Suggestions Of Bail-Outs
Several readers suggested the new legislative proposals as a topic. “March, 2007: Subprime melts down, leaving pretty much no doubt even in the minds of the media that there had been a bubble accompanied by fraud. So what now? Senator Dodd’s suggestion of bailouts is actually big news. It’s a milestone. How long have we been discussing that there would be cries for a bailout?”
“If there is a bailout, we as taxpayers who never participated in the scam will be persecuted to bail out the fraudsters and speculators.”
One reduced it to this, “Is a REIC bail-out good for housing, bad for housing, or simply inevitable?”
Another sees, “I think a bailout is ‘in the bag.’ The news of Goldman Sachs’ interest in subprime lenders was a dead give-away, IMHO.”
One said, “These guys are just capitalizing from their ’strategic position’ in the lending spectrum. They are at the center of the information universe and are willing, able, and duty bound to exploit this advantage. What’s more, like Fannie Mae, they are given Carte Blanche under the label ‘Too Big to Fail.’”
A reply, “How many Too Big to Fail corporate entities can Uncle Sam Insurance Company carry on its books before the insurance scam collapses of its own weight?”
Another had this, “If a borrower feels they were a victim of a lender isn’t the remedy a lawsuit? The real truth about these bail-out ideas is that the FB’s could not hold up in a court of law with their claims of being a victim. Can you imagine a borrower submitting a lawsuit where they lied on the loan application in order to get the loan?”
“I’m sure there are some cases of some borrowers being a victim of fraud by the loan company but you have to be able to prove it in a court of law and maybe some can.”
“What I don’t like is that some of these FB’s are going to claim that they were victims when they knew darn well what they were doing. Are you a victim simply because you believed the sweet talking hype of the REIC that it was a sure bet that you would make a profit in real estate?”
“It seems to me like alot of these FB’s want to claim ‘victim’ simply because they decided to not read their loan documents because they were caught up in the profit seeking real estate mania.”
The New York Times. “‘I have two public policy goals,’ said Senator Christopher Dodd, who is a presidential candidate. ‘One is to make sure that what’s been going on stops. That is the easier of the two issues to address. And the second is what can we do to keep people in these homes. What if anything can be done to prevent flooding the market with these delinquencies.’”
“‘I’m not averse to legislating on it,’ Mr. Dodd said. ‘My preference is to see whether it could be better managed by the regulators knowing that legislation can be so difficult to get through.’”
From USA Today. “Andy Sobel is selling his San Diego condo for $60,000 less than he owes on his mortgage. He’s six months behind on his payments, but it’s all he can do to avoid foreclosure. He’s also writing to Rep. Barney Frank, chairman of the House Financial Services Committee.”
“‘Please don’t let this happen to anyone else,’ Sobel says he’s writing, and will explain how he was ‘duped’ into buying his first home in 2004 with an adjustable-rate mortgage designed for him to pay only the interest each month, no principal.”
“‘I know there are a lot of people like me, families — this ruins some people,’ Sobel says. ‘If there is going to be any kind of bailout, we should be part of it.’”
“Politicians have long encouraged the idea of homeownership. And government has played a substantial role in fostering homeownership, including offering mortgage insurance and creating Fannie Mae and Freddie Mac to buy mortgages from lenders and repackage them for sale to investors.”
“Moreover, the government has provided an ever-growing pile of subsidies to the buyers of homes.”
“Hundreds of thousands of families who bought houses in the last two years are now losing them. ‘Clearly we went too far,’ said Joseph E. Gyourko, a professor of real estate and finance at the Wharton School of the University of Pennsylvania. ‘It’s not the case that high homeownership is always good.’”
The North County Times. “‘It was all about return, yield spread and profits,’ said Robert Simpson, president of Investors Mortgage Asset Recovery, which helps mortgage companies recover money lost to fraudulent borrowers. ‘Let’s be clear that what we’ve done is bury people in debt.’”
“Tom Zimmerman, an analyst with the international investment company UBS who tracks the mortgage industry, said that lenders had not done adequate underwriting, that is, determining the risk of particular loans. ‘What was bad underwriting in ‘04 and ‘05, became atrocious in early ‘06,’ he said.”
The City Journal. “It’s conceivable that Dodd will propose some sort of government subsidy for Fannie and Freddie to buy out some defaulted mortgages from their private investors, taking over the loans and refinancing their terms with borrowers so that borrowers can stay in their homes.”
“Sounds harmless enough, right? But it would create a huge problem. Investors in mortgage loans, including investment banks, pension funds, and international bondholders, jumped into risky subprime mortgages because they were paid for that risk, getting higher interest rates than they would have received for investing in, say, Treasury bonds.”
“The reason that the risky mortgages paid more, of course, was that there was a very real possibility that lots of borrowers would default.”
“If the government, or its proxy, now steps in and purchases those mortgages, or otherwise systematically bails out borrowers, it will create a hazard for the future. The next generation of mortgage lenders won’t take the high risk of subprime home loans seriously, because they’ll expect that, in the event of another crisis, the government will step in and bail them out again.”
“So they’ll be even more eager to approve the risky subprime mortgages that are getting so many borrowers into trouble in the first place.”
The Washington Post. “Naturally, Congress will want to know whom to blame for this reckless lending and borrowing. The usual suspects come to mind: the Fed for pushing interest rates down to half-century lows, the bond-rating agencies for sugarcoating the risk on mortgage-backed securities and the lenders who competed with one another to see who could operate in defiance of the greatest number of canons of prudent credit practice.”
“It was Congress itself that eliminated tax deductions on interest for nearly all consumer debt, but let them stand for residential mortgages.”
“But our lawmakers should not forget to call human nature to account. In 1886, 40 years before the birth of former Fed chief Alan Greenspan, the Great Plains was the scene of a terrific real-estate boom, financed by the most reckless kind of lending. There was no Fed, and there were no rating agencies, just lenders and borrowers taking leave of their senses. They returned to them, eventually. They always do.”
There will be a bailout. It just makes too much sense NOT to have one, so I figure we will.
My problem with it is largely that I believe the wealthy should help the poor, but that the smart don’t have the same obligation to the stupid.
Anyone who thinks a bailout is possible has no idea the scale of this fiasco. To big to bail, Billy Boy.
Right, how could anyone even quantify the amount? Would there be a means test, or application to second homes?
Ben, I know this blog remains mostly observational. But in the near future, real legislation, real actions are going to be taken. And the members of this blog stand to lose the most. 69% home “ownership” in the country makes “bitter renters” an unprotected minority. A coalition is needed. The coalition of fully-owned, mortgage-free households and renters. Together we are a majority. Both groups will bear the burden of a bailout. While the true home-owners (not debtors) stand to lose paper wealth by the decline in property values, we have some hope. They didn’t already take the HELLOC bait, surely they too realize the foolishness and greed of the “victims”
“Together we are a majority.”
How can 31% renters, many of whom are likely from the bottom wrung of society (illiterate nonvoters) possibly muster a majority?
My wife and I have owned our house since 1998. We would both vote against any sort of a bailout. There are many homeowners like us who live within their means and bought only as much house as we could afford, using traditional 15 or 30 year fixed rate mortgages. There are also many people who own their homes outright, who hopefully will also vote against a bailout.
Because there are also homeowners — like older, retired people on fixed incomes — who would not want a bailout if if meant their dollars would become worth less.
I really advocate for a lobbying group. What we need is one blog/site (could be Ben’s with a dedicated site like M&M or a sticky portion on this HBB site) where we can gather, exchange ideas and come up with a plan.
I’d be more than willing to help with some expenses and administrative duties (not very tech savvy).
Anyone else?
My hopes are that this lobbying group would be successful. But yes, 31% of us are renters. Combined with the responsible homeowners such as those you mentioned, I do not know what the percentage will be. So I use all the tax loopholes I can find so that I won’t be subsidizing the FBs if there is a bailout. Harry Browne, in “How I Found Freedom in an Unfree World,” made it a point when he said the best way to achieve your goal is to take the direct approach, rather than trying to persuade other people to help you with your goal. I voted Libertarian since 1980. But it did no good. I found good tax loopholes 7 years ago and I use them. Now I am at a lower tax rate than I was in 2000 and I did not have to persuade other people to get me that rate. I simply used the http://www.irs.gov web site and found the publications I need to use to get me into the eligibility for this lower tax rate.
Consumer Reports has weblinks, when users click on it, it will send a pre-written letter to the users representatives. Someone good at programming can create a page like that, and everyone on this blogs can start spreading the URL, urging people to act against bailing out. The true culprits are the securitizers (GS, Merrill, Bear&Stearns), and the rating agencies.
Ken- That is a really good idea. They need to see that there is sizable opposition to this idea.
Can anybody here do this?
I’ve written to Dodd, as others have. But I think our indivisual emails may get lost in the shuffle. It’s pretty clear they don’t get read, just get a pre-generated reply.
If they kept getting the same letter over and over and over, they might start getting a clue that opposition is afoot.
The WA. state realtors did a “bombard campaign” this year. They had the standard letter that got sent and then individuals could add their own thoughts on at the bottom.
One thing they could do is to have FRE’s and FNM’s low income lending goals expanded and satisfied by buying distressed mortgages.
That would reliquify the market.
So a FB who owes 600K on a 400K house…the loans might be selling at 50 cents on the dollar. FRE and FNM could buy them for 60 cents on the dollar and give the FB a regular interest rate amortizing loan (if they coudl afford it). And FNM and FRE would forgive the “prepayment penalty” in the refinance.
It’s a little bit of a catch-22. The FB can’t afford the 10% interest…but if it were 6.5% interest on a smaller loan balance they could.
FRE and FNM are trying to demonstrate their “worth” to the housing system, justifying their large holdings of mortgages (over 1 trillion)…so I think they’d want to do it.
Obviously it wouldn’t work for everyone. Some people own 10 houses and can’t afford any payment at all. So they are done. But for a primary residence, it could work.
The banks and hedge funds would be thankful to get it off their books for more than its distressed value, knowing that in a foreclosure they’d lose even more.
How much could they buy? Well they currently own 1T in mortgages or a little more. 1M houses at 400K per house average is 400B. They have almost unlimited financing…people love loaning them money at low interest rates.
On one of the earlier ‘blogs’, there was a link to a site which enumerated and quantified Dodd’s campaign receipts from the WS firms and lenders. I have misplaced the link. If anyone still has it please repost. Thanks
Here you go:
http://www.opensecrets.org/politicians/contrib.asp?CID=N00000581&cycle=2006
Maybe they can use the Katrina model and give out pre-paid credit cards. The strippers and liquor stores made out good on that…
With Katrina hanging in our recent history, it’s surprising to me that some of our posters actually think bailout is possible. Our government is about as impotent as an 60-year old diabetic.
But we are talking about bankers here, with a powerful lobby. Those guys play dirty.
Excellent point. All those folks got was a three month extension on their foreclosure.
Ben, down here in LA, tens of billions of taxpayer dollars are going to be spent to bail out N.O. The only reason progress hasn’t been made and the money spent is LA politicians are fighting for control of the $$$$$. As soon each has his allocation, money will pour into N.O. faster than the flood waters.
