What Can We Say About This Stock Market? Going no where fast comes to mind. As of today's date, March 26, the market is less than 1% above where it began on the first trading day of 2007. It looked like we were in for a good year for awhile. The market was up 3% by February 20, only to fall back to the current level, over the next month. None of us really know the reason why the market reversed course but the current hot topic is the sub-prime mortgage market.
The Sub-Prime Mortgage Market Is a Great Example of Stupid Lenders and Stupid Consumers. Years ago, a number of lenders decided that it was more profitable to make loans to non-creditworthy borrowers at high rates, construct a diversified loan portfolio, and be willing to accept a higher foreclosure rate than it was to compete for borrowers with good credit histories who had numerous sources for rock-bottom interest rates. This worked well for awhile as suppliers of sub-prime mortgages were protected by higher down payments and rising home prices. Life was good. There were plenty of home buyers with credit problems anxious to be homeowners and plenty of investors hungry for higher yields willing to buy sub-prime paper. Real estate prices escalated as more people were able to buy homes now that they had the financing to do so. It even reached the point where increasing numbers of families were no longer satisfied with one residence, they had to own two. They weren't happy with 900 square foot homes like the average 1950's home, they had to own houses two and a half times that size, the average house size today. So where did it all go wrong.
Success Breeds Competition. There is an old economic axiom that says when one provider of goods and services begins to do very well, others will enter the marketplace and provide similar products which compete with the original provider. As more lenders entered the marketplace to compete for the existing borrowers, it became harder to originate enough loans to satisfy the investors, eager for higher yields. In other words, too much money chasing too few deals. To keep from lowering rates to attract more borrowers, lenders lowered their standards to the point that, instead of offering sub-prime loans, they were offering sub-sub-sub prime loans to borrowers who couldn't possibly afford the home they were buying. As home prices leveled off, these borrowers were trapped in homes they could no longer afford and couldn't sell. Delinquencies rose and the resulting increase in foreclosures were the natural consequence.
You Hate To Say That They Deserved It. Some lenders certainly did. Many borrowers, have the excuse of being financially unsophisticated. Lenders may not be all that sophisticated either since many loan officers entered the business with no experience in personal finance and no ability to advise borrowers of the risks of these loans. No one trained these loan officers to explain risk because their job was to sell loans not counsel borrowers. If they didn't sell loans they didn't get paid. In a sense, the entire industry was one in which there was a lack of business ethics and the consequences they are experiencing today were entirely predictable. A number of medium and relatively large sized sub-prime lenders are no longer economically viable and bankruptcy is only a matter of time. Shareholders in public companies have already seen most of their investment evaporate and the rest will soon follow.
It Will Take Awhile to Work Our Way Out of This Mess. A lot of homeowners are hanging onto homes hoping for some miracle to allow them to continue. Most will fail. This will keep a lid on prices, especially in areas where markets overheated. Areas like Denver, while not all that healthy, may not do as badly because they began to deal with these problems several months ago. Overall, the markets will probably weather these effects; however, tax increases being considered the newly elected majority in congress could add to the problems created in the housing market.
I am Reminded of How Little All This Matters. This week-end a local real estate investor accidentally killed himself while trying to fix a jammed firearm. No longer will he be bothered by leaky faucets, complaining tenants, and fluctuating real estate prices and mortgage rates. He was only 41. As I attempted to find words to console his grieving family members, I was again reminded of similar situations where I spent hours trying to help clients solve what we thought were serious problems only to find out they weren't serious at all compared to what happened next. Each day is a gift. Appreciate it.
Tuesday, March 27, 2007
Saturday, March 17, 2007
THINGS I'VE LEARNED.
About Long Term Care. Like most people, I had an outmoded opinion about nursing homes. I have met few, if any seniors who would choose to live in one. Over the past few years, I have had a number of experiences that have taught me a great deal about modern long care options.
1. Sometimes It Is The Only Choice. I have even had clients who have a clause in their will to dis-inherit any of the heirs who "put them in a nursing home". I have also observed situations where there is no family member capable of providing a satisfactory level of care and the lifestyle of the elderly relative becomes intolorable.
