Personal Finance

Skating On A Frozen (Credit) Pond

156 Articles Written

The credit markets have been so frozen that the Government felt that they had to step in with the recently enacted $700 Billion bailout. The freeze that started with subprime mortgage loans had spread to prime mortgages, auto loans, credit cards and other consumer loans. The entire economy was teetering on the brink of collapse. This situation was so serious that they felt compelled to act a mere five weeks before a major election. This bailout is going to fix all of that, right? Wrong!

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The idea of the bailout is to help large lenders and investment firms in danger of being crushed by the weight of the bad loans on their books. The fear is that there would be a domino effect throughout the economy that would cause it to come to a screeching halt. As these companies are relieved of the burden they would, in theory, be able to lend again. The initial benefit of the bailout legislation will be felt by these large institutions. The hope is that the benefit will trickle down in time and the economy will improve. The key phrase here is “in time,” this is not an instant solution.

What’s An Investor To Do?

Real estate investors need to get creative. The days of easy credit and no money down loans are gone for good. The so-called "liar loans" are as extinct as the dinosaurs and investors will actually have to (gasp) qualify for the loans they want. In terms of the long-term health of the real estate market, this is a good thing.

Investors who are challenged with poor credit or lack cash for down payments will have to look for alternatives. They will need to seek out sellers willing to provide financing, find money and credit partners and learn to acquire property subject-to the existing financing. All of this was done before the housing bubble and easy credit days and it can be done again.

What’s A Consumer To Do?

The primary thing that a consumer needs to do is forgo the need for instant gratification. The recent economic expansion was fueled, primarily, by credit. The bill has certainly come due. If you want something you should do the unthinkable: save for it. So many people are burdened by debt that they acquired to buy things that they could have done without. It’s time to pay as you go and stop maxing out the plastic.

If people learn a lesson from all of this we may actually come out ahead. It’s time to stop spending money that we do not have. This is also true of our Government, the wasteful spending and pork has to stop. We can’t keep throwing money away, we need to establish priorities and stick to them. We’ve had tough times before and we have managed to get through them and I believe that we will get through this as well. Will it be easy? Absolutely not.

The government solution to a problem is usually as bad as the problem.
Milton Friedman

    Joshua Dorkin
    Replied over 11 years ago
    Wait . . . people should save money in order to buy things? Stop it! We live and breathe on a credit basis. I wonder what percentage of Americans have no debt (outside their home payment)?
    Left Hand Drive Cars
    Replied over 11 years ago
    Great Article.Thanks for sharing. Keep posting like this wonderful post.
    Ashley Jones
    Replied over 11 years ago
    Wow ! What an wonderful approach. I really appreciate your way of analysis the topics. To have easy access to credit one should have an impressive credit report. At the time of urgent requirement one needs to have some funds and to get that fund the credit report should be excellent. But having an excellent credit report is not always possible for that one can consider credit repair in order to secure credit availability. I am also learning from your blog comments….keep on posting please. Regards 🙂