Between the bank bailout, the auto industry bailout and the stimulus plan, the US government has throw almost one and a half trillion dollars into the economy. The good news is that this may make a short term impact on the economy. The bad news is that we may be headed right back into the same problems as soon as the economy stabilizes.

Learn More: Buy The Return of Depression Economics and the Crisis of 2008

Why all the doom and gloom? In spite of the government’s best intentions, it’s my opinion that we’re really not fixing the root of the problem, which is the lax lending and banking laws After throwing over a trillion dollars into the economy, partly to remove “toxic debt” the laws that allow it are still in place.

Let me explain. After the Great Depression, the Glass-Steagall Act was passed. The act, in part keeps banks from getting involved in issuing credit and turning around and making investments. That kept banks limited in what they were allowed to do for decades, and for the most part, the economy did OK.

In the 1980’s there were moves to repealing the act. After all, things were going fine, and banks could handle things better now that the Great Depression was a half-century in the past. Changes were made and rules were relaxed. Then came the economic boom of the 1990’s.

At the end of the 1990’s the Gramm-Leach-Bliley Act was passed in 1999. That act passed on a vote of 214 to 213 in Congress and allowed banks to become conglomerates that allowed banks to do a lot of things they hadn’t been able to do.

One of the things that banks could now do is create investments, such as mortgage-backed securities out of the money they loaned. As many people know, those investments, combined with sub-prime lending and “exotic” loans, such as interest-only mortgages and a variety of adjustable rate mortgages, were a big part of the cause of the “toxic debt” and real estate meltdown that’s fueling our current recession.

Unless we change the laws, it stands to reason that we’re going to end up in the same mess all over again. It took just 10 short years after the repeal of Glass-Stegall for us to end up in one of the worst recessions since the Great Depression. Maybe the next meltdown won’t involve real estate, but I’m of the opinion that it will happen soon.

Here’s some great resources to learn more:

From the gigantic brains at Wikipedia:

• Gramm-Leach-Bliley Act
• Glass-Steagall Act

From the other gigantic brain at PBS Frontline:

• The Long Demise of Glass-Steagall

What bothers me about this is that for all the talk I see about the stimulus, I don’t see any talk of changing the banking laws. Maybe we don’t need to go all the way to completely reinstating the Glass-Steagall Act, but we need to do something, or toxic debt will continue to poison our economic system.

What do you think? Am I way off base here? Let me know in the comments below…

You’ve got a property to rent.  Maybe you’re a little desperate to get the place rented — you own two houses and need to rent one out, are trying to relocate, or keep your investment property out of foreclosure.  These days, all those situations are common.  That’s where the scammers step in.

Here’s how the scam works:

• A renter contacts a landlord via email.  That’s to be expected if you’ve listed your property online, but here’s where things change
  • Usually they don’t give a phone number.  That’s because they might not even be in the US.
  • They contact you from outside of the country.
  • There’s often a long sob story about their situation, to garner your sympathy and set you up for the unusual payment method.
  • They often have broken English, because they’re often outside your country.
• The overpay.  Here’s the kicker.  They offer to overpay you with a cashier’s check, or money order.  If you could just be so kind as to wire them the difference, they will be able to rent from you.  What a deal!
  • You cash the check or money order, and send them the difference.
  • They get the difference as a wire transfer, because the money is guaranteed.
  • You find out the check was bad later, the bank holds you responsible and you need to cover the whole cost.  You’re out the fee, lost time dealing with a false renter, possibly even turning good tenants away.

That’s how it works, and it’s more common than you might think.  So how can you avoid it?

• Deal with people locally.  People you can meet.
• Verify checks and money orders.  Wait until they clear.
• Never accept any check for over the amount.
• Wires.  Here’s how Craig’s List puts it: “NEVER WIRE FUNDS VIA WESTERN UNION, MONEYGRAM or any other wire service – anyone who asks you to do so is a scammer.”

How do I know this?  I used to work as the webmaster for a small rental site, so I’ve gotten an education on these things.

Looking to be the tenant instead of the landord?  See The Scam that hits renters.

Have you been hit by this or something like it?  Let me know in the comments below.

Suppose you’re a someone who’s looking to rent, and you’ve just found an ideal place online — cheap rent for a big place in a great location.  The only hitch is that the owner is out of state or out of the country so you can’t meet. You’ll also need to wire some money for an application fee or portion of the security deposit to them before you rent.  Still sound like a good deal?  Think again.

This is the essence of a common online rental scam that preys on the renters, rather than the landlords. I first encountered this when working as the webmaster for a small rental site.  A property in Miami was listed for just $300 a month for a 3 bedroom.  I got suspicious and contacted the listing party, posing as a renter.  Sure enough, I was greeted with an email explaining how the landlord was out of town and very busy.  If I could just send $200 for an application fee (by Western Union) and half the security deposit, he could get me the place.

Here’s a summary of the warning signs:

• The rent is well below market.
• The place is just ideal.
• The landlord is out of the country.
• You can’t meet the landlord in person, often you can only reach them by email.
• You have to wire the security deposit or application fee to be considered.

