Bill and Lenore are in their early 60's and own a small tanning salon. They have been in business for 7 years, and have invested all of their money in this business. For the first five years they made money, both working the salon 7 days a week, and paying their bills on time.They were unable to gain a credit line, outside of use of a Bank of America credit card, and a second mortgage they took on their Florida home.In the past two years the home they owned, not above their means, has plummeted in value by 40%. The second mortgage they took was a complicated ARM based second mortgage that increases despite prime rate, and effectively was sold to them by an astute and slimey mortgage broker as a short term way to borrow money at a low rate to expand the business.
We know the story. The home is now "underwater" in value, the second mortgage has ballooned in payment, and their tanning business is off by 40% over the past 8 months, as discretionary spending has been cut.
Bank of America they now owe their full line of credit to, 35,000, at 13.99 to 22.%. You can figure when they will get out of this debt.They called Bank of America and were able to negotiate a 8.5% rate, and a locked in payment that they would guarantee , but of course this payment is higher than they can afford.
Their business, in today's environment, cannot be sold. The large mall they are in will not negotiate lower rents with any tenants, forcing evictions in lieu of setting precedent, and Bill and Lenore now have 20,000 to their name. They just cashed out their IRA's to create this $20,000.
Where does this couple go in America? They have no insurance.They have no money, no home to sell, no business to sell, and few skills they can market well in their 60's.
Fiscal conservatives will tell us this is Bill and Lenore's fault: No due diligence done on second mortgage. Allowed credit card to hit limits, should have stopped spending. Should find other jobs to supplement their diminishing business.On and on.
Here's how I see it.
1. The second mortage game had no end rules, so every "stupid" person in the world could fall for it, and they did. 2. As a small business they played the credit card game to stay afloat. It's common practice to how businesses run when they are unable to qualify for loans. 3. We as a country have a responsibility to ourselves to love ourselves. 4. There is no free lunch, but there are handouts. There always have been.
Lack of regulations have now allowed banks to choose to double rates, change fees, and "force" "delinquency" write offs.
As the economy hits 10% plus unemployment, which is truly 20%, and savings go up (FEAR) we now have half the nation questioning "it's not working" to the Obama plan that has been in play less than 6 months.
Big goverment is always ineffective. Small government, that of the Republican "speak" but never do, always rewards the rich, and destroys the middle class. 540 people, the Senate and Congress, control our destiny.
Bill and Lenore-I'll bet they have liquidated their store, vacated their lease on the run, not paid the creditor, and soon will be foreclosed on their home as all income will stop.
What will happen then? And, what is our responsibility as a people?
