Bloggers To Congress: No Bubble Bailout!
Some readers what to stop a housing bubble bail-out. “A few times Housing Bubble blog readers have adamantly expressed their opinion about no government bailouts when this mess collapses. I would love to see more discussion about how we can get that message to Congress in an organized and systematic way.”
Another added, “Good idea. This needs to be talked about now. Not after the fact, when various and sundry plans are already being drawn up to prop the bubble.”
And another, “The hardest thing in democracy is attempting to stop transfer of wealth from the politically powerless to the politically powerful. That is why the bubble happened in the first place. Homeowners, builders, realtors, mortgage holders and banks will demand a bailout.”
“These are all politically very powerful groups who make huge donations to all political candidates, and who receive in return for their donations laws that grant their wishes. Congress and Presidents ignore everything except raw political power and cash. The only way to fight back is organize a web campaign, and slowly and steadily build organized support.”
“Politics being what they are, the government will probably bail all the politically connected until their borrowing power is exhausted. The USA is already borrowing a fairly huge portion of the savings of the entire world. When we hit 100% the real trouble begins.”
It is easy to say in advance “no bailouts” but when we are facing a collapse of the US banking system, how is any rationale person going to argue the Federal Governement does not have a role in resolving the problem? With all of the intertwined derivative investments out there, devestation will not be localized to mortgage brokers and banks in bubble areas.
Good point, but I don’t think that a bailout is even possible. The fallout from this could be much greater than the S&L bust, LTCM, and the Russian default crisis, and it comes at a time when the federal government is already perilously overextended. Obviously, “Helicopter Ben” could run the printing press full-speed, but that’s not without cost either. Inflation and interest rates would go through the roof and the cost to the government of borrowing would as well. A sudden, sharp collapse in the world’s reserve currency could trigger a global financial meltdown. I agree with your reasoning, but I’m not sure the feds have a lot of dry power left to fight this battle.
Why is borrowing cost a problem when you can print cash?
As one analyst recently quoted, from the melt down of the fiat currency based world financial systems will emerge the new, real, unprintable money- Gold!
Sure they do. The bank brings them a loan deed worth $800K and a house worth $200K. The house sells for $200K and the Fed writes a check for $600K.
Game over.
But the deflation happens first… may I suggest being the one to buy the house for $200K?
Let the banking system collapse. The real leaders of this country will emerge from the wreckage.
Unfortunately, this may be the only way to bring some sanity back to the financial system. As we’ve seen, the “Greenspan put” has only encouraged more and more outrageous risk-taking. His statement to the effect that the job of the Fed isn’t to prevent asset bubbles but to clean up their aftermath is akin to you father telling you that his job isn’t to prevent you from losing all your money at the blackjack tables in Vegas, but to restore your bank account after you’ve busted.
Very well put.
He he, you said “put”.
I’m just worried that the “real leaders” will be those who are the best armed!
I’m already claiming everything west of the Missisippi. I think I’ll call it “Sammistan.”
Now that’s funny!
I’m sorry The People’s Republic of Feeps-ville claims this area.
Except for New Mexico, you may have that.
Don’t you mean fedupsville?
I agree. You all don’t want homeowners to be bailed out, and Ben Bernanke has already said he doesn’t care if housing collapses. But do any of you want your parent’s pension fund dissolved, your own bank to go under, the grocery store to shut down because the truckers can’t get oil to bring produce to market? Do you want the bond market to collapse, so your local utility cannot get money to keep operating? Come on, the system needs to be preserved. The problem is, when they do that, they’ll introduce inflation.
You can prepare yourself by knowing a recession is coming in late 2006, 2007. All the leading indicators are there. So, sell your house if you haven’t already, and put the cash in a safe place, either treasuries or CDs, perhaps gold if that’s to your liking. Gold is highly extended now, and probably due for a pullback. You might want to look for a buying opportunity. Sell your mutual funds, because the stock market P/E is high, over 20, and stocks lose value in recessions.
If you are positioned right, the recession will blow right by you. You won’t be affected.
There should be a reward for the time we spend on these blogs. We are better informed, but that isn’t good enough. We must spread the word, and we must act to protect our finances during the recession. If you think it’s a Depression, (which I don’t), then act on that. Position yourself to not be hurt when it goes down.
