Random Thoughts – Randocity!

Economic Downturn & The Fed

Unless you’ve been hiding in a cave, you’re probably aware that we’re going through a fairly deep recession. Recessions are cyclical, but in this case it probably could have been either avoided or lessened IF the banks and lenders had not been offering creative financing techniques. It also could likely have been avoided if our current pro-business govt. administration hadn’t chosen to look the other way while bad mortgages were being doled out. The problem with all of the creative financing is that it tended to lead some people into believing they could afford a mortgage they could not afford. When the loan reset after the promotional period, the realization quickly set in. Worse, the situation was compounded by property investors who sank huge amounts of loaned money into properties that would eventually become valued less than the loan.

It’s not as if the handwriting wasn’t on the wall several years ago when the fed dropped the rate to 1 percent. Now, we are back in this exact situation again with the fed dropping the rate to an unprecedented 1/2 percent. The feds are, again, trying to spur the economy like they did 2-3 years ago. But, this time, the banks don’t have money to lend. So, the 1/2 percent may not trickle down into the mortgage market like it did several years ago.

But, our economy is still likely being set up for yet another financial failure. The banks that do have money to lend are still advertising on the radio claiming extremely low interest rates.  The problem isn’t the rate, but the loan you’ll be getting. If it’s a standard fixed rate loan, that’s fine. But, it’s the fine print you need to read. Don’t get locked into an adjustable rate mortgage or a limited time interest only loan. Once these creative loans reset in a couple of years, you may end up deep under water.

The Fed, therefore, needs to be extra careful when cutting the rates this low again to avoid the same mortgage problems all over again.

Scams in a down economy

With the economy being so depressed, it’s also a good idea to watch your money closely. As money gets tighter and tighter, the scammers will come out of the woodwork (and they already are). I’ve already noticed a drastic increase in spam and phishing emails since the economy has taken a turn. It’s going to get worse before it gets better.

There are many scams out there from the Nigerian 419 scam that claims to give you a ton of money only to rip you off of thousands of dollars before you realize it, to sending you what look like official invoices that only turn out to be scams in themselves. Don’t fall for them. The easiest way to avoid scams is to not give out any personal information to anyone who approaches you claiming to be from a legit company. This means, if you receive a call asking you to make a payment and they request for you to give a credit card over the phone, don’t. Make sure you know who this company is first and make sure you are a customer. Then, tell the company that you will call them back through their official channels and make a payment that way. As long as you are the person making the call to the official number, you should be safe. With incoming calls, you have no idea who is really calling you no matter what the CallerID says. Always, always call companies back from official numbers located on a trusted bill or from the back of your credit card.

TV advertisements that offer products or services usually employ people who are not paid very well. So, be wary when you give your credit card number out to TV commercial based purchases. Not only are some of these companies impossible to get refunds, your card number could be enrolled in a club or, worse, stolen by one of the telephone operators in an independent scam. You should always Google the product you are thinking of purchasing to 1) find out if you can find it cheaper online and 2) find out if people have had issues with either the product or the companies refund polices.

Get rich schemes are basically another form of scam. Yes, they do make someone rich… the person who created the scheme, but not you. Get rich schemes are usually designed to part you from your money. So, in a down economy, you should avoid get rich schemes (placing classified ads, setting up ecommerce sites that sell Amway products, or Multi Level Marketing – MLM schemes). Note that MLMs only make the top most people money. If you’re anywhere near the bottom, you will be parted from your money.

Craigslist and even eBay are a haven for scammers. Be careful when you work with people selling or renting things. Never buy or rent anything sight unseen and never give money out as a ‘deposit’ or to ‘hold’ something unless you truly trust the individual. Chances are, if the person you are thinking of doing business is presently outside of the US, you should immediately stop the transaction unless you know for sure that what they are selling/renting is legit.

If you are selling a car or renting out an apartment, watch out for scams here too. There are some people who are outside of the US who will claim to give you an excessive sum of money in the form of a check. They may even send you what looks like an official check.. the problem is that it will bounce causing you fees and other associated problems (and may let them get access to your account number). Don’t cash any checks like this.

The bottom line is that in this weak economy, you should be extra careful with your money as there are lots of desperate unemployed people willing to do anything to make a buck (or a thousand). Always make sure to do your homework before buying anything or giving out personal information to someone you don’t know. If you suspect a scam, you should alert your bank or credit card company immediately.