With the Subprime bubble decimating all within the blast range, I’ve never had a lot of sympathy for people that have gotten themselves into loans they couldn’t afford. I was of the opinion that they deserved what they got for not reading the fine print. That opinion is changing recently, since I’ve been hearing about a lending practice that gained popularity in the run-up to the Subprime meltdown.

Redline Discrimination – “Normal” redline discrimination occurs when businesses identify areas where they choose not to do business (either because it would unprofitable, or because other circumstances make doing business there extremely difficult). This happens a lot with inner-city and lower-income areas. Pizza deliveries won’t be made, newspapers aren’t delivered, and many ‘normal’ services are not offered to those areas/residents because of socioeconomic discrimination.

An Example: Insurance companies (before being forced to by the government) would not offer insurance to some parts of Florida, as it is repeatedly hit by storms. It was unprofitable, and they didn’t want to take the much higher risk of covering the people in that area.

The New Discrimination

With Reverse Redlining, a new practice arose of focusing on offering sub-prime mortgages to people in these economically challenged areas. On average, the people in these districts were less wealthy, less economically sophisticated, and were fairly easy prey for the sales pitches of the time, espousing that you could squeeze home equity money out of your home, and still make a profit as the home value went up.

Not to mention that the sub-prime mortgages provided the underwriter with more up-front fees and commissions (read: More MONEY) than a normal prime-rate loan. And as those underwriters planned to bundle and re-sell the mortgages as soon as possible, there was no risk to them that the mortgages would default.

It was VERY profitable, and so, became almost a standard practice throughout the industry. Many people that actually qualified for prime rate mortgages were talked into the more expensive, and more risky sub-prime variety.

Shining a Light on the Problem

Now, as the problem is starting to affect cities and states across the U.S. many state and local governments are seriously moving towards suing the larger banks for “predatory lending” practices, to try to recoup some of the lost tax revenues from these foreclosures. Many, if not all states are seeing projected revenue shortfalls, and the larger states (such as California) are taking actions now to try to deal with the expected lack of funds next year.

So far, cities like Cincinnati, Detroit, and others are putting together lawsuits against banks that used Reverse Redline Discrimination, in an attempt to ‘get back’ some of the money their practices eliminated.

I wish them luck, but I don’t know that it’ll be any time soon before the lawsuits bear fruit.

In the meantime, they still have to deal with the spiraling problems of economic downturn, continuing (and in some cases accelerating) housing foreclosures, and a constituency that is just trying to survive these economic storms.

A Change in Perception is Needed

I know that even amongst my fellow bloggers, my initial knee-jerk reaction was not unusual. People should understand what they are signing and what they are getting into. Personal responsibility is a strong belief of mine.

But even with that belief, the apparent ease and widespread application of this unfair lending practice has gone a long way to changing my mind about this. I still believe that the people being taken advantage of should have read the fine print better (and possibly gotten a second opinion) but I can understand how the could have been taken in, by a slick salesperson and the allure of having more cash from their existing home. Everyone has some responsibility in causing the housing meltdown, but maybe in this case, the homeowner isn’t as guilty as I originally thought.

Do you know someone that was ‘fast-sold’ a new mortgage? Or someone that went with a subprime instead of prime rate mortgage on a sales person’s recommendation? Leave us a comment and let us know.

The government’s Stimulus Package, wafting it’s way through the halls of congress, has been received less-than-warmly by the Republican party, and by a number of people, as “too much money, not enough bang”. Even though we’re badly in need of infrastructure spending on, well, EVERYTHING. It’s still an issue of “will it work?!??”

To date, no government stimulus package in history has had an immediate effect on the economy. The idea of trying to turn something akin to a supertanker on a dime, no matter how big the tug boat pushing the change, is insane. The economic situation didn’t happen overnight, there’s no reason to expect it will be solved overnight either.

There’s also the main reason that it’s going on for so long.

