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Fannie Mae, Freddie Mac and some good old government intervention

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    YarYar Registered User regular
    edited September 2008
    Man, hindsight is so 20/20. Where were you guys and your threads of discontent before it was obvious? How come no one was posting how clearly the problem was back before the bubble burst? Why o why didn't we listen to the 10% instead of the 90%?

    If anyone can point me to the specific deregulation that caused this, I'd like to know.

    Yar on
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    SkyGheNeSkyGheNe Registered User regular
    edited September 2008
    Yar wrote: »
    Man, hindsight is so 20/20. Where were you guys and your threads of discontent before it was obvious? How come no one was posting how clearly the problem was back before the bubble burst? Why o why didn't we listen to the 10% instead of the 90%?

    If anyone can point me to the specific deregulation that caused this, I'd like to know.

    I was mostly a lurker that bitched to people in real life about it rather than the internet? Hell, I think I talked more in games and technology before I did debate and discourse because I didn't see the possibility of anything intelligent coming out of a gaming forum.

    I was proven wrong of course...but you don't believe me when I say the people around me saw this coming? I mean, hell, I didn't say to myself one day, "Look at that! The shit is going to hit the fan!" It went more like...

    Professor: This doesn't make sense.
    Me: What?
    Professor: Look.
    Me: What the fuck.

    So someone with more expertise highlighted the problem. As a money manager handling a 300 mil. portfolio, he's also taking advantage of this downturn.

    SkyGheNe on
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    GorakGorak Registered User regular
    edited September 2008
    Yar wrote: »
    Where were you guys and your threads of discontent before it was obvious? How come no one was posting how clearly the problem was back before the bubble burst? Why o why didn't we listen to the 10% instead of the 90%?

    Because they were all a bunch of bitter socialists and anarchists.


    Personally, I'm laughing. House prices are coming down to a realistic level and the amount I need for a deposit has stopped increasing faster than I can save. At the moment, the average house price is about 10 times the average salary - when my parents bought their first house it was about 3-4 times the average salary.

    I can pretty much absorb the food/fuel increases, but a collapsing housing market is the only chance I have of ever owning a home and I can't afford a pension so I need something to sell when I get old.

    Gorak on
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    YarYar Registered User regular
    edited September 2008
    Certainly. The premonition of a housing bubble bursting was out there. I heard it from credible sources as well.

    What I'm particularly scoffing at is the idea posed by many, not just you, that suddenly this was all so obvious and it's so amazing that not everyone saw it coming. We never had a big thread about the impending housing collapse before. Now that the collapse is happening, suddenly everyone knew it was coming. That isn't very constructive or credible.

    Part of the problem here was that the clear majority of experts kept telling everyone that buying mortgage-backed securities, even the subprimes, were an awesome investment. Which just fueled more and more money to people who couldn't pay it back.

    Yar on
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    SkyGheNeSkyGheNe Registered User regular
    edited September 2008
    Yar wrote: »
    Certainly. The premonition of a housing bubble bursting was out there. I heard it from credible sources as well.

    What I'm particularly scoffing at is the idea posed by many, not just you, that suddenly this was all so obvious and it's so amazing that not everyone saw it coming. We never had a big thread about the impending housing collapse before. Now that the collapse is happening, suddenly everyone knew it was coming. That isn't very constructive or credible.

    Part of the problem here was that the clear majority of experts kept telling everyone that buying mortgage-backed securities, even the subprimes, were an awesome investment. Which just fueled more and more money to people who couldn't pay it back.

    Yeah, but listening to the analysts is like listening to CNN or fox news for objective information. Both have bias...some more than others. And the market tends to be motivated by greed and fear...so everyone hops onto the new bandwagon when they see one. There are experts on cnn and fox news, but a lot of them are morons with blatant bias. We just know more about politics to dissect their views - not many people know economics.

    I mean, as college students, we were talking about this issue two to three years ago, about how this wasn't going to sustain itself, etc. We saw analysts saying one thing and hell, even some big name money managers got burned, but I think many of them were disengenous (I know they were...one of my profs. clients split his money between him and another money manager that appeared to have intentionally put the money in poor stock and then urged him to borrow more from a bank to "make it back").

