Why Are We In This Financial Crisis?

A lot of people in the U.S. are asking "Why are we in this financial crisis?" What led to it, how do we get out of it, and how can we prevent it from happening again in the future?

People want someone to explain the current financial crisis and its cause--who, or what, is behind the crisis, and the impacts of the credit crisis on financial institutions.

In President Bush's speech to the nation on the current crisis he stated "We're in the midst of a serious financial crisis, and the federal government is responding with decisive action." As of the date of this article, the government had yet to agree on how to address the crisis. Text of President Bush's speech on economic crisis.

In response to the current financial crisis in the U.S., The Washington Post recently asked a dozen experts for the one book they'd recommend to understand the crisis, and the human nature behind it. Here's how they explained their project:

"We asked a number of smart people--inside and outside the worlds of economics and finance--to scan their bookshelves for answers. Though there is no single book that can sum up and explain the current conditions, we asked each of our contributors for one book they would recommend to their neighbor, their daughter, their aunt, their barber, priest, rabbi or best friend to help them gain some perspective on these volatile times. We imposed only one rule: You cannot recommend a book you wrote or edited. After that, no rules. It could be a macro-economics text, a popular history or a novel. If there is one unifying theme that runs through these 14 selections, it is this: Bubbles come and go, economic theories rise and fall, fortunes are made and lost. But human nature remains unchanged, from the time of Herodotus to Homer Simpson."

The experts include the following:

Peter R. Orszag, Director, Congressional Budget Office

Robert E. Rubin, Director, Citigroup; former U.S. Treasury secretary (1995-99)

Jagdish Baghwati, Professor of economics and law, Columbia University; senior fellow, Council on Foreign Relations

Sheila Bair, Chairman, Federal Deposit Insurance Corporation

N. Gregory Mankiw, Robert M. Beren professor of economics, Harvard University

Steve Case, Chairman of Revolution LLC and the Case Foundation, co-founder of America Online, former chairman of AOL Time Warner

Franklin D. Raines, Vice chairman, Revolution Health Group; retired chairman and chief executive, Fannie Mae

John Allen Paulos, Mathematics professor, Temple University, author of A Mathematician Plays the Stock Market (2003)

Nell Minow, Editor, the Corporate Library, provider of corporate governance research and analysis

Henry Louis "Skip" Gates Jr., Director of the W.E.B. Du Bois Institute for African and African American Research at Harvard University, author and co-founder of TheRoot.com, owned by The Washington Post Co.

Douglas A. Irwin, Professor of economics, Dartmouth College; author of Free Trade Under Fire (2002)

Mark Cuban, Dallas Mavericks owner; chairman of HDNet; founder of Broadcast.com, sold to Yahoo for $6 billion in 1999

Why are we in this financial crisis? You can see all 12 recommendations here, as well as the reasoning behind each selection:

Making Sense of the Crisis: What to Read on the Economy from The Washington Post

Beware of Foreclosure Fraud Schemes

I read a disturbing article today about people being taken advantage of with all kinds of foreclosure fraud schemes of one sort or another. The article is on msnbc.com and is titled Millions At Risk Of Foreclosure Fraud.

A lot of people commented on the article that people should always read what they sign before they sign it, but I’d like to know what percentage of people actually read every bit of every document they sign when they close on a house. In discussions with friends and family I haven’t come across a single person who’s done this, and I would guess it’s no more than a few percent at most. So there’s obviously a problem with the process if just a handful of people are reading every word of what they’re signing when hundreds of thousands of dollars are at stake!

Yes, we should all read every document we sign, but that’s almost impossible with the stack of paperwork one has to sign to purchase a home. We need to encourage our elected officials to sponsor and promote legislation that simplifies the paperwork and makes the documentation much easier to understand at a glance so the average person knows exactly what they are agreeing to. If the paperwork were easier to understand then there would be a lot fewer people signing and legally committing to things they don’t understand or don’t agree with.

Ever since we bought our first home a few years ago I’ve thought that mortgage documents should be made less burdensome and more understandable. I believe home purchase documentation should include a single summary sheet of paper that contains the numbers and answers to the following questions: What is the term of the loan? What is the interest rate? What is the monthly payment? Are there pre-payment penalties? Can the payment amount ever change?

It’s an unfortunate reality that laws in the United States allow individuals to take on far more debt and financial risk than most other industrialized nations, so someone needs to take a look at our laws and fix them. The idea that our laws provide no protection for someone who is encouraged to get into a variable rate loan they can barely afford while interest rates are near 40-year lows, or allows people to tap into all their home equity after a 50%-60% run-up in housing values over just a few years’ time is beyond me.

If you or someone you know is facing foreclosure, expect people to come out of nowhere with promises to save the property, renegotiate the loan, etc. Protect yourself and get a real estate attorney to review any documents before you sign. One key thing to keep in mind is that when you sign the title of your home over to anyone else for any reason, you are in effect selling them your home.

Until changes are made to our laws, people need to understand that the best thing to do before entering into any type of legal agreement involving real estate is to invest a couple hundred bucks and have a real estate attorney review the documents before they sign. Doing so could save many headaches, sleepless nights, and untold thousands of dollars!

Save Money on Groceries With SisterSavings.Net

[Update - SisterSavings.Net now charges a monthly subscription fee for access to the grocery store sales data.]

I just have to tell you about an amazing website I found out about recently.

The website is SisterSavings.Net. Each week they compile local grocery store sales information for the Phoenix, Arizona area and Utah, and put it into Excel and PDF format and post it to their website.

As of this blog entry, the Phoenix, Arizona grocery stores they provide weekly sales information for include Albertson's, Bashas, Fry's, Safeway, Sprouts and Food City, and the Utah grocery stores include Harmon's, Albertson's, Macey's, Reams and Smith's.

It only takes a few minutes to review the files they provide each week to get the scoop on local grocery store sales, and the savings can be quite substantial.

The website also provides help with menu ideas, long-term storage, recipes and more ways to save money.

Check them out today and save more money on groceries!