Can someone please help me understand this scenario.
Let’s say I sell my house for a net gain of 100k. For the sake of argument I invest all the money in low yielding safe investments. CD’s, Money market funds, etc.
If deflation occurs i’m in better shape because the money I have now buys more goods, services and assets. Hyperinflation would erode my buying power, but I don’t see how deflation can be a bad thing for those who are liquid in cash.
Am I missing something?
I’d reckon that not too many people are “liquid in cash” in America today. Therein lies the answer to your question. As for those who actually have managed to position themselves as best as possible, deflation is still scary - for jobs (among quite a few other things). Why would a company (jobmaker) borrow to build a new factory when it has to pay back the loan with more powerful future dollars?
because it could sell products in the more valuable currency while paying contracts negotiated in the cheaper currency…
there will never be a ‘deflation’ so long as the fed exists - it will print and print and print until the currency is no longer accepted
“Never” is a long time. It takes a qualified borrower and a willing lender to increase the money supply. Deflation is very possible in a post mania invironment. The Fed lowered rates from November 1929-1932 from 6 1/2% to 1 1/2% and we had deflation.
May be they should tax all those who flipped homes in the past 5 years and use the proceeds to partially fund the bail out.
Anything we say now will be forgotten under the enormous political pressure engendered by the collapse.
That is right — you can prognosticate all you wish in advance about what should happen, but it will not help. The Katrina debacle is a nice comparitive example. The govt should have known full well that NO was a hurricane disaster waiting to happen (as anyone who takes National Geographic already knew from a huge Fall 2004 article), but nonetheless, they took the usual “wait for the disaster to happen, then mop up afterwards” approach favored by other govt agencies like the Fed and Fannie Mae. The problem with preemption is that no politician gets credit for fixing a problem which never materializes because of preventive medicine.
Absolutely. And speaking of Katrina, lots of homeowners are getting bailed out from that as we speak, and essentially no one is complaining.
My advice is to forget trying to fight a bailout for the housing bubble. It will happen. Use your energy to prepare for it instead.
I agree, don’t spend your energy on something that is not going to happen. Politians love crisis and chaos because they have an opportunity to fix it, get credit, get votes and a little cash on the side from the companies they hire to fix the crisis. Write to your senetors, start an anit-bailout internet blitz if you want to. It certainly won’t hurt, but don’t get upset when the bailout happens. CYA first!!
“And speaking of Katrina, lots of homeowners are getting bailed out from that as we speak, and essentially no one is complaining.”
I haven’t seen anything in the news to support this. Who is getting bailed out, the mortgage lenders or the folks too cheap to buy flood insurance?
And that political pressure could fall on to a Democrat-held Congress. ($4 or $5 gas could do this.) And they don’t have to borrow to bail out the flippers. They’ll simply saddle the rest of us with a “temporary” 50% income tax.
There should be no bailouts whatsover, not one cent. Discretion should be excercised maybe in cases where people are over 65+.
The homeowners have been subsidized for a while with tax breaks and capital gains exemption, depreciation deductions and what not. They should not be allowed to eat thier cake and have it too. I dont care what happens to the economy, if it gets real bad so be it, else it may lead to even bigger bubbles in the future with the knowledge that the govt will bail them out once more. The only way people learn is when they have to pay for it.
The best thing that a no bail out will teach is that to get ahead we need to stop pimping houses to one another and do some good old fashioned hard work to get ahead. Bailouts have the effect of not purging excesses from the system and actually may prolong pain.
No bailout is no bailout. We want freedom, and that is what we should have. Freedom to be foolish, and accept responsibility for our actions. The folks over 65 were out to make a buck same as everyone else. No discrimination, one way or the other. If you don’t have family or friends to bail you out, why in the world should someone you don’t know take care of you?
Plus, the whole concept of the US gov’t bailing anyone out is absolutely ridiculous. In case we haven’t noticed, we are in debt a RECORD amount. Please tell me how we won’t be asking foreigners to bail them out. The US gov’t has no option but to borrow more money from foreigners to bail them out. If they don’t loan the money, then what? Pretty darned scary, but that is exactly where we are at. We may not want a job putting trinkets together for what the Chinese do, but we may just need that job. We’ll see.
