“What Is The Likelihood Of A Bail-Out?”
Readers suggested a topic around developments since housing bail-outs were proposed. “My thoughts are that getting behind some sort of bailout that would enable FBs to refi is a win-win for politicians and financial companies. If they can get Mr. Future Trailer Park Guy in a new mortgage that he could actually afford, maybe a 50 year mortgage, a guy like that would jump at it.”
“What is the likelyhood of a bailout like this taking form? Would it take too long to get through the Congress to make a real difference?”
A reply, “I think there’s every reason to believe some kind of bailout will be attempted. This is why every single one of us needs to write, e-mail, fax and phone at least one politician and one newspaper editor/journalist. They need to hear what the consequences of their actions would be.”
One pointed to Ohio. “Look at the proposed details of that Ohio bailout. I believe they would allow ‘owners’ (and I use the word loosely) to refinance into a 30-year fixed rate at 6.75%. How does that help the FBs? They can’t afford an interest-only payment. How are they going to afford a fully amortizing loan at 6.75%?”
One replied, “I can get on board with this type of ‘bailout.’ Sure, many won’t be able to afford 30-year @ 6.75%, but some will. So it helps those who are more financially sound (note that doesn’t have to mean wealthier - it means those who are careful with their finances) and weeds out those who, well, aren’t. Not everyone can be ’saved.’ Propose something like this to them and, if they can’t handle it, then it’s time for them to sign a lease.”
One answered, “Except this still inappropriately prices risk, and even worse, the government is the one setting the price. Let the market decide who can refinance into a fully amortizing mortgage, and at what rate.”
Another added, “My idea about a bailout would be that the lenders give the bailout. If the lender thinks that they can save a loan by a re-write verses foreclosure then it’s the lenders or bagholders choice.”
“This is a issue between the lender and the borrower. The lender or borrower should not be forced into a re-write either. Many of the borrowers had no intentions of ever living in the property, so how can someone like that be saved from foreclosure? In prior real estate cycles Lenders would agree to short sales and sometimes extend some grace periods to people in trouble or work with them so I see no reason why it should not be the current lenders problem rather than the taxpayers.”
One doesn’t think it’s an issue. “The do nothing Congress will be on vacation soon, and the war spending bill will be front and center. The spring buying season (March 15 thru July 1) will be toast before anything can be proposed. Too little, to late.”
The LA Times. “Borrowers, don’t hold your breath for a bailout. The modest federal and state aid proposals advanced so far suggest that most people struggling with onerous loan payments are unlikely to get government assistance.”
“The Bush administration has ruled out a blanket program to help homeowners stave off foreclosure, reasoning that it’s ‘not an appropriate role for the federal government,’ White House spokesman Tony Fratto said.”
“And at the state level, ‘there is only a limited amount we can do for people who are affected right now,’ said (California) Assemblyman Ted Lieu, chairman of the Assembly Banking Committee.”
“Some of the country’s largest mortgage lenders, including Countrywide Financial Corp. and Wells Fargo & Co., met with Lieu this week to discuss a private effort to keep at least some foundering California borrowers in their homes, participants in the meeting said Thursday.”
“‘We discussed a potential billion-dollar, privately financed bailout to prevent foreclosures,’ said Robert Gnaizda of the Greenlining Institute, a fair-lending advocate.”
“No commitments were made, however. A Wells Fargo spokeswoman said the bank had previously discussed the possibility of a private assistance fund with Gnaizda, but had heard too few details to be able to say whether such a plan might work. A Countrywide spokesman declined to comment.”
“None of the three Democrats has offered more than general ideas for aiding borrowers, and none has called for a massive federal assistance program. ‘Dodd has been extremely clear that he is not talking about any kind of bailout,’ a spokesman for the senator said.”
“One problem with even suggesting a broad-based rescue plan for homeowners who are underwater is that any bailout of borrowers also would be viewed as a bailout of their lenders, potentially including some lenders that allegedly preyed on home buyers during the housing boom.”
“Using tax dollars to keep people from losing their homes would be ’socializing’ lenders’ losses, meaning society as a whole would be footing part of the bill, said economist Paul Kasriel.”
Three letters to the editor:
‘The Chronicle’s March 29 editorial “Homeownership crisis” properly criticized their irresponsibility and opportunism, but omitted any mention of the responsibility of foolish borrowers who bought homes they could not afford or agreed to very risky terms. Yes, many honest, hard-working people fell on hard times and got hurt. But lenders did not force these loans on anyone. Borrowers have a responsibility to understand the terms and risks they are taking when buying a house.’
‘The editorial cited salespeople who are not overly concerned with a borrower’s ability to pay. Criticism is also in order for borrowers who aren’t overly concerned with their ability to pay. Why is this blame so one-sided? As a taxpayer, I am not excited about rewarding borrowers who are paying the price for their aggressive borrowing practices.’
‘As I read the Chronicle’s editorial on the homeownership crisis, I had to shake my head. Sure, underwriting standards may have been too loose and many loans should not have been made. But if 13 percent of subprime borrowers are going to be facing foreclosures, then 87 percent of subprime borrowers are enjoying the benefits of homeownership.’
‘Blaming foreclosures on lenders is truly absurd. The editorial claims that these foreclosures are resulting in a “$164 billion loss to homeowners.” However, this loss of borrowers’ equity should only fairly be measured against the lenders’ overall exposure, which in many cases exceeds the value of the properties.’
‘It would have made more sense to say that 100 percent of these overextended homeowners will lose what little equity they have in their properties due to their failure to make timely mortgage payments. This crisis was caused by irresponsible people who have borrowed to the maximum on their homes and now they can’t pay their multiple mortgage payments.’
The only way a lot of these idiots are going to be able to “save their homes” [sic] is with my invention, the “no-pay” mortgage. I really should patent it!
Sorry, Casey already owns the patent and trademark to that.
I am most disturbed by the fact so many in government and the press think it is the role of government to bail out people for their own greed.
Look, the Wall Street firms and the mortgage brokers played the game their way, lying to all the borrowers about the terms, or telling them falsely that they could simply refinance their trouble away again in another two years. Now, having made SO MANY of these loans, the FB’s have numbers and political power on their side. Its time for them to play the game their way, and that means requiring a judge to review all lender requests for foreclosure, a process that could lengthen the no-payment stay in a house to years or even decades. It is an AMORAL game that both sides are playing, and the advantage is tilting from Wall Street to J6P, and say more power to him! Note that one unintended consequence of the government making foreclosures impossible to carry out would be an explosion in the rates charged to future borrowers. The lenders would believe (correctly) that it would be very difficult to get the nut back, much less the vig. But to say that the people who borrowed foolishly should bear all the moral oprobrium is to turn a blind eye to Wall Street and its pernicious practices.
