Mitch G asked:


I’m buying a house and I close on October 31. It’s a FHA loan and right now my rate is 6.375%. Should I lock in beforehand or should I wait for the bailout package to pass? What will happen to interest rates?

Charles

Brad Hodges asked:


It is almost becoming a stereotypical statement these days; we are in tough economic times. Stereotypical or not however, the statement is true.

A total of 2.6 million jobs disappeared in 2008, the most since World War II, and the pain of the recession is only getting worse as 11 million Americans search for work.

Unemployment hit a 16-year high of 7.2 percent in December, the government reported Friday, and could be headed for 10 percent by the end of 2009.

There is a lot of doom and gloom everywhere you turn and even being an eternal optimist is difficult right now. While the news may be true it is also a field day, a veritable gluttony, for the media who unfortunately thrives on bad news. Why not …misery loves company, the old saying goes and doesn’t it make us all feel better to hear we are not the only ones who may be suffering financially and emotionally if the crises have reached the level of losing one’s home and all their worldly possessions?

If you get laid off right now, God help your soul. You better hope you’ve got savings or someone backing you. Many have no faith in this system any longer and seeing companies like GM, Chrysler ET AL, get giant handouts from the government yet still continue to hold lavish corporate retreats and fly around in Lear Jets certainly does not help keep the faith.

The recession, which just entered its second year, is the longest in a quarter-century. The fact that the country is battling a housing collapse, a lockup in lending, rising unemployment, shrinking consumer spending and the worst financial crisis since the 1930s makes the downturn especially dangerous.

SO many are at the mercy of “The Man” and the man ain’t coming through. Where there was once solace in a long time job it is often found that when the going gets tough the security and stability of that job gets a back seat to the survival instinct of the owner who now begins to cut loses to save his own skin. The team and all that spirit which goes along with it now give way to the lone wolf syndrome.

What can you do about it? Stop being a victim of the economy. Become the hunter and take back control of your life! Create your own bailout plan and seriously consider becoming your own economic stimulus by starting a small business at home.

There is a quiet revolution going on in America in the extra bedrooms that have now become ME, Inc. as home offices. According to IDC, a top national research firm, there are between 34.3 million and 36.6 million home office households in the United States alone. Nationwide, the number of home-based businesses may range from 18 million to 38 million, depending on who is doing the counting.

If you have ever considered the possibility of being your own boss, having a 30 foot commute instead of a two hour commute, spending more quality time with your family and declaring independence from corporate America and the economy, now may be that time.

Don’t wait too long, however. If you feel your job may be on the upcoming chopping block start now. If you have savings and or a 401k plan you may want to begin planning an exit strategy.

If you have the luxury, begin part time in the evenings and create a business plan on what you could do using your strengths to work for yourself. A good start would be to use a basic business strategy called S.W.O.T which stands for strengths, weaknesses, opportunities and threats to establish what you have to bring to your home business table.

The biggest mistake you can make is to take a shotgun approach and start buying and trying every make money quick scheme out there. You will rapidly eat up any money you have set aside. Use common sense and do your research.

There are many good resources on the Internet but beware of the so called “gurus”. If it sounds too good to be true nowhere is this statement more accurate that in the Internet make money realm… IT IS.



Antonio

Ernie Fitzpatrick asked:


Where is it in teh Constitution that it says the role of the Federal government is to bail out business? And when we begin that process and enter the black hole, how low, how deep can we go anyway? At what point does the one who does the bailing out, need bailing out? Is that even a possibility? We have entered unchartered waters and I’m sure we’re going to encounter some “unintended consequences”. 

Now that Congress has approved the $700 billion bailout, Paulson isn’t going to use the funds for what we were told they would be used for. We’re not taking all those toxic mortgages off the market. The first thing we’ve done is GIVE $125 BILLON to the banks. Bankers nee bonuses this Chrismas you know.

Treasury Secretary Henry Paulson said Wednesday that original plan to purchase distressed mortgage assets from Wall Street firms is not the best use of the $700 billion financial rescue package, and officials will now focus on direct capital injections into the struggling financial firms.

Can he do that? 

Paulson said that nonbank financial institutions, including companies that deal with credit cards, auto loans and student loans, may be eligible for direct capital injections. Companies such as American Express, which is one of the country’s largest credit card companies, is reportedly seeking $3.5 billion in fresh capital from the government. Hey can I get just one milion? I can probably make it on just a half million if things are tight.

