One Reader’s Response to “Let ‘Em Fail” Post

Most of the comments on my last post were in agreement with my point of view. But, there was one comment that I want to highlight. It follows:

I suppose I am one of the irresponsible home buyers. I purchased my home 3 years ago (at the high) I now realize I payed too much, because the value has come down. I also have a 3 year ARM with IndyMac which is due to reset soon. So, being able to refinance with the governments help is essential. For the past year I have been trying to refinance my home into a conventional 30 year. It has been impossible because the 20% I put down has disappeared. Actually my home value is down close to 25%. No bank wants to touch me. I am one of the homeowners with an upside down mortgage. I obviously regret not getting a conventional loan in the first place. But I can’t second guess myself now. What I need to do is refinance and the government is making it affordable for me to do just that.

For those who say to just let people lose their homes are not thinking ahead. Do you realize how many more homes will be on the market. Prices will absolutely drop even more.

I truly believe people are not in this housing predicament because they are reckless with their financing.

I for one pay all my bills and will continue to do so. I intend to continue to stay in my home with the help of the government. That is what our government is for. I have paid into the system for the past 20 years, my hard earned tax dollars are finally helping me. I will not regret it one bit.

Where do I start?

“I intend to continue to stay in my home with the help of the government. That is what our government is for,”

What she is REALLY saying: “I intend to continue to stay in my home with the help of my fellow taxpayers. That is what my fellow taxpayers are for.”

THAT IS NOT WHAT YOUR FELLOW TAXPAYERS ARE FOR! We are not here to support people who make bad decisions.

“I truly believe people are not in this housing predicament because they are reckless with their financing.”

I believe this is EXACTLY why people are in this housing predicament. People got into this mess thinking that housing prices would continue to go up and that they could refinance whenever it became necessary. They were counting on two things:

1. Housing prices would continue to rise.

2. Lenders would continue to lend at favorable rates.

They took a gamble and they lost.

Look, I feel bad for this person. She bought her house at the wrong time and with the wrong type of loan. But, she got herself into this mess and it should be up to her to right the situation—even if it means losing her house.

Lastly, she says…

“For those who say to just let people lose their homes are not thinking ahead. Do you realize how many more homes will be on the market. Prices will absolutely drop even more.”

So, lots of people didn’t think ahead and now responsible people are being accused of not looking ahead. Interesting… Yes, prices may drop but they will eventually even out as new buyers will emerge (law of supply and demand). It’s not going to be the end of the world.

Let People (and companies) Fail!

When my wife and I bought our house nearly nine years ago, we made sure to buy a house we could afford. No, it wasn’t our dreamhouse. In fact, we drove by it several times before we decided to give it a look. It needed tons of updating, which we could not afford to do right off the bat. But, we bought it anyway. Why? Because it was the house we could AFFORD!

We were “informed” that we could afford a much larger mortgage than the one we needed but the thought of spending more just because our mortgage broker told us we could afford more, was just stupid. So, we bought our house and lived in it for years before we started making it into the house we wanted. In other words, we practiced PATIENCE!

So, as a responsible, tax-paying citizen of the United States of America, I find it offensive that our goverment is bending over backwards to keep irresponsible people in houses they can’t afford. Our government’s actions are a slap in the face of every responsible citizen who did things the right way.

Seriously, what kind of fairyland do we live in when a person can take out a mortgage on a piece of property and then when things turn sour, get ANOTHER smaller more-favorable loan on that same property? Besides, who’s to say that these borrowers will be able to afford even these new loans? What then? Just give them the house?

Where does it end?

My solution will hurt but it’s what’s best in the long run:

LET PEOPLE (and companies) FAIL! Let people lose their homes. They can rent an apartment for a few years until they can get back on their feet. Let those who actually practiced prudence and saved their money for a house while living in an apartment buy these foreclosed properties. Eventually the prices will come down enough to attract buyers.

When companies fail because of stupidity, go after their executives and take everything from them. An executive of a failed company should not be allowed to keep his spoils. Allowing them to do so, just sets a precident for everyone else to beg for government intervention. Executives and companies should not be allowed to ride the coattails of capitalism when it favors them and then request taxpayer help when things turn sour.

Maybe we need a new political party called The Responsibility Party!

Announcing the Winners of the Liz Pulliam Weston Giveaway

Well, I’m back from my long weekend and ready to get back to blogging. The first order of business for today is to announce the winners of the latest AFM Giveaway.

The randomly-selected winners are…


#3 – Tom

#73 – Manoj

Both Tom and Manoj will receive copies of Easy Money* and Your Credit Score.*

Thanks to everyone who participated. There will be more giveaways to come.

Question of the Day: 4-Day School Week?

Read this: Schools Eye Four-Day Week to Cut Fuel Costs

It seems more and more school districts are moving to four-day school weeks as a way to save money on fuel.

I’m not a fan of this idea for two reasons:

1. It will make the other days too long for the kids (and teachers).


2. It will be tough on parents to figure out what to do with their kids on the off day.

Of course, for me it could just boil down to the fact that I don’t like change. LOL!

What about you? Would you go for something like this?

My Dealership is Shutting Down!

I was in my local dealership today, dropping off my Rendezvous to have the brakes checked out. I was standing there and I overheard one of the service writers on the phone talking about how they were shuttering the GM department (Buick, Cadillac, GMC, and Pontiac).

The first thing I thought was, “Where the hell am I going to take my car?” Some of you are probably wondering why I’m taking my car to a dealership for service in the first place. Well, I don’t normally take it to the dealership for routine service. But, it is nice to have them available for the bigger jobs.

When they close this dealership, the closest GM location—besides the local Chevy dealership—will be in a little town about 20 miles away. This stinks because it means that the shuttle service probably won’t be available, which means I’ll have to either have someone drive up there with me or I’ll have to sit around and wait while they service my car.

I guess I’m going to have to find a local garage that I can trust. That sounds scary.

How to Annualize a Rate of Return

According to the Vanguard website, the Vanguard S&P 500 Index Fund is down 12.07% YTD as of yesterday’s close. To get an idea of what that return would look like if it were to continue for an entire year, you can annualize the YTD return.

It’s a fairly simple calculation to perform as long as you have the following information:

1. Number of days that have elapsed so far this year. This is easy to calculate if you have access to Excel.

2. The YTD return of the investment that you want to annualize.

The formula for annualizing a ROR is pretty straight forward:

[(1 + YTD ROR)1/(#of days/365)] – 1

The YTD ROR should be expressed as a decimal. Plugging in the Vanguard S&P 500 Index Fund information from above, the equation looks like this:

[(1 – .1207)1/(204/365)] – 1

[.87931/(0.55890411)] – 1

[.87931.7892] – 1

0.7944 – 1

-.2056 or -20.56%

So, a 12.07% loss for the first 204 days of the year equates to a 20.56% loss on an annualized basis.

Now let’s say you are down 12.07% but you purchased this fund on December 31, 2006. How do you annualize that return? The only input that changes in the above formula is the number of days, which is now 570.

[(1 – .1207)1/(570/365)] – 1

[.87931/1.5616] – 1

[.87930.640350877] – 1

0.9209 – 1

-.0791 or -7.91%

Had you purchased an investment on December 31, 2006 that is currently down 12.07% since the time of purchase, your annualized rate of return on that investment would be -7.91%. Not much of a return is it? Anyway, now you know how to annualize your returns. Fun stuff!