(Mostly steadily rising. The history tracker shows that it popped up to 690 last month, then back down this month, for no discernable reason … I hate credit scores. )

now conspiracy theory would have it that this was a planned event, because the banks can now charge more under the guise of lower credit worthiness. feds lowers rates to banks, banks increase lending rates to consumers and maintain rates to existing loans and make a ton of cash in the gap. probably why i continue to hold and buy more bank stocks. the subprime is nowhere near as bad as the S&L meltdown and the economy weathered it fine.

the added benefit is that if the people start to get gloomier about the economy, then people might start to save more. of course, this is a pipe dream. people will whine about higher costs, but won’t change spending habits. look at oil and gas prices, and look at how much people have been spending. there are so many mixed figures out there, that you have to seriously balance the gloom news.

what gloomy reports completely ignore is that $50-$100 billion worldwide equates to pennies in the big scheme of things. global economy is over $50 trillion dollars. And most of the write downs are based off of speculation rather than concrete figures. we are still another two quarters away from getting concrete data. markets are still up for the year too.

the best thing to do is not panic, ensure diversification, and think long term.

I agree 100% with JD’s prescription:
“The best safety net against a downturn in the national economy is to place your personal economy on solid ground.”

It’s boring but effective: live below your means and save for a rainy (or retirement) day, and you will be much more likely to weather a financial crisis, whether it’s the dot.com bust, housing bubble bursting, oil prices rising or anything else. Not saying it’ll be painless, but it’ll be doable.

A small but important point — if you don’t want the credit crunch to extend to your household, the last thing you want to do is invest in banks, especially ones who made most of their money off of mortgage origination and securitization like WaMu.

As a personal finance matter, anyone with substantial amounts of their savings in stocks needs to be able to keep a steady hand and look at the long view, but they also need to truly understand what they own, and be able to reevaluate the wisdom of their position if the fundamentals affecting the performance of their stock change. With respect to bank stocks, the current financial environment is a textbook case of changing fundamentals.

The decline in banking stocks is probably not a “buying opportunity” as much as it is reflective of a major, fundamental change in the ways those banks can make money. The most obvious losers in this new environment are the nouveaux riches banks that got rich making any loan they could and selling it off to someone else.

The credit crunch and depreciating home values make a HUGE difference in the way most banks are doing business; in the short term, they’re going to take it on the chin and in the long term, they need to figure out how to make money in the new environment, and the market will need to revalue how profitable they can expect to be.

I’m not saying that WaMu is automatically radioactive for these reasons, but I am saying you — and anyone else with holdings in markets affected by the credit crunch — will need to do your research and think very very hard about your current position. You may want to cut your losses instead.

My friend who is getting the runaround from Wells Fargo on his mortgage has held his current job for 4 years, makes high 5 figures, and has lived in the US for at least 10 years. He’s had a credit card and built up an excellent payment history in the US. But no, a mortgage won’t be extended for the lack of one piece of paper. It’s trash.

I’m not dumb, I knew I was taking a risk of higher payments when I got the ARM. ARMs are great when you are really sure your financial situation will change and you will make more money once the initial rate freeze is up. My payments won’t go up for another 3 years. Even then, so long as current interest rates stay flat (well, they will probably dip and rise a bit, but given the current economy, I can’t see a huge hike) my payments would rise a manageable amount which I could afford. My husband has temporary work authorization now. He could go and get a job (he stays home with our daughter) and our income would spike to cover the higher payments. Then, once I had my green card, I could re-finance into a fixed rate later. It should only be 4 more years or so. Sigh.

Alternatively, like I said we could stretch to cover the remaining renovations and then sell it all, take our profits, and get the fuck out of the country. The banks would lose our interest revenue for the next 5, 10, or 15 years because of their short-sighted policy. Oh well.

Like I said though, I’d like to lock now. It’s very sad that the banks will refuse to take my money. I have equity, I have a great payment history (3 years in US), high 5 figure salary, and current mortgage will be sitting at about 2.7x gross income. It’s a good risk.

My point is that I don’t see how the USA can expect to attract experienced professionals with high 5 and low 6 figure incomes (which, in theory, are “welcomed immigrants”) without the opportunity for home ownership. Some people own homes in their home country before they come to the US. Some people want to sell their homes in the home country, transfer the wealth to the US, then buy in the US. Buying makes sense for a high earning professional with a big company sponsoring their visas and green card applications.