The US government could be entering a bottomless pit of bailouts if it starts propping up failing companies outside the financial sector—including the struggling auto industry, economists say. Many economists are against the idea, saying an auto maker bailout would open the door to a taxpayer rescue of virtually any major company with cash problems. As though we haven’t already entered those turbulent waters.

“Where do you stop?” says Bill Isaac, former chairman of the Federal Deposit Insurance Corp and now managing director at the LECG global consulting firm in Vienna, Va. “Circuit City’s going down. Do we help them? What do you do if Starbucks gets in trouble? Do you help them?” Now you’re making this PERSONAL! Hell yes we save Starbucks! 

NOT!



Albert

R. Sebastian Gibson asked:


This is hot news. The $700 Billion Bailout has been passed. The world is saved. Well, maybe America is, but Europe looks to be in even worse shape and without the tools to fix their problems.

Still, once again I have to applaud the U.S. Treasury, Members of Congress, the SEC and the President for giving more work to that great labor force in America, America’s lawyers.

Of course, I’m referring to the $700 Billion dollar bailout, less commonly referred to as the Troubled Asset Relief Program or TARP as it will soon be known by even small children when they study how America became bankrupt saving companies from declaring bankruptcy.

Why will this create more work for corporate lawyers? One word. Regulations. This is the era of deregulation that led to Enron, $180/barrel gasoline, and heating oil too expensive for the average person to buy to heat their home. Then there is that other little mess deregulation led to. The global mortgage and financial credit crisis.

With regulations now coming into force in the corporate and banking world like a hurricane, those carefree days corporations enjoyed until now are gone. Once those laws are passed, they will have to be deciphered, enforced, avoided, fought over, analyzed, scrutinized, watered down or strengthened and almost certainly challenged in the courts.

We are witness to the start of the greatest passage of regulatory laws to govern corporations and banks the world has ever seen. As soon as Congress returns from their campaigning for the November elections, you can count on Congress and State legislators as well to begin looking for donkeys to pin the tail of blame on for this mess. And once the legislators believe they fully understand how we got into this mess, they will pass the laws they believe will keep us from ever getting in this mess again.

And it won’t stop there. With the financial crisis in the U.S. having spread to Europe, Asia and most of the rest of the world, those countries will follow suit with probably even stricter regulations.

For an international corporate lawyer, this is like Christmas in September. At large law firms around the world, lawyers are sickened like everyone else at what this global crisis is doing to individuals around the world, including themselves and many of their staff, who don’t know how they will pay their mortgage, put food on the table, or buy gasoline. TARP, as we will soon all be calling the bailout, may not even accomplish a darn thing. Only one thing is certain. Governments around the world will be passing new laws by the truckload, and lawyers will be called upon to understand them.

Visit our website at http://www.sebastiangibsonlaw.com if you have any type of business, finance, or corporate matter or need legal representation or legal defense in San Diego, Carlsbad, Oceanside, San Clemente, San Juan Capistrano, Newport Beach, and Huntington Beach and the inland areas around Orange County, Anaheim, Irvine, Santa Ana, Costa Mesa, Yorba Linda, Fullerton, Ontario, Rancho Cucamonga, Riverside, San Bernardino, Temecula, Palm Springs, Palm Desert, Victorville, Santa Barbara, Ventura, or need legal representation of any other kind in La Jolla, Del Mar, San Marcos, Encinitas, Solana Beach, Pacific Beach, El Cajon, Chula Vista, or Escondido.



Jacob

Jim Pappas asked:


Will the $700 billion bailout of our financial system bail you out?  In all actuality, will it help save your home?  Will it stop your home from going into foreclosure?  This $700 billion bailout is designed to make available funds to the Treasury Secretary to buy troubled mortgages held by banks and other larger investors. But how does that affect the troubled homeowner as it all plays out who perhaps might be you?

In the process of the bailout, these assets will come under government control.  It then becomes a requirement for the federal officials to try and develop a plan that will maximize assistance for troubled homeowners. The government can then use their authority to try and minimize foreclosures.  Whether this happens, in all actuality, remains to be seen.

With this financial crisis, federal officials have been encouraging lenders to find ways to modify the terms of loans that are in trouble whenever possible. Your bank or lender does not want your house.  The whole process of foreclosure is expensive for them.  Many lenders are only willing to make “modest” changes to payment plans in order to avoid the cost of foreclosure.  Their willingness to make these modifications is strongly impacted by your ability to make the new modified payment.  If they determine your present income cannot make the new payment, their losses would still be too great.  Remember, employee time is costly too.  Time invested and then lost was salaries paid with no results.