    I just don't know what there would be to debate about this. I guess I could have started a thread saying..."economy doomed lol."

    SkyGheNe on
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    YarYar Registered User regular
    edited September 2008
    Not really much to debate, yeah. Just pointing out that at this point it is pretty worthless for anyone to act as if this was all so simple and obvious before it happened.

    The market is still holding at a sizeable but understandable loss today. Let's hope it doesn't plummet in the next hour.

    I think beginning next summer we'll see things pick back up.

    Yar on
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    bowenbowen How you doin'? Registered User regular
    edited September 2008
    Would now be a good time to buy a house? My job is absolutely stable (yay healthcare industry) but is it even worth it?

    bowen on
    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
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    SkyGheNeSkyGheNe Registered User regular
    edited September 2008
    Yar wrote: »
    Not really much to debate, yeah. Just pointing out that at this point it is pretty worthless for anyone to act as if this was all so simple and obvious before it happened.

    The market is still holding at a sizeable but understandable loss today. Let's hope it doesn't plummet in the next hour.

    I think beginning next summer we'll see things pick back up.

    I hope so. I don't mean to say any of this is simple. When I saw it happening a while back, I had no clue and still have no clue as to what is the right thing to do. I don't have a solution for any of this and it would have been really difficult to stop once the ball got rolling.

    It's like the bail outs. Idealistically I would rather not send the message that "if you fuck up you'll be okay as long as you're big enough" but if we just let things go, I think the damage would be far worse and pretty downright horrible for the world economy as well as ourselves.

    SkyGheNe on
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    khainkhain Registered User regular
    edited September 2008
    bowen wrote: »
    Would now be a good time to buy a house? My job is absolutely stable (yay healthcare industry) but is it even worth it?

    Its somewhat dependent on where you live as the housing market is still falling in some regions and it may contain to do so for the next 6 months or so. The problem is actually getting a loan as the requirements are considerably higher than they were.

    khain on
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    bowenbowen How you doin'? Registered User regular
    edited September 2008
    It'd be nice to get out from under a $600+ rent payment and move to a $500ish mortgage payment. At least I'd have borrowing power at some point. Sucky. Not like I'd be paying too much more since I do all the housecare myself because it's easier for me to change lightbulbs and shit rather than having some schlub come in and mess my shit up, or come in at 7:00PM.

    Bah.

    bowen on
    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
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    mcdermottmcdermott Registered User regular
    edited September 2008
    Is it bad that I'm hoping the housing market continues to tank so that when I finish school in May I have a better shot at grabbing a sweet deal on a house by using my VA home loan?

    mcdermott on
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    bowenbowen How you doin'? Registered User regular
    edited September 2008
    mcdermott wrote: »
    Is it bad that I'm hoping the housing market continues to tank so that when I finish school in May I have a better shot at grabbing a sweet deal on a house by using my VA home loan?

    I want to get enough saved up so I can drop a shitload down on a house and have like $200 mortgage payments. How much more money a month I could have. I'd also like to do similar with my school bills, but I doubt I'll get enough money for that anytime soon.

    bowen on
    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
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    psychotixpsychotix __BANNED USERS regular
    edited September 2008
    mcdermott wrote: »
    Is it bad that I'm hoping the housing market continues to tank so that when I finish school in May I have a better shot at grabbing a sweet deal on a house by using my VA home loan?

    I'm in a similar situation, and prices here remain brutal despite the downturn.

    psychotix on
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    mcdermottmcdermott Registered User regular
    edited September 2008
    bowen wrote: »
    mcdermott wrote: »
    Is it bad that I'm hoping the housing market continues to tank so that when I finish school in May I have a better shot at grabbing a sweet deal on a house by using my VA home loan?

    I want to get enough saved up so I can drop a shitload down on a house and have like $200 mortgage payments. How much more money a month I could have. I'd also like to do similar with my school bills, but I doubt I'll get enough money for that anytime soon.

