Tuesday, September 02, 2008

From "Borrow & Buy" Economy to "Cash & Carry"

In 2007, according to the National Association of Realtors, 45% of first-time homebuyers put no money down, and the median first-time homebuyer financed a massive 98% of the purchase. But no-money-down mortgages began fading in late 2007 and largely disappeared in the cruel winter of 2008. No wonder existing home sales fell 13.2%in July from last year while new home sales plummeted 35.3%.

The most revolutionary notion in commerce today is one of the oldest. If you want to buy something, you may actually have to pay for it. We are reverting from a "borrow and buy" economy to the "cash and carry" model of our grandparents.

From the Slate.com article "The Death of the Credit Card Economy: Car Leases, Student Loans, No-Money-Down Mortgages, and High Credit Limits Are Vanishing."

8 Comments:

At 9/02/2008 11:04 AM, Anonymous Fred said...

Where I grew up this was called the Polish payment plan - One payment, cash.

 
At 9/02/2008 1:18 PM, Blogger randian said...

I think any such reversion will be temporary.

 
At 9/02/2008 1:28 PM, Anonymous feeblemind said...

Might be a bit off topic, but I quit my credit card as the issuing company was using it as a license to steal from me. They charged a late fee if they had not posted the transaction by a certain date. I could send in payment 2 weeks ahead of said date, and two or three times a year it would get 'posted' a day after the due date.

 
At 9/02/2008 1:55 PM, Anonymous Anonymous said...

About damn time too.

 
At 9/02/2008 3:53 PM, Blogger bobble said...

credit abuse has been the hallmark of bush economics. consumers deeper and deeper in debt, government deeper and deeper in debt.

 
At 9/02/2008 7:01 PM, Blogger Dr. T said...

Bobbie makes no sense. What does the current Bush administration have to do with credit abuse by consumers? The phenomenon of borrowing money via credit card has existed since the 1960s. George Bush did not give speeches telling citizens to buy, buy, and buy regardless of ability to pay. The president is not responsible for every stupid financial decision made by individuals and corporations.

Besides, the Slate article (unsurprisingly) is wrong. The so-called 'credit card economy' is still going strong. Total U.S. credit card debt in June was 2.6 trillion dollars, the highest ever. Most people still do not pay their credit card bills in full each month, and few banks have lowered existing credit limits. The only real change is the elimination of the asinine mortgages that required no down payment, no collateral, and no salary confirmation. Banks that issued such mortgages deserved to lose money.

 
At 9/02/2008 10:22 PM, Anonymous Fred said...

Bush derangement syndrome is still taking a terrible toll.

 
At 9/03/2008 7:59 AM, Blogger Kevin said...

I have to agree with some of the other comments. I think Bush is a terrible president, but the abuse of credit is not really his fault.

Yes, you could claim that more oversight of the banks was needed as they got greedy, but even laying that at the feet of the president is a stretch.

Reality? We had a party with cheap and easy credit. Both the lenders and the borrowers went crazy with it. Should banks have been doing no-money-down mortgages. No. Should borrowers have bought houses with no money down. Again, no.

Plenty of blame to go around and the pain will be shared as well.

 

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