According to the Los Angeles Times, nearly 2 million mortgages are delinquent by 60 days or more, putting them at risk for foreclosure. And, there have been more than 900,000 foreclosures since 2007. 

So will the bailout bail you out? There are different opinions, “yours” and “theirs” whoever “they” are.  “They” being the government, mortgage lenders, large investors, banks, and your neighbors.   According to Steven Adamske, spokeman for the House Financial Services Committee, “the government is here to help.  We want to rebuild neighborhoods from the ground up.” 

Building neighborhoods is not usually the focus of a larger investor or lender, but keeping you from financial failure is because you have formed a partnership.  And as for your opinion, it might just depend on your ability to work with your lender and adjust faithfully to a modified payment plan.  Your ultimate goal is to not be in the category of the 2 million people facing foreclosure.



Sean

jazzyt981 asked:


The banks are receiving a bailout, the car industry might receive one, but how does really help the average person? It’s no secret that people have been losing their jobs throughout this entire year, and struggling to make ends meet. Why isn’t there a bailout for this crisis?

Arlene

Ernie Fitzpatrick asked:


A prominent Russian political analyst has said the economic turmoil in the United States has confirmed his long-held view that the country is heading for collapse. Professor Igor Panarin said in an interview with the respected daily IZVESTIA published on Monday: “The dollar is not secured by anything. The country’s foreign debt has grown like an avalanche, even though in the early 1980s there was no debt. By 1998, when I first made my prediction, it had exceeded $2 trillion. Now it is more than 11 trillion. This is a pyramid that can only collapse.” 

Igor goes on to say that the U.S. will break up into several parts which is where he shows his bias.

Yes, the USSR did break up, but the U.S. will not subdivide and neither will Russia be one of the two remaining super powers as he states. China, yes. Russia? No! In fact, Russia on the verge of a serious economic meltdown, far worse than the United States. That said, his theories on Washington’s economic crisis is well put.

How long do we think we can print money and get away with it?

The U.S. Federal Reserve, in another massive life-support intervention for the U.S. financial system, on Tuesday announced a $600 billion program to buy mortgage-related debt and securities and a $200 billion facility to buy consumer debt securities. The U.S. central bank said it would buy up to $100 billion in debt issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, the government-sponsored mortgage finance enterprises. The Fed also said it would buy up to $500 billion in mortgage-backed securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae.

And just where is all this money coming from? Nowhere!

We’re living by and on fiat money. It’s all smoke and mirrors, digital numbers on a screen that have no true value other than what society gives it and when society sees it for what it is, the mirror breaks, the house of cards fall, and the great American pyramid scheme collapses. There is no other end. The only question is how long the economic sham will last. Some give it less than a year, others, maybe 4-5 at the outside. Can you say 2012? 

Life as it has been cannot continue.

Ford, Chrysler, and General Motor executives can no longer live the luxurious life style of opulence and extravagance while demanding sacrifices of their workers. No more bricks without straw. And the major banks, including one that collapsed, two that received federal bailout money and one that filed for bankruptcy this past September, who paid former President Clinton $2.1 million for 13 speeches he delivered on their behalf between 2004-2007, can no longer pretend all is well and pay such ridiculous fees.

We’re in a financial catastrophe and bailout bandaids won’t help.



Norma

B__O__M__B__S__H__E__L__L asked:


How come Mexico does not create a stimulus bailout package to create jobs in Mexico, so illegals will not need come here and illegals here can return home.Surely Mexico can afford a 300 billion stimulus bailout package,No ?

Theresa

Stephen Lau asked:


