Oh, oh! Seems theres 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 theyre 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, shell 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 wont see her for 300 years, he concluded. (I cant even contemplate a $ trillion.)
So, bailing out the financial institutions will now take $356 billion which, I suppose, we might find acceptable if wed only see some positive results. So far, were not seeing squat! In fact, if all this help is supposed to get credit flowing again by making the financial sector more elastic, its bombed. Heres 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, Textrons recent rate increases and GEs doubling of floor plan interest. Accuse me of being stuck in stupid gear if you want to, but if dealers cant pay the old floor plan rates, how does one figure theyll 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, isnt 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, its now being reported that lenders, most notably GE, are selling boats direct. Moreover, for 20 percent or more below wholesale. If you dont 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 theyre ability to sell products at a price that will provide the funds to pay back.
Hey, Ill bet my old Econ 101 professor would say: Theres a textbook case of shooting everyone in the foot!