    Well, keep in mind that you might not want your mortgage payments to be too low. Remember that mortgage interest is (IIRC) tax-deductible and that there may well be other, better places for your money to be than a down payment on your house (depending on your rate).

    mcdermott on
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    YarYar Registered User regular
    edited September 2008
    SkyGheNe wrote: »
    It's like the bail outs. Idealistically I would rather not send the message that "if you fuck up you'll be okay as long as you're big enough" but if we just let things go, I think the damage would be far worse and pretty downright horrible for the world economy as well as ourselves.
    Yeah but who really got bailed out? The owners of FNMA and FRMC lost almost everything, the executives and board were all dismissed. The government has ensured and bailed out banks since the Depression and that is part of banking.

    Yar on
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    ÆthelredÆthelred Registered User regular
    edited September 2008
    The problem is that just as house prices are making their way back down to sanity, raising credit for a mortgage is getting harder.
    Yar wrote: »
    As for how the world sees us, the sense I get is it is smug satisfaction that even our supposed best economy in the world failed in a major way. Any country that we've ever asked to open their markets or stop manipulating their currency is now doing a neener neener.

    It's more like ah shit, because the US economy has an effect on every other.

    Æthelred on
    pokes: 1505 8032 8399
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    SkyGheNeSkyGheNe Registered User regular
    edited September 2008
    Yar wrote: »
    SkyGheNe wrote: »
    It's like the bail outs. Idealistically I would rather not send the message that "if you fuck up you'll be okay as long as you're big enough" but if we just let things go, I think the damage would be far worse and pretty downright horrible for the world economy as well as ourselves.
    Yeah but who really got bailed out? The owners of FNMA and FRMC lost almost everything, the executives and board were all dismissed. The government has ensured and bailed out banks since the Depression and that is part of banking.

    It becomes a problem when it involves billions all at once for multiple companies. But can we really avoid the semantics of "bailing out?"

    http://www.iht.com/articles/2008/03/16/business/paulson.php

    SkyGheNe on
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    khainkhain Registered User regular
    edited September 2008
    SkyGheNe wrote: »
    Yar wrote: »
    SkyGheNe wrote: »
    It's like the bail outs. Idealistically I would rather not send the message that "if you fuck up you'll be okay as long as you're big enough" but if we just let things go, I think the damage would be far worse and pretty downright horrible for the world economy as well as ourselves.
    Yeah but who really got bailed out? The owners of FNMA and FRMC lost almost everything, the executives and board were all dismissed. The government has ensured and bailed out banks since the Depression and that is part of banking.

    It becomes a problem when it involves billions all at once for multiple companies. But can we really avoid the semantics of "bailing out?"

    http://www.iht.com/articles/2008/03/16/business/paulson.php

    While they did bail out Bear Stearns, they're letting Lehman file a chapter 11, Merrill is being bought by BofA and the current proposed solution to prop up AIG is to have them privately borrow various firms. Paulson is also taking a no bailout stance and telling Wallstreet to fix its own problems.

    khain on
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    SavantSavant Simply Barbaric Registered User regular
    edited September 2008
    Yar wrote: »
    Certainly. The premonition of a housing bubble bursting was out there. I heard it from credible sources as well.

    What I'm particularly scoffing at is the idea posed by many, not just you, that suddenly this was all so obvious and it's so amazing that not everyone saw it coming. We never had a big thread about the impending housing collapse before. Now that the collapse is happening, suddenly everyone knew it was coming. That isn't very constructive or credible.

    Part of the problem here was that the clear majority of experts kept telling everyone that buying mortgage-backed securities, even the subprimes, were an awesome investment. Which just fueled more and more money to people who couldn't pay it back.

    I don't even remember if I was posting here back then.

    It required some financial sophistication (or knowing someone with it) to really see that it was coming, so it's not surprising that a bunch of people missed it. Or some knowledge of history since this sort of thing has happened before.

    It should be a lesson that a lot of those analysts are full of shit. If they had real good knowledge of surefire ways to make money they would be using it rather than letting everyone in on it. I'm thinking some were treating it like a pyramid scheme where they got theirs and bailed while the last ones in got hung out to dry.

    Even the brainiacs that use financial mathematical modeling can get it very very wrong, simply because they don't account for things. They'll whine when they fail due to "sigma 6 events" when really simply underestimated risk or didn't account for all the sources of it.

    Savant on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    Yar wrote: »
    What I'm particularly scoffing at is the idea posed by many, not just you, that suddenly this was all so obvious and it's so amazing that not everyone saw it coming. We never had a big thread about the impending housing collapse before. Now that the collapse is happening, suddenly everyone knew it was coming. That isn't very constructive or credible.

