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Recovery

Last night I attended the Town Hall for Hope, a telecast by Dave Ramsey held at churches and gathering places around the country and broadcast on the Fox Business Network. The goal of the “Town Hall” was to abate peoples fears and to give a better understanding of all of this gloom and doom being spread around in the media about the economy.

Key Points

Hope does not come from Washington DC, it is comes from you. You need to understand that life is not fair and bad things are going to happen, and they may happen to you. If you take responsibility for yourself, your actions, and your future you will be prepared to deal with life’s disappointments and continue moving forward.

We ended up in our current situation because the economy was doing so well that Americans started to get “fat and sassy.” We allowed the booming economy to blind us from transgressions and poor business practices being performed across the nation by people and businesses everywhere. Eventually, as it always does, this caught up with us and the bottom fell out.

Mr. Ramsey called both the bailout packages and economic stimulus plans stupid. He was of the belief we should just let the chips fall where they may and stop interfering with capitalism. He astutely pointed out how our current economic beliefs are a result of John Maynard Keynes influence on Roosevelt toward the end of the Great Depression. Mr. Keynes was learning in Cambridge England during socialist rule which influenced the way he thought about economics. Dave stated Keynesian economics was flawed, we have been taught that it was what brought the US out of the great depression. In reality the War is what brought us out of the depression because men were at war and woman were in the factories making tanks.

There has been an abuse of capitalism in America and companies have forgotten that they are in business to serve people not milk them for every last cent they have. As a country we need to go back to the basics and allow people, and companies, to fail. Failure is what drives all of us to succeed, if the government takes away the threat of failure what incentive is there to improve and be better.

Questions Asked

Dave had an open forum for questions after his initial speech I highlighted a few of the questions, his response and my thoughts.

Question: Is this our Generations “Great Depression”?

Dave: Dave hopes this is figuratively our “Great Depression.” He hopes it has awoken Americans to learn and become better stewards of our money. He also said that our current economic situation pales in comparison to what was experienced during the Great Depression, it isn’t even as bad as our worst recession.

Me: Luckily Dave is spot on here, this isn’t close to the Great Depression,nor do I think it will be. Things have gotten real bad but we have already seen people becoming more frugal with their dollars and being more responsible. The key measurement of the success of people’s “turn around” won’t be known until some time after the recession has disappeared.

Question: What other options than the stock market are there for investing right now, even though wisdom says in the long run it will be ok?

Dave: “100% of the 15 year periods in the stock market have made money, the stock market is artificially low right now”.  Dave made an excellent analogy stating that the stock market right now is the blue light special at K-Mart, in other words it is a great deal because prices are lower than the data that is out there supports.

Me: There is no better time to buy than when the market is low. It always amazes me to hear people call in to these shows and ask if they should keep investing because they have lost 40% of the value in their 401k. If you continue to put the same amount of money into your 401k then you are buying twice as many shares of the fund as were before. If you did your research and picked a solid fund then you are almost guaranteed that some time in the future it is going to not only be back where it was but surpass it.  This thought process only works if you are in it for the long haul, but who isn’t.

Question: With all of the money going into circulation what do we do with our savings, inflation is coming right?

Dave: Inflation is coming, but because congress is overspending. If we can get congress to quit spending then we can stem this impending tide of inflation.  If you are looking to invest, invest in growth stock mutual funds and real estate.

Me: See the previous question on investing, and I agree that real estate values will increase over time but it will be slow for some time. Buy now while rates are good and properties are priced to sell and you will have a solid investment for years to come that SHOULD beat inflation.

Question: When is the unemployment rate going to get better?

Dave: Jobs going down is a symptom of the economy going down therefore, jobs will not start to increase until the economy starts heading up. He used a simple illustration that the washer and dryer company can not employee people if no one is buying washers and dryers. Once people start buying them again the company will need to employ more people to make the washers and dryers to be sold.

Me: I agree with Dave’s assessment. It just makes sense that you can’t create jobs for people if there is no actual demand for whatever that job may be producing. I wish he hadn’t used the washer and dryer analogy though. My wife wants a new one even though ours works just fine and she looked at me and said with puppy dog eyes “See we would be helping the economy and creating jobs.” I said NO, at the suggestion of Dave Ramsey.

Overall Thoughts

Dave threw down the gauntlet challenging Americans to remember that they are in control of their lives and their futures. We should not rely on others to bail us out, nor should we lay blame for our misfortunes. The US Governments policy of propping up failed companies is only going to prolong the recession, we should let nature takes it course and stop rewarding stupid people. The people who are struggling are the people who weren’t running their business properly so they need to die off and let those who were be rewarded.  The most important part of what was said is the message that each and every one of us needs to educate our selves by reading books, blogs, news articles, and more. The more educated you are about the topics at hand the less likely you are to believe the gloom and doom spread by media outlets and the more likely you are to have hope.