Amen.
What about bailouts for depositors when banks like WAMU run into big problems from mortgages? What about bailouts for businesses that lose their credit lines and cash hordes which aren’t FDIC insured? While it is easy to say flippers should lose their equity (as many are) and mortgage brokers should go out of businesss, its a totally different thing to say people without real estate holdings should lose their savings or their jobs with a banking system collapse. You will find it politically untenable to let companies and jobs disappear simply because of a banking system collapse. Japan went thru the same problem (and they are still dealing with it….)
Forgive my ignorance, but arent these checking and savings accounts already protected by FDIC upto 100K?
The concept of fractional banking would obliterate the FDIC guarantee of $100,000 per account holder should a wholeslae collapse of the banking system occur.
I’ve heard that in cases where there is a bank default, the FDIC insurance can take months or years to pay the money lost. With the majority of people living paycheck-to-paycheck, I wonder how many could stand to have their checking/savings wiped out and not have it reimbursed for months on end?
If people are living paycheck to paycheck, they don’t have to worry about FDIC. They don’t have any money in the bank.
You better believe that big business has monitors and experts that track the risk of the banks holding their cash. If they don’t do their due diligence, tough. I have called my own bank and asked that they share their loan exposure and feel confident I can keep my money there.
In my experience, most large companies put their cash with the either the banks that lend to them, or the ones with the best interest rates on sweep accounts. You might be giving “big business” a little too much credit.
“Discretion should be excercised maybe in cases where people are over 65+.”
No way! Folks over 65 should know better.
for AARP card holders, discretion should be limited to the soylent green solution.
The last bail-out tally for the Saving and Loan bailout in ‘90/’91 was $500,000,000.00.00.
It went down without a whimper.
50% of the citizenry in the US are now living off the other 50%.
We’re a Balkenized economic entity, $9 trillion in hock with that number balloning to $54tril with the all the entitlements promised to the baby boomers. Think I USA Today said the 9trillion amounts to $174k per family…
Hey, hey pony up folks-bills come due-LMAO!
My guess is one out of 3 households is sustained with some form of a government check.
75% of the people only have a HS degree which dummied down probably equates to a Jr. High certificate 20 years ago. You think they have a friggin’ clue? One of the reasons the real estate mess is the way it is, is because people can’t understand the contracts and financial documents they sign.
Don’t think things are going down the shitter? Go read “Time Magazine” cover story on “Drop Out Nation”. Yeah, WTF do I need to know when the Civil War was fought-I’m gonna be a RAP star….
And you expect a bunch of bloggers dealing with TRUTH and REALITY have the ability to influence Congress? Fannie and Freddie have cooked the books and the FEDS sit on their hands.
The fix is in with the NAR and MBA…
Go buy your A-47’s. You’ll need ‘em when this debacle all unwinds.
Exactly! Of course there will be a bail out should the housing market tank big time No way will the govement sit back and not offer any type of financial assistance
Is it right?
Not in my book but I think it’s foolish to think it will not happen,
I think you mean AK-47s (Russian designed Assault weapon)
stock up on 9mm and canned tuna!
i love saying that… sounds like a cool line from a deniro or bruce willis movie
The ‘BIG’ reason the S&Ls crashed was the fact that the tax law was changed in ‘86. No longer could people write off passive losses indiscriminatly and the class-lives were increased on assets. The train wreck was coming. The Banks and S&Ls were required to reappraise their loan portfolios. they found that the assets were worth less than what was owed which either required additional capital infusions or BK. The Feds put the screws on the banks with negative value. They forced bankrupcy. Glendale Fed was screwed and after years and several law suits won over a billion bucks from the Fed. In the meantime the stockholders were screwed. The problem is that the FED had a bunch of amateurs running things. How do I know ? I was trying to purchase some assets previously owned by a S&L and tried to deal with a bunch of dip shit attorneys who knew nothing about real estate. All they cared about was their expense accounts and keeping their jobs not disposing of assets at FMV for the benefit of the taxpayers.They finally sold one property in Morro Bay which they ended up foreclosing back, reselling and foreclosing again.
“50% of the citizenry in the US are now living off the other 50%.”