    We were talking about the housing collapse before it happened. It was "the next big bubble" back in 2001 right after tech popped.

    Regarding the reasons.

    The main reason is not "analysts". Its rating companies. Companies were putting together huge mortgage backed security deals. Where previously the rating companies had been rating companies only, they had gone public and become a growth industry. They started rating individual securities and got payed for each deal that went through... and they were payed by the seller and there were no guarantees.

    If this sounds familiar its because we talked about it right after Enron failed(where-in we also discussed when housing was going to recorrect)

    Goumindong on
    wbBv3fj.png
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    mcdermottmcdermott Registered User regular
    edited September 2008
    Æthelred wrote: »
    The problem is that just as house prices are making their way back down to sanity, raising credit for a mortgage is getting harder.

    Aren't these, at least to some extent, linked? I'd think part of the reason housing prices are coming back down is because of a lack of buyers, due to a lack of credit available.

    EDIT: It's the kind of feedback loop that might be worrying to me, except I think we can be reasonably confident that there is an equilibrium that will be reached.

    mcdermott on
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    SkyGheNeSkyGheNe Registered User regular
    edited September 2008
    Savant wrote: »
    Yar wrote: »
    Certainly. The premonition of a housing bubble bursting was out there. I heard it from credible sources as well.

    What I'm particularly scoffing at is the idea posed by many, not just you, that suddenly this was all so obvious and it's so amazing that not everyone saw it coming. We never had a big thread about the impending housing collapse before. Now that the collapse is happening, suddenly everyone knew it was coming. That isn't very constructive or credible.

    Part of the problem here was that the clear majority of experts kept telling everyone that buying mortgage-backed securities, even the subprimes, were an awesome investment. Which just fueled more and more money to people who couldn't pay it back.

    I don't even remember if I was posting here back then.

    It required some financial sophistication (or knowing someone with it) to really see that it was coming, so it's not surprising that a bunch of people missed it. Or some knowledge of history since this sort of thing has happened before.

    It should be a lesson that a lot of those analysts are full of shit. If they had real good knowledge of surefire ways to make money they would be using it rather than letting everyone in on it. I'm thinking some were treating it like a pyramid scheme where they got theirs and bailed while the last ones in got hung out to dry.

    Even the brainiacs that use financial mathematical modeling can get it very very wrong, simply because they don't account for things. They'll whine when they fail due to "sigma 6 events" when really simply underestimated risk or didn't account for all the sources of it.
    Finance is very much an art, not a science. I thought it would be all number plugging but it really isn't.

    SkyGheNe on
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    ÆthelredÆthelred Registered User regular
    edited September 2008
    mcdermott wrote: »
    Æthelred wrote: »
    The problem is that just as house prices are making their way back down to sanity, raising credit for a mortgage is getting harder.

    Aren't these, at least to some extent, linked? I'd think part of the reason housing prices are coming back down is because of a lack of buyers, due to a lack of credit available.

    EDIT: It's the kind of feedback loop that might be worrying to me, except I think we can be reasonably confident that there is an equilibrium that will be reached.


    They are linked in that way; it's a bummer since house prices would eventually have naturally gone back down, without that credit problem for buyers.

    Æthelred on
    pokes: 1505 8032 8399
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    XaquinXaquin Right behind you!Registered User regular
    edited September 2008
    quick question that popped into my noggin.

    Say you have a mortgage through a bank and that bank goes chapter 11 .... who do you owe money to?

    Xaquin on
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    NintoNinto Registered User regular
    edited September 2008
    mcdermott wrote: »
    The problem is that just as house prices are making their way back down to sanity, raising credit for a mortgage is getting harder.

    Aren't these, at least to some extent, linked? I'd think part of the reason housing prices are coming back down is because of a lack of buyers, due to a lack of credit available.

    EDIT: It's the kind of feedback loop that might be worrying to me, except I think we can be reasonably confident that there is an equilibrium that will be reached.

    Why worrying? Of course it will reach an equilibrium...prices almost always do, especially on something like real estate.

    The only way that land itself will ever stop having significant value is when everyone either dies or moves away to somewhere else.