Sample free letters against the RE bailouts as well as contact info for senators can be found at the following URLs. Personalize them and send them to your reps and local papers:
http://tinyurl.com/2qcou6
http://tinyurl.com/2pc8yk
Thanks for those helpful links, marinite!!!
O%
It sure looks that way. Even Dodd has backed down. Notice how quiet the lenders were after their meeting; no press conferences, no bragging about helping their ‘customers.’
I haven’t even heard a FB support it. They probably want out of the deals, not a 40 year lock-in.
It would destroy thousands of years of contract law for their to be any forced debt forgiveness. The only other kind of bailout (like the airlines) just involves extending financing. And who would extend financing to deadbeats given that all state and local governements are experience tax problems with the bubble deflating.
Which brings up another point. There is a conflict of interest for local governments to “bail out” foreclosures if it keeps property taxes high.
I took 2 semesters of RE law in college; it’s some of the oldest law in the books. I doubt hundreds of years of precedent will be cast aside so maids in Vegas can keep the 10, cash-flow negative houses.
“…hundreds of years of precedent…”
Ben — Out of curiousity, do you have any sense of how many years of precedent were tossed out the window with the recent abandonment of lending standards? That is, have past cycles had such widespread prevalence of 100% financing, stated income loans, I/O option ARMs, etc.? I am guessing the extent of the abandonment of underwriting standards is unprecedented, thanks to the perfect storm of (computer-enabled) automatic underwriting with instantaneous securitization to get the risk off the lender’s books as soon as possible, but I am curious if anyone has any factual evidence to offer.
It wasn’t “precedent” that was thrown out, merely risk-assessment. In contract law, anything goes that both parties agree to. The only real problem I have with this bubble is the FED reserver. If two idiots want make stupid decisions, I’m fine with that. Just let them suffer the consequences.
The FED should not exist.
GS,
Don’t know when if ever the standards were ever as lax as they were the last few years. Was has been striking to me is the number of times people have been quoting the late 1920’s as the last time things have been like this. e.g. Popularity of interest only loans, high level of leverage in real estate, get rich quick schemes, economic indices, etc. Just keep on the watch for that type of wording and I bet you will be surprised at the number of times people have to go back that far to see a parallel to what is happening now. BTW, the period after the late 1920’s was very interesting in American history.
Which brings up another point. There is a conflict of interest for local governments to “bail out” foreclosures if it keeps property taxes high.
You’re absolutely right! That’s why local governments reduce supply through zoning and keep prices in some areas 40% higher.
I fear that lost in the bursting of this recent bubble will be the permanently higher prices due to zoning. Once the bubble pops, people may feel better about affordability. But zoning has had a significant effect on affordability, perhaps equal to this credit bubble, over the last few decades.
‘Round here, they are starting to jack up the speeding ticket fines, traffic light fines, etc. Local governments will be the “firstest and the mostest” to figure out a way to offset their potential revenue losses. They’re even talking about banning radar detectors in Florida, which ought to be an unconstitutional deprivation of rights, IMHO.
You don’t have the right to drive. Why should you have the right to carry a radar detector?
You are ignoring the political realities, pal. If there were 100,000 of these loans made, then of course no bail out. But the greedy immoral industry made these loans by the millions. Whether or not your “moral compass” is offended by debt forgiveness, the reality is that there is political mass here, and politicians have noticed. This housing crash is going to result in a housing market so heavily regulated that you won’t even recognize it, and the industry has only itself to blame for creating the political situation that makes elimination of a free and open market in real estate a political imperative.
“They probably want out of the deals, not a 40 year lock-in.”
exactly. they can’t afford the house anyways.
“They probably want out of the deals, not a 40 year lock-in.”
How many FB’s will want “a deal” that enables them to keep making payments on a house that isn’t worth what they paid for it, and may never be worth it again?? Living the “Ramen Lifestyle” to feed a beast that is declining in value month after month?? Why bother?? That wasn’t why these folks jumped on the RE bandwagon.
And how many new homebuyers will be lining up to buy when the RE market is such a mess that there’s talk of a RE bailout, for heaven’s sake??
And what about all the fraud on stated income loans? I can’t believe those people would qualify for any kind of assistance, whether it’s from the lender or the govt.
“That wasn’t why these folks jumped on the RE bandwagon.”
That is right on target. The unaffordable price paid by the greatest fools who got into homeownership right at the bubble peak only made sense with the prospect of 10%+ annual gains forever.
Right, the promise of a 60K per year income from their home is gone and all that is left is a bigger debt than they could have ever imagined. No fun at all.
You mean $100K+ income per years (we’re in So Cal, home of the McMillionaire).
The private federal banks want to “keep” the money machine going as long as possible. It was a set up to see how many loans they could do with their “printed money” that costs them “nothing”. Keep the serfs paying and paying. It is the same game as the serfs paying on credit cards. Print money and give the serfs credit. It is that simple. Not hard to understand when you step back and look at the whole picture of the profits to be made.
The lender Mavin’s are coming full circle!
With “CHATTEL” loans.
Now that they have “purposely permitted” knowing full well that bad credit history borrowers, with no skin in the game, no questions asked loans. ALL WOULD DEFAULT, with a small economic decline { i.e. tightening 1% to 5%}.
This was the degree of hubris the bankers deliberately and will fully supplied the ravenous risk takers against the Greenspan “PUT”. Why not they will take their mess and sell it to Fannie right MR Lehman Bros!!!!!
Diversification is the rallying cry, even now its only 13% of borrowers are defaulting there are still 87% trying to pay! {read indentured servents}
Desparate to make loans with all that free money from Japan or the Greeenspan 1% Fed fund rates while the economy actually had a negative quarter or 2, {maybe 3 quarters}?
How could 1% fed funds ever make sense?, unless the economic numbers reported were “actually far worse” than admitted to!
Or was this part of their conspiracy.
It wasn’t rational! {1% with GDP only in a minor decline?}
If we could see the bubbles, are we to believe the FED i.e.Greenspan and his puppeteers didn’t see them too?
Of course they did. Did they see the Dot.com bubble sure they did, but they were certain to profit and rig those markets. Look the other way and then slap them wiht $200 million dollars in fines for their $3 billion in profits. Govt and these boys win and YOU lose for playing their game.(pensions, homes & jobs)
Now the R E bubble was a sure thing, buy a few appraisers, from the internet and “whalah” prices go up..How could they not?
It is not rational to think the FED didn’t know this would happen. As in bubbles before with the Plunge Protection team always standing the ready, how could any of the boys on the inside lose..Taking money from babies.
Create the mess, get the government to bail THEM out stick it to the little people (aka Enron}
As for the public they perform “stupid is as stupid does”.
well said; of course it’s not only the FED, the EU and Japan central banks are exactly the same (or maybe even worse). The problem is central banking (in its current incarnation).