The Economic Culprit

There’s lots of blame to go around; Sub-prime mortgage lenders, greedy/stupid/inexperienced mortgagees getting in over their heads, people living FAR beyond their means and having to pay the piper. There’s no end to targets for what’s going on now. But there’s actually only one culprit that is the cause of all this strife.

Fear.

As bad as the subprime meltdown is, it’s only a small percentage of the overall loans in circulation. If the banks/agencies didn’t lose trust in each other and stop inter-bank lending, they would have been able to weather things better. One or two banks going under would have been a certainty, but without the ensuing panic selling by everyone, the markets wouldn’t have dived 40% in just a few short months.

Fear is also the cause for the continuing spate of layoffs going on. We’re in a death-spiral of fear and reaction to that fear.  

As people fear that their jobs are in danger, they scale back their spending, which causes the self-fulfilling prophecy of downsizing.

Businesses have no choice but to lay off people (or in a few cases, scale back on hours for many rather than lay off the few). As businesses lay off workers, a new wave of fear is released into the workforce.

Lather, rinse, repeat.

We end up in a spiral of self-perpetuating fear that only increase in speed as things get worse.

Think of it as an economic tornado – It starts up from a lot of wisps of wind, but combined has the destructive ability akin to a force of nature.

The final fear that is stalling us is the “fear of doing the wrong thing”. When we started down this path, Congress put together a $750 Billion stimulus package to try to forestall the downturn. But the initial actions didn’t (or haven’t seemed to) work. Each legislator after that has their own idea of what will work and what won’t. In reality, this is a situation that no one has encountered before. The fear that they might do the wrong thing causes delays, indecision, and political debate and maneuvering. All things that allow the situation to continue on and get worse.

Deciding to do nothing, even if it’s to stop and debate about the stimulus measures, is still a decision. And waiting for “something” to happen, can lead to that “something” being an undesired drop in the economy.

So, now we know the main culprit. What can we do?

Enter the Economic Militia

Like the Minute Men of the American Revolution, I think it’s time to get the brave souls out there and prepare for economic battle! There’s a small, but growing percentage of the population that has embraced the “live within your means” lifestyle and are weathering the storm. It may not be the best of times, but for them, it’s not the worst of times either.

It’s time for this Economic Militia to step up and start spending.

Just as the American infrastructure needs investment in it, I’m sure lots of American households need investment in them as well. So here’s my plan.

1. Plan - For those starting out in the frugal lifestyle, this may be what you’re in the midst of now. For others that have lived frugally, you’ve already done this step. Find out what your net income is and plan to live at 90% of that amount. Cut back on non-essentials until you have some available income. It won’t necessarily be easy, but we’re in the midst of a crisis here.
2. Invest – Start putting that money into investments (in a responsible way). Start padding your 401k and IRA accounts, Open up 529 Education accounts. Give to charities. Whatever it takes to start getting money circulating again. DO this responsibly, and show the government, the banks, and your neighbors and friends that you have confidence that things are going to come out better.
3. Get Green – As you invest, spend on things that encourage a move towards more responsible stewardship of our planet. Invest in companies that have strict pollution limiting policies, or companies that emphasize renewable resources and green-development. Vote with your greenbacks for a greener planet.
4. SPEND (Responsibly) – We know that you’re a responsible person living within your means. Now it’s time to benefit from that lifestyle. There’s hundreds of different consumer items, all on some kind of sale, that need a good home. Maybe it’s time to replace that car with a more gas-efficient, newer one. Bargain down the car dealer and help both him and the economy by replacing a vehicle. Take a look around the house for things that you’ve been meaning to replace/fix/upgrade, and DO IT. Sales abound, and good bargains are out there to be had for those with some money. Don’t go in debt to get new things, but invest that extra 10% you’ve made into things that both improve your life, and get money into circulation.

The rich are reeling from all the money they’ve lost over the last few months, and the overextended/poor don’t have the ability to get us out of this recession, what with just fighting to survive. It’s time for each and every member of the 5th Brigade of the Fiscally Responsible Economic Militia to grab up their checkbooks, and head out to the battle. With pen in hand, and a careful strategy of only engaging the enemy (fear) on our terms, we can defeat this Recession, and bring the victory of Economic Stability back home.