Dave closed with the following three things to do to regain your hope:

  1. Get up, take action, and get moving. When you get moving and inject yourself into the situation you are going to be more productive. The president is not going to fix your life. It is your job to fix your life. “There is a good place to when you are broke, to work.”
  2. Don’t participate in loser talk. If you get around a bunch of losers you are going to be a loser.
  3. Learn to Give Again, not necessarily your money it could just be your time. If you volunteer you will see that your life is not so bad and when you are giving you aren’t looking at yourself.

I also want to point out that there are plenty of other great personal finance bloggers out there, Baker at Man Vs. Debt is one of them and he wrote his own review of the Town Hall for Hope so be sure to drop by and get his opinion. When you are done with Baker you can pop over to the Free Money Finance blog and Gather Little by Little and read their reviews as well.

Did you attend the event? Leave a comment and let us know what you thought about Dave and his message.

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The U.S. Treasury department today released details of the Homeowners Affordability and Stability Plan.

This plan is intended to provide assistance to homeowners at risk of going into default, currently in default, or whose mortgage exceeds the value of their home.

The plan consists of three main components

Refinancing for “Responsible” Homeowners

  • a Program for homeowners who had conforming loans with or guaranteed by Fannie or Freddie to allow them to refinance at lower rates even if their LTV is higher than 80%

Stability Initiative

  • The Stability Initiative applies to “At Risk” homeowners who have a high debt to income or whose home value is now less than their mortgage value. Additionally you do not have to be behind to qualify
  • Responsibility is shared by the lender and the treasury, the lender will have to reduce rates to make the payment no more than 38% of the owners income, the plan will match the reduction down to 31% for the borrower, the lenders will be required to keep the lower rate for 5 years then they can step it back up to a conforming rate. (Sounds like a fancy ARM to me)
  • Lenders will be paid $1,000.00 for every mod they complete
  • Mortgage holders who are current but “At Risk” will receive a $1,500 incentive to mod before they are behind, servicers get $500.00 if they agree to the mod of a current account
  • Borrowers who have had a modification will receive a $1,000.00 per year balance reduction for 5 years provided they stay current… WHAT??? I need to get behind on my payments man… damn.

Support Low Rates

  • The treasury is increasing its funding commitments for Freddie and Fannie from $100 billion each in preferred stock purchase agreements to $200 billion each.
  • The $200 billion commitments are not made from funds in the Financial Stability Plan or the TARP program they are from the Economic Recovery Act.

I personally don’t like the plan nor do I support it. What do you think? Are you going to apply for a mod?

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The House of Representatives and the U.S. Senate today voted today to approve the American Recovery and Reinvestment Act of 2009. This act known to most as just the second stimulus package, is promised to provide the boost our economy needs to get out of this recession. The bill text doesn’t appear to be available yet. You can get the full text of the bill, as of February 10, at the online library of congress. This copy of the bill still seems to include the $15,000 home buyers tax credit which word is has been reduced to $8,000 in the approved bill. You can find the text of the bill on line at the Library of Congress Website listed as the congressional report on H.R.1. The bill does list that the first time home buyer tax credit is increased from $7,500 to $8,000 for homes purchased after December 31st, 2008 and before December 1, 2009.

Here is the kicker on this whole deal, as I write this article the Senate is still awaiting the 60th vote from Senator Brown D-OH. This Senator is being flown in on a jet, by the White House, to make his vote, and will then be flown back to OH so he can attend a funeral. I am all for this person attending funerals, or doing whatever else they need to do but I am not paying for this, seriously we call out GM for flying a jet to DC and then we shuttle Senator’s around on the White House’s dime. Bet McCain didn’t get picked up by Air Force One to make it in for his vote today.

— Enjoy your weekend I am turning the news off.

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Sunday’s Sites (American Recovery and Reinvestment Act)

February 8, 2009

Every Sunday I plan to reference 4-5 articles I found particularly insightful or useful. This weeks topic centers on Barack Obama’s Stimulus Bill titled the American Recovery and Reinvestment Act of 2009. It has been a pretty hot topic this week in the blogosphere with most of the major players weighing in, her is what […]

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U.S. Senators Reach a “Compromise” on Obama Stimulus Plan

February 6, 2009

Major news channels are reporting tonight that the senate has arrived at a “compromise” on the American Recovery and Reinvestment Act of 2009. The bill is reported to now have 42% tax cuts, and 58% spending. No details were released and while the Official Documents maintained by the Library of Congress show Amendments 100-555 to […]

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