“I haven’t even heard a FB support it. They probably want out of the deals, not a 40 year lock-in.”
Bingo. I wonder how many of these FB’s would have bought (or over-bought as the case may be) if they had any clue that RE is NOT a guaranteed road to riches.
I can’t imagine they will be thrilled having the lender re-package their loan so they can keep making payments on a house that is not even worth what they paid for it. Home ownership will be a drag on their net worth for years.
And rememeber the new bankruptcy laws that passed? That was a year before the shit started to hit the fan. I think banks knew full well what was headed their way, and made sure folks wouldn’t be able to just leave the keys on the granite countertops and walk out.
And what % of the crazy no doc loans included some degree of fraud? False statements about income? Intention of living in a home? Other assets? I can’t imagine these folks would be entitled to any kind of assistance.
Yeah, I think the only meaningful and practical “bailout” would be a return to the old bankruptsy laws.
Let the banks fail!
The average person doesn’t have a savings account only a debit card and a purse full of credit cards.
Savings rate negative again this month. 18 in a row?
let the banks fail? that would make things even worse I guess - because the few people that did NOT buy at these ridiculous prices and kept their money on the sidelines until sanity returns will be the ones who pay (except maybe for a few who have everything in physical gold). The banksters themselves will have no problem at all when their banks default, they have more than enough money to retire (in a safe place, probably) and golden parachutes in case there is no new bankster job in the future.
“They probably want out of the deals, not a 40 year lock-in.”
Bingo! Even the dumbest FB can probably figure out that the purpose of a bailout would be to help the banking parasites keep sucking the hapless FB’s blood for a few more years.
Even the dumbest FB can probably figure out that the purpose of a bailout would be to help the banking parasites keep sucking the hapless FB’s blood for a few more years.
——————–
Though I doubt most FBs would actually be able to comprehend this, that is exactly what any kind of bailout would be — a gift to the lenders.
You are all correct in that FBs do not want to pay 40%+ of their **gross** (stated) income on housing that is losing value every day. Additionally, if they should ever decide to move, what’s to keep them from just walking away at that point, leaving the lender in the lurch at an even lower point in the decline.
Doesn’t mean the govt, with all it’s “good intentions”, won’t try to muck things up. It’s why we all need to get on them and stay on them.
I have no doubt that Dodd’s recent turnaround is largely due to the public response to his “bailout” comments.
We must always remain vigilant…
“O%”
I agree…I expect some token “help” like Ohio is pursuing (to the tune of $100,000,000), but nothing real. The number of people that may eventually default on their mortgages because of this meltdown is truely “too big to bail”.
I’m a little disappointed that my idea of giving every upside down homeowner a pint of Stephen Colbert’s Americone Dream ice cream, in lieu of money… didn’t make the big time, up above.
It tastes pretty good.
I said this before, but by the time the election rolls around we could be in a serious recession that is hurting even prime borrowers. do you really think in those economic bad times a “take your medicine” candidate will win? there will probably be a bailout, but it’ll have to reach the money power first- the banks and wall street. however, who knows if we’ll have enough cash?
there are no hard money men anymore. there are no liquidationists.
I had a good laugh when I looked up this quote and the first think that showed up was my old blog. I wish I could remember my password.
“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”
-Andrew W. Mellon
http://www.google.com/search?client=safari&rls=en-us&q=Liquidate+labor,+liquidate+stocks,+liquidate+the+farmers,+liquidate+real+estate.&ie=UTF-8&oe=UTF-8
recession that is hurting even prime borrowers. do you really think in those economic bad times a “take your medicine” candidate will win?
No. But don’t forget the opposing party can try to take the line that the bad other party caused the problem or otherwise point fingers away from themselves and win. If bail-outs are not an option then the candidates will try to distance themselves from the crisis. E.g., H. Clinton’s distancing herself from the Iraq war vote.
John, “The take your medicince” canididate is not going to win, but that is not the issue. How are the bailout plans going to be financed? Were is the liquidity going come from? That is what this crisis is, a liquidity crisis caused by the federal reserve. The centeral bank of Japan caused a bubble in the 1980’s. As it deflated in the 1990’s, Japan’s goverment bailed out many banks, they began spending wildly on public project. The centeral bank lowerd interest rates to .055 % . None of these things worked, Japan suffered 16 years of deflation. Andrew Mellon was right, during the Texas Savings and Loan crisis of the !980’s his advise was followed, it worked. Japan’s problems show the usual text-book macro-economic solutions do not work anymore. The “bailout” candidate may win elections, but they are not going to solve the problems.
The “bailout” candidate may win elections, but they are not going to solve the problems.
There will be problems galore, no question about that. The question is how the pain will be distributed. I’m with John Law: as the pain gets bad, the bailout voters will turn out in record numbers, and there WILL be massive money spent to help them. That doesn’t mean it will be enough to “solve the problems”, just that there will be a massive forced transfer from taxpayers and the rich (including the Asian bondholders) to the irresponsible and the poor. The implication is that you may not be safe just by sitting on a pile of dollars.
Based on a quick wikipedia jaunt, it appears the government spent on the order of 2 trillion or more in relief in the 1930’s, in today’s dollars. That seems doable today, given we’re going to spend half that at least on Iraq. Of course the dollar might drop in value along the way.
I should add that much of the New Deal spending was in the form of wages, so the government (taxpayers) got something in return. I hope the bailouts this time around are of that type, as opposed to just handouts. (Maybe they shouldn’t be called “bailouts” in that case; “relief” might be better.)
How about the “take your medicine” candidate campaigning like this, “If you want to be taxed $2000 extra a year to bail out the people who didn’t save, who bought Hummers and Harley’s, then vote for that guy. If you want fairness, vote for me”.
I’m surprised so many think that the “Anti- Bailout” candidate would not win.
There are PLENTY of people who would be incensed at the idea of a bailout. We’ve dicussed this many times on this board.
- People who own their homes free and clear.
- People who bought responsibly and CAN pay their mortgage.
- People who were foreclosed on last year, last month, etc., anytime before the bailout began.
- People who are struggling to pay their mortgage but for whatever reason do not qualify for “help”.
- People who never participated in the nonsense.
- etc.
Furthermore, with all the outright FRAUD and STUPIDITY that led to this mess, framing the “Anti Bailout” message would be a no-brainer. It would be VERY easy to present a rock solid case against bailouts for any politician who chose that path.
There’s no way I would vote for any pol in any capacity who even hinted at a bailout. I’m sure there are plenty of people like me out there. Off the top of my head, I frankly cannot think of ONE person I know who would go for bailout plan. That includes relatives, friends and people from all walks of life. Most are current homeowners who could give a rats a$$ about bailing a fool with their hard earned $$. Others are renters who did not participate for reasons of fiscal prudence. One is a couple who lost their home 3 years ago due to an exploding ARM loan. ETC.