Take a peek at “The Road Home” program….it’s just the tip of the iceberg and a total farce.
The parallels of both debacles are unbelievable:
http://www.youtube.com/watch?v=Z_Ny9_CrUVY
I don’t think “they” are talking about mailing checks out to FB’s. This is more about the guvment leaning on lenders to not enforce the entire debt they are owed, prolong foreclosing, forgive late fees and penalties, etc. Gives the FBs undeserved help, the politicians get the credit, costs the guvment nothing.
The question is, how much will the courts allow the politicians to violate Constitution to accomplish this epic destruction of Contract Law?
Actually, folks with FHA/VA or Fannie/Freddie mortgages got longer than 90 days. I’m pretty sure that some FHAs are still in forebearance. But it is worth noting that the person in charge of coordinating all this was not some housing advocate type, but a former head of the FDIC. I always thought that was rather telling.
Even the GSEs would not lend to some of these subprime borrowers. Subprime lending got way out of hand.
“has no idea the scale of this fiasco”
After much thinking, I’d have to agree with you.
However, I think that some of the financial institutions will get bailed out.
The problem of scope will hopefully stand in the way of efforts to craft a bailout. How would you begin to help just the 800K+ Clownifornians who bought homes with subprime, many of whom are illegal aliens (a the group that Senators Dodd and Clinton presumably are hoping to help with U.S. citizens’ tax dollars?) and many others are flippers and specuvestors who bought multiple homes on leverage. These Washington folk are clueless beyond the pale.
Dodd and Hillary clearly are casting a calculating eye on the millions of “Democrat on Arrival” illegal aliens and “disadvantaged minority” voters who, combined with the social parasites that form their base of support, would give the Democrats a permanant monopoly on the levers of power.
Since when has tax payer’s money kept politicians from self serving projects? We have the disadvantaged, oppressed, struggling, hard working VOTERS who merely want fair treatment in pursuit of the American Dream…….(tongue firmly in cheek)
They’ll come up with some patriotic sounding name of the program to halt foreclosures with guarantees of no interest loans…..just long enough for market to “rebound”. Wall Street is happy, lenders are happy, and FB’s are happy. AG said we don’t have a subprime problem, we have a housing value problem…waive a wand and get values up 10% and the “problem” goes away.
Think about all the groups that will make political hay over “saving homes for American Families”……..
The ONLY way I believe this will not happen is if it’s never given the opportunity to gain momentum.
Not what I want; but what just may happen.
To big to bail
Oh no it’s not. We’re in the middle of spending a trillion on a useless war. Another trillion, or even 5 trillion, won’t stop any politician. Inflationary, yes, but weight that against millions of voters losing their precious “homes”.
The only question is how much do creditors get, and how much do borrowers get.
Not a chance that the bailout will help the borrowers. The bailout is designed to help the banks and lending institutions. Just as the stock market bailout of 2001/2002 was not to help those caught in the dot com bubble bursting but the wealthy Wall St. establishments. This proposed bailout is going to be a lot harder to swing because the housing market is 4x larger than the stock market and more individuals will be affected.
‘The bailout is designed to help the banks and lending institutions.’
That is a real possiblity, as that was done with the S&L’s and both of the Mexico bail-outs. But many of the banks and S&L’s went under, so the beneficiaries of the BO were those who ended up with the assets. We should be vigilant.
Yes, that is true. And as bank and not real estate holders, the bank flooded the market with more inventory using auctions. Given the shock back then. Everyone was staying away from RE as investments and prices declined. All the myth today vanished in 1990-1.
If Dodds and Hillary want to make this a hot issue for the 6 oclock news and front page headline .. go right at it. They are exposing the house of cards many here already discussed for years. It wont help them politically and will run the NAR out of Washington.
It will also expose how all this was a mania and no fundementals. Im sure all the myths …’ Buy now or priced out forever’ and ‘RE only goes up’ will revisited. I dont mind seeing DL and NAR flip flopping infront of Congress. I dont mind appraisers exposing how realtors are are pumping prices. Let if all get exposed.
I agree. I mentioned this week that they were lifting the lid of something they wish they’d never looked into. Pandora’s box indeed.
If they start will subprime, they’ll get that shovel of dirt all tidy in a pile and start bowing…. only to have a dump truck full of muck in the form of ARM resets fill the whole room…. followed by another, and another, and another with each sucessive year.
But wait, you said on the other thread the Fed did bail out stock traders. I disagree. Perhaps the institutional ones but not the retail.
Hi Tx, In my sloppiness, I may have been misinterpreted as “retail”, but the 01/02 bailout was solely for the establishment akin to (as Ben said) the S &L bailout. The )1/02 bailout accelerated this debacle. The government doesn’t give a rat’s ass about the finances of the lower 90% of income. And why should it? The large businesses donate the moneys to buy politicians. Dodd is a “Democrat” who has consistently voted with big business / pro wall street interests. I doubt if there is a truly independent representative in Washington D.C.
What about Webb ?
Not a chance that the bailout will help the borrowers. The bailout is designed to help the banks and lending institutions.
Good point. When Argentina and other Latin American debters looked like they were going to default on their loans, the huge “rescue package” put together by the IMF and World Bank - largely financed by the US gov’t, meaning, us taxpayers - went almost entirely to the bankers. The financial oligarchy that controls our political system will aid its own, not the pitiful deluded FB masses.
ON point. The lenders will benefit if anything is done, not the FBs.
Don’t know about a bailout. Check out the responses to the USA Today article (posted below the article). It seems like the vast majority berate the fool for getting in over his head. Not a random sample of the typical American - but reassuring nonetheless.
2007 is going to suck. ™
-Rent
I don’t recall any bailouts in the last bust during the early 90’s.
Did you never hear of the Resolution Trust Corporation? Twas a giveaway to the banks, same as the proposal that Senator Dodd is likely to craft (look at Dodd’s list of campaign contributors if you want to see the reason — the more money he funnels to big investment banks, the bigger his campaign war chest will grow).
‘According to Joseph E. Stiglitz in his book, “Towards a New Paradigm in Monetary Economics,” page 243, the real reason behind this company was to allow the United States government to subsidize the banking sector in a way that wasn’t very transparent and therefore avoid the possible resistance. This is supported by the fact that the banks had better information related to the loans than the RTC.
For an in-depth discussion of the RTC’s development, its unique structure and personnel practices, and the impact its structure had on its performance see Mark Cassell’s book, “How Governments Privatize: the Politics of Divestment in the United States and Germany” (Georgetown University Press, 2002) Skipbn 02:35, 2 February 2007 (UTC)’
http://en.wikipedia.org/wiki/Resolution_Trust_Corporation
If there is a bailout, then even though I am currently a renter and never participated in this real estate cluster-fark, I will be demanding the government at least provide me with a down-payment when the time comes for me to buy a house. Idiots and fraudsters should not be rewarded and people who had the commom sense to stay out of the way be punished when the government opens up the pocketbook.
“I will be demanding the government at least provide me with a down-payment when the time comes for me to buy a house. Idiots”
good luck
Bailout is not very likely at this point. A candidate for President works on sound bites. It is unlikely anyone on the staff has fully reviewed what has happened in depth.
There is, of course, no actual money for a bail out now, or in the foreseeable future. These amounts of money cannot be deferred without significant inflationary risk.
This is really a non-issue at this point.
Folks need to understand the scope of this problem, and it goes beyond a few disgruntled debtors. The government is proposing a bailout? With what exactly? The US is the largest debtor in the world! The gov’t better be asking their creditors first before they start making these potential promises. I am guessing that creditors will not support the bailout, and their vote will be shown in the massive drop in value of the dollar at the first hint that the FED will support the gov’t by creating more of their notes.
It appears to me that we’re poised on the knife edge between hyperinflation and deflation. If the gov’t turns on the printing presses to bail out the i-banks and FB’s then the inflation scenario seems most likely. Because then “In Moral Hazard We Trust” will be the new national motto, and any of us stupid enough not to throw caution to the wind this time won’t make that mistake again. Weimar Germany here we come? Got gold?
For an economy to function excesses must be punished and purged from the system, thus the cycle (and it has always been thus). If consequences for bad decisions are removed, then there really is no risk except for our dollars becoming worthless.
I am always wondering why we all call it a subprime “meltdown” when “freeze” would be a better description of a situation where few or no loans will be made. …
Anyway, re the bailout: much as I dislike Dodd and disagree with the idea of helping speculators to hang onto houses they can’t afford, there may be a grain of benefit to an ORDERLY decline. When he says he doesn’t want the market to be flooded with these delinquencies, we should perhaps agree with him. To see a 1929-style crash might be a good accompaniment for our popcorn, but most of us do NOT want to have to head for the hills with food, water, and bullets, as several posters in recent days have suggested. No bailout they can devise will prevent prices from coming down, so I am not much opposed to a bit of whatever window dressing might keep the FB masses from rioting.
Are you suggesting a nice orderly Japanes like unwinding?
“Are you suggesting a nice orderly Japanes like unwinding?”
Probably the best idea, but it would kill me to watch a slow, agonizing drift to the bottom. I’m greedy, too. I want it all and I want it now, as far as a crash goes. So I can pay cash for an older Florida concrete box.
I am still P!$$ed after 7 years of trying to live closer to the city. I am 40 miles away & can’t stomach paying $500 - $800 K for a place 1/2 the distance. Let the smug ba$tard$ rot in BK hell. Let those who played with the IO ARM fire BURN
Dodd is a classic charlatan. Shameless. I can only hope nothing emerges to bail out the FBs. We live in a society that permits risk taking. You take a risk and you suffer the consequences. Where was the bailout for the NASD investors that lost BILIONS. It’ll never fly. This is a market problem and the market will fix it.
Lender bailout is another story. They represent the stability of the financial markets. Some lenders may fail but others will be shoered up. That’s guaranteed.
Bingo. Risk taking is fine, provided that those who engage in it get to live with the consequences when the gamble turns out badly. But it is terrible policy to ask non-parties to risk to ante up when gamblers are ruined. Among other consequences, you could end up with a negative national savings rate.
Could? We have one now.
Some say the world will end in fire,
Some say in ice.
From what I’ve tasted of desire
I hold with those who favor fire.
But if it had to perish twice,
I think I know enough of hate
To say that for destruction ice
Is also great
And would suffice.
– Robert Frost –
azlender,
I disagree totally. There is a whole generation of debt addicts that need to be taught a lesson the hard way. Besides, it is a very slippery slope, once you agree to SOME help to the lenders who knowingly made totally irresponsible loans, or to the borrowers who knowingly or negligently accepted them, you’re on your way very quickly to a full blown bailout. Why should we, after sitting out of the market all these years, have to subsidize these people?! If anything, I’m in favor of organizing DAILY calls and letters to any senator or congressman who so much as breathes the word bailout.
I agree 100%.
How about attack rather than defense? Walk in to your local community organization, union, church or baby-sitting co-op, say that there is a problem in the housing market and say that you know something about it. Find one person who is willing to learn more and give him the info he needs, make sure it’s right. How about recruiting someone from the finance/banking industry to give a talk? How about a fixed-limit bailout like $1 billion to Fannie Mae and Freddie Mac to stablize mortgages the best way they can? Readers of this blog need to assess their ability to wage war - can I speak on this subject? Can I spend an hour a month working on it? Do I have an extra $100 to spend on it?
