country the real estate market is looking at years if not a decade before housing prices will recover to similar levels of the "greed and gluttony" decade. Yes, yes, I agree there is some individual responsibility here. I mean, when some ya-hoo pulls up in a Mercedes, tells you your house is worth double what you paid for it two years ago, your guard probably should have been up. I remember listening to a realtor here in Seattle constantly tell me there was no way the market could crash because there is no more room to build. I would roll my eyes. I have been hearing that line for 30 years and seems to me developers have been finding lots of land to develop. But I suspect a lot of people were seduced by the same "reasoning."

So, if it is going to take years or a decade before a house is worth what is owed, does it make financial sense to keep paying a ridiculous amount on it? If banks walk away from assets all the time, why can Joe Dokes?

Pay in Cash?

In my on-going series on banks, I thought I would pass this article in today's New York Times about the fees Visa (and your bank) charge for using a debit card. Remember, a debit card is your money. Yet Visa (and your bank, which takes a fee from Visa) charge retailers and venders a fee for every time you use your card. If you don't use your PIN, in other words, the card swipes as credit, even though your checking account is debited, the fee is even higher (hence the reason Costco only accepts debit cards).

So, since retailers don't make a full dollar for every dollar they charge you, the cost of goods and services increases to cover that deficit.

Simply amazing what those bankers think of, isn't it?