Ben, don’t mean to be picky but could you run spell check? It’s “likelihood” not likelyhood.
If you don’t mean to be picky then why post that?
Oh, come on now. You’ve got to be kidding.
Oh, come on now. You’ve got to be kidding.
Don’t obsess over the small picture, my friends.
We all make mistakes, makes us human beans
Thanks, I appreciate you pointing that out.
That deos it!Ii do not hvae sepell cehck on tihs wbestie.
Ben, don’t mean to be picky but could you run spell check? It’s “likelihood” not likelyhood.
I do mean to be picky and I think you should use complete sentences.
CHIPXLA — you’ve got cojones, my friend, but not the good kind. Down here in the South, we call it bad manners. If you truly wanted to “help” Ben with his grammar or spelling, you’d have done it privately, by e-mail, his address being plain and obvious. I regret that my name is so close to your own. I also not that, by the time of this posting, the absence of an apology by you further indicates your self-centered arrogance. I have been posting here for right on two years now and am not noted for attacking other posters, so this is a relatively rare event, pour moi. You be an upstart, bro. Ben is your host.
I’m not responding regarding the misspelling (Lord knows I do it all the time!).
Just wanted to say that you are indeed a gentleman poster, Chip. That’s very much appreciated (at least by me!).
Also wanted to welcome you back from your vacation (believe that’s where you said you were going), though I know you’ve been back for a while already — didn’t get a “welcome” post up in a timely manner. It seemed you were gone a long time & I was wondering if you’d decided to have a life outside of this blog.
Glad you’re back.
Hope you & the wife had a nice time!
The likelihood of a bailout is 100%. HOWEVER, it’ll be all show and no substance.
In the beginning, this subject will be controversial. The Dems will fall all over themselves to bail out irresponsible homedebtors. The GOP will resist at first, but once the exurban McMansionites start receiving notices of default the Republicans, too, will jump on the bandwagon.
As the bailout movement picks up steam, the pols will be afraid NOT to vote for it. No elected official who values his seat will want to vote against the American family. Before long the GOP and Dems will start competing over who can offer the most generous bailout package. Any politician foolish enough to say something like “I believe in individual responsibility,” or “you should have read the mortgage papers before you signed them,” will be instantly shouted down.
Finally, Congress will pass legislation with a really grandiose title, like the “AMERICAN DREAM FAMILY HOME PROTECTION AND REINVESTMENT ACT OF 2008.”
There will be a big signing ceremony in the Rose Garden. During election season, politicians will run ads bragging that they voted for the bill in order to “Save Hard-Working American Families.”
Once the legislation is passed, the MSM will immediately drop the subject of foreclosures, resetting ARMs, etc. like a hot potato. You won’t see any stories about residential real estate or the housing market for at least 5 years thereafter.
And what remedies will this wonderous legislation provide for desperate homeowners facing forclsoure?
A $500 tax credit.
classic… this is purely classic insight.
Good call… I was thinking about the same. I think thought there might be some real money given to bailout the bank in the guise of bailing out homeowners, however, which all good bubbleologists will have to keep a close eye on and make a lot of noise when that starts to happen.
LOL! What a great post
Cue the Albanian Bubble…
http://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.htm
How about a $500 tax credit for all U.S. households, as everyone will be hurt by the RE slowdown, not just homeowners facing foreclosure?
Right on GS
Does taking $500 out of your right pocket and putting it into your left pocket make you better off?
You obviously don’t understand how government works.
They’ll take $1000 out of your right pocket and put $500 in your left pocket and then tell you you’re better off.
The likelihood of a bailout is 100%. HOWEVER, it’ll be all show and no substance.
Sounds like “No Child Left Behind” Great program, no funding
A $500 tax credit.
Funny post, but voters in serious pain aren’t going to vote for someone who only gives them $500. Propaganda can’t magically convince them that they’re doing fine, when they’re not. (I’m assuming Great Depression type pain. If there’s much less pain than that, there will be less relief necessary, of course.)
Propaganda’s been making them feel fine these past few years…can’t see why it won’t work well into the future.
The bailout is this!
No payments for 3 years for any delinquent mortgage borrower.
All you need to do, to live free and clear for 3 years is to agree to the NEW Chattel mortgage notes.
No payments for 3 years, keep your below market homes, you pay the property taxes not the bankers. All debts subject to payroll deductions for life, enforced by the state or sherriff like, “child support”.
Sounds so great, they are NOW doing this in Las Vegas.
Oh, did I mention no bankruptcy protection as an out?
I just did, but chances are the slimey banker won’t!
“How to make slaves for life”……..let them sign Chattel mortgages.
You see the bankers have made people personnal property with this loan.
Now it’s not just your Soc.Sec # that makes you chattel, now you freely “contract” to be their slave.
how could this be?
You assign ALL future wages…until paid.{personnal property}
The 3 yrs FREE entices the deparate delinquent borrower and gives the banker even greater leverage. No write downs on current defaulting loans!
Any type of bailout will be dependent on the amount of PAIN the economy will tolerate. If this turns into a train wreck then there will probably be a bank bailout with possibly some type of debt restructuring or one-time 1099 exemption for those FB’s who short sale and who actually lived in the property.
The problem with this particular housing crisis is that so many properties were speculative in nature which will come out during the discovery process by the mainstream (don’t forget us bloggers are at least 1 year ahead of the news!) - which will kill any sympathy for those FB’s.
Pointing out massive CEO enrichment during the boom might also reduce sympathy.
Think about what one fellow said last week; that any measure would increase the mindset for future subsidies and therefore create more problems.
It’s getting about time that “Moral Hazard” becomes a commonly understood term.
Slavery Reparations anyone ?
Sure, but find a slave and slaveowner first.
The ‘bailout’ that I would support would be to drop taxes on the forgiven portion of mortgage debts (from short sales). It is not like the tax was on any sort of income, anyway. And it would make it easier for owners to sell, speeding up the meltdown…
I’d favor letting FBs tap their own 401ks and 403bs before age 59 1/2 to BAIL THEMSELVES OUT.
AKRon, that sounds reasonable to me. I would support forgiving taxes on the forgiven portion of debts and allowing people to declare bankruptcy and move on. Anything that bails out the lenders would make me truly sick, no matter what political party it came from.
I’d only support tax forgiveness if it the property was a primary residence, the borrower only has one property and the loan was completely free of fraud. Guess that eliminates about 80% of the “victims”.
The ‘bailout’ that I would support would be to drop taxes on the forgiven portion of mortgage debts (from short sales). It is not like the tax was on any sort of income, anyway. And it would make it easier for owners to sell, speeding up the meltdown…
Hmm. Apparently oil companies are not in the lending business.