God bless America!
Get out of dollars. bailout is effectively tranfering your savings to the speculators in real estate including the wall street millionares. I hope their is a political backlash against it - its time to take action - atleast write to politicians.
IMO, there was a resounding silence to these proposals. DOA.
Any proposal to bailout with be about as successful as attempts made to end world hunger - just ain’t gonna happen…..not in our lifetimes.
Yup, I’m with you on that. I used to fear a bail out, but now I’ve learned to Stop Worrying and Learn to Love the Bomb. I can think of no way a Federal bail out of FB’s could work. Along with the money issues (as I’ve described below), there is triage issues: what are the criterion for who gets bailed out, and who doesn’t? A “a community organizer for a non-profit” who buys a (relative to other parts of America) expensive condo in San Diego? A waitress at Denny’s whose about to lose here 5 ‘investment’ properties? Who?
This whole thing is just another of history’s crude transfers of wealth. The smaller banks and brokerage firms will be liquidated. The big boys that survive, and they always do, will snatch up assets for pennies on the dollar. What do you think happened in the 1930s?
Remember Mr. Potter from It’s a Wonderful Life? He came out of the Depression stronger and wealthier than he ever could have during a time of prosperity. He is a symbol of big money. It may not be the hyper-inflation of Weimar, one of the crudest wealth transfers in history, but it won’t be far behind.
Bailout or no bailout the big powers will come out of this with a huge smile on their face. They win again.
Hmm, I kind of thought WE would come out of this ahead, by snapping up RE assets for pennies on the dollar.
I think whether or not we come out ahead depends how bad it gets.
You may see some non-financial bail-out options, like foreclosure freezes, tax forgiveness to encourage leniency on deficiencies, fine-tuning in the bk law. I would expect a mix of state and federal measures that may make future lending less profitable, and encourage higher rates.
lainvestorgirl
Chaos is notoriously difficult to predict. That’s why even though it is cliche and trite, Wall St prefers stability to uncertainty even when the news is bad. Never assume that you can take an action and certainly come out ahead, but be ready to react to opportunities that are more likely to result in you coming out ahead and you’ll do well in life.
I see your point, this definitely has the potential to get out of hand.
“IMO, there was a resounding silence to these proposals. DOA.”
I think Hillary and Dodd already got the most they can hope for. Stating for the record “I’m shocked and had nothing to do with it, and I’m here to help.” if either really tries to flog this dog, they will go down in flames.
Let’s be clear here. There are probably some examples of people being duped into getting a loan they couldn’t afford, but for the most part they had a good idea what they were doing and figured the house was going to make them rich.
No one bailed me out in 2000 when the stock market crashed. Who do we complain to because at the time I was always told that just be long in stcks and you can’t lose. I was promised 12.5% / yr. Where is my bailout.
As someone said last week, say no to the privatization of profits and the socialization of risk
“‘Please don’t let this happen to anyone else,’ Sobel says he’s writing, and will explain how he was ‘duped’ into buying his first home in 2004 with an adjustable-rate mortgage designed for him to pay only the interest each month, no principal.”
Duped? Why do I suddenly have an overwhelming desire to see this guy publicly caned, followed by a rectal probe with a watermelon.
LMAO, ex-nnvmtgbrkr! It reminds me of the folks who get involved in big, high profile personal injury cases and proclaim “We’re not doing it for the money. If we can prevent this from happening to JUST ONE person…”
“I suddenly have an overwhelming desire to see this guy publicly caned, followed by a rectal probe with a watermelon.”
you want relief… here (swift kick to the nuts). There, now you can hardly remember what you were complaining about, can you.
“Sobel says he’s writing, and will explain how he was ‘duped’…”
The world is waiting on pins and needles for your prose.
The reasons for buying the condo and now writing about how you were duped were both done for the same reasons. You thought you would become rich.
“Sobel says he’s writing, and will explain how he was ‘duped’…
Funny, I bet his coworkers back in 2004 can remember him bragging about the great new condo he bought, and his expectations for its’ appreciation in the future. Yeah,he was duped…he believed the RE only goes up, that he could stretch into the loan and come out ahead with his condo’s appreciation, that he could sell it for mega bucks and buy an even bigger place, that leverage is the name of the game…another of america’s genius real estate investors.
You would have to have a heart of stone to read of Mr. Sobel’s plight, and not laugh.
Well, he was just throwing his money away when renting in 2003.
I live in San Diego and what this particular blog entry brought to my mind was a conversation I had with a coworker in 2003 or so. He had read some article in the paper that said San Diego homes had appreciated an average of like $900 per day over the past three months, or something crazy like that. He said to me, “Do you own a home?” And I said, “Yes, although it’s just a condo,” and he said (and I’m paraphrasing here), “It doesn’t matter. At least you’re ‘in the market.’ I don’t know if those people who aren’t in the market yet will ever be able to buy a home here in San Diego.”
And why I remember this conversation is because of the way he made this statement. Like we were the fortunate class, to be owners, as if he was implying that, basically, 25 years from now you’d have “owners” and “non-owners” here in San Diego and if you were talking to a “non-owner” it was probably because his parents were “non-owners.”
Personally, I hope for a purging of irrational house prices. I would love to see a 50% decline here in San Diego in order to return house prices to some sort of normalcy.
(Case in point: a house that sold down my street in 1999 for $270k. Changed hands a few times, one owner build a bedroom/bathroom/kitchenette over the garage, and it’s on the market now for $1.2 million. Insanity.)
duped… duped… duped? I don’t get it. I knew enough that once prices rose to 5x my income it wasn’t viable to buy. Once prices rose to 10x my income it was guaranteed that no way, no how would I enter the market. How does one get duped into houseshopping, making an offer on a house you have no hope of paying off based on the income for the career you have chosen… and then walk into a mortgage office and ask for a loan and then say you were duped?
Lets replace that watermelon with a pineapple.
Let’s replace that pineapple with a porcupine.
Ouch! If that don’t cinch up your winker, I don’t what will.
Ex-nnvmgtgbrkr: well with me, I am annoyed with Sobel but I’m not overwhelmed. Somehow I don’t think you are either.
http://tinyurl.com/2aadg5
“This has been a very demoralizing thing; you feel like a complete idiot living paycheck to paycheck. But it turns out that foreclosure is not that uncommon. But it is very harsh on the psyche.”
“say no to the privatization of profits and the socialization of risk”
Where do I buy my bumper sticker?
privatization of profits and the socialization of risk
in the Netherlands we already have a glowing example of this, the ‘Legiolease’ case. More than 5% of the Dutch population participated in some (highly leveraged) stock leasing plans in the late nineties; of course most of them got in near the top when everyone was talking about stocks (and real estate …). Many people lost the money they invested or even more, and some lost their homes. Most people claim that they were never told or never understood that they were ’speculating’ in the stock market.
The situation is extremely similar with what is going on in the housing market, except that the leverage and amount of money involved was smaller.
A similar case is developing in the courts around certain kinds of life insurance etc. that use investment in the stock market (and where the promised returns were never realised).
After years of battling in the courts, politics has tried to enforce a ‘fair solution’ in the Legiolease case which comes down to this: people who were speculating with money they didn’t have get compensated (so they can’t end up with a loss). Those who were speculating with their own money have to eat their losses. The banks that were responsible have to take some losses too.
It’s not a done deal in court yet, but I don’t think much will change after politics made their decision. It is sending exactly the wrong signal and without a doubt the shape of things to come when the housing bubble in Netherlands finally bursts: privatize the gains, socialize the losses.
The biggest problem is that guvmint is the biggest contributor to the boom. Do we really trust them to fix it, when they broke it in the first place? Why is this an issue for “big” government anyways? If it’s going to be handled, why can’t this be handled locally? This is truly becoming a nanny-state.
Amen. Except I don’t trust the local socialists either.
There will be no bailout. This thing is too big to bail. We are only at the begining of loose lending, subprime. Wait until Alt-A and prime borrowers start walking and then will you understand the enormity of this debacle. It was malinvestment to the nth degree. You can’t cure malinvestment with further malinvestment. It’s insane. Let the chips fall where they may. A lot of lenders, borrowers, and RiskLoves will be broken but that’s the best cure for malinvestment. A good Pavlovian ass-pounding!
“This thing is too big to bail.”
Good one!
“‘I’m not averse to legislating on it,’ Mr. Dodd said. ‘My preference is to see whether it could be better managed by the regulators knowing that legislation can be so difficult to get through.’”
Here is his obvious escape hatches “legislation difficult” code for: Republicans won’t get it through. “Let the Regulators do it” code for Republican appointees won’t do anything about it. …… VOTE FOR ME!
Politics at it’s most putrid.
Let’s put this way, if the gov lets illegal immigrants to get credit cards and buy multiple flips, anything is possible.
Yes, one that makes your salivate.
Not exactly my reference. Pavlov demonstrated you could alter behavior with stimuli. In this instance, the stimuli I’m refering to are ruined credit, bankruptcy, shame, and other consequences from poor investment choices.
That Sobel dude from San Diego is really annoying me. Maybe because he is a well educated non-minority who is my age - 48. He should have no excuse - but he comes up with one anyway.
He admits that he stretched his budget to get into that POS condo. That should be the end of the story right there. But noooo, he wants bailouts and I suspect that he and Casey will form a road-show and give seminars on finances.
Your 15 minutes of fame is almost up buddy!
I agree that this is too big to bail out.
The latest estimate of bubble foreclosures I’ve heard has reached 3 million. I expect double that and that they will come fast and hard.
Let’s take 6 million multiplied times 200K average mortgage. That gives us 1,200,000,000,000 (1.2 trillion) in defaults. That’s a figure equal to 15% of GNP. Anything the government does to help will just delay the inevitable.
The only possibility for a bail out is inflationary, and I wouldn’t put it past the big banks to do this. If the insiders know it’s coming they’ll be able to position themselves to take full advantage.
Signs to look for of inflationary bailout? If you start hearing about PMs going on another significant leg up (+10-20%) then watch out.
I believe that the bailout would occur for political reasons. Elections are coming up, and politicians are populist who will promise anything to get elected. There is a sense that mortgage payers are entitled to own the home they had purchased. Stranded homeowner could receive a tax breaks. Another “solution” would force the banks to allow homeowner to occupy house for 3-6 months after default so it could not be foreclosed immediately. I had red couple of these ideas already.
I am just interested from where this money would go. Since the budget is in virtually red, it would mean an increase of the deficit with its all-negative consequences for the national economy. Another option would be borrow money from abroad, which would weaken dollar. Any case, government could add couple tens billions to sub-prime lending industry hoping to stabilize the market. However, if the problem from the sup-prime would spill through the economy, no amount of bailout will save real estate market.
“Another ’solution’ would force the banks to allow homeowner to occupy house for 3-6 months after default so it could not be foreclosed immediately.”
Wouldn’t that be like throwing away hundreds of thousands of dollars so that grandma, who has terminal cancer, can live a few more months?
“allow homeowner to occupy house for 3-6 months after default so it could not be foreclosed immediately.”
