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Lessons in shooting yourself in the foot

Oh, oh! Seems there’s been a slight miscalculation on the financial sector bailout plan. Go figure! According to the March report from the Congressional Budget Office, we taxpayers will have to cough up about $167 billion more than originally announced.

Now, let me pause here to say I realize these days we talk about millions and billions and even trillions like they’re no big deal numbers. But they are. I once had an economics professor help me grasp the difference between a  million and a  billion. He said: “If you give your wife $1 million and tell her to spend it at the rate of $1,000 per day, she’ll be back for more in less than three years. Now, give her $1 billion and tell her to spend that at the rate of $1,000 per day, and you won’t see her for 300 years,” he concluded. (I can’t even contemplate a $ trillion.)

So, bailing out the financial institutions will now take $356 billion which, I suppose, we might find acceptable if we’d only see some positive results. So far, we’re not seeing squat! In fact, if all this “help” is supposed to get credit flowing again by making the financial sector more elastic, it’s bombed. Here’s an example:

A report by the Office of the Comptroller of the Currency reveals that in programs to curb record home foreclosures, less than half of the “loan modifications” actually reduced borrowers’ payments by 10 percent or more. In fact, nearly 25 percent of the “loan modifications” actually resulted in increased monthly payments as lenders tacked on fees and past-due interest. The result is that nine months after “modification,” a reported 50 percent of the loans in which the payment was essentially unchanged or increased re-defaulted. Duh! Looks like the financial institutions are good at shooting themselves in the foot.

And, one thing is certain: Until the home mortgage situation becomes positive news, it will continue to be the biggest impediment to increased consumer confidence and the spending we need for our turnaround in the boating industry.

We have our share of foot-shooting, too. For example, Textron’s recent rate increases and GE’s doubling of floor plan interest. Accuse me of being “stuck in stupid gear” if you want to, but if dealers can’t pay the old floor plan rates, how does one figure they’ll pay the increase? Or, if the cost of funds is at record lows these days and even home mortgage interest rates have slipped well below 5 percent, isn’t demanding nearly 7 percent from boat buyers actually killing sales for the dealers when both the financial arm and the dealer can only benefit if the product gets sold?

And, speaking of moving product, it’s now being reported that lenders, most notably GE, are selling boats direct. Moreover, for 20 percent or more below wholesale. If you don’t think the market is screwed up enough already, this ought to do it! It seems wide of the mark for any lender who wants dealers to sell products from inventory so they can pay back what they owe to also compete directly against the dealers and even undercut they’re ability to sell products at a price that will provide the funds to pay back.

Hey, I’ll bet my old Econ 101 professor would say: “There’s a textbook case of shooting everyone in the foot!”

Comments

8 comments on “Lessons in shooting yourself in the foot

  1. charles

    Norm,
    One error. Banks did not just decide to restructure loans, their new overseers from DC made that demand. The semi intelligent bankers learned from the S&L debacle in late 80s/early 90s that the first lost is the least loss. Better to repo the collateral and sell it fast before the market goes down MORE. If you were a lender repoing houses (or boats) in Jan of 2008, you got alot more for them then than you will in April of 2009. The government mandated the moratoriums on foreclosure and the rework of defaulted loans. It was not the bank’s idea. As usual, government intervention makes the problem bigger and last longer. The government believes that time is their friend, when in reality this mess has only just begun. Watch these pages a year from now for another 15% decline in residential RE prices from today’s levels. And thus it appears that GE is following this view… take the loss now at whatever the true market price is and move on as the true market price is only going lower for a while. Boats, RE, take your pick. The optimist in all of us does not want to believe it, but until we as a society fix our bigger problems, the bottom is far from near. Not a pessimist, but a realist.

  2. charles

    And one other thought. You are watching the right hand of the government and the pittance of $750B of TARP $$. While you and the brilliant economists and business men of Congress (sic) were watching the right hand, the left hand has doled out $11Trillion in trying to fix this problem, but no one is watching it nor counting it.

  3. Dudley Dawson

    “these days we talk about millions and billions and even trillions like they’re no big deal numbers. But they are. I once had an economics professor help me grasp the difference between a million and a billion. He said: “If you give your wife $1 million and tell her to spend it at the rate of $1,000 per day, she’ll be back for more in less than three years. Now, give her $1 billion and tell her to spend that at the rate of $1,000 per day, and you won’t see her for 300 years,” he concluded. (I can’t even contemplate a $ trillion.)”

    Sorry, Norm, but your prof’s math is a bit off. It’s ten time worse than this. A billion is a thousand million, so the wife would need to spend for 3000 years, not 300. To have spent a billion by now, she would need to have started a thousand years before Jesus was born. Even more astounding, she would need to spend a MILLION dollars a day, starting a thousand years before Jesus to exhaust a trillion by today. Scarier yet is the fact that with only 125 million taxpayers in the US, each trillion means that each and every taxpayer owes another 8,000 dollars of the national debt. With 10 trillion projected over the next few years, each of us will owe 80,000 dollars.

  4. Robert L. NorVelle

    This administration, consisting of rookies, misfits, tax cheats, and scoff-laws, has no idea how the American economy is supposed to work. The idea that 70% of the jobs in this country are with small businesses (like boat dealers) escapes them. Bailing out big businesses at the expense of small businesses (think GE doubling flooring charges) is a prime example of this lack of understanding.

    I could go on but it becomes redundant and even more depressing. These jerks ‘gotta go!

  5. dave boso

    Don’t lets kidd ourselves, this whole thing could and is contrived just like the oil shortage in the 70’s this time the goverment set up the housing bunch to fail knowing full well that it would. Then the banks failed because of the housing stuff, then the car companys joined in just for good measure. Now the whys; Goverment wants control of the banking system, always have now this was a great time to get them by giving money as bail outs, but why the car companys; they saw an exlecent chance to lay off unproductive workers and re-negoate their union contracts, ( like hey if those guys can get away with it so can’t I).
    Proof; drive the local strip in your town on a sat. night, every resturant will have lines outside, walk through the local mall Friday, oSat. Sun. and listen for the sound of cash registers, you’ll hear them rinning. So why are we dealers having such a bad time; the media that wags the tail of the dog keeps telling us how bad things are, we belive it and so do buyers.
    I have not shot myself in the foot but someone did, now who can I blame and sue.

  6. Curtis

    The only way to fix this mess is to vote all of the idots in congress out. We need to get business people into government that know how to run and balance a budget. It is a proven fact you can not run in the red for ever and hope throwing money at it without changing anything will be benificial.

  7. CarlM

    This is giving me a headache! For those with a hole in their foot, you need to look for ways to get going in this new global economy where everyone has guilt. We are now offering our boating customers who are concerned with going green & the negative impact of their boating carbon foot print a way to feel better about boating & using their big block oilbased engines. We are calling it our “Sea Credit Program”. For every 5 gallons of petrol based fuel purchased we will issue the buyer a credit stating that is providing the following: release of 5 lbs of krell, or 10 lbs of farm raised shrimp into the seas, or it will provide up to 25 mangrove seedlings planted some where on the globe. There will be a $1.00 a gal. fee, but your customers will be happy knowing they can go boating knowing their marine /boating carbon foot print has been nutrilized. As for when a customer buys a brand new 2008 boat we are including a carbon Sea Credit with a value of up to $10,000.00 worth of guilt free boating. So get out there and save the planet by going boating It’s the global thing to do for everyone. See you on the water!!! FYI contact me for more info on large volume discounts on these marine related carbon credit instruments, They even can be framed ;-)))

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