Drats. I managed to scramble two messages together. Takes (ahem) talent.
I would not be in favor of bailouts on 1099’s for this reason . A big portion of those short sales are going to come from people who refinanced and took out money for toys .If the lender later forgives them on that money aready used than everyone will pull out money and than take the IRS benefit .
I’m in favor of 1099 exemptions if the borrower lost their job or had medical bills that forced a short sale .
Agree with you, Wiz…but we’d have to add the provisions I mentioned above.
Chiphxla, I don’t mean to picky but, really? wtf do you care if a word is incorrectly spelled? Seriously, one good reason.
Before I ever say anything about other’s spelling I recall the parable about casting the first stone, and wish for an edit feature here.
Yeah, Ben should sell the right to edit your post for $10 paypal donations. At least Casey is good for some ideas.
Incorrect spelling can cripple searches of archives, hiding stuff that should be included, including stuff that should be excluded. And, Ben said thanks, so . . ..
IAT
The other day I bolloxed up a post by talking about “the house next store” rather than “the house next door”. Someone pointed out my error, and when I read their post and re-read mine, I nearly sprayed my keyboard with coffee because I laughed so hard at myself. Those of us who are fond of grammatic rectitude are torn between amusement and irritation when we see others’ errata. Consider it a harmless little nervous tic.
Assuming some people are bailed out into very long-term (probably subsidized) fixed loans or by some other means, perhaps Bernanke dropping $100,000 on their heads…what happens when any of these people want or have to sell? Most will be upside-down in their mortgage (again) because of declining house prices and will have to be approved for a short sale or they just walk away. Let them walk away now through foreclosure.
Stephen ,you bring up good points on why we can’t have bailouts .
Also ,I would really like the government to hold off on a pre-mature bail out for FB’s . There might be better areas where the taxpapers need to place money with this upcoming meltdown that might result in a recession or depression .We might need to start work programs funded by the government just to keep people from starving .
what about refinancing all FB’s into a 30-year fixed mortgage at 2-4% within the next 1-2 years, with the low rates courtesy of Ben Bernanke and the FED? Many FB’s should be able to afford that, we have longterm mortgage rates in that range in Japan and Europe so why not … With all the government intervention in the markets that has been going on lately, who knows? Ben B is itching to bring rates down again and I’m sure Fannie and Freddie will be happy to trade those mortgages when long bond rates start declining again (as expected by PIMCO etc.)
you must have missed uncle ben’s testimony. if anything he has an upward bias on rates because inflation is higher than he wants.
If you believe him. Most “Experts” expect a rate cut by summers end.
indeed, I don’t believe any word of what Bernanke says. It’s all jawboning, and a bitter contrast with the’transparency’ he promised. Just like the ECB, Trichet always talks about inflation risk and being hawkish on inflation, but they get further behind the curve every time.
“30-year fixed mortgage at 2-4%”
Foregive me if I’m wrong on this, but the rate on 30 year fixed mortgages would be based on inflation expectations, and not on Ben B lowering the short term (Fed funds?) rate. You would have to put people into variable rate mortgages…so when you finally do jack up the rates, they are screwed all over again. Also, lowering the short term rates would (probably) push inflation expectations through the roof, jacking up long term rates, making it even less likely that people could refinance into a “safe” mortgage.
Some schmuck bought a $500,000 on a $35,000 income and a 2 - 4 percent mortgage is going to save him?
NYCityBoy is missing something here.
Exactly. A $500,000 loan with ZERO percent interest for 30 years is about $1,350 a month if my math is right. Add insurance and taxes and it will easily be $1,750 plus. A single person making $35,000 would have trouble paying rent that is even half of that.
“Some schmuck bought a $500,000 on a $35,000 income and a 2 - 4 percent mortgage is going to save him?”
And why assume the schmuck will even want the house for the next 10 or 20 years when it isn’t worth anywhere near what he paid for it?
please explain then why this works in Europe, where ‘inflation’ is supposed to be the lowest ever (1.1% in my country) while all necessities of live cost 8-10% more every year, and M3 is growing at around 10% yoy. Lowering rates to the lowest in four centuries has not pushed ‘inflation expectations’ up, on the contrary. I think one of the problems is the War on Savers, the money glut from the central banks is forcing people to accept lower rates of return on their money every year.
I agree that in the end the FB’s may be screwed again but that’s in 30 years (or more than 50 years if they start using multi-generation mortgages like in Europe and Japan). In the long run we are all dead … And if the FB’s get out of their mortgage in time, there is a good chance they can sell their home for far more than the purchase price - wouldn’t be surprised to see a huge echo bubble if the FED manipulates US rates down to 2-4%.
“please explain then why this works in Europe”
Because the US props up Nato, and Europe can skate on spending money on the military and look to the US taxpayer and our young soldiers to bail them out.
That sounds like an American problem for trying ot be the world’s police. Why do we need to protect the Germans, Japanese, Brits, Italians, French, South Koreans, Kuwaitis, Saudis etc etc? They are in much better financial shape than the broke ol’ USA. Let them fend for themselves.
Nato (its chairman is a neocon idiot from my country) is about the last stronghold for US domination in Europe, in addition to a few neocon governments like those in UK and Netherlands (which are struggling to remain in power and certainly not supported by a majority of their citizens). Once these are gone Europe will be in much better shape. I’m not even talking about all the money we are spending now on killing innocent civilians and destroying infrastructure in Iraq and Afghanistan to support a US puppet regime. Or the huge amounts that are spent by EU governments on development of new US weapon systems like the JSF.
Obviously war and military spending go hand in hand with the growing credit bubble, but that’s the same on both sides of the pond.
Maybe we really have reached the end of history, and there really are no genuine threats to the world’s security, and all military spending supports nothing more than “neocon” skullduggery. Or maybe not.
So many in this country preach to the rest of the world about our free market economy. If we really beleive in free market forces, then we have to allow market forces to cleanse the housing market of mispriced assets.
I would like to see talk in the MSM about debt to income being the real determinant of affordability. This point never seems to get made. If prices are allowed to correct to a point where debt to income levels are reasonable, we will see stability return to the housing market. Most discussion seems to center on how to artificially prop up already overinflated prices. Interference tends to make the problem worse and drag out the pain.
Or how about high housing prices actually being a drag on the economy. High prices mean large mortgage payments , which translates into less money available to homeowners to spend on other good and services. Lower prices for housing can actually be good long term for the economy. It frees up more of peoples earnings to be spent in the economy instead of paying interest on mortgage loans. It also make the country more competitive internationally, a lower cost of living translates into a more competive workforce. My point being, high housing prices aren’t necessarily a good thing, there are negatives also.
Exactly. The USA would be the USSA (United Socialist States of America). The Fed and Congress, through their monetary and tax policies respectively, have determined through central planning the production of goods. In this case, it has been housing.