(c) 2009 Stephen Lau First of all, credit is due to President Obama for his all-out efforts to rescue the country from the ailing economy and the greatest financial crisis the nation has ever faced since the Great Depression. However, this Herculean task may be too overwhelming even for our energetic president. It is like a sinking ship, and the captain is frantically bailing out water: it may be a heroic but fruitless task. The main problem of this current financial crisis is that no one in the financial world could really get a handle on the severity of the innate problem. Just a few months ago, even Bernanke, the Federal Reserve chairman, also an expert on the Great Depression, thought the initial financial bailout would stop the bleeding of the whole financial system. Now, the magnitude of the crisis is beyond every one’s guessing. In short, nobody in the financial world had expected the catastrophic impact of the fallout of this financial implosion. It is by no means the fault of President Obama, or that of Bernanke. Both have reacted promptly, efficiently, and relentlessly to the crisis. The problem is multifaceted and just too complex for any human mind to get a grip on until it began to unfold itself. There are simply too many bubbles involving too many levels of the financial sector - and they all bust one after another, causing the rippling domino effect across the financial globe. Over-priced bonds backed by bad subprime mortgages, packaged by unethical Wall Street firms sold to greedy investors. It was a pack of lies, myths, and phony prosperity that had fed on itself for decades, and now is the time of reckoning. The result is delinquent mortgages, bad loans, bankruptcies, leading to little or no cash flow - and hence the financial world is grinding to a halt. The root of the problem is that the prosperity in the past decades has been a phony one - created out of thin air. It was an illusion, and now everybody has become disillusioned. It is like waking up from a wonderful and mesmerizing dream, and one still clings desperately onto that dream, refusing to be brought back to the real world. Why President Obama’s bailout plan may not work! The explanation may be quite simple. According to Albert Einstein, insanity is repeatedly doing the same thing and yet expecting a “different” result. This is precisely what the U.S. government is striving to do with the bailout plan. We have got ourselves into this financial mess, because, for years, the Americans have been spending the money they don’t have to buy the things they don’t need. The current crisis is a product of reckless spending and euphoric optimism. Now, the bailout is similar in that it intends to spend trillions of dollars that the government doesn’t have to bail out the banks and firms that don’t deserve - or may not even eventually survive after the bailout. The bailout is creating an illusion that things will improve, just as the American people have created an illusion of prosperity that would go on forever. Recently, the Treasury Secretary blasted investors for not knowing what they were buying, which led to this current financial crisis. Ironically, isn’t this is exactly what the government is currently doing - repeating the same mistake? Part of the bailout plan is to buy troubled mortgages and bonds at a fair price so that the banks will take the cash and therefore be able to make new loans. However, buying these troubled financial instruments is not only difficult but also risky. It is tantamount to what the American people have been doing - buying things they do no need with the money they do not have. President Obama’s bailout plan may pump trillions of dollars into the financial world, but whether it will solve the problem is everyone’s guessing. Robbing Peter to pay Paul is never a solution to any problem - at least not a problem of this magnitude.

Arthur

Money Morning asked:


The 116 banks that are receiving billions in taxpayer-provided bailout money this year actually paid out $1.6 billion in compensation and benefits to their top executives last year – even though the results at some of these institutions were so poor that they would soon have to turn to Washington for a government-engineered rescue.

The $1.6 billion was paid out to nearly 600 executives at the 116 banks that have so far accepted federal money to bolster their financial foundations, The Associated Press concluded after a review of U.S. securities filings. In addition to salary, the compensation included bonuses paid in both cash and stock. The benefits reaped by top executives included the use of company jets for personal purposes, personal chauffeurs, home-security services, country-club memberships and professional-wealth-management services, the news service said.

U.S. Rep. Barney Frank, D-Mass., a longtime critic of the fat pay packages given to U.S. executives, said the bonuses and perks tallied by The AP review amounted to a bribe paid “to get [CEOs] to do the jobs for which they are well paid in the first place.”

“Most of us sign on to do jobs and we do them best we can,” Frank, chairman of the House Financial Services committee, told the news service. But “we’re told that some of the most highly paid people in executive positions are different. They need extra money to be motivated!”

The AP review is just the latest in a series of media investigations that have questioned the effectiveness of – and banks’ commitment to – the so-called “Troubled Assets Relief Program” (TARP), part of an overall $700 billion bailout plan that was originally unveiled in late September.

The plan was originally conceived to boost the strength of U.S. financial institutions by having the federal government purchase non-performing mortgages and other bad assets. In November, the Bush administration changed TARP’s objectives, instructing the U.S. Treasury Department to pump tax dollars directly into banks in a bid to prevent wholesale economic collapse.

Ideally, TARP was supposed to jumpstart bank-to-bank and bank-to-consumer lending, helping to unfreeze a credit crisis that may be the worst the U.S. economy has experienced since the Great Depression. But that hasn’t happened. Instead, as a Money Morning investigation has shown, banks are using the money to buy other banks in a dual effort to build market share for when the economy recovers, and to perhaps make themselves “too big to fail” in the interim, many experts say.

TARP did set restrictions on some executive compensation for participating banks, but it did not limit salaries and bonuses unless they had the effect of encouraging excessive risk to the institution. Banks were barred from presenting so-called “golden parachute” financial packages to departing or ousted executives and from deducting some executive pay for tax purposes.

The AP study found that the 116 banks received $188 billion in TARP money. The study also discovered that:



The average amount paid to each of the 116 banks’ top executives was $2.6 million in salary, bonuses and benefits.