This might be a conservative figure. I recall reading somewhere just a couple of years ago that 60% were living off of the other 40%, and the author hinted that it was trending for the worse until the baby boomer generation has passed on.
One of the reasons the real estate mess is the way it is, is because people can’t understand the contracts and financial documents they sign.
Amen. Most adults don’t understand simple math, let alone concepts like cash flow, time value of money, and leverage. I’ve read postings from industry types like socalmtgguy who say that most people don’t even bother to read their loan docs, they’re so anxious to sign. If you could bottle ignorance and sell it you’d be… a mortgage broker!
I agree with hd74man. If you don’t have a clue on survival or prepardness, you might want to read up:
#1:Housing bubble
#2: Energy costs
#3: Government is corrupt and hungry on money at _all_ levels.
#4: The costs of gold and silver is causing other metals to go up. A pre-some forgoten date penny is getting close to being worth .02 and not .01 just based on the copper content.
#5: Illegals who are here to work, but will do the same thing every other being will do when the welfare pie is gone: Riot.
#6: Joining or fighting the illegals will be the millions of inner city welfare mutants who will go balistic when the pie is gone.
#7: Thousands if not millions of people will likely start to die when medical care slides way, way down due to money issues: You can’t have the best unless you can afford the best.
Get ready for hard times….the future doesn’t look bright at all.
best blog posting here….couldn’t agree more…..katy bar the door - it’s going to get ugly in the next decade….
People who have money in failed banks will get it back due to FDIC insurance. Banks pay the premiums for this to the government and that’s what it’s for. That was the bailout of the 1990’s. Government took over failed banks.
Now if you had money in a REIT or a bond fund with a lot of RE exposure and it goes downhill, I doubt anything will happen. Just like people lost 90% of their money in funds in the dot com bubble there was no bailout.
When Argentina went down the craphole, the IMF and World Bank bailed them out. One of the reasons they exist is to perform such bailouts to protect the investments of American banks like citibank who had made a lot of bad loans down there, all at taxpayer expense.
I’m not optimistic that the same won’t happen here. But really, people who take big risks should have to take the responsibility if they fail.
Many of the same people blogging about the real estate bubble are the same people that are profiting handsomely from the current price action in gold. This is because they realize that a government bailout is just about guaranteed. But, like all government actions it wont have the intended effect. Most likely it will benefit mainly the precious metals sector.
So it does not make any sense to protest against a government bailout and invest in gold.
If you expect the government to respect your property then save your dollars. If you dont then youd better buy some thing undervalued now.
So it does not make any sense to protest against a government bailout and invest in gold.
http://www.gold-eagle.com/editorials_01/seymour062001.html
“All safe deposit boxes in banks or financial institutions have been sealed… and may only be opened in the presence of an agent of the I.R.S.”
- President F.D. Roosevelt, 1933
OT but worth the read, I think we should slap this in the face of all the Bulls(hiters) that keep harping on that this boom is justified becausre yep we ‘ve all heard it before, no more land, baby boomers, imagrants, blah, blah you know what I mean.
Sorry for the rant, but talking to a mutaul friend yesterday and even with all the evidence he is still trying to tell me that the OC will continue to grow,and kept citing the phrases above.
Anyway I emailed this article to him this morning, hope it opens his eyes.
http://www.financialsense.com/editorials/englund/2006/0422.html
A complicated question, with an uncertain outcome. If all the individuals are going to be bailed out, why did congress include home debt in the bankruptcy law? And why does one jump to the conclusion that taxpayers are going to be persuaded to save the asian central banks that hold the MBS’s?
The biggest question to me is, how could profligrate America bail out anything? Yes, the Fed could just print the money, but that would threaten their power; something they will be hesitant to do.
Ben, I think we’re getting a bit ahead of ourselves here. There really isn’t any practical mechanism to “bail out” anybody, except bank depositors. That means savers will be OK, but there will be no help for real estate speculators, or even garden-variety homeowners, except to bite the bullet and wait out the downturn, provided, they can make the monthly nut.
I remember a “retirement seminar” at work, in the late ’90’s, during which I openly questioned the stock bubble. The guy leading the seminar said, and I remember vividly, that “Alan Greenspan will not allow stock prices to fall.” Well, nobody got bailed out of that mess, either, so don’t worry too much.