Without the tax breaks, that cheap money would not have been directed into housing by individuals. Without the monetary policy, the cheap money wouldn’t have been available.
The meaning of a capitalistic, democratic, republic must be understood, or the very existence of such a state will disappear. This doesn’t mean the USA will cease to exist, just the original foundation and principles will be changed. In a democratic republic, the people have the supreme power. It will be up to the American electorate to determine if we want to change the principles or not.
don’t see a big deal about Ohio’s bailout. the other decision is to let people foreclose and see your social services budget skyrocket. at least this way they will collect some interest cash.
the details are 6.375%, good credit with a few blemishes allowed like late payments, you can be upside down on your current loan. kind of like an FHA loan except you can be upside down
Ohio is allocating $100,000,000 to help out 1000 people. Do you think that is a good return on investment. Be prepared to spend $100,000 per lucky Ohio mortgage lottery winner (1000 people max), and then pay the social service increase for everyone else that is in an Ohio foreclosure, but didn’t get picked.
i think the first ones to be helped are state employees or municipal employees employed by those who administer the fund…
and their relatives and close friends.
1000 people not being foreclosed on may be enough stabilize property values just enough to let some others refi into a 30 year fixed. the plan isn’t to help everyone, but put in a little liquidity to avoid a melt down.
the real question is who is going to lend them money at a little more than 4% after tax rate for mortgages?
Thought they were proposing taxable bonds? Like I said earlier, assuming bailouts happen, I’d rather have a state I don’t live in deep throat it, than the fed gov’t get involved. MA, CA OH, whatever, they can all sell bonds out their a$$. Self-serving, but at this point that might be the only hope many have for not having to pay for this mess.
Bailing out banks might happen, but every mortgage is different; so bailing out borrowers would require a case-by-case examination that would cost hundreds of millions of dollars to oversee and take years to accomplish. Unlikely.
And, as others have suggested, there’s not enough cash nor sufficient political will for a bailout. A few like Dodd will play it up to gain some points, but they’ll be more concerned about being seen to be doing something rather than actually doing anything.
“every mortgage is different”
Exactly. How would the government even BEGIN to bail this thing out on an individual basis?
The bureaucracy would have to be staggeringly large to sort out those who MIGHT be deserving of some kind of assistance (elderly person living alone who got conned by sleazy mortgage broker and is now $200K upside down) vs. some six figure income yuppie couple who are upside down on a $2mil property.
‘But if 13 percent of subprime borrowers are going to be facing foreclosures, then 87 percent of subprime borrowers are enjoying the benefits of homeownership.’
NO IT DOESN’T. I’m sick of this meme getting kicked around. The Then most definitely doesn’t follow from the If. Lots of subprime borrowers get into cash flow trouble. Some of them give up on homeownership and manage to sell their way out. Some of them get refinanced, often several times, before throwing in the towel. And some of them get foreclosed upon. To claim that the percent not foreclosed is equal to the percent successful is plain nonsense.
Excellent points! And some will barely struggle along - house poor and overworked with second jobs - for another decade till the next boom.
Works for me.
i am thinking our recession splinters china because dollar sinks every time they report on mounthing housing losses. in a fortnight we will have south china and north china. One very poor and one very rich, but diff languges.
also housing equity extraction fueled the binge of buyers no more is thta going to be true. Hopefully they will invest their trillion dollars in order to promote the bailout. (protectionism also rising notice the paper tarrifs going into effect)
China already has 8 different dialects.
No matter what, the foreclosures will be a very small part of the population, but it would be incredibly expensive for the government to bail these people out. In addition, the people who are cutting back, working hard and barely making it must be 20X - 100X more than the people really facing foreclosure. I don’t see how the government or the taxpayers will want to spend 10’s of 1,000’s of $ each on the people who can’t make it, thereby encouraging even more people to throw in the towel. All that I can see is some delays and extra procedures that need to be gone through before people lose their homes. This is all that the local and federal government can really do. The other alternative is to reduce interest rates, but that will only help a small percentage of people at the margins unless the move is so extreme as to destroy the dollar
“…the foreclosures will be a very small part of the population, …”
Maybe, though I maintain the share of the population who can barely avoid foreclosure is much larger, given the price to which homes were driven in the past couple of years. Offering bailouts could tempt people skirting the margin of foreclosure to throw in the towel, an endogenous response to free money which could greatly increase the actual number of foreclosures that materialized. Further, how will the government even come close to the appearance of fairness if they help out the greatest fools who put themselves in the certain path of a future bailout, while giving nothing to those who merely bought a house which they can barely afford?
The perpetual tendency of the blue state party to reward the dumbest household financial decisions and punish any household which behaves prudently will likely be cited by future historians as a key factor in the decline of America. This practice goes back at least as far as FDR; I am curious if anyone knows of any deeper historical roots?
The blue state party is the problem? Who provided the excessive liquidity to inflate not one, but two bubbles? Alan Greenspend, that acolyte of Ayn Rand.
Don’t mix up Ayn with him…
She had no idea how he’d turn out.
(spinning in her grave, as I type)
“Further, how will the government even come close to the appearance of fairness if they help out the greatest fools who put themselves in the certain path of a future bailout, while giving nothing to those who merely bought a house which they can barely afford?”
It’s reverse Darwinism — the survival of the unfittest. Do this and in 3 generations people won’t be able to walk and chew gum at the same time.
Wow, cool, this is the greatest idea! Now, can the Feds also set a nice low rate that I can re-finance all my credit card debt into? And that lousy car loan I agreed to is really dragging me down - how about a sweet Federally mandated low interest rate for all car loans?
And in a few years when the Real Estate Syndicate figures out how to jack house prices to an average price of over a million bucks and convinces every minimum wage earner to take out one of the creative new 80 year mortgages with a 10 year negative interest teaser will the Feds jump back in and bail everybody out again?
Can we please just eradicate the entire Federal government and start over fresh and please follow the constitution this time. Oh, I forgot, following the constitution does not always maximize profits - so I guess that’s out of the question.
If a bailout is going to happen. Give money to new buyers not the FB’s that speculated. This would allow the lenders to continue on life support. Houses will still get bought and sold and the economy woud keep rolling.
“Give money to new buyers not the FB’s that speculated.”
Good idea. Nobody has worried much about all the scorned renters who were kept out of the market by GFs armed with subprime and the lenders who handed them the money to buy homes they can’t afford. Somebody ought to at least give a thought to the damage the situation has imposed on economic productivity, as it is hard to be productive if you spend half your life fighting traffic on the freeway because specuvestors like Casey Serin have driven the price of housing closer to work through the proverbial roof.
the Netherlands already has such a system (in some areas, later this year probably in the whole country). Every starter can get a 25-50K free loan (on top of a ’standard’ mortgage, which is often 6-10x income); you only start to pay interest on the starter loan when your income increases after a few years. And you only have to pay off the principal when you can sell the home with enough profit. If your income or home value goes down, government will eat the loss. Great isn’t it? I’m sure the RE mob is perfectly happy with this arrangement, because it props up home prices for another few years. Of course the size of the loans will have to increase in future to keep prices going up, but that’s a done deal.