    Ninto on
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    YarYar Registered User regular
    edited September 2008
    Goumindong wrote: »
    We were talking about the housing collapse before it happened. It was "the next big bubble" back in 2001 right after tech popped.

    Regarding the reasons.

    The main reason is not "analysts". Its rating companies. Companies were putting together huge mortgage backed security deals. Where previously the rating companies had been rating companies only, they had gone public and become a growth industry. They started rating individual securities and got payed for each deal that went through... and they were payed by the seller and there were no guarantees.

    If this sounds familiar its because we talked about it right after Enron failed(where-in we also discussed when housing was going to recorrect)
    Links?

    Anyway, like I said, credible sources were discussing this predicting it for years. It just doesn't do any good for people who have never contributed much to any economic discussion to be jumping in here now with a bunch of "DUH."

    The rating companies you are talking about are the analysts I'm referring to. I'm not sure why people thought I meant talking heads on CNN.

    And I don't know how much evidence there is that this was due to collusion. Mortgage-backed securities were not only historically a very sound investment, but each year brought about more "proof" that even subprimes were a good investment. The overarching theme during the bubble was that home ownership is the American dream, people pay their mortgages no matter what, and the government puts every financial tool at its disposal towards supporting home ownership. So the ratings stayed high.

    Yar on
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    deadonthestreetdeadonthestreet Registered User regular
    edited September 2008
    Xaquin wrote: »
    quick question that popped into my noggin.

    Say you have a mortgage through a bank and that bank goes chapter 11 .... who do you owe money to?
    Whoever buys the mortgage from the bank in liquidation.

    deadonthestreet on
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    XaquinXaquin Right behind you!Registered User regular
    edited September 2008
    Xaquin wrote: »
    quick question that popped into my noggin.

    Say you have a mortgage through a bank and that bank goes chapter 11 .... who do you owe money to?
    Whoever buys the mortgage from the bank in liquidation.

    ah, so I guess in the case of Fannie/Freddie, the people would send checks to the US Government?

    edit: I wonder what you'd do in the period between declared bankruptcy and formal take over.

    Xaquin on
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    khainkhain Registered User regular
    edited September 2008
    Xaquin wrote: »
    quick question that popped into my noggin.

    Say you have a mortgage through a bank and that bank goes chapter 11 .... who do you owe money to?

    Someone will own your mortgage at the end of the day and its somewhat likely that whoever you originally got your mortgage from sold it off at some point anyway.

    khain on
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    NintoNinto Registered User regular
    edited September 2008
    Sub-prime mortgages were a good investment, but clearly risky. Any investment carries risk, that's why the risk risk risk statements are always plastered over any type of investment purchasing documentation.

    Ninto on
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    YarYar Registered User regular
    edited September 2008
    mcdermott wrote: »
    Æthelred wrote: »
    The problem is that just as house prices are making their way back down to sanity, raising credit for a mortgage is getting harder.

    Aren't these, at least to some extent, linked? I'd think part of the reason housing prices are coming back down is because of a lack of buyers, due to a lack of credit available.

    EDIT: It's the kind of feedback loop that might be worrying to me, except I think we can be reasonably confident that there is an equilibrium that will be reached.
    Yes, to whomever was saying earlier that finally housing prices are coming down to an affordable amount, that is only true as long as you've got excellent credit and 20% of the home's value in cash to put down. In that case, rates are still pretty good and prices are at bargain levels. But that isn't most people. People with less cash are facing a much higher mortgage even for a cheaper house in today's market.
    Xaquin wrote: »
    quick question that popped into my noggin.

    Say you have a mortgage through a bank and that bank goes chapter 11 .... who do you owe money to?
    Banks don't really go chapter 11. They get taken over by the government, and they use the FDIC money to keep it running until accounts can get transferred to more stable banks. And mortgages are assets. So even we looked at it as a simple bankruptcy, assets all get auctioned and sold to someone for some amount.

    Yar on
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    JragghenJragghen Registered User regular
    edited September 2008
    Dow ends down 500 points. Part of me is thinking it'll only get worse as the week goes on.

    WaMu is probably the next on the chopping block, and from what I hear, AIG's not much better.