This would not be a bail-out, just postponing the pain. The borrower would be in the same position six months later. Also, allowing the buyer to do that would tighten up the credit supply even more, as investors realized that thier money was being used as free rent for people for 3-6 months. However, tighter credit might be a good thing…
Some people think that they are entitled to the property they live in… My colleague believes that introduction of such bill would be necessary for stranded homeowners. He argued, since the properties always go up, the banks would recover lose from rising property values and the homeowner would receive necessary break and keeping their house…I agree that free ride for 3-6 months as some people suggested would hurt the economy even more, since banks would tight credit and rise the interest rates.
In the 90’s people use to get 6 to 9 month rides anyway. The Repo departments were so backed up.
If you allow foreclosed homeowners an additional 6 mos occupancy, what you’ll get is more unsellable houses 6 mos down the line… due to damages.
Give somebody 180 days, I bet there wouldn’t even be wiring left in the walls, much less plumbing fixtures.
May be they should impose a 60% capital gains tax on those who made a fortune by flipping homes in the past five years, and finance this bailout.
Bailout ? 1 trillion or 2 trillion ? Think the
dollar might drop on that news ? Interest
rates would likely shoot up causing even more defaults.
I think a bailout would likely be superficial, enough
to give some consumers hope and keep some banks
from failing.
WOW!
The press went into overdrive to eun front page with the losing their home sob stories. I did not expect this until the summer. By then there really will be real pain out there.
Dodd and Frank want to let down the gangway to rescue first time homeowners who ended up buying the same houses they would have had anyway, but at inflated prices with exploding mortgages.
But guess what? You let down the gangway and the rats — speculators, those living large on cash outs, those committing mortgage fraud, those making the suicide loans planning to foreclose later — scurry aboard.
If they are going to do anything, they should allow more lenient bankruptcy terms for those who did not lie on their mortgage applications, allowing people to start over. For the rest, que sera sera.
The sickening irony in Senator Dodd’s proposal is he wants the FBs to stay in their homes and continue to make payments (hamster serfs) when a majority would be better off walking and starting over.
that would tank the dollar overnight…
Read the list of Senator Dodd’s biggest campagin contributers, and you’ll see why he has a vested interest in insuring that they don’t end up as bagholders. Trust me, he’s not acting out of any altruism for the FBs.
“…when a majority would be better off walking and starting over. “
You can count on them walking, IMHO. Who is going to pay-off several hundred thousand dollars worth of inflated mortgage as home prices slide?
How about disallowing blind multiple bidding. After all you expect your realtor to really be honest about not jacking up the prices. Expose all biders and bid dollars.
Only registered bidders make offers in public. Come in on Sat morning and actually see the biders and bids.
Lots of pumping going out there.
Anyone curious as to who, besides those who have been smart enough to hold off on the purchase of their primary home, is sitting in the wings waiting to scoop this stuff up at pennies on the dollar?
Or is that too tin-foil hat?
For some reason I keep having the image of Mr. Potter from “It’s a Wonderful Life” popping into my head….with Pottervilles for all!
We have must written our comments at the same time NYCboy. When I hit Add Comment and scrolled back down I saw you had the same thought.
So I’m not the only one.
The more I think of it, the more I think that a Federal bail-out of BORROWERS is just posturing (or at best, wishful thinking by kind-hearted but ignorant politicians).
What would a bail-out consist of?
Option 1 - A Band-aid bailout - help a homeowner with payments after a reset to help him “get back on his feet”, or until “the market improves”. How would this work? The owner is in trouble not because he lost his job or there was a medical emergency. He is in trouble because he can’t afford the house (at least with anything resembling a long-term mortgage). Band-aid would have to last 10 years (or more), and rely on inflation and a fixed rate loan to “bridge” the borrower into stability. 10 years is NOT a band-aid time frame, which leaves us with:
Option 2 - Long term bailout - Refinance the borrower into a fixed-rate fully amortized (or, at worst, a fixed I/O) loan at a rate they can afford for the next 10 or so years. That’s not going to work either, unless the government *gifts* 50% of the loan value to the borrower, or *gifts* enough money to the banks to buy down the rate to 0% (or even less, to avoid “too high payments”). Remember, these people are in trouble BECAUSE they can’t afford a “normal” loan, even at these historically low interest rates. 50% equity gifts and massive loan rate buy downs would cost a LOT of money, and current “responsible” homeowners and renters would never let their politicians gift $100K-$300K to someone “just so that they can share in the American dream”.
The whole point is that many, many of the people going into NOD and foreclosure COULDN’T REALLY AFFORD TO BUY A HOUSE. Therefore, without massive buy-downs or gifts, no matter what you do (short of inflating wages A LOT), they STILL CAN’T REALLY AFFORD A HOUSE.
Therefore, I think that there will continue to be talk of a bail-out, mostly to make people feel better and help prop up the market, but in the end, it is only failing financial institutions that may be bailed out (as was done during the S & L crisis).
Or:
Option 3 – subsidize mortgage by injecting massive amount of money to mortgage industry, since this problem affects millions of homeowners. The homeowners would pay fixed small rate, so they can keep the house, and the banks would receive subsidize money from the federal government to keep the rate low so they do not go under. This scenario was applied in several European countries in postwar era and some problematic areas in the 70’s and 90’s.
That is actually option 2 with a rate buy-down “gift”. The phrase “massive amount of money” is an understatement. It is so massive, and so clearly a gift, that I think that it’s politically DOA, at least to those that rent or are doing OK with their mortgage.
Prices are falling so any injection of goverment sub will fail. Mortgages will be underwater.
a variation of this is used in some EU countries now: banks keep mortgage rates low (despite increasing ECB rates) and this is paid for by keeping rates on savings accounts just as low or even lower than before the ECB rate increases. So the FB’s are subsidized by the savers. And it’s even worse if you take actual inflation into account. There is an investigation going on into this because apparently the banks (in Netherlands and probably other EU countries as well) made agreements under the table about their rates, which is illegal. With most of the EU banks heavily invested into RE it is clear what their objective is with this interest rate distortion policy.
“kind-hearted but ignorant politicians”
LMFAO!!!!!!
Arroyagrande, the irony of it is that it is not that these buyers could NOT afford to buy a house, it’s that they could not afford to buy a house AT THESE PRICES.
If they’re allowed to foreclose and get into a cheap rental while the market plummets, most of them probably could become responsible homeowners again, at the right price, in a few years.
BTW, does anybody else find it ironic/suspect that talks of a bailout for FB’s are beginning at the same time that these loans that are responsible for the mess are STILL being widely advertised?
We’ve got a station up here in WA. that is pretty much a 24 hour infomercial for no doc/low interest loans.
Seems to me it’s a bit early to be suggesting bailing when we are busy manufacturing the next generation of FB’s.
No kidding. I see DiTech advertising on CNBC no less for No Doc 5.99 percent loans.
“‘I have two public policy goals,’ said Senator Christopher Dodd, who is a presidential candidate.”
Typo. Should read: “I have two publicity goals,”
I said it before, and I’ll say it again: Dodd is on the Senate Banking and Finance Committee. He HAD to know what was going on and just looked the other way for his Wall Street, hedge fund and banker clients, thinking it would all work out OK. I buy that, as I have come to expect it of politicians. For him to all of a sudden look up when the subprime debacle hits (and mind you, people were being foreclosed upon long before that) and get on his hind legs and yell “Bailout!” shows you his interest lies with his Wall Street and banker clients. It’s all in the timing, Chrissie-boy.
It’s either that, or he really didn’t know what was happening (in a pig’s eye, but just for the sake of argument). In which case, he has no business being on that committee and is unfit and too stupid to serve.
Yeah, and I’m holding my breath to hear that the Senate Banking and Finance Committee is going to hold hearing on its own members malfeasance. Hopefully his opponent in the next election will nail him to the wall on this one.
The bailout will be a disaster.
Just like every other bright idea our government has.
I’m predicting a bailout, as I wrote in another thread. This is partly why I buy gold and platinum bullion for cash only. And no, my stash won’t be confiscated. There are not enough gold owners to make a difference in the U.S.
It will be a matter of time, I know. I’m hoping the bailout can be delayed as long as possible so that I can obtain another address in central America. In the meantime I’m going to be sure to leave the libs very little to take in taxes. I won’t be taxed on my savings bonds until I redeem them. I also have a legal tax loophole in the company I work for that cuts my taxes far below what an ordinary mortgage interest rate deduction will give me.
As an objectivist, I have longed believed in justice. Any social engineering that encourages irresponsibility must be fought tooth and nail. I am but one individual, but I refuse to give sanction to the welfare state.
Another Ayn Rand fan? Sounds like you’re advocating that Atlas should shrug…
Life imitates art. I often wonder if we magnify the problems of our time simply because we are beings in (this) time. And we cannot help but have an experiential distance from times past when “That Damned Human Race” did the exact same things we see today. The Utopian dream of a life and land where there is rational justice and humanity is actualized and attaining peak achievements has been thematic in the collective consciousness for a very long time. And for good reason because for the same length of time there have been those who want something for nothing. A very wise man once told me that we are all in the same boat, but some do the rowing and others just go through the motions. Rand’s work was and continues to resonate with those who do the rowing and loathe those who accrue wealth and position dishonestly. Rand came from a socialist state and her core theme as I see it is to vehemently refute the Marxist principal, “From each according to his ability, to each according to his need”. And, folks, we find ourselves at the same crossroads one more time. What are the examples we have in history of a people faced with similar challenges who were able to overcome the destroyers and how was it done?
Good luck finding a capitalist utopia in Central America.
LOL
1985 Live Aid
1988 Farm Aid
2008 Prime Aid …
Headliners include all the Bling Bling Mega Mansion stars of Hollywood and Music industry.
We will lead this from So Cal with our brand of ‘Mexi-math.’
1985 Live Aid
1988 Farm Aid
2008 Prime Aid …
you forgot 2000-2006 Kool Aide
No possible bailout for multiple reasons. First, the dollar amount is way too big. Second, how do you differentiate the greedy specuvestors, scam artists, hummer driving heloc showoff from grandma who was scammed? Thirdly, most voters (meaning the folks who actually show up at the polls) aren’t any of the above.
I do have a question for someone on this forum. If HC or Dodd or another pol comes up with a plan which prevents or delays foreclosure won’t that just tighten up the credit market instantly so much that no one unless they have 50% (or more) to put down could get a loan? So their solution would actually not just pop the bubble but destroy real estate prices?
“a plan which prevents or delays foreclosure won’t that just tighten up the credit market”
My thoughts exactly. Anything that makes the bankers and/or investors pay for the mess will tighten up credit, exacerbating the situation.
Thanks for your response. I think any “solution” will be worse than the problem and I believe the problem will be pretty bad.
In the thirties as the depression and deflation bit into the flesh of the economy, the secretary of treasury…I think Morgenthau (?) stated “liquidate, liquidate, liquidate”.
What he meant was that he wanted the debt destruction to run its course and not be delayed. A bailout will just prolong the pain.
“Anything that makes the bankers and/or investors pay for the mess will tighten up credit, exacerbating the situation.”