Are you going to do your part to help resolve the Recession? What do you think it will take? Leave us a comment and let us know.

Unfortunately, the answer is “No”.

That Was Then

Originally, when the markets started free-falling last November (after the government refused to come to the rescue of Lehman Brothers, and allowed them to go under) a wave of panic selling took off, plunging the stock market up and down like some kind of demented roller-coaster. In an effort to stop or at least curtail some of the market jitters, Fed chairman Bernanke and then-Treasury secretary Paulson went begging to congress for enough funds to “buy up” all the “toxic” debt that was causing the banks so much trouble. Those sub-prime mortgages that had fueled the housing bubble had turned into huge packages of debt that were so intertwined, that it was virtually impossible for banks to deal with individual loans. As a group, these ‘packaged’ loans turned out to be financially lethal, as the bad loans couldn’t be separated from the good, dragging them all down.

Bernanke/Paulson wanted funds to take the subprime loans off the bank’s hands, and manage them centrally, until such a time they could be separated, restructured, and sold back to the public (presumably at either break-even or at a profit).

Statements like “catastrophic depression” and “economic meltdown” were standard phrases used throughout the process of securing this money. Congress was in such a panic to do something that they released the money. The allocated $700 billion in funds to the TARP program, basically handing Paulson a huge blank check, to buy up assets as he saw fit.

This is Now

However, it didn’t go quite that smoothly. Along the way, the strategy shifted from buying up the bad assets (and getting them off the bank’s hands) to buying stakes in the banks themselves. Something along the lines of a quasi-nationalization of the major banks. Tens of billions were distributed to many of the top banks, whether they needed/wanted it or not, in hopes of boosting consumer confidence in the banking system as a whole. The overriding idea being if the banks were sufficiently capitalized, they could immediately start making loans to consumers again and get the market back into play, if nothing else.

Didn’t happen.

The banks that received the funds largely sat on them for an extended period of time. No new loans, no consumer help, no NOTHING. Some of the banks (Bank of America in particular) used the funds to ‘buy up’ other failing banks, and make themselves larger. The net effect was that the credit markets came to a halt, all but stopping consumer lending. In a domino effect, many businesses of all sizes saw their lines of credit reduced or eliminated, causing problems with making payroll and buying supplies. This caused yet more problems with closings and layoffs. And the cycle continued, as banks, seeing the closings and layoffs, tightened lending even further.

So How Do We Get Out of This Mess?

There remains an additional $350 Billion in funds to be disbursed. Pres. Obama has received authorization to disburse the funds, but is waiting to formulate a more effective strategy for getting the money to actually help the market get back on it’s feet.

One idea is to go back to the original intention of moving bad debts out of the banks, to a ‘Bad Bank’ owned/operated by the government (similar the Resolution Trust Corporation of the late ’90s) to be centrally managed. This would give the banks leeway to make loans again, and fulfill the original premise of the bailout. There’s no guarantee that even this would work, as the government can’t “force” the banks to lend money. (Yet, that might be written up as part of the requirements for receiving some of the second-half of the bailout money).

As it stands, with half the funds gone, there’s little or no visible effect on the banking system or in the market. It’s time to try something new.

Favorite Posts

Chris presents The Joy of Owning Nothing posted at financial reflections, saying, “I take a lesson from the life of a multimillionaire who says “no” to most any purchase.”

The Shark Investor presents How To Live The Life Of Your Dreams (Visual Guide) posted at The Shark Investor

savingadvice presents I Want to be a Frugalista! posted at SavingAdvice.com Blog

MoneyNing presents 5 Surefire Ways to Stop Thinking Your Paycheck is Never Enough posted at Money Ning

Joanne presents 21 Ways To Create An Emergency Fund posted at Simply Saving.

Lazy Man and Money presents How to Stock a Bar posted at Lazy Man and Money.