2. Even If Lonf Term Care Is Necessary, Not all Facilities Are The Same. Fifty years ago, the choices were very limited and it seemed as if none were places you would want to live in. Now there are several different levels of care from almost independent living facilities to skilled nursing care with several options in between. If you want to have influence on where you might live, don't wait until its too late and you are incapable of making a decision on your own.
3. Most Long-Term Care Policies Cover Little Of the Cost of A First Class Facility. People who think they can buy a $4,000 per month benefit and have little to worry about may be in for a big surprise First-class care is expensive. The bill for my Uncle's care for the past two months was $23,000. Granted, there were some extra costs because of a fall he incurred but these things happen more than you might want to think and the magnitude of the excess cost is surprising. In very few months have I paid the amount quoted when we signed up.
4. Goverment Paid Care Comes at a Huge Sacrifice in Quality. Medicaid will pay for nursing home care but many of the nicer facilities won't take medicare. If at all possible, you need to avoid having to depend on medicaid.
5. Staff is More Important Than Furnishings. We often feel like we have done our job when we walk through a facility and see fancy dining areas, hot tubs, swimming pools, exercise facilities, and well-tended gardens. These amenities may be more for our benefit more than for the patient. They assuage our guilt while the patient may lack the awareness to appreciate these benefits. Ask questions about personnel selection policies, average turnover, and employee satisfaction levels. If possible, talk to some of the lower level employees to get an idea of how they like their jobs.
6. Visit, Visit, Visit. This is very important. If your relative has dementia, he or she may not recognize you, but your visits will let staff know know it is important for you to make sure you care that your relative is being cared for. Show your appreciation by an occasional card or small gift for staff members. Often pay is at the low end of the scale and recognition that some one appreciates their dedication is important. Of course, you have to make sure that they can accept small tokens of appreciation without violating company policy.
Back in Texas. I spent a week in Denver and didn't have enough time to visit everyone I wanted. I also got home with a lung infection that has kept me down for a few days. This emphasizes my point that taking care of yourself is of increasing importance as we get older.
1. Sometimes It Is The Only Choice. I have even had clients who have a clause in their will to dis-inherit any of the heirs who "put them in a nursing home". I have also observed situations where there is no family member capable of providing a satisfactory level of care and the lifestyle of the elderly relative becomes intolorable.
2. Even If Lonf Term Care Is Necessary, Not all Facilities Are The Same. Fifty years ago, the choices were very limited and it seemed as if none were places you would want to live in. Now there are several different levels of care from almost independent living facilities to skilled nursing care with several options in between. If you want to have influence on where you might live, don't wait until its too late and you are incapable of making a decision on your own.
3. Most Long-Term Care Policies Cover Little Of the Cost of A First Class Facility. People who think they can buy a $4,000 per month benefit and have little to worry about may be in for a big surprise First-class care is expensive. The bill for my Uncle's care for the past two months was $23,000. Granted, there were some extra costs because of a fall he incurred but these things happen more than you might want to think and the magnitude of the excess cost is surprising. In very few months have I paid the amount quoted when we signed up.
4. Goverment Paid Care Comes at a Huge Sacrifice in Quality. Medicaid will pay for nursing home care but many of the nicer facilities won't take medicare. If at all possible, you need to avoid having to depend on medicaid.
5. Staff is More Important Than Furnishings. We often feel like we have done our job when we walk through a facility and see fancy dining areas, hot tubs, swimming pools, exercise facilities, and well-tended gardens. These amenities may be more for our benefit more than for the patient. They assuage our guilt while the patient may lack the awareness to appreciate these benefits. Ask questions about personnel selection policies, average turnover, and employee satisfaction levels. If possible, talk to some of the lower level employees to get an idea of how they like their jobs.
6. Visit, Visit, Visit. This is very important. If your relative has dementia, he or she may not recognize you, but your visits will let staff know know it is important for you to make sure you care that your relative is being cared for. Show your appreciation by an occasional card or small gift for staff members. Often pay is at the low end of the scale and recognition that some one appreciates their dedication is important. Of course, you have to make sure that they can accept small tokens of appreciation without violating company policy.
Back in Texas. I spent a week in Denver and didn't have enough time to visit everyone I wanted. I also got home with a lung infection that has kept me down for a few days. This emphasizes my point that taking care of yourself is of increasing importance as we get older.
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