    Friday's going to be nuts. It's Quadruple Witching Day, a day when contracts for stock index futures, stock index options, stock options and single stock futures all expire.

    Jragghen on
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    psychotixpsychotix __BANNED USERS regular
    edited September 2008
    Quick silly question since we are on the subject of finances.

    Currently my bank (Bank of America) is offering pretty good personal and debt consolidation loans. Both seem nice. It's an instant online application. So I was thinking of taking one to pay off my credit cards, which isn't a bad situation but one payment and low interest would be better.

    Any advise?

    psychotix on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    Consolidate your debt if the rate is better than you are paying and the fees do not offset the debt.

    Think of debt as "future payments you have to make". When you get a lower rate its like someone giving you free money. Really they are just "buying" your debt by charging less interest on money.

    There are some funky things you can do. For instance you can by down your own debt by transferring it back and forth between credit cards[keeping a low monthly balance and paying less interest].

    But its probably a good idea to consolidate.

    Goumindong on
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    JragghenJragghen Registered User regular
    edited September 2008
    My advice would be to check with someone who's a bit more qualified to do so other than a video game forum. :wink: We've got plenty of smart people, but it's not the sort of place you want to go to for major financial decisions and such.

    Jragghen on
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    NintoNinto Registered User regular
    edited September 2008
    psychotix wrote: »
    Quick silly question since we are on the subject of finances.

    Currently my bank (Bank of America) is offering pretty good personal and debt consolidation loans. Both seem nice. It's an instant online application. So I was thinking of taking one to pay off my credit cards, which isn't a bad situation but one payment and low interest would be better.

    Any advise?

    It's a good idea, *if* you cut up your cards and don't just rack them up again.

    Ninto on
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    psychotixpsychotix __BANNED USERS regular
    edited September 2008
    Jragghen wrote: »
    My advice would be to check with someone who's a bit more qualified to do so other than a video game forum. :wink: We've got plenty of smart people, but it's not the sort of place you want to go to for major financial decisions and such.

    I know, I was just fishing for past experiences. My boss says it's fine (who's a financial junkie and knows a lot about this stuff). It's not that much debt really. But lower interest + one payment is nice:winky:
    It's a good idea, *if* you cut up your cards and don't just rack them up again.

    Haha, no I'm not that dumb. Plus I make more then enough so that even with the new payments + living expenses I'd still take home the majority of my income.

    Damn BOA and there tempting interest rates!

    psychotix on
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    juice for jesusjuice for jesus Registered User regular
    edited September 2008
    Savant wrote: »
    I'm thinking some were treating it like a pyramid scheme where they got theirs and bailed while the last ones in got hung out to dry.

    Bingo! We have a winner!

    And this is exactly why I scoff when I hear about how "good corporations plan for the long term", because the whole thing is driven by quarterly financial reports and short term growth pushing up the value of stock options so the execs can cash out and make a killing.

    juice for jesus on
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    JragghenJragghen Registered User regular
    edited September 2008
    Savant wrote: »
    I'm thinking some were treating it like a pyramid scheme where they got theirs and bailed while the last ones in got hung out to dry.

    Bingo! We have a winner!

    And this is exactly why I scoff when I hear about how "good corporations plan for the long term", because the whole thing is driven by quarterly financial reports and short term growth pushing up the value of stock options so the execs can cash out and make a killing.

    Not all corporations are run that way, though. It seems like the ones founded more recently tend to be a but more responsible. Costco is one which comes to mind.

    Jragghen on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    Jragghen wrote: »
    My advice would be to check with someone who's a bit more qualified to do so other than a video game forum. :wink: We've got plenty of smart people, but it's not the sort of place you want to go to for major financial decisions and such.

    No seriously, they are carrying the risk. The only extra risk that you are taking are terms and fees that increase your costs. These are deal specific and likely don't exist. But no advisor could tell you whether or not they do without examining the deals. This is unlikely to happen without paying someone.

    The party that hold the debt has the risk, if they go tits up and no one buys the debt you are home free. No one can buy your debt at a higher rate[iirc], since that would break the contract you had already signed.

    In short, BoA is going to pay off whomever you owe so that you pay them. Your incentive to do the deal is that you have to pay BoA less.

    Goumindong on
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