They already do. An IRA can be used for a first time purchase. All a first time purchaser has to do is save…. and the government will match with about 30% in tax savings.
Perhaps they could create special “first home” savings accounts that operate like HSA’s and get a line item deduction so more people take advantage of this tax benefit.
If you are hesitant to write your own letter or suffer from “writer’s block”, etc., then you can find pre-made letters as well as a complete list of contact info for senators at at least the following two locations:
http://tinyurl.com/2qcou6
http://tinyurl.com/2pc8yk
Write to your elected rep and your local papers.
I plan to place a few bets on NCAA finals and a few on Triple crown in next few months. Where can I apply for a government loan to cover my losses if my bets go wrong?
Please help me.
Oh. Almost forgot. I’ve spent a lot of money on losing Lotto tickets. Are they deductible on my 2006 tax return or will some Agency bail me out from my loses?
Claim your gambling losses as a miscellaneous deduction on Form 1040, Schedule A
http://www.irs.gov/taxtopics/tc419.html
“Claim your gambling losses as a miscellaneous deduction on Form 1040, Schedule A”
But only to the extent of winnings, you can’t take a loss from gambling.
I doubt short of forcing creditors to accept huge forgiveness of debt any bailout would be practical. It is not often mentioned in the mainstream press, but many folks simply overpaid for homes and cannot aford to repay their debts. Current bankruptcy law does not force any debtor to repay all of their debts, just what they can afford over time if necessary. It also makes the process more difficult, thus weeding out idiots that file because they cannot repay their $2000 department store card.
Writing our government representatives is an exercise in futility. The current administration is NOTORIOUS for doing whatever it wants to do, regardless of whether it’s voter-supported, Constitutional or even legal.
If it suits this current administrations purposes then THERE WILL INDEED BE A BAILOUT. No ifs, ands or buts. The fact that our country is teetering on the verge of bankruptcy and the existence of other dire economic realities be damned.
As far as the question “where will the bailout money come from?’ the answer is an easy one; our government will just print more of it out, as it has been doing already for years now. Our whole economy has become a Ponzi Scheme!.
Our deeply devalued currency will soon be dropped by China and many other nations as the reserve currency of choice. Overseas holders of our T-Bills are currently in the process of dumping them as well. Our economy is shot, our credibility gone. Trillions of currently unproductive dollars are stuck in dead assets such as overpriced homes in the U.S., while other more fiscally responsible nations are creating TRUE & ACTIVE wealth.
I don’t think this housing bubble was caused so much by “rising home prices” as it was caused by “falling dollar values”. Which is why I believe home prices can never really feasibly return to valuations of just 6 or 7 years ago, mainly because in about that same amount of time the dollars purchasing power has dropped approx. 50%.
I think we had it coming. Here we are, a nation of people who only think about creating wealth and then spending it stupidly, while other nations are following loftier plans and acting with incredibly greater foresight.
A word of warning: the dollar will SOON TANK. I recommend placing cash savings into interest-yielding Euro CD accounts.
THAT’S exactly what major foreign governments are doing as we speak.
I left out a KEY word in the following sentence from my text above;
“I think we had it coming. Here we are, a nation of people who only think about creating PAPER-wealth and then spending it stupidly..”
Speak for yourself. I spend my money very wisely. Contrary to popular belief, most Americans did not flip properties. It was maybe 5% of the population and maybe another 10% who HELOC’d and blew their money. Perhaps another 10% were took out subprime or liar’s loans. Plenty of responsible people will be hurt by these people and the government’s failure to regulate and prosecute the players and criminals.
euro CD accounts? just wait until the bailouts start in Europe; that will be an even bigger party than in the US.
What is the interest on Euro CD accounts in the US? The best you can get on savings accounts in Europe is around 3% … lousy return for risking to loose all your money at the next bank run (except for the EUR 15K or so that is guaranteed by the government).
euro CD accounts? just wait until the bailouts start in Europe; that will be an even bigger party than in the US.
“What is the interest on Euro CD accounts in the US? The best you can get on savings accounts in Europe is around 3% … lousy return for risking to loose all your money at the next bank run”
I disagree. Remember that interest rates are reflective of assumed risk, which is why the interest rates on the euro are so low. Notwithstanding, the simple depreciation of the dollar is what will push the euro value up. Also, the levels of fraudulent mortgages and over-extended FB’s in Europe is just A FRACTION of what it is in the U.S., thanks to lesser lax-lending practices used there. The run-up in european home prices is due to a major resettlement of Northern European populations retiring (and buying homes) in the more desirable climates of Southern Europe. That is to say; the european run-up is due to LEGITIMATE reasons and not due to pure, unbridled SPECULATION …as we have here.
Riiiiiiiiiiiiiiiiiiiiiiiiight.
Average home prices in UK are 8.6 times average incomes becoz Northern Europeans (north of UK??????????) want to resettle and retire in UK’s more desirable climate!!!
And Ireland (as cold and damp as it gets in northern Europe) is even more overpriced than UK.
You are totally deluded - Europe’s housing bubble is every bit as speculative as the US bubble and is inflated by the same fuel - easy money - euro interest rates were lower for longer than those in US.
Next time do some research first.
yes, totally agree.
average home price in Netherlands is also more than 8x average income; loans at 6-10x income are considered perfectly normal (in the US you only have that in some highly speculative areas). I’m sure liar loans in the UK are more popular than in the US. Not even talking about all the highly leveraged RE speculation in second homes on the Spanish costas, the Balkan, Eastern Europe, Turkey etc. When the EU bubble goes pooff the fallout will be a magnitude bigger than in the US.
And regarding ‘desirable climates’: newspapers are now touting the Netherlands and UK as the future Riviera of Europe because of acceleration in global warming. Never mind that rainfall will increase strongly (we already have plenty of that) and that the Netherlands might be physically under water within a generation. And don’t worry about the Meditteranean costas where future temperatures will easily reach over 50 degrees C in summer - the EU speculators never really use their properties, so no problem at all. They will be real nice for the wintertime anyway (EU citizens never have to work because their homes provide all the income they need).
dan sounds like a realtor from Europe …
How about the BILLIONS the europeans ARE NOT spending on invading & occupying other countries while bombing innocent woman and children?. How about the BILLIONS they DON’T HAVE TO SPEND on medical treatment and artificial limbs for the dead and wounded soldiers?.
Do you think maybe THAT might represent a savings that we don’t have here?.