That is why the bankers and investors should be asked to pay. If anything, it was loose money that caused the problems we currently face, and the elimination of loose money is needed to end the bubble. This would also appropriately internalize the costs to the industry which caused the problem.
I understand your point but however if they “pay” credit will not just tighten it will evaporate. IMO we could see depression type scenario. I believe the maxim could be “don’t bring a knife to a gun fight”.
Another point on any bail-out:
You could have the banksters (and ultimately the MBS investors) take a hit and help with a bail out, but my question is, wouldn’t that contract the credit supply even more, as investors realize what a loss they are taking on MBS? However, like I said, that might be a good thing.
However, large amount of money in the mortgage industry comes from overseas. The government would need to subside foreigner lenders as well, and the question is if the would like to receive subsidy in the dollar amount or something else. Being a foreigner born, I see how foreigner countries do not trust dollar much. It is dropping for past five-six years. The dollar would take even larger hit after any possible bailout.
“The whole point is that many, many of the people going into NOD and foreclosure COULDN’T REALLY AFFORD TO BUY A HOUSE. ”
Your right …Too much is being focused on the loan and not the overpriced RE - Asset price which is really not supported by fundementals.
Prices will contiue to fall and price will be #1 issue.
“The problem with common sense is; it just isnt all that common” Winston Churchill.
Ben Jones may remember the story back in Az when the Diamondbacks baseball stadium was built. The city hall committee put it to a vote, the voters rejected city investment. Somehow the committee wrangled out of the voters decision and partially financed it anyway with city dollars.
Subesequently, one of the committee members was shot. Literally, unfortunately not killed, just wounded.
Perhaps this would be an enlightening anecdote for Mr. Dodd if he uses taxpayers money in an iladvised way.
There is no line in the constitution, the bill of rights, or any amendment which suggests that home ownership is covered in the ‘pursuit of happiness’ clause. Loans are simply, although not simple, contracts. Obligations. Tit for tat. Cause for effect. I give you this, you promise me that. If you cant do the ‘tat’, you lose the ‘tit’. If you cant meet the promise, you lose the ‘this’. What’s right is right and what aint is wrong. Everyone knows the difference, even the honorable Mr Dodd.
One could go down the path of enforcing existing laws to avoid fraud. Truth in advertising, full disclosure, consumer protection acts and the like. There is most definitely some margin in seams for this type of litigation. However, in no way, shape or forum should the idea of taxpayers money be used to fund poor decisions by homebuyers or risk management by bankers.
It is simply common sense to know that, that, would be wrong. Which aint right. And apparently Mr Dodd is a someone in whom common sense isn’t all that common.
Perhaps another someone should give him a news bullet-in Az style.
J
Harsh, but the Declaration of Independence does recommend a revolution now and then to keep a government from becoming too powerful.
You have a good point. Unfortunately most Americans seem to think the right to the pursuit of happiness is the right to happiness. Most think the government should provide welfare than provide for the common welfare. The voting bloc of irresponsible people is too large. You have to take the revolution in your own hands. The nice thing about it is that as long as you keep a low profile you should not feel forced to sanction the irresponsible American society. I thumb my nose at the politicians who want to punish me for being a responsible saver to bail out FBs. And I am certainly going to vote Libertarian for every candidate the next election.
Jasper, nice post. Why not email it to Sens Dodd and Clinton? It ’splains things in a way even a senator might be able to understand.
Spike,
Thanks for the thoughts.
It is the internet. Anyone can feel free to adjust the comments accordingly and send them into Mr Dodd. In this case, a copywrite is a right to copy. (if you do, then fix the typos please
Bit embarassing…….. Shoud be ‘fraud, truth…’ not ‘fraud. Truth…’ Would anyone believe i was dictating ?
I have every faith that Bill in Phoneix’s comments will ring true and a revolution will happen if Mr Dodd persists with such inane suggestions. There is a much higher percentage of responsible renters and buyers than there are FBs out there; luckily. Since right is still right….and you cant fool all the people all the time regardless of the percentage of fools, it is doubtful that any substancial bail out would ever occur. Window dressing tops, maybe a proposal, a bill, but it just isnt practical and would be timely enough to save the majority of FBs anyway.
Dodd is just doing his song and dance for publicity and the spotlight on the public stump trying to carve out a name for himself in the presidential race. As time goes on, it is reasonably predictable that he will distance himself from actual legistlation and continue to offer sympathy to ‘unfortunate’ souls.
If he does go through with it, the repercussions could be anyone’s guess….a shot in the dark….so to speak.
J
Sorry not true. Please read
An Economic Interpretation of
The Constitution of The United States
Charles A. Beard
1913 revised 1935 renewed 1941 (internet edition from Australia)
http://tinyurl.com/2yxa92
The constitution was written by land and property owners. “We the People” meant ‘those who had land’, if you did not have land only in Pennsylvania could you vote.
“A further safeguard against the injection of too much popular feeling into the choice of delegates to the convention was afforded by the property qualifications generally placed on voters and members of the legislatures by the state constitutions and laws in force in 1787.”
Life, liberty and the pursuit of happiness came from the Declaration of Independence.
(this phrase was cribbed from Adam Smith who wrote “Life, Liberty and the pursuit of Property”.)
In 1787 these were commonly understood to be one and the same.
While I agree with your sentiments, let’s be careful before we, even jokingly, advocate or condone shooting as an appropriate resolution of a bad political choice.
That said, in terns of political giveaways to private sports teams, you ain’t got nothing on San Diego, which has an explicit transfer of millions of dollars of city $$$ to the Chargers every year due to the long-term contracts signed by short-term politicians… if Susan Golding were to trip on my broken sidewalk and chip a tooth, I’d have to smirk as I called for help…
Now this stadium thing is interesting. The same thing happened in Seattle in the 90’s. The people overwhelmingly voted against a new stadium and we got: a new stadium paid for with taxpayer money.
I did not know that this happened in so many other places. At the time, it was the most blatant example of “your vote doesn’t matter” that I had ever seen.
Folks, we’ve been had.
If you really want a mind-boggling experience, check out 19th century juror Lysander Spooner’s treatise “No Treason: The Constitution of No Authority.” I’m in the denial stage, but I know Mr. Spooner was (and is still) right. He likes to use phrases such as “a band of…” as in “people who claim they are the government.” Google it.
But look at how much property values went up after the stadium was built! It must be a worthwhile investment!
this is what I wrote at
http://dodd.senate.gov/index.php?q=node/3128
While I feel sorry for the folks affected by foreclosure, it boils my blood to hear about the bailout. this will only encourage reckless borrowing and speculation in future - it subsidizes lenders, wall street bankers, homebuilders, real estate speculators at the expense of common tax payers. lending standards should be tightened to avoid these issues but bailout will only make things worse!! there will no doubt be political backlash from existing homeowners who work hard and make sacrifices and stay within their means if their money gets spent to bailout those who did not!!
Copy and past to his buddy Ca Senator diane feinstein
and barney franks.
What do Barnie Frank, Diane Feinstein, John Kerry, George Sorros, Mike Milikin, Sandy Weil, Jerry Levin, Donald Trump, Redstone of Viacom, The owners of the Washington Post, Newsweek,Time Corp, and NY Times plus former head of Disney, Carl Icahn, Solomon Brothers, Lehman Brothers, Liars Farez, Steve Wynn, the last two Federal Reserve Chairmen have in common?
They worship at the same franchise, “more than enough” is just not enough, they’re willing to wrap themselves in anyone’s flag, and none of them have their progeny in Afganistan or Iraq. Now where’s my biscuit?
Okay, what do they have in common?
Having been complicit in committing fraud it is impossible to get standing in a court of law. No debtor can claim ignorance and therefore avoid responsibility. If the documents are complete it is your ass. Otherwise contract law as we know it will cease to exist.
How many of us have read all of the documents in a simple car loan?
Off topic, but best comment yet about the “ownership” society from Rep. Barney Frank, MA.:
United States policies in recent years promoted the idea of homeownership too hard and at the expense of rental housing, said Representative Barney Frank, Democrat of Massachusetts. “I wish people could own more homes,” he said in an interview yesterday. “But I also wish I could eat and not gain weight.”
from the nytime.com article
http://www.nytimes.com/2007/03/17/business/17dream.html?ex=1331870400&en=6fc196b2c798b0f2&ei=5124&partner=permalink&exprod=permalink
I missed that one. Love it!!!
Barney Frank has been aware of the situation and warning about the systemic risk Fannie & Freddie pose to our economic system. He’s been trying to distance F&F from the govt for a while. Very aware, as is Sen. Dodd.
Thank God just one of these politicians gets it and is willing to put himself out there on record.
Suggestion: Write not only to the sad sacks who are suggesting bailouts but also to any who are NOT to voice support for their opposition. It will strengthen their voice if it comes to a public debate.
Their is SO MUCH evidence against the idea of a bailout that, if it did come to a debate, those pols who are anti would have no problem creaming the oppposition.
But they need to know there is strong support for them sticking their necks out in that fashion. Because the other side will try to present them as hard hearted cretins, the old emotional pull thing.
So these guys need to know there is a faction that is anti and wants to see the facts. The facts are overwhelming.
http://news.yahoo.com/s/nm/20070316/ts_nm/usa_subprime_fight_dc
FB suing in court.
People are going to lose their homes. Are they going to fight? Yes. Are there going to be lawyers who will help them fight? Sure. The question is going to be: Where will the courts draw the line?
Yes, indeed…where?
But such battles are notoriously hard to win, legal experts say, and the odds are stacked in the lenders’ favor. “What happens most of the time is that people are just lied to,” said Jordan Ash, director of the Acorn Financial Justice Center advocacy group in St. Paul, Minnesota. “But if the documents are in order and their signature is on all the papers, there really aren’t many ways to fight back.”
There’s a reason why you “don’t sign until you read the fine print!”
Dodd: “And the second is what can we do to keep people in these homes.”
Since when does the government have a right to ask those who exercised prudence to pay for the bad decisions made by others? I suppose Roosevelt established the precedent for this sort of policy back in the Depression era, but I don’t believe there is any legal or ethical justification for this kind of policy, aside from the standard Democratic assumption that it is just fine to steal from anyone they please in order to help out anyone who is suffering from the consequences of their own bad choices. Our country already has a negative savings rate, and this bailout idea will simply encourage more financial recklessness at the household decision making level. Heckuva job, Senators Clinton and Dodd! Neither of you gets my vote; I don’t really care who the Republicans come up with in opposition to you.
Slightly OT…the NYTimes has a new Real Estate mag called Key…
lead article…But What if There is No Bubble? And, The High and Low Ends of RE are Doing Well,only the Middle is a Problem…
http://www.nytimes.com/indexes/2007/03/16/realestate/key/index.html
A bail out is needed and the goverment must step in so that we don’t have families living in the street. Everyone should have the right to own a home. It is the American Dream. The banking institutions are taking away this dream with the use of “Exoctic Morgages”. Shame on the REIC for destroying the dreams of so many.
I am making a desperate plea for all of you to contact your politician and ask them to save the innocent that were taking advantage of by predatory lendors. Also visit our agencies web site to keep posted on our progress. The site is http://www.SavetheStupidthat thoughtcan’taffordtheAmericanDream.com
Hahahaha. Good one. You almost had me there.