Like the saying says, if it’s too good to be true, it probably is.  Oh, and one more thing, just because it’s a real address that you can drive by and see doesn’t mean the person you’ve contacted is the owner.  Take this example where a rent scammer copied a real listing to Craig’s List and posed as the landlord.

Like many online transactions, the two basic rules that stand out are this: work with people you can meet in person and consider nearly anything that invovles a wire transfer a scam.  Good luck and good renting!

Looking to be the landord instead of the tenant?   You aren’t safe, either.  Check out the scam that hits landlords.

Got a rent scam story?  Share it in the comments below…

After this morning’s bad news of layoffs, I thought I’d point out a Bloomberg video I found on Afternoon Rally. It seems that existing home sales have gone up 6.5 percent in December.

While that’s good news, homes still aren’t moving like they should. The video notes that homes are great deals right now, as affordable as they’ve been since 1973, but people can’t get loans or don’t want to buy in this economic environment. Here’s the video:

What’s your housing situation? I’ve got friends who own two homes because he couldn’t sell the first, and another who may need to walk away from their house. let me know what you’re in the comments below…

This week’s collection of five financial stories that caught my eye on financial news site Afternoon Rally and other sites around the web.  This week was a tough one as the economy continues to slide and the bailout continues to balloon…

1. When will it end?  The bailout is now up to 850 billion.
2. Walking the walk: MSN Money points out 5 Stocks the Street is Buying with the hopes that watching what people do will lead to better stock picks.
3. Prison Taught Me Everything I Need to Know About Personal Finance:  An ex-con makes a great post on what prison taught him about life.  If all prisoners learned as well as this writer, we’d have no repeat criminals.
4. How to Make 20 Million in One Weekend!  CNN Money outlines the wild Bank of America deals that include bailout money and a rather hefty per-hour rate.
5. Video bonus!  Foreclosures and unemployment are up, beer consumption down.  Ugh!  I’ll try to get a happier one up next week, I promise:

   
   You can see a constantly updated list of the latest news clips on the front page of Afternoon Rally.  Bookmark the site and watch them every day for the latest news.

This week was brutal, but perhaps the inauguration will settle people’s fears and spur some economic growth.

Got a great finance news story you want to share?  Join Afternoon Rally and tell others what you think about the news.

It seems no one can avoid foreclosure these days.

First of all, from the “I could have seen that coming” category, rapper DMX is about to lose his big house due to a trip to the big house.  The police broke the doors down, they stayed down and as often happens to vacant properties, looters came and cleaned the place out.  Living large and breaking the law don’t mix.

But now even churches are facing both foreclosure and bankruptcy.  That’s unfortunate, but inevitable with the parishioners of those churches fighting to stay in their own homes.  Could churches have planned a little better?  Maybe.  But something tells me many churches are conservative with their finances (at least relative to rappers) and the economy is in quite a tailspin to bring them down.

Maybe better evidence of how foreclosure is hitting everyone is to take a look at renters.  When you pay rent, you’d think the landlord would automatically turn around and pay the loan on the property first.  That’s probably the case a vast majority of the time, but things have gotten so bad that renters are losing their home as the property owner is getting foreclosed on.  Should tenants be allowed to run credit checks on landlords?  I don’t think that will happen anytime soon, but here’s some advice from the LA Times if your landlord goes into foreclosure.

It is estimated that 3 million homes will face foreclosure in 2009.  That’s a daunting number.  There are alternatives out there for people in that situation.  Right now, I’m glad I’m not in that situation.

What’s your situation?  Are you facing foreclosure?  Let me know in the comments below…

My weekly roundup of five financial stories that caught my eye on social news site Afternoon Rally and other sites around the web.  This week, it’s a look back and a look ahead for the first Friday of the New Year.

1. No bonuses for Citigroup Execs: There will be no  bonuses for the top two execs, and reduced bonuses for others.  This is their way of saying “thanks” for the $45 billion bailout.
2. Home prices keep dropping: I guess that’s the good news/bad news of real estate these days.  Great if you want to buy (and have the cash or can qualify for credit) or really bad if you want to relocate.
3. Starting the year out right:  At the time of this writing stocks are up, giving hope that this year’s numbers will be better than last year’s.
4. Let the prognosticating begin: MSN Money gets the stock picking off to an early start with 12 pick for 2009.
5. The Biggest Loser(s): Weight loss is a common New Year’s resolution, but these folks lost the most in their pocketbooks in 2008.  See the billionaires who lost a LOT last year.  A hat tip to Free Money Finance for finding this one.

I do have hope and a belief that 2009 will be better than 2008, if only because we were hit so hard in 2008.  Here’s to a great New Year!

Got a story you thought shaped the week?  Add it to the comments below, or join Afternoon Rally and submit it for all to see.

