Wall Street

Ditching Your Home

by Laura Rich on January 21, 2010 in Money

It sounds so tempting: Throwing in the towel and saying goodbye to those overwhelming monthly mortgage payments and your underwater home. Starting anew with a home that’s more modestly priced (and valued) and a mortgage you can actually afford. It can seem like a pipe dream.

It isn’t, and it’s not entirely unreasonable to walk away from your home and mortgage. Enough people have weighed in on why it may make sense for you, and even urging you to take this option.

You Walk Away is one of them. The company’s daily blog is a lively and supportive read aimed at helping you become more comfortable with the idea. As long ago as December 2007, when the recession officially kicked off, You Walk Away was beating the drum for people to ditch their homes and default on their mortgages. The cheerful blog walks you through why it’s okay to walk away from your mortgage: “The lender did not loan you the money without intent to profit. The lender DID risk their money in order to make a profit. They created the terms. They should live with the terms they created.” YWA warns about the possible consequences of walking away: damaged credit for years; the anguish of having your home foreclosed upon; the judgment of others; wage garnishment…

Did you ever think you’d talk so much about “sub-prime” and “stimulus”? Learn so many new, made-up terms, from “funemployment” to “collateralized debt obligations”? No doubt about it, 2009 was The Year of the Recession.

We dropped into the technical range for “recession” in December 2007, but it took months for all of the pieces to fall. In September 2008, Wall Street came to a standstill, and by the new year, it was still recovering. Layoffs spread through every sector of the economy at a rapid pace. For the first time since the Depression, no one no matter how rich or established was immune to the creeping clutch of joblessness, portfolio deflation, or even homelessness.

The headlines in our daily Recession Briefing, along with the personal experiences tracked on Recessionwire, revealed a new world en recession:…

Even though we dropped into the technical range for “recession” in December 2007, it took months for all of the pieces to fall. In September 2008, Wall Street came to a standstill, and by the new year, it was still recovering and layoffs were spreading through every sector of the economy at a rapid pace. For the first time since the Depression, no one no matter how rich or established was immune to the creeping clutch of joblessness, portfolio deflation, or even homelessness.

The headlines in our daily Recession Briefing, along with the personal experiences tracked on Recessionwire, revealed a new world en recession:…

question-mark-chart-150“I did not run for office to be helping out a bunch of fat cat bankers on Wall Street.” (via 60 Minutes)

Well, it looks like the recession is back on. Despite comments over the weekend from Larry Summers who said that “everybody agrees that the recession is over,” there’s still that niggling problem of 10 percent unemployment. And outsized bonuses on Wall Street, which only create a further disparity between the rich and everyone else. Populist rage over the bonuses and Obama’s claim that he gives his record so far a “solid b-plus” are a sign that people are mad, and not ready to call an end to the tough times—because they’re still experiencing them…

book-too-big-to-fail-150If you’re still trying to figure out where to point the finger on last year’s financial crisis, Andrew Ross Sorkin’s “Too Big Too Fail” will offer some guidance, but not enough.

Beginning with the tightening of the credit markets in the fall of 2007, Sorkin, a New York Times reporter who heads a daily Wall Street blog called Dealbook, leverages his breadth of sources to portray a comprehensive view of the year leading up to the fall of Lehman Brothers and near-collapse of the entire financial system last fall…

question-mark-chart-150Says who: Mark Zandi of Moody’s Economy.com.

“Small business tends to lead the way out, and that’s just not happening here.” (via USA Today)

Why it might be false: It might be false because we might be due for a slight redefinition of “small business.” In recessions and other periods of some job loss, more businesses tend to be created. Entrepreneurs are energized, and others are just looking for a way to generate some income. In New York, laid off Wall Street executives have been launching companies in part through a Bloomberg-backed incubator funded with $45 million. In the state of Colorado, the number of new business registrations has increased over last year…

question-mark-chart-150How so: With the Dow Jones Industrial Average nearing the 10,000 mark, it would seem good times are coming back. The last time it was around 10,000 was last fall, and it was just one short year earlier when it hit its high around 14,000. Remember that? Back when we were all swimming in cash, vacationing in St. Bart’s, shopping just because we felt like it… (You were doing that, right?)

Good signs: The macros are up, from the DJIA (in March we were talking Dow 5,000!) to strong earnings from Google and Apple to a strong showing from the almighty GDP, and even housing data is on the move (well, sales at least, although foreclosures continue their nightmarish rise). Is this change we can believe in?…

brain in a jar 200“The odds are we flatten out,” said former Fed Chairman Alan Greenspan, talking today about the stock market in 2010. He didn’t mean it in a good way.

Despite the name of this site, we don’t want the recession to go forever. It would nice to feel some prosperity and stability again. But we are big on reality. And despite the rally in the stock market that has taken place over the last three months, and some good (ish) news about the economy, there are plenty of signs that we are not out of the woods yet. There are also smart people who are less than positive that a recovery is taking place—or if it is, whether it will last…

question-mark-chart-150Says who: JPMorgan Chase CEO Jamie Dimon

“No discussion of the future of the financial system can be complete without an acknowledgment of the industry’s responsibility to re-earn the trust of the American people. How do we earn trust back? First, company leadership must foster a culture within their institutions that focuses on integrity, strong execution, quality products, long-term value creation, and doing the right thing. Rewards have to track real, sustained, risk-adjusted performance. Golden parachutes, special contracts, and unreasonable perks must disappear. There must be a relentless focus on risk management that starts at the top of the organization and permeates down to the entire firm. This should be business-as-usual, but at too many places, it wasn’t.” (via WSJ)

Why it might be false: Restoring trust in an industry that brought down the global economy will probably be so tough that we’ll see growth in other key sectors of the economy before there’s actual, real trust here…

warp-speed-light-speed-150Several months ago, when every Monday seemed to bring news of a new economic catastrophe, we started throwing around the idea of “recession speed.” It’s the accelerated pace at which things—usually bad—happen during the downturn. Sometimes it seems like we’re living some economic offshoot of the theory of relativity.

One week there is “no liquidity crisis” at Bear Stearns; the next, the bank collapses. In the morning you accept a new job; in the afternoon, the company folds. One day your investments are doing great; the next the world learns that Bernie Madoff is a crook. In two weeks last October, the Dow dropped 17 percent, wiping out big chunks of retirement accounts. As Mark Cuban recently blogged, this is the year of WTF.

But recession speed isn’t necessarily a bad thing…

dice-lucky-7-150On Wednesday I had my second interview with a major US bank. And when I say interview with the bank, I mean I met everyone in the company. I was there for seven hours. I met the head of sales, the head of trading, the head of debt capital markets, the copy guy. You name them, I met them. Fingers crossed, but I think it went well—other than my meeting with Yuri, the 28-year old wunderkind trader.

Yuri made $30 million for the firm last year, his second year of trading, a fact he succeeded in mentioning within the first five minutes of our interview and at least twice more. If you extrapolate the astronomical growth rate of his investment return, he’s sure to make 300 billion gazillion dollars by the time he reaches my age. Just ask him— he’ll tell you.

Other than his periodic reminders of his success, the interview progressed with the familiar series of questions. He started with the soft “tell me about yourself” and moved on to my current views on markets. I had rehearsed my talking points and was sailing through until Yuri went off on a tangent…