A "write down" of common sense

DANG IT!!!!! I really fouled up. Mrs. Lex and I went out and bought a house we could afford. What idiots!!! Had I only know we could have dragged Mr. and Mrs. America in as co-signers, I’d have bought a much bigger house that we couldn’t afford and stuck the co-signers with the bill.

Can you believe this? Fed chairman Ben Bernanke said, "In this environment, principal reductions that restore some equity for the homeowners may be a relatively more effective means of avoiding delinquency and foreclosure."

Lemmesee, principal is that part of the loan that comprises the face value of a loan - right? The principal is that part of the loan for which the interest is figured right? So Bernanke is saying, if I barrowed $150,000, the bank ought to restructure the loan to say I only barrowed $100,000 – can that be? So I’ve spent all $150,000, but I only have to repay $100,000?

Great idea! And who can possibly lose in that deal? Wait a minute, the bank. What happens to $50,000 I barrowed from the bank but don’t repay?

Mr. and Mrs. America put their hard earned Yankee dollars in the bank. The bank loans that money out to Lex to buy a house. Lex buys a house three times bigger than he can afford and now can’t make his house payment. So, the bank throws $50,000 of Mr. and Mrs. America’s money away so Lex can stay in his house!.? Sweet – for Lex. But won’t Mr. and Mrs. America get screwed?

No. The bank does a “write down”.

What’s a “write down”?

I don’t know, but I keep hearing it on the financial shows. Look, think of it as deleting a file off of your computer. The file is there. You highlight it and then hit delete and the file is gone. Nobody knows where the file goes, but it’s gone. It’s the same with the $50,000. It’s there. The bank “writes it down” and then the $50,000 is gone.

OK fine. But isn’t it really like me going on to my neighbor’s computer and deleting his files?

You’re over thinking this whole thing. Just think of it as “the bank” and leave your neighbors out of it. You’ll sleep better at night that way.