Discussion:Getting Many of these calls?

Two weeks ago it was Betsy, who leaves a message that she is taking all her money out of Wachovia. "I'll put it in my mattress."

Last week George let me know he wanted to move his IRA account that is in excess of 1.2M from Wachovia to ??? And he wanted to avoid trustee to trustee rollovers because he heard that can take time and he was afraid the bank would fail in the interim. So he was going to take a check and do his own rollover. [Happy ending, with Citi and Wells Fargo fighting over Wachovia, he decided to let his new IRA Custodian arrange the rollover and do it trustee to trustee].

So, how are your clients doing? How are their 201K accounts? How is your Solo 201K account?

I have gotten about 5 to 10 calls from tax clients on this environment. More from investment clients.

Remember 1990, S and L crisis had over 1,000 bank failures, market was down, high unemployment.

This is worse but it will pass. Instead of pulling out of IRA's, have clients consider short term US treasury funds within their IRA. It is parking, not investing but is better than a full withdrawal. Long term, inflation will kill this idea but it works short term.

He's sitting pretty at the moment due to asset allocations he made before the mess. I know this because I recently redid his Will.

For the few clients that quizzed me on the economy during last tax season, I mentioned at the time consumer staples. That category of stock has held up pretty well, though I understand that even the consumer staple stocks began to weaken at the close today (e.g. Kraft Foods).

By the way, they made the point on CNBC tonight that they are starting to see more defaults on auto loans.... It will pass, but I think it will get worse before it passes, maybe far worse.

The days of easy credit to buy anything are likely over, and this will have long term effects on the economy.

Try to imagine all banks and other lenders being more conservative going forward. It's probably a good thing. Like quitting drinking is a good thing. BUT, it can be mighty painful during the "dry out" period.

My opinion is that regardless of what they do to get credit flowing, it will not return to the "Wild West" atmosphere of the last 5 years. It's not going to happen. And the lack of easy credit for consumers is going to ruin a lot of business plans.

We are not in for a hangover, we are in for the DT's! I don't think there are any magic bullets this time. Just a (painful) return to sanity.

taxpayer funds to bail out institutions that have paid gazillions to execs who ignored the risks and leveraged everything and lead us to this mess.... social engineering in the form of Freddie and Fannie and the Community Reinvestment Act that caused loans to be made to people who could never afford them.... gazillions of taxpayer dollars to be spent on buying toxic loans, restating them down to the new, lower value of the homes, (I believe this has been proposed by Obama and also last night if I understood him, McCain said that this is what needed to happen to stop the decline in home values).

Is anyone else who works hard and lives within his/her means offended? Isn't there a better way?

We will not go back to the wildly overvalued housing that existed prior to this crash. That party is over, because the banks simply won't make those loans anymore. They also won't go back to extending credit so easily, period.http://www.newsweek.com/id/162789

So yeah, a lot of honest people got screwed to make a "few" people rich. Our job is to make sure they don't get away with it again. Here's a good recap http://www.bloomberg.com/apps/news?pid=20601087&sid=aeOkWd5PPLv4&refer=home

What is discouraging is that none of the candidates want to give out the truth. Churchill was a hero for his 'blood, sweat and tears,' but here I suspect both M & O will repeat the GWB mantra after 9-11: go shopping.

At least the British are taking equity stakes, and now Hank talks about doing so in our institutions.

That Bloomberg article right up there is pretty interesting.

"Many individuals grew suddenly rich. A golden bait hung temptingly out before the people, and, one after the other, they rushed to the tulip marts, like flies around a honey-pot. Every one imagined that the passion for tulips would last for ever, and that the wealthy from every part of the world would send to Holland, and pay whatever prices were asked for them. The riches of Europe would be concentrated on the shores of the Zuyder Zee, and poverty banished from the favoured clime of Holland. Nobles, citizens, farmers, mechanics, seamen, footmen, maidservants, even chimney-sweeps and old clotheswomen, dabbled in tulips.[3]"

Not exactly the same kind of bubble we had, or the same dynamics, but I love the part about everyone getting into tulips....like everyone becoming a real estate operator......

