Bailout deal apparently reached

You know how the Democrats are the evil party and the Republicans are the stupid party? How when they come together and do something both evil and stupid its called bipartisanship?

Here goes: Deal reached on financial markets bailout From the Detroit News:

Congressional leaders and the Bush administration reached a tentative deal early Sunday on a landmark bailout of imperiled financial markets whose collapse could plunge the nation into a deep recession.

House Speaker Nancy Pelosi announced the $700 billion accord just after midnight but said it still has to be put on paper.

"We've still got more to do to finalize it, but I think we're there," said Treasury Secretary Henry Paulson, who also participated in the negotiations in the Capitol.

The report is very short on details and hopefully we'll find more about what we've just had done to us shortly (likely too late to do anything about it), but for now hang on its going to be an interesting ride.

Housing crunch causes and bailout follies

Speaking of crashing like the housing market, here's a decent video as to one of the causes of the current mess.



The cause outlined in the video -- the Democrats revamping of the CRA and pushing banks to lend to those who could not really afford home loans in the first place is not the only reason, but it does seem to be the spark that began the fire. Once the CRA and government led housing boom started, then coupled with the irrational belief that houses would always go up dramatically in value encouraging both quick flips and people buying homes they couldn't afford hoping the increase in value would let them refinance and have massive equity growth, we got to where we are today.

Once this irrational belief was fixed Fannie Mae and Freddie Mac encouraged ARMs and 100% loans to get more people owning houses causing values to rise as demand went up. Investment bankers went along, coupling this with quick sales of loans and then repackaging them into securities that were sold to others and it got worse from there as they then leveraged these securities beyond any rational limit.

In short, the government and high-finance wizards played with our money, got rich on bonuses (or campaign contributions and sweetheart loans in the case of the politicians), and we're left to clean up the mess. Sorry but the bailout is ridiculous in its current form, and even more ridiculous that Frank and Senator Dodd (both recipients of Fannie Mae / Freddie Mac largess and proponents of the policies that caused this mess)are inserting into the bill that 20% of the returns from the bailout does not go back to the taxpayers (or even the government) but to housing advocates such as ACORN - you know the people who helped start this mess in the first place. Nice.

Fun looking back on finances

Its always interesting to look at the financial prognostications of yesteryear in light of the present.

Take Start Late Finish Rich for example. Itsa a good book and I'm reading it now. Written in 2004 it was a darn good book for the time, full of good advice in lots of ways some of which still hold true, such as not being wasteful in your spending, money management, general targets in terms of how much to save, the importance of tax sheltered retirement accounts, but wow, some of the info:

Such as: the investment return projections are based on 10% annual returns from the stock market - good luck with that. We haven't seen that kind of return in a long time. He also fails to point out that when you have a 50% loss in the market for example, you need a 100% growth to just get back to where you started from.

The real estate advice was great pre-crash but he sure didn't anticipate this mess. His book is full of 0 down mortgages, buying houses for flippage etc. Ie buy it and watch the ridiculous amount of appreciation make you wealthy. The problem is that kind appreciation was anomalous - great if you were doing it then and got out, but otherwise once the music stops you're in trouble. Combine this with banks and mortgagees all doing the same approach on this belief of unsustainable returns as normal, couple it with a little regulatory capture from Freddie Mac and Fannie May and you get the mess we're in now.

Its a good read but the current state of the market and real estate fracas just made large chunks of the book historical curiosities.