Some people have suggested that the housing bubble is a result of the Fed juicing the economy post-stock bubble. The thing that I would find unjustified would be if the US government ‘guarantees’ the GSE debt, which is at the root of this problem. You don’t have to read very deep to find that Moody’s, S&P and Fitch Ratings all tell the institutions that the USG is backstopping these securities. And nobody in congress says otherwise.
I hear ya. I don’t think there’s any question about the post-stock bubble juicing. The Greenspan school of economic thought holds that the Great Depression came about in part to a prolonged credit crunch. He flooded Wall Street with money the morning after the ‘87 crash, too. The Fed can very easily control the money supply, access to credit, etc., but once they open the spigot they have no control over where it goes. This time, it flowed into houses.
GSE debt is hawked as backstopped, sure, but it ain’t. It would take an act of Congress to do it, and the numbers are so profoundly large I doubt it could be done, even if the political will was there, which I also doubt.
What is so very clever about the whole thing is that they have managed to spread the risk far and wide, to be sure, but no bondholder really knows which mortgages he’s holding. I think you posted an article about hedge fund bond portfolio insurance of sorts…it may get very interesting.
GSE’s guarantee about 3-3.5 trillion in mortgages, but their largest size is something like 350K. That’s LARGEST not average.
So by definition they are most conentrated in non-bubble markets.
They also have a 80% LTV ratio but this can be circumvented ~I THINK~ if the person has PMI. PMI would probably fail if there massive foreclosures, which would leave the GSE’s exposed.
The GSE’s have about 50 billion or so in capital to guarantee those 3.5T in loans. Something like that.
If you look at a presentation FRE did, maybe it’s in their annual report, most of their loans are estimated 50-70% LTV. That’s because they were issued years ago and value has increased.
So to SOME extent they are not as vulnerable. Their capital will be chewed up…many MBS holders will lose a few % of value, maybe 10% (350 billion).
But the real problem is it would paralyze the system or repackaging mortgages for a while, while all this is being worked out. Then in the future mortgage spreads to treasuries will be HIGHER to reflect risk.
When banking and lending institutions are in trouble and not making loan…the economy doesn’t do well!
Brian - “GSE’s guarantee…” That is not the same thing as the U.S. Taxpayer. There is no explicit, binding guarantee in Fannie’s or Freddie’s charters that the government will make good. Ben is worried it may come to that. Keep in mind, too, that the 80/20 “piggyback” loan has gotten hoards of people out the downpayment box - no one knows for sure what the magnitude is. And after the last bust, getting a mortgage was indeed a bitch - save your pennies, you may need ‘em.
Yes, I know GSE guarantee is not a gov’t guarantee.
I’m not sure about what happens in an 80/20. I guess the GSEs are off the hook b/c the house will be worth 80% so they are covered (if it is worth 80%). The 20% note holder (probably a bank) will get wiped out by that.
I guess it’d be more interesting to know who holds all the neg-am paper, the 20% downpayment paper, etc. They could be wiped out and if it’s in a gov’t guaranteed institution, there WILL be a bailout (of depositors) if the institution is wiped out.
My mortgage is paid off.
Glad your mortgage is paid Brian. In the 80/20 deal, Fannie will buy the first trust, 80% paper. That means Fannie gets first dibs on the property if the loan goes bad. The second trust, 20% note-holder gets nailed. Remember though, that the whole point of 80% LTV is that the buyer, historically, does not walk away. He’s got no skin in the game under the 80/20 scenario, which screws Fannie’s model. Also, the 20% note is usually issued at a high rate of interest, with various origination fees, that contribute to that lenders risk/reward model. The 80/20 buyer doesn’t care, cause it’s small potatoes relative to the millions he will make on his condo.
I suspect the I/O garbage has got funded on the carry trade - institutions have borrowed, short term, at low rates, lent the money long term, I/O, and they turn around and sell the paper on Wall Street. They use those proceeds to pay off the short term loan, and start all over again.
Remember “junk bonds,” from the ’80’s? High yield bonds with little possibility of ever getting paid? “Financial innovation,” they called it. Same concept with property loans today.