Then again, one client with a 100K LOC from a boutique bank has been informed that the limit will be chopped....though a representative actually visited her office.

Could be Mike, but I understand the next shoes to drop will be defaults on auto loans, and credit cards.

I will read the links that you provided after 10/15.

1. Rather than buy the toxic loans, the govt should buy stock in the banks (as is being discussed) with the understanding that the banks will begin lending again to unfreeze the credit markets. Everyone should understand that the govt will sell its interests in phases when the stock hits certain target prices. The goal is not to have the govt further intruding on the private sector, the goal is to provide liquidity and therefore confidence in the system. The taxpayers would be at risk in the case of bank bankruptcies, but in the case of ongoing banking businesses, eventually the taxpayer funds should flow back when the stock is sold.

Alternatively, for a while, let the government make responsible loans directly to businesses and individuals. Would $700 billion be enough to grease the economy? (Honest question, not sarcastic. I don't know.)

2. Toxic loans stay with the banks. Remove the moral hazard issue.

3. Consider the application of New York's "claw back" law that I read about in the case of grossly overpaid executives. My very limited understanding is that if NY shows fraud or illegal activity, they can recover compensation from the guilty party. This might provide a deterent to future decision-makers who focus on their own short-term compensation at the expense of the long-term interests of those whom they supposedly work for (the stockholders). Mood of the country would increase tremendously.

4. Meantime, new regulations to keep this sort of thing from repeating. ("I'm sorry, there will be no more 35x leveraging, since you've all proven that the free market doesn't keep these amazingly bad decisions from being made and almost taking down all of us.")

5. Toxic loans. This is the hardest part. I'm not on the edge financially but I sure was for a few years. We almost lost the house in spite of the fact that we have worked our whole adult lives. Not everyone with a toxic loan is a free loader who borrowed 100% on a no-documentation loan and a whim and a prayer.

What if for those who made a downpayment and didn't lie on loan documents and who haven't been able to renegotiate with the lender, we have an option where they can either refinance with the govt at say 5% interest over 40 - 50 years, but upon sale, the govt gets a % of appreciation, or they can refinance at 6.5% over 40 - 50 years without sharing appreciation. Absolutely no purchasing of toxic loans at full face value and renegotiating based upon the value of the house with no way for the taxpayers to recoup their money. ("Who are you, inhabiting John McCain's body, and what have you done with him?") This hopefully allows many homeowners to stay in their homes and gives them an incentive to do so even while homes are underwater (rather than destroy their credit and their chances of home ownership in the future) and corrects for unscrupulous lenders who put buyers into adjustable rate loans that they didn't understand and that were never going to work out anyway. This also allows for a real correction in the housing market instead of artificially propping it up and prolonging our pain.

6. Toxic loans - 100% financed. Although I feel bad for these people that they will not be able to live in the place that they believe is their home, they never owned so much as the doorknob on their front door. They've been paying rent to the bank, and it seems that they now need to pay rent somewhere else. Remove moral hazard issue.

7. Real estate agents and mortgage brokers. These people are compensated in a way that creates a huge conflict of interest with their clients, and perhaps we need regulations on that issue. I've purchased 2 homes in my life. In one, the real estate agent respected what I explained were my financial boundaries. In the other, we were pushed to overbuy and finance with an adjustable rate loan with a super low teaser rate. When I asked the loan broker what he thought would happen to us if the rate adjusted to 12.5%, he assured me that that would NEVER happen. "Don't worry. You'll move later or refinance into another loan. That never happens." It is in their best interest for us to overbuy and overborrow and refinance regularly and move often. That is not in most of our best interests.

So help out. What here doesn't work? How can we improve these ideas?

A bigger, cultural question perhaps: Whatever happened to personal responsibility?

Just because someone gives you access to a loaded weapon doesn’t mean you can fire it and be exempt from the consequences (because someone told you the bullet would never hit anything). Now the millions of Americans that played by the rules are going to be stuck holding a bunch of keys to houses that nobody wants.

Anyone who gets a bailout should be barred from obtaining a mortgage for a very, very long time. I don’t want them benefiting in the slightest from a depressed market. They can wait 15 years when the values are back up to get back into the game.

