In The Red
If you had to sum up the current financial problems of the U.S. economy and stock market in one line, it could be this: consumers are just maxed out. Day after day we are hearing more stories of consumers not able to make payments on their obligations - this week's tales of woe ranged from homes to cell phones to credit cards.
In Thursday's Wall Street Journal "Fiscally Fit" column, Terri Cullen walks us through the steps she went through refinancing her six figure home equity line of credit:
A home-equity line of credit works a lot like a credit card -- we have a set credit limit and can borrow as much or as little as we need. Our current credit line charges a variable rate of interest, much like a credit card, so how much or how little we pay in finance charges depends on the direction of the prime rate. But unlike revolving credit-card debt, which is unsecured, our line of credit is secured by our home equity -- if a financial crisis hits and we can't pay back the loan, we could lose our house.
We chose a home-equity line of credit for convenience. We knew we'd be financing a number of large projects over several years, but weren't sure how much we'd need to borrow in total. The flexibility of the credit line allowed us to borrow only what we needed, when we needed it, which would keep our monthly payments low. We spent $45,000 on a mid-level kitchen remodel; another $10,000 to update our leaky family room; $25,000 to install a deck, patio, and landscape our backyard; and most recently another $3,000 for maintenance costs to replace an aging furnace and central-air conditioning unit."
The lengthy article is informative. Every single thing the author does makes sense. Certainly lower rate debt that is tax deductible is smarter than higher rate non-deductible debt. But when I step back and think about the scope of her thought process, I come to the conclusion that there is something wrong even when everything seems right.
The notion that a home is a perpetual equity producing machine that magically turns $1 in renovations into $2, that home equity is an asset that can be tapped, that using home borrowing for consumption is smart, that things you want are worth financing, and that any low interest credit available should be claimed and not questioned as too much credit may be what is now unraveling in the economy.
We're not being critical of the author's path or sound advice and logic - rather questioning when these kinds of moves became normal and "fiscally fit". Don't hate the player, hate the game.
At Google Answers, there's a good discussion of finding out information and stats on bond trading, which isn't always as easy as it should be:
http://answers.google.com/answers/threadview?id=275822
Bond Trading Sites
Worth a look!