Here’s a link to a very interesting Federal Reserve study of the “ambiguous relationship” between the government and the GSEs.
http://www.federalreserve.gov/Pubs/feds/2003/200364/200364pap.pdf
Excerpt:
The housing-related government-sponsored enterprises Fannie Mae and Freddie
Mac (the “GSEs”) have an ambiguous relationship with the federal government. Most
purchasers of the GSEs’ debt securities believe that this debt is implicitly backed by the
U.S. government despite the lack of a legal basis for such a belief. In this paper, I
estimate how much GSE shareholders gain from this ambiguous government relationship.
I find that (1) the federal government’s implicit subsidy of Fannie Mae and Freddie Mac
has resulted in a funding advantage for the GSEs over private sector institutions, (2) the
actions of GSEs result in slightly lower mortgage rates for some homeowners, (3) the
government’s ambiguous relationship with Fannie Mae and Freddie Mac imparts a
substantial implicit subsidy to GSE shareholders, (4) the implicit government subsidy
accounts for much of the GSEs’ market value, (5) the GSEs would hold far fewer of their
mortgage-backed securities in portfolio and their capital-to-asset ratios would be higher if
they were purely private, and (6) the GSEs’ implicit subsidy does not appear to have
substantially increased homeownership or homebuilding.
IMHO, FDIC will be toast, too.
What’s the first thing any government does in a banking crisis? Shut down the banks, then open them to highly restricted transactions. The last thing they’re going to do is let savers pull cash out, guarantees or not. If (and I say if) FDIC insurance somehow holds, savers won’t be allowed to do anything with their money until well beyond the time it would be useful (or even worth anything). They’ll just get a nice little statement showing how much digital money they “have”.
should we be putting our savings in canadian banks? where is it safe, overseas funds?
As bad off as the US may be, anywhere else is worse. Keep your money here.
#1: Pay off debt
#2: Stuff you can store and touch: Tools, adding on to your home, guns, food….you get the picture.
If you have a ton of savings and no debt get your preps in order and move your money to where ever. My advice would be Iceland. Get there if things go bad here. Most of the population speaks English and they know the concept of working to provide heat/food. If the whole thing comes falling down, a nice island like that would be a cool place to be (my opinion).
If you choose to stay, make sure you have a cash reserve in cash in your home. This should be the newest batch of $1 bills, $5 bills, quarters, dimes, nickels, and pennies. The barter economy will still use money due to it’s anti-counterfeit properties. Also have a passport, some 1/10 oz gold coins, silver coins (make it old US silver coins), money from Canada, Australia, New Zealand, Euros, etc. etc..
From what I’ve heard about Iceland, I don’t think they’d be very welcoming of a bunch of American economic refugees. I’m told they’re not fond of outsiders.
Icelanders will eat all arriving Americans.
Stay away from Iceland! They are in a world of hurt right now - they’re central bank has maintened very high rates of interest to hold off inflation. There has been a run on the currency in the past few weeks. Apparently, Icelandic banks have been host to borrowed, no interest, Japanese yen, that is leaving as the “carry trade” unwinds.
I am not a freak, I swear! There was a spread about Iceland in the WSJ last week. Iceland bad right now. Very bad.
I read the same article, DC_Too. Their debt problem is even worse than ours, if you can fathom that.
Supposedly Iceland spent 16% of the GDP on an Aluminum plant.
http://msnbc.msn.com/id/12391712/
Thanks guys, for letting me know I’m not nuts! Besides, the Republic of Iceland (whatever it’s called) is like half the size of Rhode Island, economically speaking.
“My advice would be Iceland.”
You have GOT to be kidding me. Have you been following the krona?
If the USA goes, the entire world pretty much goes (at least anywhere that isn’t run by militia). Iceland would be a decent place to avoid the hordes, if you can sneak your hunting rifles in.
I definately think people should be held responsible for thier own reckless behavior and not be bailed out like episodes like Long Term Capital. That of course includes reckless buyers and reckless lenders, ie Fannie Mae etc.
That being said I think there WILL be a bail out. The best thing we can do is some how put on record that, OF COURSE the people in power, mostly the FED and Fannie and Freddie, knew full well what they were doing and should be held accountable for gambleing with the countries finances.