J. Savings presents Would you take a 10% pay cut if it meant saving an employee? posted at Budgets are Sexy.

Cheap and Free Stuff

Carma presents How to Find Deals on the Web posted at Standard Deviations.

Kathy Hester (GeekyPoet) presents Finding Organic Coupons « Geek, Poet, Housewife Wannabe posted at Geek, Poet, Housewife Wannabe.

Adam Hagerman presents Frugal Wedding Tip: Save the Date Cards posted at Your Money Relationship.

Andrew Schultz presents Skype vs. Verizon – Saved me $631.70! posted at Andrew-Schultz.com

Myscha Theriault presents Meat Money: Grocery Saving Tips for Carnivores | Wise Bread posted at Wise Bread

Jim presents Free College Money: The FAFSA on Blueprint for Financial Prosperity posted at Blueprint for Financial Prosperity.

Dan at Everydayfinance presents How I Saved $250/Year for Life with Comcast posted at Everyday Finance

ChristianPF presents Free Franklin Planner templates posted at Money in the Bible | Christian Personal Finance Blog

Andy presents Five Things You Should Get for Free posted at Tight Fisted Miser.

Kelly from Almost Frugal presents Frugal Gifts For New Parents and New Babies posted at Almost Frugal.

Great Tips and Advice

Shaun Kavanagh presents Use Your Credit Card for Everything You Can! posted at Kavmerica.com.

FIRE Getters presents 12 Tips To Lower Your Heating Bill posted at FIRE Finance.

juicefairy presents New Year, Better Credit Score: Post 1 posted at Juicefairy.

Cooupon Artist presents 15 Minutes a Day Toward a More Frugal Life | artofthecoupon.com posted at artofthecoupon.com.

GrrlScientist presents Survival Skills 101: Frugal Living posted at Living the Scientific Life

Morrison presents Only 1 New Years’ Resolution. posted at ALL DOORS CONSIDERED..

FMF presents Reminder: Pay Attention to Scanners posted at Free Money Finance, saying, “Simple way to save money — pay attention!”

Madison presents 16 Ways to Do It Yourself posted at My Dollar Plan.

Dave presents Beater Bucks – 7 Tips To Keep Your Car Running posted at Cheapo Groovo.

RC presents Creating a Household Budget and Why it is Important posted at Think Your Way to Wealth.

Rob presents Negotiating Car Purchases posted at Negotiation Training Info

Doctor S presents The World Learns to Live Frugal in 2009 posted at Finance Your Life

Nicki presents The Timeless Art Of Sewing posted at Domestic Cents, saying, “Thank you!”

Ray K presents Save Money By Always Being In A Contract posted at JustSaver.com

Super Saver presents Stretching our Dining Out Dollars posted at My Wealth Builder

Savings Toolbox presents Reducing What You Waste Will Save Some Cash posted at Savings Toolbox.

TH in SoC presents Digital Television and Frugal Entertainment posted at The Well Run Dry

Silicon Valley Blogger presents 21 Deal Sites and Online Tools To Help You Save Money posted at The Digerati Life

Jill presents Top Coupon Tips | posted at Jill.

The Smarter Wallet presents Smart and Frugal Tips To Shop For Clothes Online posted at The Smarter Wallet

Resolutions and Budgeting

Roshawn Watson presents 3 Financial Decisions for a Great 2009 posted at Watson Inc

Bryce presents Number One New Year’s Resolution posted at Save and Conquer

Michael. presents Living on a Budget: Reasons and Motivations posted at Michael Emilio.

Todd presents Budgeting Basics posted at HarvestingDollars

Other Neat Stuff

TStrump presents 6 Ways to Adopt the Freegan Lifestyle | The Strump posted at The Strump – Financial Blog,

Praveen presents My Simple Trading System: Joy of the Down Sell posted at My Simple Trading System.

Condo Blues presents Organize Your Life with Six Pack Containers! posted at Condo Blues

Aryn presents Top Ten Frugal Winter Foods posted at Sound Money Matters.

