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Life Health > Annuities

Fear and banking

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Senior citizens mostly own their own homes; typically, the home either has little or no mortgage debt. The people who live in the more-or-less unencumbered home like it just fine and may not be able imagine living elsewhere; so the value, up or down, is not such a big deal. If the value has been reduced by the Great Credit Debacle by a third, so what?—the house is not for sale. It is still a comfy place to live.

Lots of others—those who are not seniors—who bought housing, aka subscribing to the American Dream of home ownership, seems to have been burned by the 2008 experience—paying off a $500 thousand home that suddenly decreases in value to $250 thousand or less, is a very big deal. People who get burned get fearful.

Lots of former homeowners are now renters. Some were hurt so badly that they may never buy again. Lots of new construction is directed towards rental units now. In an economic sense, it’s good that something is being built and that people are going to occupy what’s in the works. Many, who do want homes, are putting off ownership for the time being; some of those are saving for big down payments. I know of a couple who are doing that very thing. If I know one couple, there are probably many couples and individuals who are doing the same. This should translate to high down payments for homes, generating low-interest, low-amount monthly payments and this also may be good for economic stability.

When home buyers work with a bank, the mortgage is created and then sold off to investors, thus transferring the risk. It used to be that the bank held the mortgage for its life—bankers, though, seem to find it appealing to shift or eliminate risk. And, if the bank does not hold the mortgage for long, it may not have to investigate the creditworthiness of the borrower as completely as it did when it was making a 30-year commitment.

Willie “the Actor” Sutton, was right when he was asked about stealing from banks. His credited reply: “…because that’s where the money is.” This was about banks in the 1920s and 1930s, but the thought about where the money is—it’s still right today. Banks always seem to engineer a good deal, even when they are in trouble, as in 2008. I think of national banks as a quasi-extension of the federal government, a greedy branch of our democratic system that is always looking for an edge, like the repeal of Glass-Steagall in 1999.

Since 2008 demonstrated that Glass-Steagall, separating commercial and investment banking, was almost certainly an excellent idea, instead of bringing the act back after the Great Credit Debacle, the bankers have lobbied for (and gotten) new comprehensive difficult-to-comprehend legislation that somehow still allows the questionable activity that was prohibited by Glass-Steagall. Sutton also was reported to have said, about often using a Thompson 45-caliber machine gun in his banking transactions, “You can’t rob a bank on charm and personality.” Banks though, often seem able to rob the U.S. taxpayer through charm and personality—they pay a fine here and there, but in the end, the thought was and is right—banks are where the money is.

Wherever the money, I am bullish on the U.S. I think credit behavior is slowly changing for the better and that improved consumer behavior will be better for long-term financial stability. I even see some positive movement in the pension industry—government and providers are finally seeing what many of us have known for years—for many, defined contribution plans are not a great bet for providing future retirement stability.

Have a sensational week and don’t even think about robbing a bank, okay? Willie Sutton spent many, many years in various prisons. Despite his skill at escaping, he was always eventually caught. He lived until 1980 and he almost certainly did not really provide either of the quotes cited above. Apparently, though, he did say this about Jimmy Carter, during an interview in 1978: “I’ve never seen a bigger confidence man in my life and I’ve been around some of the best in the business.”


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