As a result, home prices fall even further.

The other option would be to close the market at least for tommorrow (Friday). According to CNBC.

Bush to speak at 10AM tommorrow, so that would be after market open. The only possible good news is that this may be a market capitulation and a market bottom. It is possible to have a stock market go up with the economy in the tank. But it seems the smart economists are saying econ. recovery will be 2010.

Odd I thought... but I now view this mess as Colon Cleanser for the economy. This will change the way we as Americans conduct business for years to come. Make NO mistake, state audits are on the rise in a big way.

I am very concerned about my clients. My biz is off about 15 percent or more, same and more with most clients. Layoffs are happening everyday.

We will recover, it may be 3 to 5 years but this is a real experience.

Bush will bring McCain and Obama into his office and say, 'Boys, someday this will all be yours.' And I am unfair about them speaking truth, for if they do, it will spook the markets further.

For a time warp, go back in this forum to this time in 2006 and read the questions.

Client in June, '06 bought brand new house zero down, forty (40) year loan. Ten (10) years interest only and they also paid $10K in points. (Who does a 40 year loan with 10 years interest only!) By Dec. '07 house dropped in value $50K, I'm sure in gone down further. For those of my clients that thought of their house as a liquid savings account, they are also screwed. Refinanced over and over to pull out the equity to live a lifestyle built on a deck of cards. One client last year refinanced their house to the tune of $425K to get a fixed rate. They are both in their 50's, only paid $125K for the house. It's just crazy. But . . . my house value is in the crapper because of all of this. I'm paying my house and have not done any crazy refinancing. Do I think my tax dollars should bail these people out - NO! People may actually have to live within their means and not rely on credit for everything, what a novel idea.

That's a great quote. I have a dear client who has done that. She cannot fathom that perhaps her family is not due that annual vacation and everything else.

Seriously. What if we came up with our ideas, what if many of us signed the letter, sent it to the powers that be? Could we come up with something that isn't too partisan, that could save the taxpayers, that could help stabilize the free-fall that we're in? I'm pretty powerless by myself, but if we all worked together, maybe we could come up with something good.

We seem to be going beyond the idea of merely buying up toxic debt, the taxpayer may now actually take an ownership position in these institutions.

Our history is replete with actions that were supposed to benefit our country only to trigger reactions, blowback if you will, that we might have foreseen:

The freeing up and socialization of credit [the 1994 Act] followed by Graham, Leach & Bliley Act of 1999.

The passage of Section 121 to permit Baby Boomers to get out of the cycle of buying more expensive houses each time they went back to the table

The appointment of foxes to guard the henhouses

This theme can be carried back to the first deregulation: airlines by Jimmy Carter....

Unintended consequences: we armed the muhajeddin and created Osama, so it is common fault with us.

IMHO, starting with using the tax code for social and economic engineering purposes, rather than just raising funds for government operations.

But I feel the greed & gluttony attitude of the recent years/decades(?) in the good ole US of A has contributed to the current situation. Section 121....those that got in and got out in time are smelling like a rose (unless they put all their profits in the stock market). Those that got in, and are still 'in' are left holding the bag.

I was just about to do the Section 121 dance with/for my brother. I have the cash to get him into a house, he has the ability to do a major remodel/addition to increase the value. After two years...take the money & run.

So guess I'm no better than the rest! I've decided not to do the deal right now; I don't mind admitting to being a bit nervous (like the rest of the country).

I am personally exhausted from the "social and economic" engineering that is done through the tax code. When I hear McCain say "I will get a tax credit passed" for your health insurance, I simply pass out with the though of another form, we now need insurance info....

Amazing, 50 percent of Americans pay only 3 percent of the tax.

I remember my mentors back in 87 when I entered the business complaining that the 86 act killed Real estate.

Anyway... have a great weekend all!

One thing that did concern me about Mcain was his suggestion that you could shop different states for insurance. Presently, the states regulate insurance, and they did a much better job regulating the financial industry than the Fed. or Of. Comp. Curr. did. So, I would not support a McCain plan to federalize insurance law.