Sure their homes are expensive but they have FREE medical care in exchange and DO NOT spend tons of money on trying to rule the world.
‘If it suits this current administrations purposes then THERE WILL INDEED BE A BAILOUT. No ifs, ands or buts.’
Apparently they have already taken a position on this issue: “The Bush administration has ruled out a blanket program to help homeowners stave off foreclosure, reasoning that it’s ‘not an appropriate role for the federal government,’ White House spokesman Tony Fratto said.”
This is a very smart political response to the kneejerk bailout proposals already set forth by running pols from the other side of the aisle, as it sets up a version of pottery barn rules (”you break it, you bought it”) in the event that any bailouts manage to get passed by the Congress.
“If it suits this current administrations purposes then THERE WILL INDEED BE A BAILOUT.”
Not sure. It might be tempting to let the blue state Congressional representatives push a bailout through, which would make it easy for red state CIC candidates on the stump trail to stick blue state Congressmen with the blame for the housing mess (”they made the mistake of interfering with the invisible hand of the free market…”).
Here here. I think Dan hit the nail on the head.
We just pissed the Chinese off with the new Tariff. Watch Monday morning and all next week and see if the price of gold and silver rise and the dollar lose value. That’ll be the Chinese diversifying out of dollars.
The CIC has taken an admirable leadership position on this issue. The White House spokesman is right on target regarding the (nonexistent) role of government in this issue.
‘The Bush administration has ruled out a blanket program to help homeowners stave off foreclosure, reasoning that it’s “not an appropriate role for the federal government,” White House spokesman Tony Fratto said.
And at the state level, “there is only a limited amount we can do for people who are affected right now,” said Assemblyman Ted Lieu (D-Torrance), chairman of the Assembly Banking Committee.’
‘The Bush administration has ruled out a blanket program to help homeowners stave off foreclosure, reasoning that it’s “not an appropriate role for the federal government,” White House spokesman Tony Fratto said.
Hmmm. Apparently oil companies are not in in the lending business.
They didn’t bail out enron, why would they bail out FB’s? I say leave it up to the states. The federal government is already $9 trillion in debt.
“My thoughts are that getting behind some sort of bailout that would enable FBs to refi is a win-win for politicians and financial companies. If they can get Mr. Future Trailer Park Guy in a new mortgage that he could actually afford, maybe a 50 year mortgage, a guy like that would jump at it.”
This is not possible without saddling some other bagholder with the cost. You cannot refinance a FB into any sort of fixed rate loan who could only manage to initially purchase the home they could not afford with some kind of liar loan or suicide loan without imposing a cost on some other party (preferably those who shared in the act of lending the money!!!).
… so the trick is to impose the cost on foreigners (like foreign pension funds or maybe the Chinese). Fannie and Freddie will be happy to assist the FEDs with this kind of bailout.
You may be on to something. The best kind of bailouts are the ones that happen in the heat of a crisis, where it is incumbent on the government to hastily “do something,” and a climate of mass hysteria makes it easy to craft a stealth bailout to saddle some unwitting third party with the cleanup costs.
If we were to stick it to the Chinese…
They might just stop selling us 98% of the goods we buy from them.
Our country is a whopping 5% of the population of the World.
There are other players.
China actually runs a trade deficit with the rest of the world minus the United States. They stop selling us tons of stuff, their economy implodes in a week.
Tin foil hat anyone?
how about all the retireees who are going to have to work at McD’s because their hard eared retirement dollar is killed by the cancer of inflation? a bail out will only increase inflation by artificially supporting homeprices.
I hear wheat gluten from China is very cheap these days.
“Under proposed bailouts, responsible people lose and have to give their money to gamblers and liars. It doesn’t matter if you have been dutifully paying your monthly fixed-rate mortgage. Congress is proposing to make it your job to pay up for others’ irresponsibility and lies.”
This is my take on it, and I ask what smart politician is going to want to dig down into this toxic mess of lies and fraud, that will probably end up biting them in the #ss? Sure they’ll keep talking about bailouts but I wager precious little will ever be done.
Good point.
A bailout will happen if (a) the business community and (b) politicians, have a convergence of interests. I think they do. Not having the money is irrelevant. We’ll sell 500 billion dollars of bonds to the oil-rich countries and to Asian exporters. Both have huge surpluses of dollars that they can’t (or won’t) absorb into their own economies (through increasing imports for example).
But what I wish would happen is a racketeering lawsuit against the large Wall Street firms that were the key to this whole thing. These guys are out of control. Record profits last year. Record bonuses. Thanks in no small measure to their alliance with street hustlers to get these suicide loans out to every neighborhood in America. I’m sure they have misled people, used unethical and possibly illegal business practices to con Americans into entering these one-sided, exploitative mortgages. Especially the fleecing of the elderly and the poor - that angers me. So what if they are less knowledgeable (maybe even not as smart). Should the slick hustlers have free rein, with all the advertising and marketing power of billion dollar wall street corporations behind them?
I hope Wall Street gets hit with a massive lawsuit and they eventually settle and put 100 billion into a fund to compensate their victims (poor, elderly people who were conned out of their equity ONLY). This has no relevance for the speculators and 24-yr old casey serins and the new buyers who immediately drew HELOCs etc…. Just the old and poor who had built up equity and were minding their own business until Wall Street saw an opportunity to loot.
After being away for ages (a full year?!), it’s good to see all of the predictions in this blog (and elsewhere) come to pass.
Re the bailouts. I’d be OK with FB/lender bailouts under one condition: with immediate effect, the Federal Government and all state governments would also exempt all “capital gains” from the sale of precious metals holdings from taxation. By definition any “capital gains” on gold and silver bullion represent pure paper money inflation and zero increase in real wealth, so this would make perfect sense.
Going forward, I predict a couple of high-profile blowups in those so-called “Stable Value funds” (aka Guaranteed Insurance Contracts, GICs) that are popular with cautious 401(k) savers. I suspect much of this stuff is in toxic mortgage debt. There is no way to tell, because if I understand correctly the issuers of GICs (unlike mutual funds) are under no obligation to reveal the specific underlying assets to you, the investor. A few GICs blew up in the early 90’s during the last housing downturn - but that mess was thankfully rather contained. It’s going to be a lot worse this time around. In anticipation, I’ve moved the little I have in my 401(k) to a lower-yielding Money Market fund. Not holding my breath though - I fully expect some MMFs to break the buck too, along the way. At that point, the crisis in confidence should become near-total. The mattress - and metals of course - will start looking increasingly attractive as savings vehicles.
I’m 110% behind a Bailout.
Give these FBer’s, Speculators and Idiots about 12 Feet of Super Strong clothsline tied to their necks and a sturdy object have them ALL “BAIL OUT of a very high window”
Indentured Servitude is the answer!