Another form of bail out - how about buyers only paying the teaser rate forever?
“As subprime crisis deepens, some fight back”
http://news.yahoo.com/s/nm/20070316/ts_nm/usa_subprime_fight_dc
“When U.S. interest rates rose in 2005, the couple’s 5.75 percent mortgage rate swelled to 7.75 percent and monthly payments ballooned to $2,035.”
“The rate was set to jump to 9.75 percent on March 1, bumping payments up to about $2,750, a threshold that would have pushed them into foreclosure.”
“But Hilchey and Crevier fought back.”
“”If you go in and apply for a mortgage and get approved at 5.75 percent, how many people two years later are going to qualify for the same loan at 9.75 percent? Probably no one, unless you are extremely wealthy,” said Bruce Bierhans, an lawyer representing Hilchey and Crevier.”
“The couple won a first round this month when a Massachusetts judge ordered Ameriquest to halt a $715 monthly increase kicking in from their March payment and refrain from repossessing their property until the lawsuit is resolved.”
NOW who is the fool for not taking out an exotic loan? I’m going out and buy me 10 houses while the gettin’s good!
(Also, this should give a nice ‘pucker factor’ for banks and investors in MBSs…even more credit tightening now?)
“Another form of bail out - how about buyers only paying the teaser rate forever?”
I have no problem with this, so long as it is the lender who underwrote the high risk loan that takes the hit. In fact, I hope Senator Dodd proposes to make this a legal requirement; bad underwriting would end overnight as a consequence.
I have a problem with this because it has made the prices skyrocket and the only way I can buy a house now is by compromising my principles and joining in the racket.
hear hear. The bubble prices of today are largely predicated on universaly access & usef of the lower payments that teaser rates deliver, obviously.
“In 1886, 40 years before the birth of former Fed chief Alan Greenspan, the Great Plains was the scene of a terrific real-estate boom, financed by the most reckless kind of lending. There was no Fed, and there were no rating agencies, just lenders and borrowers taking leave of their senses. They returned to them, eventually. They always do.”
Interesting historical anecdote there. Shiller has written on the first California real estate bubble in the late 1880s. Now I am wondering if there was a national credit bubble at the time (which would have, of course, excluded Florida, as the first swampland bubble played out with real estate development there in the 1920s). Does anyone have a good historical source of information on what was happening in the 1880s?
Didn’t Shiller list his sources in the book? I’m too lazy to go dig it out and look.
GS, This reckless lending led to the financial crisis of 1893 which led to the formation of the Federal Reserve Bank. The average loan was 50% downpayment. The New York Times did an article in 2005 giving a complete break down to the events that led to the dollar collapse. The article was titled something like “Traders aren’t worried about a 1929 depression, they are worried about an 1893 collapse.”
“History doesn’t repeat, it rhymes” Twain
yes, interesting anecdote. For the record, the Netherlands already had housing bubbles in the 17th and 18th century. Bubbles and manias are simply a part of economic life, always have been. But what is happening now around the world with housing is on a whole different level, and that has everything to do with central banking and an unlimited supply of credit (and unprecedented government intervention in the form of tax structures, homeowner subsidies etc.).
Credit bubbles predated central banking (and all of them are credit bubbles in the end). As best I can tell credit bubbles arise because most people of people cannot understand the difference between exponential growth and linear growth. So they apply linear trends to the exponential results and a bubble and crash are triggered. Bankers are happy to lend when they (also applying linear thinking to exponential growth) see an asset that keeps going up because the credit of the borrower doesn’t matter when the asset increases in value at 2-4x the interest rate.
This could be it…
http://www.lewrockwell.com/bonner/bonner167.html
19th Century Kansas Farmland Prices
…”We illustrate this point with an episode from that fair age before the invention of air-conditioning or reality TV…the late 19th century. From Grant’s Interest Rate Observer comes the story of the great bubble in real estate prices west of the Mississippi. Kansas farmland went up four to six times between 1881 and 1887, according to scholars who’ve studied the matter. The price of land rose as high as $200 an acre.”
…”Those who think property prices always go up may want to take note. Today, after huge population growth and nearly 35 years since a debtor was last crucified on a cross with the least trace of gold content, Kansas farmland sells for an average of $800 per acre. Adjusted to 1880 prices, that is only about $20, or barely 10% of the peak prices set 120 years ago.”…
When those prices were falling William Jennings Bryan made his “Cross of Gold” speeck. He simply wanted the nation to adopt a silver standard which would allow reflation to a degree. He is also the basis of the satirical character the “Wizard” in the “Wizard of Oz”
The NYTimes …
“A potentially alarming feature of this cycle is that more people stretched the the limits of what they could afford by taking out mortgages with adjustable rates. If interest rates were to rise, they could be in trouble. Even with rates having stayed, thus far, mercifully low, the rate of foreclosures is up slightly. And there is particular concern about the mortgages held by distressed buyers, so-called subprime loans.
But here’s an interesting fact: Foreclosures (and delinquencies) are lower in expensive markets, like Washington, D.C., and San Francisco, than they are elsewhere. Foreclosures are higher in Ohio and Michigan, where housing is cheaper but the economy has been hurting.
By and large, people forfeit their homes not because they paid too much for them, but because they lost a job or suffered a similar setback, such as an illness. The bursting of the housing bubble thus seems less painful than would a good old-fashioned recession.”
http://www.nytimes.com/2007/03/18/realestate/keymagazine/318RElead.t.html?pagewanted=2&ref=keymagazine
See, we’ve been wrong all along, foreclosures are up only in flyover country (so who cares), there is some concern over “subprime” or distressed buyers (losers in flyover country)but the only real problem is not paying too much for a house (see, we’ve been wrong all along) but a medical bills (uninsured losers) or job loss (blue-collar losers)causing some distress (among losers).
Aren’t you glad the NYTimes has explained it for you?
Sorry, couldn’t resist. The NY Times sees see a different Florida than the posters on this blog.
Fueled by a boom in investment income, low taxes and demand from wealthy foreign buyers, the high end of the housing market has continued to experience strong price gains. “That’s the market where we’re seeing bidding wars,” Miller says. In Miami, for instance, developers are still betting on the high end to perform well. Frank McKinney, a developer of oceanfront properties from Palm Beach to Miami, is going ahead with several single-family home developments priced above $20 million. “If you look at the ultrawealthy class, it’s expanding exponentially,” he says.
http://www.nytimes.com/2007/03/18/realestate/keymagazine/318BytheNumbers.t.html?ref=keymagazine
Run them ALL into Bankruptcy and Foreclosure !
NO BAILOUTS for the Criminal, Stupid and Greedy PERIOD !
Take NO Prisioners !
Other than THAT, Have a NICE day :))
This talk of predatory lending is almost 100% BS. It wasn’t predatory when all the world expected real estate values to keep climbing and climbing. Nobody (government, dumb borrowers, lenders, CDO buyers) minded the high future interest rate resets when the expectation was that the home could easily be refi’d or sold before such resets.
That is, no one but the people who sat out the boom knowing it would implode. But they aren’t involved in the process, so how could they even be conceivably “predatory”.
- Lenders knew very well they were “cooking” the appraisals.
- Borrowers knew very well that the lender was overstating the borrower’s income.
The one thing that defines the lenders as as predatory then, is “well, real estate stopped ‘going up’, so therefore the lenders are predatory”.
Yeah right.
- You can lead a horse to water, but you can’t beat the stupid out of him.
The only “bail” I would be in favor of would be the bail bonds those f’errs would have to pay before they are all sent to prison for about 20 or 30 years!
“‘I know there are a lot of people like me, families — this ruins some people,’ Sobel says. ‘If there is going to be any kind of bailout, we should be part of it.’”
What pisses me off is that now they’re acting like victims. Before they were all celebrating how they were getting “rich” with the housing boom, spending their HELOCS like mad, while placing tin foil hats on us. Now they want our tax money to bail them out. I’m not sure about you, but I’m sooooo disgusted with this country that I need to take a break overseas. It’s not worth it to be investing here or paying taxes, unless you are a crony at the White House, a fraudster, or a banker. Screw this. I already told people at the office and other “friends”: Don’t come crying now and asking for my tax money to bail you out…F-YOU!
I’m as lefty as they come, but if the Gummint uses my future tax dollars to fix this mess I’ll be joining the ranks of the cranky gold-bugging bunker-dwelling minarchists here.
The Federal Reserve Notes are secured by debt from the Treasury. The ability to tax the labor of productive citizens backs the Treasury debt. How else is the value of this bank’s notes going to be defended?
Telling the world they are going to create more won’t solve the problem (bailout). That will make the problem a helluva lot worse. Are they going to tax folks who don’t produce anything? That is like getting blood from a stone.
It is the perfect storm, and it isn’t brewing. It’s already brewed. Of course, it won’t be done via outright raising of taxes. No politician will get elected, and it won’t be done by cutting entitlements. It’ll be done via inflation, unless this time it’ll be different.
A “bail-out” could be a retroactive requirement of no prepayment penalties, and “adjusted” interest rates no more than 200 bps over the 10 year (about 5.5%).
I don’t know how you’d do that retroactively. There is a thing called “contract law”.
Or you could just try to get the banks to work together for each FB. Allow them to share information. For most banks, they don’t have much to gain by forcing a foreclosure. They will end up with less. They’d be better off lowering the amount owed and lowering the interest rates.
This is kind of what credit card cos do with people facing bankruptcy.
Another thing the gov’t could do is somehow wipe the bankruptcy / forclosure off the FB’s credit record. Tell FNM and FRE to have new loan programs that don’t hold one house foreclosure against the FB. FNM and FRE are pseudo gov’t organizations.
Another thing is to tell the IRS to forgive the tax owed on the foreclosure. That would be big. They aren’t really getting that money anyway. Blood from a stone, you know.
So those are all things they could do that wouldn’t “cost” taxpayers anything, would make them (politicians) look good, speed the process along with a minimum of foreclosed properties.
Banks can decide to re-write a loan to avoid a foreclosure if the math shows they will not lose as much by charging a lower interest rate or converting the toxic loan to a more manageable payment program .Shouldn’t the lenders do this on their own to avoid some foreclosures as any business makes business decisions to reduce loss. Why a gov. bail out ?
What is going to be very interesting is how the courts are going to rule on some of the first cases that get to court regarding FB’s and their claims of being a victim . It appears that a court case that was posted above was based on a borrower claiming they never had the ability to pay a adjusted up payment based on the income they qualified at (for a teaser rate ) and they are calling for relief based on that premise . Why did these borrowers sign on a loan contract they knew that they could not pay the adjusted up payment on? Are the Courts going to rule that the bank is liable because borrower couldn’t afford the adjusted up payment therefore making the contract voidable or something like that . It’s really going to be interesting how the Courts view these legal points regarding contract law and the FB situation .
