One Lenders Take On The Bailout Proposal

A very good friend of mine is a commercial loan officer for a bank, so it was interesting to see his take on the bailout proposal. The bank he works for is not one of the ‘high risk’ banks that is in trouble because of the many bad loans. They kept with a conservative and safe loan structure, even as other banks were loosening credit and getting into trouble.
But, as my friend pointed out, even their bank is getting affected negatively now, and banks like his could be at risk if the ‘troubled’ banks do not get help. The point being that once things start going south, there won’t be anything to protect any bank or financial institution. Thus, even though it will in a sense reward those institutions that made bad decisions, he believes that the bailout is necessary because of the bigger picture.
With his permission, I am including some of his feedback on the situation. Given that his job is to directly with issuing credit, he has firsthand knowledge of what’s going on and the potential impact. His insight was refreshing and eye-opening.

Currently with all of these bank failures, there have been days when banks have stopped lending money to each other, due to liquidity shortages. [This relates to] supply versus demand. This in turn has force the LIBOR funding rates to go to record levels. What this means for each of you, is that for every tick it goes up, banks are forced to increase interest rates. Do you want 20% interest rates again? The only reason banks are failing today, is that there isn’t enough capital currently in the markets. Their requests for capital can’t be met. This in it’s self is scary. If the bailout doesn’t happen, several banks that made good sound decisions could fall into the same group of failing banks, which I believe we’d all agree is not the approach we want to see.
So basically, I’m saddened by anyone that says to hell with all of the people that made bad decisions, because it’s much bigger than that. The thing you have to remember, is that the federal government isn’t going to do anything where they aren’t going to make a buck out of it. They are basically going to be purchasing non-conforming loans from institutions for primary residences only, NOT investment homes that people took risks on. These loans that are deemed to be “non-conforming” were loans that were being paid as agreed until the rates jumped up to 20% or whatever the crazy rates are. If the government buys these, and is able to give a rate in the 5-6% range, which is todays market rate anyways, how is this not a good idea? I’d rather keep families in there homes rather then giving them no other option than to walk away. That’s not good for home values or anything else.
Big picture I view this plan, if structured properly, as a good thing. These are my main reasons:
(1) It hopefully stops the rapid decline in home values by keeping millions of people in their homes.
(2) It helps stabilize a volatile interest rate environment. Trust me, you don’t want to see what will happen if this plan doesn’t get approved.
(3) Banks will be able to have capital needs, hopefully with stricter regulations, to continue operations at least for the time being and hopefully years to come.
Hopefully I did a good job to explain how this is a much bigger issue than us just bailing out stupid consumers, because it’s much bigger than that.

I think he did a great job and thank him for his contribution.

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When Is A Kid’s Birthday Party Too Much?

Yesterday, there was a birthday party for a kid who lives in the first house by the neighborhood entrance. It was impossible not to notice, and it made me wonder, when is a kid’s party too much?
I noticed a lot of unloading and setup being done on Friday, when I pulled into the neighborhood after work. The location of the house made it a lot more noticeable. The next morning, a giant tent was being erected which covered most of the driveway. I’d estimate the dimensions at 40×20. Tables were being unloaded which covered the driveway.
The next day (Sunday) was obviously party day. There were table linens going on the tables, the sort which you would normally find at a wedding. There were giant inflatable toys being set up in the backyard, the kind which kids can actually go into and jump around. There was a valet service which was preparing to park cars for guests.
Later on, the party was in full swing. I swear, we weren’t spying, it was just impossible not to pass this house when pulling in or out of the neighborhood. Cars were lined up on both sides of the street, making for a dangerous game of chicken if one car was leaving and another was entering. The guests had arrived, and the gift tables (yes, plural) had piles of gifts so high you couldn’t actually see the guests. The caterers were off to one side getting the food ready.
I’ve seen the kids in this house, and I don’t think they’re old. My wife even speculated that this could be a first birthday party. I hope that wasn’t the case. At least, if there was a party that big, I’d hope that it would be for a kid that would at least be able to remember it. Even so, I have never seen such an event for a child of ANY age.
Don’t get me wrong. I’m all for celebrating birthdays. I had parties at my house growing up until I was a teenager. Family and friends were invited and it was a good time. But, the tables were set up in the basement and on the backyard patio. We played on the lawn with whatever toys were brought over or found in the garage. My mom did all the cooking with the possible exception of a cake being bought from a bakery. People parked their own cars.
And the thing about it, is that I had a great time. I didn’t need any more than that. I wonder if the parents are doing it for the kid or if it’s for themselves.
I also think this could be teaching the kid some bad personal finance lessons, which could hurt later in life. For example:

  • He/she might expect such a party every year. Or better. What if the parents can’t afford it one year? What about when the kid gets too old to get two tables worth of gifts? I think this could set the stage for feelings of entitlement, which is never a good lesson to teach children.
  • He/she might learn the lesson that spending money equals happiness. The parents were trying to create a happy time, but if you have to go overboard to do so, that could become the standard. This could create that mindset, and if it’s plugged in at a young age, that could lead to trouble.
  • It can create a pattern of jealousy. Assuming that friends of the birthday celebrant were invited, there could be feelings of jealousy, and that the things that go along with that generally only get stronger as one grows up.

I’m not trying to be a party pooper. I think kids birthday parties are great, and look forward to throwing them for my kids should we be blessed to have kids in the future. I really do think, though, that there are better ways to celebrate that might not teach your kids the wrong things about celebrating at an early age:

  • Backyard or basement parties
  • Pool parties
  • Pizza parties
  • Sporting event parties

These are fun, and plus I think kids enjoy them!

So, when is a kid’s birthday party too much?

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