Recent census data shows what common sense and my own experience have shown — people are staying put.  I recently had to search for a job after my last contract was ended due to costs.  Well, two of the places I’d most like to live are Florida (think Tampa) or Charleston, South Carolina (Mount Pleasant, anyone?).  There were actually jobs out there for what I do, but a really strong offer came in from Charleston, which means we’d have to relocate.

I priced out my options with my spouse and we thought of everything we could do to sell the house and move out there.  We hunted the usual suspects, like ForeclosureStore.com and found great deals on houses out there.  We discussed how to get our house ready and that’s when it hit us:

It wasn’t just a matter of selling our house at a loss, I was a question if we could sell it at all.

I say that because we are surrounded by homes that have sat on the market for months or a year and just haven’t moved, including properties that have “Bank Owned” on them and are presumably at better deals that we would be willing to offer in the first place.

I also know one couple that wanted to move closer to the city.  After a year, new paint inside and out, endless cleaning and grooming of the property and very few lookers – they gave up.  One person I knew moved to Savannah and moved back to Atlanta in 6 months when his house didn’t sell.

Needless to say, I done what the Wall Street Journal says many Americans are doing – staying put.  In fact, the US Census numbers show that most people are only fleeing if they have to, in places like Michigan where the Big 3 auto makers are falling apart.

What’s your relocation situation?  Let me know in the comments below…

If you’ve read my previous posts, you will know that foreclosure has been on my mind lately. Not because I’m facing foreclosure myself (I’m doing fine in that department), but because I know of about a dozen homes within walking distance of mine that are for sale — and have been for some time.

With that in mind, here’s five stories from around the US I found that give a window into the current foreclosure crisis, and how we’re dealing with it:

1. In Corpus Christi, TX — A reporter takes a look at foreclosure day at the courthouse — and the last second attempts people take to save their homes.
2. Desperation breeds scams: USA Today warns of foreclosure scams.
3. Incentives to help you keep your home: Fannie May and Freddie Mac will pay lenders to help people stay in their homes.
4. Leveling off on the Emerald Coast? Northwest Florida reports that foreclosures are leveling off.
5. Don’t Bet On It: 1 in 43 homes in Nevada filed for foreclosure last quarter. Legislators are thinking of new laws to fight the crisis.

Believe it or not, I once was in an “exotic mortgage,” an interest-only mortgage to be specific. Thank goodness I got out of it before things got really bad. It seemed like such an easy way to get into the house I wanted. I managed to see the writing on the wall before the mortgage crunch hit and was able to refinance to a fixed rate mortgage.

The foreclosure crisis will pass with time, but I wonder if we will learn from the lessons of the past. When good economic times make for easy money, banks start essentially giving it away. It happened before with stocks, and now it happened with homes. I do hope that the measures being enacted now will find a way for banks to help people stay in their homes without the banks going under.

Have a foreclosure story? Share it in the comments below:

Your first and best steps to avoid foreclosure happen when you purchase a home. Be a wise mortgage buyer. If you weren’t prepared to financially deal with unplanned circumstances, you may now be looking up foreclosure information.

When you a home, make sure you can afford the payments to begin with. That sounds simple, but today’s foreclosures in the news are a strong reminder of how easy it is to get in over one’s head.

Your down payment should not use up all your savings or investments. You will need that in the event something happens and your income changes. A rule of thumb-you should have enough in saving to cover all expenses for three months. If you don’t, maybe you should postpone buying a home so you don’t end up looking for ways to avoid foreclosure when there is a layoff where you work or an injury or illness prevent you from working.

No matter what the reason you are looking for ways to avoid foreclosure, there are some things you can do to protect your home from a foreclosure auction.

• Be in contact with your lender. They don’t want to deal with foreclosure any more than you do. When foreclosures are on the rise, they are even more motivated to work with you.
• Don’t get more than 3 months behind. Of course your mortgage company may be different, but usually it is during the forth month that foreclosure proceedings and the costs involved will occur.
• When making out payment arrangements, lenders will want $500-$700 of your income left over each month AFTER all your expenses are paid.
• Temporarily get a second job to catch up. This can also help with payment arrangements being accepted.
• Get financial counseling from a reputable and proven agency
• Check into the possibility of refinancing
• Research bankruptcy if you have no other options available
• Consolidate debt and reduce it so there is more money available towards mortgage payments
• See if a personal loan from a friend or relative is available (fill out a promissory note)
• Sell items that aren’t needed (you can buy new ones when your finances improve)

The important thing when looking into ways to avoid foreclosure is to research all your options. Do not fall prey to predatory lenders who will take advantage you in your vulnerable financial position. It is not worth being saved now to only end up with the same or worse financial problems down the road.

Once you have protected your home from foreclosure, evaluate the events that put you in a position to nearly loose your home. Once you found ways to avoid foreclosure, find ways to become financially secure. Look for ways you can cut back and build a savings account or have money to invest for your future. It may be embarrassing to get into a financial position that there is a possibility of foreclosure, but the second time around could be worse…it is best to avoid it all together and learn from your mistakes.