I think that if they are going to do any sort of bailout (and I certainly hope they don’t), it should be very targeted. In other words, you have to apply to receive assistance, and then as part of it, your loan is carefully scrutinized. If it is a stated income loan, then your income is compared to your tax statements. If there is significantly more income shown on loan documents than is accounted for in taxes, then you have committed either tax evasion or loan fraud, and are headed for jail. Also, I would limit it to people who own only one house and have lived in it for at least 1 year and still live in it (if you get in trouble before one year, you are too much of an idiot and even a bailout would not help you). This would eliminate speculators. For those few who remain who purchased a single house to live in and didn’t commit fraud in the process, perhaps something could be set up where you don’t lose the house, but lose much of your future profit potential from the house.
To bail or not to bail: that is the question:
Whether ’tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,
And by opposing end them. To die: to sleep;
No more; and by a sleep to say we end
The heart-ache, and the thousand natural shocks
That flesh is heir to, ’tis a consummation
Devoutly to be wish’d. To die, to sleep;
To sleep: perchance to dream: aye, there’s the rub;
For in that sleep of death what dreams may come,
When we have shuffled off this mortal coil,
Must give us pause: there’s the respect
That makes calamity of so long life;
For who would bear the whips and scorns of time,
The oppressor’s wrong, the proud man’s contumely,
The pangs of despised love, the law’s delay,
The insolence of office, and the spurns
That patient merit of the unworthy takes,
When he himself might his quietus make
With a bare bodkin? who would fardels bear,
To grunt and sweat under a weary life,
But that the dread of something after death,
The undiscover’d country from whose bourn
No traveler returns, puzzles the will,
And makes us rather bear those ills we have
Than fly to others that we know not of?
Thus conscience does make cowards of us all,
And thus the native hue of resolution
Is sicklied o’er with the pale cast of thought,
And enterprises of great pitch and moment
With this regard their currents turn awry
And lose the name of action.
Good one from the Bard!
I checked in with the Bard of Bears, and he sent me this response:
“Ah, distinctly I remember, it was in the bleak December,
And each separate dying ember wrought its ghost upon the floor.
Eagerly I wished the morrow; vainly I had sought to borrow
From my home’s surcease of sorrow, sorrow for the lost Lendore,
For the rare and radiant HELOC whom the angels name Lendore,
Nameless here forevermore.”
Waxing poetic, are we? Very well, thank you.
Who’s gonna be the Raven in this epic? Let’s call Volcker back.
“Lender!” said I, “thing of evil!–lender still, if bank or broker!
Whether tempter sent, or whether tempest tossed thee here ashore,
Upsidedown, yet all undaunted, on this desert land enchanted–
In this home by horror haunted–tell me truly, I implore:
Is there–is there Equity in store?–tell me–tell me I implore!”
Quoth the lender, “Nevermore.”
“Be that word our sign of parting, bird or fiend!” I shrieked, upstarting–
“Get thee back into the tempest and the Night’s hard granite shore!
Leave no papers as a token of that lie thy soul hath spoken!
Leave my bankruptness unbroken! — quit the bust above my door!
Take thy beak from out my heart, and take thy form from off my door!”
Quoth the lender, “Nevermore.”
Bravo! May I have permission to distribute a few copies?
Permission granted to distribute with attribution
Here’s another verse:
And the flopper, never flipping, still is sitting, still is sitting
On the darkened slab of granite just outside my chamber door
And his eyes have all the seeming of a lender’s that is dreaming
And the halogen o’er him streaming throws his shadow on the floor
And my funds from out that shadow that lies floating on the floor
Shall be lifted - nevermore!
The way I see it, there are two groups who stand to lose if there is no bailout: the lenders and the FBs.
If the market is allowed to do its thing, foreclosures will flood the market, making the losses swift and certain (as they should be, IMHO).
The way to stem the tide would be to force the lenders to re-write the loans (or sell at a steep discount to GSEs or other institution which could be set up by the govt). The loans would be re-written at fixed rates (lower than current FRM rates). Negative equity would not be a factor as the new loans would cover 100% of current mortgage, irrespective of collateralization.
These loan terms would be extended to 40 or 50 years, and the borrower could make I/O payments for the entire time they live in their homes. Only upon sale would the “lender” expect principal payment, and the lender could have an agreement whereby they share risk/reward — like they could be entitled to 50% of the appreciation/depreciation.
In the meantime, the Fed would be working overtime, trying to inflate our dollars, so in 15 years, the FBs might be able to break even and finally get out from under their “homes”.
—————————-
FB wins by not losing home & not having to pay what they originally agreed to pay.
Lender wins because they will lose much less than if the market were flooded with foreclosures. Collateral prices would drop, but not as significantly.
As lenders take losses, the big banks/financial firms move in and take over the mortgage companies. They (who, in many cases represent the final lenders) would be able to buy these mortgages for pennies on the dollar. They win the biggest piece of the pie.
And once again, the financially responsible get screwed.
Maybe the lenders can cap the payment increases at 3% payment increases a year while they add the difference in interest owing to the loan balance and recast the loan to a 30 year note at whatever the market rate is at 7 years from now . This would allow for the owner occupied FB to grow into their payment by salary increases for 7 years while still being liable for the interest . In order for this plan to work the lenders would have to agree that a 13% interest rate was to high and they might willingly reduce the effective rate to a 7 or 8% rate that the borrower would be fully liable for .The borrower could sell their home at any time and would go into foreclosure if they default on the new rewrite of the loan . The lender would win because they would avoid a costly foreclosure that would likely net them less money than the restructured loan . The FB would avoid a foreclosure and grow into the higher payments . Speculators and people who own more than one property would not qualify for loan re-writing .I guess my point is that we don’t need a tax bail out and the lenders should not be given a tax write off for re=writing a loan that would of gone into foreclosure . I am only saying that some marginal borrowers can be saved ,but many of the FB’s are hopeless .
Don’t get me wrong ,I dont like sub-prime borrowers because they should of got a loan denial to begin with because they didn’t qualify for home ownership at the point in time they applied . Would a plan like the above be giving a FB something they don’t really deserve ….YES .
I’m just trying to think of ideas that would not require a tax bail out .
This game has a name: “bad loans”. Ever since America defaulted in 1968 (de facto) and in 1971 (de juro) it was the ONLY thing that kept its “economy” alive.
But any time the bailout deal happens it creates enormous increase in money supply, since every bailout dollar turns into a “security” for $9 more of credit, which produces the next bubble and the need for the next bailout.
This game is always supported by the government. Actually, the ability to emit more money is the major economic goal of any US government since the 70s.
Any reason is good for this: 9/11, wars, hurricanes, y2k - they all are “good for economy”, but the best and most pure way is a bailout deal. Therefore I’m sure there will be such a deal this time. As the result, housing bubble will go on, housing prices remain unaffordable, deficite spending will spiral to unthinkable levels, and global $ supply will significantly increase.
The only problem this time is: the amount of dollars in the world is already too high compared with existing resources both natural and labor. Creating several more $trilions will crush the dollar. It won’t be the end of the “housing bubble” but the end of a century long fiat currency bubble.
Actually, there is a modern day example of government bailout of banking system (Finland). Finnish government bailed out a couple of major Finnish banks in the early 90’s, after a big real-estate crash.
All “non-performing” loans were put the special “junk bank”, called Arsenal. This cleaned the balance sheets of the banks and saved the Finnish banking system from collapse. There was only one big BUT:
This “Junk Bank” created a moral hazard to bankers. Companies were put down for any kind of temporarily payment difficults because government’s tap was wide open. This created a big “Scr*w you, Government pays anyway”-party for the bankers and further worsened the recession.
The characteristics of US real-estate crash is very similar that of Finnish one except US one is much much worse and much bigger. You will get an idea, what is to be expected, from these facts of the Finnish crash:
Finnish public debt rose rapidly from 20 percent to over 70 percent of GDP, just in FOUR years! Unemployment jumped over 15 percent and interest rates rocketed up to 15-16 percent. Over 25 percent of Finnish companies went bankrupt.
The only thing that saved the day was the relatively low public debt level BEFORE the crash. Finnish government was able to bailout and ease the pain a lot without blood in the streets and all-out revolution.
Americans do not have that luxury. US public debt has been rising fast during relatively “good times” and all kinds of unfinanced financial blackholes are already waiting in the (near) future. During recessions tax revenues dry up a lot and that creates even more financial problems.
US government, states and major cities are all up to their eyeballs in debt TODAY. 20-30 percent drop in the revenues will probably happen anyway and that will effectively bankrupt many cities, even states. They surely are NOT prepared for this incoming recession…
How do you provide food and shelter for those millions new homeless people? Your National Guard is getting IEDed in Iraq and Afganistan. Who is going to borrow even more money to Americans? Nobody. Only short-term solution is to print more money but that will cause the dollar collapse. It will be chaos and blood in the streets. One year ago I predicted US banks going under in another blog and no Americans believed me then…
Thanks — interesting post.
Hillary Clinton can soooo kiss my arse.
I am soooo voting for Obama. That is, until he starts talking about bailouts for the greedy subprime specuvestors. But from the things he’s said so far, he may (hopefully) have too many synapses firing to do so.
(Sorry, McCain and Giuliani have already lost it for me - they’re both tools.)
Don’t get your hopes up - Obama seems to be running as a Populist.
I totally agree, Obama doesn’t have a chance in hell. I bet he can’t believe the fuss being made over him. He has nothing to offer.
It worked for the Governator…
Why should we bailout something that worked the way it was designed to work? Originate, package, slice/dice, then disperse the risk; wash, rinse, repeat. RiskLoves on both ends of the lending spectrum should pay the piper. End of story.
Bailout who, the borrowers, the lenders, or both?
Let’s see the borrowers get to keep the house, the lenders get paid all or most of their debt, and the taxpayers get to pay for the whole fiasco.
How about this for a bailout proposal.
ARMs - the borrowers get to keep their teaser rate for the full term of the loan. The borrower keeps the house, the lender gets much of their money and it costs the taxpayers nothing.
IO - The borrower may make IO payments for the full term of the loan and must make a balloon payment of all the principal at the end of the term. Borrower keeps house and lender gets their money but they have to wait for it. Taxpayers pay nothing.
This obviously hurts the lenders the most so let’s ask the key questions. Which party makes the biggest PAC contributions? Which party will get the best end of this deal? Do you think politicians care if they get voted out of office when they have a lifetime sweetheart arrangement waiting for them?
Summary - Taxation without representation. Been there, done that.
No, you have it wrong. No one has to pay anything. The government simply borrows (prints up) more dollars and pays everyone for their losses.
The magic of paper money. Whenever you need some, just print it up. Show’s over folks. Move along now.
When the Japanese bubble burst in the 80s their government tried to ‘bail them out’ by keeping bad loans on the books, dropping interest rates to 0 and many other things. The only thing this did was prolong the inevitable and make the final reckoning even worse. They went through 15 years or so of recessions/depression when if they had simply took the medicine all at once it would have taken 1-2 years to wring out the excess.
Any bailout that enables prices to stay artificially high (as in CA/FL,etc) will only prolong the inevitable adjustment. People simply can’t buy houses that are 10x to 20x their incomes and expect to stay in them long term. There is nothing the government can do long term to fix this unless they are willing to subsidize mortgage payments forever - even reducing interest payments to 0 would not solve the problem. Remember, in every one of these sob stories the FB says they were going to refinance (most likely and take money out to subsidize payments and living exp) but now the could not because of FALLING HOME PRICES.