Chuck Russell presents Hyundai Assurance Program; Buy Back Your Car posted at Car Buying Tips To Save You Money.

HowToMe presents How To Bake Rusks posted at HowToMe, saying, “Rusks, a double-baked sweet biscuit, are usually dipped in one’s morning coffee, hot tea or hot chocolate before they are eaten, but they can also be enjoyed as they are for a snack. Reportedly, rusks can also be helpful to a teething child.”

vh presents Snookered! posted at Funny about Money.

Destroy Debt presents Debt Got You Down? Turn That Frown Around posted at Debbie’s Debt Advice.

Scott Crawford presents DebtGoal » Blog Archive » New Year Debt Resolution Step 6: Simplify For Success posted at DebtGoal

Stephanie presents Guilty as Charged posted at Stop the Ride!.

nemesis presents How to save more money posted at Wealth Gears.

Livingalmostlarge presents Winter is good for the pocketbook posted at LivingAlmostLarge.

Paula Wethington presents Kitchen prep you can do on the weekends posted at Monroe on a Budget.

Miss M presents Frugal Traditional Skills posted at M is for Money.

Shadox presents Where Did Our Money Go in 2008? posted at Money and Such, saying, “Looking back at 2008 and how our family of 5 spent its cash.”

Ms. Smarty Pants presents How I Plan to Save Money on Holiday Gifts with My Discover Card posted at Ms. Smarty Pants Know It All

SJ presents Alternative Fuels – Are They Really The Boon Of The Future? posted at Save Money On Gas

Zantor presents How to Take Control of Your Finances posted at Open Road Open Mind.

The Investor presents Stanford researchers prove you can spend 20% less on gifts for the same result posted at Monevator.com

The Happy Rock presents Out with the Old, In with the New – Switching Phone Companies posted at The Happy Rock

Megan presents Unusual food sales? posted at Counting My Pennies.

nickel@fivecentnickel.com presents Free Antibiotics (and Prenatal Vitamins!) posted at Money Tipper.

nickel presents Books are a Bargain posted at fivecentnickel.com.

Lisa Spinelli presents Successful Free Swap Sites for Books, DVDs, and CDs posted at Greener Pastures: Personal Finance

PatrickCML presents Free Disney Tickets for Military Members and Retirees posted at Military Finance Network

PatrickCML presents Introducing Money Saving Deals posted at Cash Money Life,

kathryn presents Basic Ideas for Balancing a Budget posted at Out of Debt Christian

Elizabeth Goldstein (Modern Gal) presents Surprising Frugal Advice: Stop Being so Obedient posted at Modern Gal

Dana J. presents Frugal Weight Loss Tips posted at Not Made Of Money.

Dana J. presents Recession Survival: Clipping Coupons and Shopping The Sales posted at The Family Wallet.

Curt presents Why Wages Don’t Fall During a Recession posted at PennyJobs.com.

Pamela Grundy presents Post Cereal Coupons; Stock up on Milk, NOW! posted at Personal Finance Analyst.

Mr. ToughMoneyLove presents Save on Investment Expenses and Losses: Fire Your Financial Planner posted at Tough Money Love » Hard Truth and Tough Love for Money Problems and Personal Finance

David presents Decision Making 101: Step One The Way We Make Decisions posted at Personal Finance Ology

Penelope Pince presents Save Money and Get More Exercise With a Mini Home Gym posted at Pecuniarities

Heather Levin presents How To Have A Green Valentine?s Day posted at The Greenest Dollar

That concludes this edition. Submit your blog article to the next edition of Festival of Frugality using the carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

Yet, when she died, she was almost completely broke.

This is My Life

A bit of history first. I came from a lower-middle class family. My Dad held various jobs, mostly blue collar unskilled labor positions. My Mom managed the household finances and made sure everyone in the household was taken care of. We never went hungry and always had the clothes and things we needed.  There are times growing up that I still don’t know how we managed to keep afloat, but we did. My mom was a whiz with day-to-day finances. At the same time, she had absolutely NO concept of investments, retirement funding, IRA’s, mutual funds, or any number of fairly common financial items that most families take for granted today. She assumed that the government would take care of her when she got older, and that Social Security would provide whatever she needed.

