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The Daily Dose/September 19, 2008
By Gaylon Kent
The Writer's Shack
Insert standard "Pics Will Return" headline here!
Notes from around what's left of the Human Experience...
DEPRESSION 2008: In-depth, detailed analysis of the current financial imbroglio is not only beyond the scope of this column, it is beyond our expertise. Honestly, we consider high finance to be direct deposit and throwing our change into a Mason jar.
But after our bank - Silver State of Nevada - failed a couple of weeks ago, and after the government bailed out American International Group (AIG) this week, we were curious as to whether or not we'd be reduced to selling pencils on street corners soon.
So we decided to do some research. What follows is not intended to be a primer and certainly nothing authoritative. It is simply the results of our research into what we wanted to know.
Here's what we came up with:
Leading Off: To show how completely stupid we are, we thought sub-prime referred to the interest rates lenders offered. We didn't really see how offering an attractive interest rate could cause a crisis, but we didn't spend a whole lot of time thinking about it.
Duh: Turns out, though, that 'sub-prime' refers to the borrowers. Lenders were lending money to people who normally would not have qualified for a home loan, either because their income levels didn't justify the loan or left little margin for error should the economy go south, or because their credit was poor, or for any other reasons lenders deny loans.
Light Bulb Moment: Well, this made it somewhat plainer, even for us. Like a lot of financial problems, this one came about because of greed.
Lenders got greedy. Not satisfied with returns from lending money to qualified borrowers, they started lending money to lenders who normally would not have qualified.
Dry, Technical Matter: And they offered these sub-prime borrowers loans that really weren't in their best interest, so to speak. Like loans with a variable interest rate, which, when the attractive, introductory four percent rate expired produced a payment that may well have been double what it was originally, and was unaffordable.
Or they offered a loan where they could pay less than the required monthly payment, with any unpaid interest being tacked on to the principal, which basically means they were borrowing more money every time they made less than a regular payment.
Dry, Technical Matter II: Prior to this fiasco, sub-prime lending represented a very small percentage of the money lent, about five percent in 1994. In 2006 in represented a full one-fifth of the monies lent, which even to us seems irresponsible.
Dry, Technical Matter III: Borrowers got greedy because they accepted loans that in the back of their minds they probably knew they really shouldn't. I mean, we all have instincts that go off when we're doing something that probably isn't in our best interest. These instincts were ignored and, in time, millions of families found themselves unable to afford their home and many people simply abandoned them.
Adam Smith Would Be Proud: The glut of borrowers led to a glut of buyers, which even we know lends itself to a sellers market. Home values rose. A lot. Housing prices rose 124 percent from 1997-2006. The home ownership rate peaked in 2004 at an all-time high of 69.2 percent.
Boy, I Sure Hope There's Some More Dry, Technical Matter Coming Up! The breadth of this calamity is as alarming as it is appalling. The AIG takeover magnifies this even more because they were one of the 10-most widely held stocks by retirement funds. Since stockholders have the lowest priority for claims against a company once the Government steps in, a lot families now have a lifetime of work to look forward to.
Dry, Technical Matter IV: Evidently the government didn't have a whole lot of options about whether or not to take over AIG. If AIG failed the reverberations would have been felt worldwide. Various money market funds - which Americans have invested over $3.5 trillion (T) in - might be frozen and you can imagine the chaos that would ensue if people immediately tried to withdraw $3.5 trillion (T) dollars.
Or maybe you can't imagine the chaos. Unless you lived through what hopefully was this nation's last Great Depression, you probably can't. We can't.
So the government could step in and see what happened, or they could not step in and see who voters who obliged to sell pencils for a living voted for in November.
Dry, Technical Matter V: The official Federal Reserve Board news releases refers to the bail out as a "liquidity facility"
GOOD LUCK WITH THAT: On this date, in 1796, President George Washington's farewell address is published in newspapers nationwide. In his speech he decries party factionalism and urges his country to - get this - "Observe good faith and justice toward all nations. Cultivate peace and harmony with all."
Editor's Note: On This Date is pleased to celebrate the 100th anniversary of the last Chicago Cubs World Series title by chronicling the 1908 Cubs season!
Let's Play Two, But Tie One: On Sept. 19, 1908 the Cubs beat and tie the Phillies, taking the opener 4-2, but playing to a scoreless, ten-inning draw in the nightcap.
In the opener the Cubs got two in the eighth and one in the ninth to win it. In the second game, Ed Reulbach went all the way, scattering eight hits, and manager/first baseman Frank Chance was twice thrown out at the plate, once trying to score on a fly ball, and the second time on a steal before the game was called because of darkness.
On The Scoreboard: In New York, after losing the first two the Pirates took the third game of their four-game series against the Giants, 6-2, breaking the Giants eleven-game winning streak. The Pirates needed the win, too, having fallen to five games back before winning today. The Cubs remain in second place, three-and-a-half back.
Dry, Technical Matter VI: This is one of the toughest National League races ever. Since Aug. 23, when the Cubs took two from Brooklyn and were three-and-half games behind the Pirates, they have gone 24-6-1 and had winning streaks of nine and seven games and they are still three-and-a-half games back, this time of the Giants, who have gone 22-5 during that same span.
Die! Die! On this date, in 1934, Bruno Hauptman is arrested for the kidnapping and murder of the Lindbergh baby. He would be convicted and executed in April, 1936.
Thought For The Day: Quality is achieving and reaching for the highest standard as against being satisfied with the sloppy or fraudulent. It is honesty of purpose as against catering to cheap or sensational sentiment. It does not allow compromise with the second rate. - Barbara Tuchman
Answer To The Last Trivia Question: Augustana (Illinois) College is the only other school to win consecutive NCAA Division III national football championships, winning four straight from 1983-86.
Today's Stumper: If the entire economy collapses and Gaylon and The Woman are forced to survive in the wild, how long would Gaylon last? - Answer next time!
Threats? Recipes? Trivia question answers? Email The Writer's Shack Here!
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