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Iowa | I'm not sure I understand the question, but I'll try....
Deere financed plenty of stuff then, too. I don't know why that would mean anything different, but I've seldom been accused of being smart....
Differences I can see:
1) Interest rates can easily be FIXED now--it wasn't the case then--there had been a lot of inflation in the later '70's and it was nearly impossible to fix the rate of a long-term loan. So payments often DOUBLED or TRIPLED about the same time as farm income was rapidly falling. That equals disaster.
note: you guys who are proud that you're saving ONE or 1.5 points of interest with variable-rate loans, good for you. I can't afford to see my rates DOUBLE, TRIPLE, even QUADRUPLE, but I can afford the "extra" 1-1.5% I'm paying now......
2) Banks were loaning nearly entirely on net worth--"lucky" net worth as they were happy to put that farm you paid $700/a for on your net worth at $3500 (which was just luck and had nothing to do with EARNED net worth) and then pat you on the back and tell you how well you were doing, and then loaning based on (inflated) net worth. Now, banks aren't getting quite so wrapped up on inflated net worth. They want to see EARNED net worth and base COLLATERAL off of worth but base PAYMENT CAPABILITY off of projected INCOME. It doesn't matter a hoot that you're worth 3 million because your land value has ran up if you only make $30,000 a year--you can't pay back much of a loan. I think the majority of the banks still remember the '80's.
3) There wasn't much cash rent, at least in Iowa. Landlords shared in the risk and benefited from the higher prices, but once income came down, farmers weren't saddled with unrealistic cash rents, as would be the case if income crashed now. Landlords were happy to see their tenants doing well, because that meant as a crop-share landlord THEY were also doing well. Everybody was happy when times were good!! Now-cash rent has overtaken crop-share as the "norm", and landlords DO NOT want to see their tenants do well--"doing well" equals "I want more rent". I think if we have a crash the high rents spilling over from better times will sink as many farmers as high interest did last time.
Similarities I see (before the CRASH of the '80's and now)
a) Tons and tons of new paint, so much so that you have to wait for a planter/tractor/combine--they can't make 'em fast enough--same thing happened then when guys were waiting for their new 4430's.
b) bigger and better vacations. I'm not finding fault, just seeing the similarities. I'd bet NONE of my neighbors had been to Hawaii in 1970--by 1980 I bet half of them had. Is that necessarily wrong? No, just something I noticed then and am noticing now.
c) Speculation in areas outside of a producer's expertise, like precious metals (how'd that work out LAST time?) Again, to each his own... I hope anyone with the guts to do it gets rich. Personally, I'm staying with stuff in my area of expertise that I can concentrate on full-time, not to try to outfox a Jew in Chicago or Manhattan.
Benefits of perfect hindsight: Bulletproof your operation now. Fix interest rates. PAY STUFF OFF with windfall profits, don't go borrowing more.
I'm out of time right now. 3 similarities, 3 differences. Deere financed stuff then too-I don't see how that matters. | |
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Tommy. Question about forced sales