If only that were true.

About 10 years ago, long after she had divorced, and long after I had entered and left the military and had gotten married myself, she started having financial problems. She didn’t have any income other than her Social Security, and her bills were steadily going up. She was lucky enough to qualify for an apartment in a retirement complex (not a rest home, as it didn’t supply any personal assistance) so her rent was low and steady. Her needs weren’t too great at that time. By that time, I had worked my way up in my career to a level where I could have had her move in with me without any problems.

She’d have none of it. She was independent, and that’s the way she wanted to stay! There was no way she could be talked into moving in with us. She was going to stay independent until the day she died. At the same time though, her medical expenses kept creeping up and up, and were costing her a larger percentage of her fixed income each month. We offered to help her pay for the medicine, but again, her pride intervened and we were flatly refused.

At least she allowed us to look into various social service programs for her. If you’ve never been unlucky enough to qualify for food stamps, Medicare/Medicaid, WIC, and other assistance programs, I sincerely hope that you never have to. But if you do qualify, DON’T HESITATE TO GET WHAT YOU’RE ENTITLED TO. My mother, it turned out, was eligible for a number of different aid programs. As she was nearly unable to get out and around, I was the one that went in her place to fill out all the forms, talk with all the social workers, and basically do everything I could to get her whatever aid and help she was qualified for. I’m immensely grateful to the social workers who helped me out, but at the same time, sitting for hours in the waiting areas was a desperately depressing experience. Surrounded by people that were down on their luck, and doing everything they could just to get by, it was a very sobering and humbling experience.

So, What Have We Learned?

I realized quite a few things during this period of my relationship with my mother. We had slowly started exchanging our roles as Parent and Child. I became the Parent, watching over my mother, the Child.

I also realized that when you have very little left in your life in the way of material items, you can still have your pride. My mother was a strong-willed and proud person. By the time I started taking up more and more of the duties of supporting her, that was pretty much all she had left. I took VERY special care to try to preserve that pride. She wouldn’t move in with me, because she though of it as losing her independence, so I did everything humanly possible to make sure she was able to remain independent, while still being taken care of.

I realized that even though our roles had changed, our love for each other was just as strong as ever. It’s that bond that helped her through the illnesses, the surgeries, and many of the bad times she had. She depended on me, and I was going to do whatever was necessary to take care of her.

My final realization is that discussing your parent’s finances with them is HARD. It’s a sensitive subject, particularly with someone who you look up to and admire. But you have to get past the admiration and down to reality to do anyone any good. We had a series of long, hard discussions about her finances. She finally started taking my advice (and consequently, some of my money) and once we broke the initial ice, things continued to get easier.

The one point that she was adamantly against was moving into a ‘real’ retirement home. A home with nurses and assisted living facilities and all the rest. She wanted to remain independent for as long as possible.

The Final Goodbye

My mother had been in and out of hospitals for years, but in 2000, she went into the hospital with a particularly bad case of what turned out to be a respiratory infection. Also by that time, she had deteriorated in health to the point where she clearly could no longer live by herself.

I had to make the hardest decision then. It was finally time to make arrangements for her to be moved to a retirement home. My wife and I got handfuls of brochures from the hospital, and visited a number of homes, hoping to find one that my mother would be happy in. We finally settled on one near another of my mother’s friends, with big rooms, nice nurses, and a beautiful garden in the back patio area.

My Mom passed away that evening.

Later on, after the sadness had subsided some, I realized that she had gotten her wish. She had stayed independent and proud all the way to the end. She had lived her life how she wanted to, and I had succeeded in helping her do that.

Things could have been different. I could have forced changes on her, like going into the retirement home earlier. It might have made a difference. But then again, it might not have.

I’ve never doubted my decision to help her live the life she wanted.