Once immigrants realize that they would have to live in the US for 5 or 7 YEARS before buying property (which is how long it can take to get an employment based green card), then I bet fewer highly skilled people would come in the first place.

To the condo guy, we couldn’t live in a condo. We need room for my husband’s shop, which is in our detached garage. He had to do something to keep his skills up to date while waiting for the government to let him work. We waited 2 years for his work authorization, and by fluke we were lucky to get it when we did.

Banks love money, they know all about it. Refinancing is a giant money maker for banks. If they are rejecting people because of green card status, it’s not personal. Banks never make decisions based on personal vendettas. There is the simple fact that immigrants are more likely to leave this country if they get in trouble, and consequently, are a larger risk. I know if I went to another country, had a separate credit score, and then went into serious debt, I would be more likely to see going back to the US to avoid paying.

About credit crunch affecting us all — it’s enough to look at recent stock market performance. I lost a bundle in the last month. Sure I don’t need or plan to sell, but it is still unpleasant to see one’s money disappear. And who knows what lies ahead.

On the consumer side: It’s nearly impossible to get a 0% down mortgage with anything less than stellar credit, credit card companies are requiring lower DTI ratios than in the past, and variable rates for people with FICO score under 720 are through the roof (credit card firms need to make up for underperforming cardholders somehow).

For businesses: small business owners are finding it more difficult to get their operating lines renewed, and if you’re a start-up looking for unsecured money - forget about it. The word where I work is that we’re collateralizing EVERYTHING - taking second or third position blanket UCCs and third mortgages.

The piggy bank has been raided and the cashflow may not be cut off, but it’s being cut way back.

If you don’t spend more than you make and you have great credit, you’ll weather the storm. If you’re on the razor’s edge (as I am and have been documenting) - it’s could be a rough ride.

As one of the readers mentioned, although you can’t do much to control the prices of these necessities you can still exercise some control over how much you spend for them. For example you can grow your own food, drive less or use a public transport, insulate your house to cut-down on the heating costs, install solar-panels to cut down on the electricity use, etc.

Given the time I’d write a post on the DVD set I’m watching about the federal reserve bank and how it has basically destroyed our economy. Any interest in that, JD?

Many of these were at reasonable payments initially but won’t be soon.

Try to get refinanced into a fixed interest rate mortgage soon. If there is a prepayment penalty, find out if you have a predatory loan. You may have claims under TILA or other consumer protection laws. You may be able to use these claims to leverage a better deal.

Deal with the lenders proactively before a predatory loan bites you in the tail.

Unfortunately, this credit crunch will affect us all. One way that has yet to be discussed is inflation. The Fed has lowered rates to lubricate the credit wheel, but it has caused the dollar to drop. This increases the cost of all imported goods, including oil. Whether you borrow money or not, you still have to buy goods such as gas, food, and other necessities.

Once the dollar hits a point where outside investors demand higher compensation for buying our government bonds, we will see rates climb. Even Greenspan sees a period of liquidity extraction over the coming years, which means higher interest rates and inflation.

Don’t want to be a doom and gloomer, but this will affect us all in some manner.

“And seriously, immigrants have a hard enough time coming to this country. Why should they be deprived of home ownership on a technicality?

Sorry, guess I shouldn’t pick on the banks, guess I should pick on the government for the insufficient supply of green cards instead.”

Well — these statements got me all riled up.

The truth of it is that it isn’t just immigrants being kneecapped in the current situation. There are plenty of non-immigrants in the US who seriously overextended themselves with a home purchase. There are a lot more who can’t afford a home at all, even while making a reasonable salary. We’re all in the same boat here.

I would love to get my hands on enough money to leave the US and be an immigrant somewhere else, let alone buy a house here or elsewhere. Both goals are out of my financial reach, and I’m firmly in the middle class if you don’t look too hard at the debt load I acquired moving myself up out of the lower class (though there’s no guarantee I’ll get to stay middle class, what with corporate America’s love affair with outsourcing my line of work to immigrants and cheaper labor abroad.)

Oops, but why should I — poor over-educated and under-capitalized US citizen that I am — be excluded from home ownership on those little technicalities?

I blame the lack of leadership we have had in DC for the past 7 years for not putting a stop to the irresponsible lending while it was happening.

I also blame all of the irresponsible people living beyond their means with credit.

Maybe if things get bad enough these people will learn you shouldn’t spend money you don’t have, so it might be good in the long run.