Lloyd C. Blankfein, president and chief executive officer of Goldman Sachs Group Inc. (GS), took home nearly $54 million in compensation in 2007. The company’s top five executives received a total of $242 million. On Oct. 28, Goldman received $10 billion in federal bailout money. On Dec. 16, Goldman reported a $2.12 billion quarterly loss, its first since it went public back in 1999. So for 2008, Goldman’s seven top-paid execs will work for their base salaries of $600,000 each, but will forgo any cash and stock bonuses, the company said. Facing increasing concern by its own shareholders on executive payments, the company described its pay plan in a written report back in the spring as being essential to retain and motivate executives “whose efforts and judgments are vital to our continued success, by setting their compensation at appropriate and competitive levels.” Goldman spokesman Ed Canaday would not elaborate beyond that written report.

Even where banks slashed pay, some executives still reaped a payday of seven – or even eight – figures. Richard D. Fairbank, the chairman of Capital One Financial Corp. (COF), which received $3.56 billion in bailout money back on Nov. 14, took a $1 million hit in compensation after his company had a disappointing year, but still got $17 million in stock options.

Merrill Lynch & Co. (MER) CEO John A. Thain topped all banking chieftains with more than $83 million in total earnings in 2007. Thain, a former chief operating officer for Goldman Sachs, took over the top job at Merrill in December 2007, avoiding the blame for a year in which Merrill lost $7.8 billion. Since he began work late in the year, he landed a $15 million signing bonus, $57,692 in salary, and an additional $68 million in stock options. Like Goldman, Merrill got $10 billion from taxpayers on Oct. 28. Merrill shareholders have approved its sale to Bank of America Corp. (BAC), though the value of the deal has plunged to $20 billion (from $50 billion at the time the deal was announced) as a result of the stock market decline. BofA will reportedly slash 35,000 jobs as a result of the combination.

JPMorgan Chase & Co. (JPM) CEO James Dimon ran up a $211,182 private jet travel tab last year, because his family lived in Chicago and he was commuting to New York. JP Morgan received $25 billion in bailout funds.

Bank of New York Mellon Corp., (BK) CEO Robert P. Kelly received $66,748 for financial services – on top of his $975,000 salary and $7.5 million bonus. His car and driver cost $178,879. Kelly also received $846,000 in relocation expenses, including help selling his home in Pittsburgh and purchasing one in Manhattan, the company said. At Goldman, the bill for leased cars and drivers ran as high as $233,000 per executive. The firm told its shareholders this year that financial counseling and chauffeurs are important because it grants executives more time to focus on their jobs.

Wells Fargo & Co. (WFC), which received $25 billion in bailout cash, gave its top executives as much as $20,000 each for personal financial planners.

When asked to justify the personal use of company aircraft for some executives, banks cite security as a key reason. But U.S. Rep. Brad Sherman, D-Calif., questioned that rationale, saying executives visit many locations more vulnerable than the nation’s security-conscious commercial air terminals.

U.S. Rep. Brad Sherman, D-Calif., a member of the House Financial Services Committee, said excessive pay and perks undermines the development of good economic policies at banks and fuels an already problematic pay spiral in the U.S. financial sector. And that’s especially difficult for shareholders and taxpayers to accept when virtually the entire sector needs bailing out [Check out this related story on the growing U.S. CEO pay controversy that appears elsewhere in today’s issue of Money Morning].

Sherman told The AP that he wants the banks to appear before Congress, like the automakers did, and spell out their spending plans for the bailout money.

Said Sherman: “The tougher we are on the executives that come to Washington, the fewer will come for a bailout.”

[Editor’s Note: The ongoing financial crisis has changed the investing game forever, making uncertainty the norm and creating a whole set of new rules that will help determine who wins and who loses. Investors who ignore this “New Reality” will struggle, and will find their financial forays to be frustrating and unrewarding. But investors who embrace this change will not only survive – they will thrive.

Money Morning Investment Director Keith Fitz-Gerald has already isolated these new rules and has unlocked the key to what he refers to as “The Golden Age of Wealth Creation.” But Fitz-Gerald brings more than a realization – and an understanding – to the table, here. After a decade of work, he’s also developed a new computerized trading model based on a mathematical concept known as “fractals.” This system allows him to predict price movements of broad indexes, or individual stocks, with a high degree of certainty. And it’s particularly well suited to the kind of market we’re all facing right now. Check out our latest report on these new rules, and this new market environment.]



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