Any real attempt at a bail out for the individuals would be so catastrophic for the economy it wouldn’t happen - such an attempt would be so inflationary that it would make the late 70s look good. Also, other than direct cash subsidies (or tax code manipulation) there is very little congress can do - the congress can’t change contract law. They cannot ex post facto force new terms on lenders, even if there was wholesale fraud. Fraud is dealt with on and individual (or class action basis) via the courts, and we are already seeing cases make it there and I suspect that many FBs will win.
So I suspect that this is for show and to position one party as better than the other. Also, California’s primary now matters as it was moved to February so this could be posturing for a pres run or to support a candidate.
No, the best medicine FOR ALL involved is to let it crash quickly, painfully, and fully. Then we can all pick up the pieces. . .(1)the FBs will have learned valuable lessons on saving and greed which will position them much better long term to provide for themselves, (2)the banks/funders will have relearned risk and its importance in loaning money and running a business and (3) those of us on the sidelines watching will appreciate the values we have and be able to enter a reasonable market.
Well said.
Unfortunatley the goverment is involved and they are here to help. So the quick and painful solution will be the least favorable choice for the goverment, becasue it in fact is the best choice for the people.
AC,
I’m sure most HBB’ers would agree 100%. Problem is, the sheeple and financial institutions who rely on being “too big to fail.”
I’m agraid we are in the minority. That is why we need to form some kind of group, so our voices can be heard.
BTW, haven’t been able to check all the posts in all the recent threads, but I got a response to my e-mail to Sen. Dodd — a nice, brainless, letter from his wife telling me all about how wonderful Sen. Dodd is. That’s it. Guess all our letters/faxes/e-mails have been round-filed.
Gonna be painfully difficult to get them to listen unless we get some serious numbers (and $$$) to back us up.
What, you too? Gee, and I thought that letter was personally written to me individually. How disillusioning.
I wonder how many scumbag realtors are assuring the last of the GFs that “even if this isn’t the bottom, Christopher Dodd and the Democratic Congress have made it clear that they’ll bail out anyone who looks like they might get foreclosed on.”
I have an idea. If Fannie and Freddie “take over” the busted subprime “loans”, they ought to give no more than 40 cents on the dollar to the F@ckedlenders so as to ensure there is no “moral hazard” in the future, meaning that these lenders know that they will lose big from bad underwriting in the future. Have it be a good 7 or 8 sigma “event” in their risk models.
Fan and Fred will give them the Mother of All Lowball Offers.
To make it really sting, they can insist on it for many loans in total, i.e. no cherrypicking from the private side: take the whole bunch—at a painfully low maximum payout—or leave it.
If the social (criminal) consequences of massive foreclosure become too big, then the solution is simple, “take it @ 40c or lose your Federal banking charter and access to the Federal reserve system (the financial death penalty).” When the bankers howl like a warehousewolf and Larry Kudlow blows his top, then we know we’re getting close to the right lowball price. We aren’t even close enough yet.
I think this is the best solution, overall. Problem is we need to be sure the big financial institutions are NOT getting anything via the Fed or some “mysterious Caribbean hedge funds” (that don’t need to be paid back).
Time for the lenders to see what risks they have been taking. Otherwise, we are damned to repeat making the same foolish mistakes over and over, again.
On the face of it, your idea looks good for the supply side (pun intended; you did mention Kudlow). One problem might be to identify who “owns” the loan. This is already an issue, as buyers attempt to put-back non-performing loans to the originators. And after a loan has gone through the packaging, tranching, derivativing (or is it derivation) process, even the gurus admit it will be hard to say who holds the bag…oops, I mean the principal risk. But it is safe to say that not all buyers of the derivatives are Federally-chartered banks or S&Ls.
Then we have to ask what happens to the mortgagers (FBs) in this scenario. Do they get the full benefit of the 60% reduction in principal? If so, can they sell the house at a 40% discount and pocket whatever they can net from the 20% gross gain? Doesn’t seem right, does it?
I know that govts have set up special banks to hold bad loans in the past, but this time it may truly be different: The problem may be too big and complex to be alleviated by conventional means. Although I’m usually left of center, in this case I have to agree with the libertarians–let nature take its course.
I’d like to add another category of people who might not take kindly to the idea of a bailout for current FB’s:
Those who have already lost their homes in the past couple years for precisely the same reason these pols are now whining about. So how far back are we gonna go with this plan?
I’ve got some neighbors who lost their home a couple years ago because they were talked out of a fixed loan and into an ARM. Can they get their old home back? Will the Gov. buy them a new one?
I’m sure they’ll be pleased as heck to know that, if they’d just hung in there a couple more years, the gov. would have kicked in and helped them keep their home.
Never mind the people who are unlucky enough to be foreclosed on 2 weeks before the plan takes effect.
The more I think this through, the more it just seems like political posturing. It’s a can of worms that nobody in their right mind would dare to open.
And the fact that these loans are still widely available is further proof that these politicians are not really planning on fixing this problem.
It’s all hot air to make the public think they’re compassionate. It’ll be interesting to see just how many Americans want to extend that sort of “compassion” to people who ALLOWED THEMSELVES to be duped by sleazy lenders and realtors.
My neighbors took full responsibility for their blunder. Good for them.
You guys have to see this - Veridian homes is giving away a free garage door opener if you buy one of there boxes before April!!!
http://madisonhousingbubble.blogspot.com/
I think there are a couple of solutions floating out there.
Basically two flavors…
One is to screw the banks and force them to take write downs. Well, these clowns will just let the banks fail. They say “here you go Fed’ and its in our laps.
The other is some kind of payoff scheme where the banks get money and the FB get debt restructuring.
Either way…
Poof a big bunch of inflation to pay for that (M3) or much higher taxes.
As all mentioned will they allow people gains on this crap if they can sell in the future. Of course it will third worldize the nation by overinflation of property as an asset class.
Best long term answer is to let the thing deflate, go after cases of fraud, help out only those people that were really victimized and can prove it. We have lots of safety nets out there. We have to use them.
boy will the shit start hitting the fan. Seems like the PPT is printing money as we speak. Meanwhile, China is squeezing our balls in a vice by raising rates.
Owchie… This could be double digit inflation with negative growth real real shortly.
If your right, which I think you are. Does that mean interest rates will rise? Typcially, inflation means higher rates. China is in the driver’s seat. America sold out a long time ago.
Dodd is a trust-fund limosine lib socialist - it’s just a matter of what kind of bailout he proposes - no doubt a huge tax hit on the most productive working taxpayers already paying between 30 to 40% of their income to the government
My two cents, echoing a lot of sentiments above:
1) “Too Big To Bail”.
You just can’t cover $4+ trillion and not kill the dollar. Gotta figure that tax revenues are going to come up short soon, too.
2) FBs are a definite minority, and (by virtue of circumstances) a rather poor lot at that.
Yes, homeownership is 68+%, but 35% of them own their homes outright. Those people are likely rich and/or seniors, both very effective voting blocs.
Not all of those remaining 31+% renters are exactly destitute, either. Here in L.A. Donald Sterling (the billionaire owner of the Clippers) owns a ton of tower apartment buildings with insane rents.
Soooo, add the almost 33% of no-mortgage homeowners to the 31+% of renters and you have almost a two-thirds majority right off the bat. Add in all those truly responsible borrowers and we’re probably much higher.
3) FB’s won’t want to stay in their homes!
Who wants to be eternally on the hook for a mortgage that far exceeds the real value of the property? Even if a loan was restructured to reach “affordable” levels, it would likely resemble a Chapter 13 BK in which the government dictates your finances (only this time for 50 years).
Forget about a bailout. There’s so much else wrong with the U.S. economy, etc. that attentions will quickly shift elsewhere once all the other dominos start dropping.
Here’s the problem with a “bailout”. The house prices are still coming down. By prolonging the inevitable, you are locking people into debt prison for years and years to come and they’ll default anyway down the line, losing even more money because they “threw good money after bad”. Eventually they are going to be paying twice as much as their neighbor (who buys at the bottom) for the same house.
The problem will just get worse. But, the U.S. Congress being stupid, and thinking the laws of economics can be legislated away, will do the stupid thing.
The other thing, the more ominous is, that the U.S. dollar is already on the verge of taking another nosedive by investors who are tired of low returns and inflation. Conjuring dollars up to float losers is just going to devalue the value of the money that is out there. Creditors lose when inflation goes up.
Yippee!!! My mortgage will be easier to pay off. I’m sure glad these lenders and investors are willing to lose everything just so losers can get houses. Nice.
After all the billions of dollars, millions of lives and corruption of American ideals that were caused by the fight against the spread of Communism, the U.S. government itself will welcome it in with open arms. “To each according to his need. From each according to his ability to pay”.
That flushing sound you hear is America.
The bailout will be called “The American Family, Save the Children, Financial National Security Act of 2007″.
I can’t see a bailout happening. It would cost too much money.
Well wrote to Dodd:
Dear Mr. Dodd,
For the past several years my husband and I have watched as speculators have destroyed our local restate market. Together we earned more than the average Philadelphian and wondered how so many people were comfortable taking on so much debt. We “ran the numbers” looked at the homes those numbers would buy and decided to rent.
As I child I was taught to live below my means, to save, to plan for the future because that’s what good Americans were supposed to do. We’re not supposed to ask others to carry us forward, we’re suppose to go out there and do a good job and put our backs into work. Only now I learn that you plan on rewarding the Grasshoppers at the expense of the Ants. My husband and I have worked hard over these past years; we didn’t spend when we would have preferred to go out to dinner, and we paid off our students loans rather than buy a house. We’ve scrimped and saved and delayed gratification only to learn you plan to swoop in and save these people — at our expense.
That bailout money will have to come from somewhere. It will come from people like me and my husband who seem to have “plenty of money” because we’ve denied ourselves so many things over the years hoping for a better future.
The housing shakeout will be painful to some, but it isn’t any different from the tech crash of 2001 and I don’t remember handouts for programmers or for students in their last year of college who had majored in CompSci.
In short why should the entire country have to suffer for the misguided actions of a few?
***
Philadelphia, PA
You simply fail to get it.
1. Any bad loan makes sense only if it may be bailed out. Any bad loan is maid with intent to have it bailed out at the end.
2. The initiator of the housing bubble is FRS, not lenders, nor stupid borrowers, nor fraud etc.
3. FRS is the real autority that runs this country (and most of the rest of the world), not US government. It is both powerfull enough to force the solution it prefers and stupid enough to prefer a path for destruction. In fact it’s regulated by it’s basic instinct “emit as many $s as possible” and not by any inteligent creature. It does not matter who runs it, it will follow its instinct. For example, Alan Greenspan used to be an opponent of the FRS, but served its instinct loyally and dutifully.
Now, you wonder why you should pay with the value of your assets for others “stupidity”. Well, consider this: Saddam Hussein was hanged because of just one simple crime of his, he wanted to sell his oil for something other than US dollars. Can you imagine a greater crime against FRS? Actually, yes. And everyone who refused to participate in this housing bubble has commited it. In terms of those who run the business you guys have to be hanged (hopefully just financially).