I feel sorry for them in the meantime. There is going to be a lot of hurting going around.

I never dreamed that I’d live in such an “expensive” home (it’s a refurbished shack on the wrong side of the” tracks”), but at least I was cautious about upgrading to another shack with double or triple the payments when we built up equity. When I asked who would be paying millions for lower-middle class starter homes from the 50s, I was told that people from other countries would be buying them. Didn’t make sense to me. Why not live in a beautiful home in their own country? At least there is more community in most places than here.

A man asked me if what we Americans did now was just selling houses to each other. We do manufacture airplanes and spend bundles on warfare. Too bad we don’t have a decent healthcare or education system.

Since it would take six planet earths if everyone lived the U.S. “lifestyle,” our current consumption isn’t sustainable. The trend towards bigger houses is because we have too much stuff.

FWIW, obviously I wasn’t trying to comment on your exact particulars and it actually sounds like you are in a far better position than most. Most people who took out 5 year ARMs did not put 20% down. They put nothing down. They were extended credit that was ridiculous as compared to their present debt load and salaries.

I can’t speak to the situation of immigrants. I’m sure what you are saying is true and unfortunate if they are being treated disparately from non-immigrants without a rational legitimate reason.

I know it isn’t popular, but the root reason why many can’t buy a house right now isn’t so much the credit crunch (it is in the near cause, of course), but the inflation of home prices. Sooner or later that hampster wheel just stops spinning. Exactly what do people think made their homes increase in value so much, so fast? Did a new lake develop just off the edge of their property? Was gold all of a sudden found on their land? Did they expand the size of their home? Nope. Mostly, because someone else was able to sell their home at a ridiculous price. I know. I bought at the same time Cathy did and I know what I paid for my house was probably way too much. It’s harsh, but it’s the truth. Most of us bought the equivalent of a stock trading at 100 times earnings. Some bought the equivalent of a business plan .com after at their peak after IPO. A home is only worth what one can sell it for or use it for. That’s it. Many of us are doomed to either take losses on the homes or have to ride out a correction and a return to a more natural increase.

You will also note that his caution is that part of the problem is due to increasing government spending and when government steps in and bails people out of their risky decisions. Hmmm, no sign of government spending decreasing and ample discussion of how we bail the banks/people out of their risky home mortgages. Not look like we are batting all that well there.

Berner is talking about homes becoming more affordable for people to purchase them. He’s not talking about those owning homes not losing their shirt. If all your net worth is tied up in home equity and home prices drop to a point where selling doesn’t cover your debt and you can’t keep up with the cash-flow to pay the debt, then the way things correct is by you going broke. I’m not saying that’s not the right outcome, of course.

As for oil, the interesting dynamic there is taking place in a different section of the newspaper, with talk of OPEC shifting oil sales to a Euro basis versus a dollar basis. Whatever there is to be said about the price of oil, I can assure you that it isn’t going to be determined by a theoretical prices will come down because our economy has slowed economist argument.

I can say with 100% certainty that buying the house was the right decision for me. My husband needed something to do all day. He wasn’t allowed to work in the US and he could use his skills as a carpenter legally on our home as a project.

We put 20% down. I took the ARM for the lower monthly payment until our circumstances changed. and we spent $40k in cash renovating the house. The roof and furnace ran us an extra $15k. Now we need more cash to finish. Carpenter ants (which we also didn’t know about) were eating the wood in the basement so now we have a half-finished basement that needs to be fixed before we can sell and get out.

We are now swimming in equity. We are not a bad risk. Even if we took some cash out now we would have at least 20% equity in the house.

I now regret not taking the fixed rate. I could have saved less for retirement instead and carried the higher payment. Oh well, live and learn.

I feel sorrier for my coworkers who spent years saving money to build sizable downpayments, have excellent credit in their home countries, have stable employment (they’ll stay 5+ years in their jobs, they have to for their green cards!), excellent salaries, no debt, and they STILL cannot buy a house because of the credit crunch. Banks are throwing out the baby with the bathwater here. Many immigrants are great borrowers.

And seriously, immigrants have a hard enough time coming to this country. Why should they be deprived of home ownership on a technicality?

Sorry, guess I shouldn’t pick on the banks, guess I should pick on the government for the insufficient supply of green cards instead.

I’m also not sure why I should feel sorry for those who overextended themselves and pushed up prices by buying homes they couldn’t afford with a fixed rate mortgage through an ARM?