Back in 2001 I fully expected the RE market to go down rather than up, and it should have had the not lowered rates to 1% and encouraged high risk unsafe lending. The excesses would have been washed out of the system, we might have had a mild recession and now it would be over. Now we have this monster hanging over our heads that will probably cause a severe recession. This became so apparent to me last week when I was driving around in Las Vegas and they are building these huge, expensive condo’s next to highways and casino’s that no one will live in. This will explode!When it does at least there should be something in concrete that says the prudent , responsible people in this country are on to what the Fed. etc did here , with full knowledge of what it would do to the economy and did it any way and we dont want to pay for a mess we 1)Did not create 2)Did not condone and 3)Did not profit from as many did.
A compromise, assuming no compromise would probably result in a full bailout:
Let the government rescue the debtors at the maximum rate of 3% of the debt principle (plus all but, say, 3% of the interest) per year — with the remaiing liability remaining on the credit report of the debtor. In 33 years, just a hair over the length of time a sane fixed-rate mortgage would have run, the debt will be absolved. Now if the debtor wants to rescue their credit sooner,get off the butt and work two jobs or eat pork and beans in front of a 19″ tube TV to pay it off, my hat will be off to them.
The value to me of such a system is that it would show, to at least two future generations, the pain to be suffered by fools and the greedy.
Should have added that if at date of filing for BK it can be shown that the debtor owned more than one house, then no forgiveness of any of the interest, either.
Folks,
Just a reality check… any proposed bailout would be lip service at best. As a country we are not merely in debt at a “RECORD” amount as somebody else pointed out, but there simply is no more money.
According to a recent article by Robert Kiyosaki:
“As of 2004, Social Security was a $10 trillion off-balance-sheet liability. Medicare is a $64 trillion liability. The Social Security fund will begin to run in the red around 2015. The Medicare fund is already operating in the red, a situation that started in 1992. The combined $74 trillion off-balance sheet IOU to Americans is more money than is available in all the stock and bond markets of the world. This means life or death will be determined by your wallet, not your doctor.”
The idea of a bailout is patently ridiculous. But then again SS and Medicare have both been ridiculous for decades so who am I to say?
Why is SS ridiculous? You prefer your mom living on the streets? So far SS was doing good, until politicians figured out ways to “borrow” from it.
I prefer that his mother live in his attic.
I disagree, Max. Social Security was always a pyramid scheme and was destined to fail eventually. The concept of one generation being supported not by their own contributions but by the contributions of successive generations works only so long as the population distribution remains pyramid-shaped (with a small number of old folks relative to the younger generations). However, with people living longer and a large mass of people (boomers) transitioning from payors to recipients, the system is no longer viable.
Social security, in my opinion, has been detrimental to the country’s financial well-being because it removes the impetus to save. Ben Stein ran a column not long ago about a woman he knows who is in her mid-40s and has save nothing — not a dime. When he asked how she’s going to support herself in retirement, her automatic answer was “Social Security”. Then she excused herself to go shopping.
“Ben Stein ran a column not long ago about a woman he knows who is in her mid-40s and has saved nothing — not a dime.”
I know lots of ladies who fit this model; they bank on the bearded clam as the underpinning of their standard of living foundation, and welfare is right there to pick up the slack if they get phat -n- ugly; ‘ya can’t lose. It allows the ladies to operate emotionally without economy: “Don’t bother me with the details, phuck nuts, Suzanne researched this!” Best defense: date the ladies with a functional college degree; it’s what they do.
disagree, Max. Social Security was always a pyramid scheme and was destined to fail eventually. The concept of one generation being supported not by their own contributions but by the contributions of successive generations works only so long as the population distribution remains pyramid-shaped (with a small number of old folks relative to the younger generations). However, with people living longer and a large mass of people (boomers) transitioning from payors to recipients, the system is no longer viable.
And yet, there is no clear date of the much-trumpeted collapse of the system. Even the most pessimistic estimates, for some reason point at insolvency all the way into the 2020’s.
There are many ways to adjust the system - increase the retirement age, increase contributions, move the income cap higher, or a combination of those. Some problems don’t mean the system is not viable. Insurance companies do annuities and they don’t have a problem, and SS is way more efficient on the administrative cost basis then even the biggest insurance groups.
>> There are many ways to adjust the system - increase the retirement age, increase contributions, move the income cap higher, or a combination of those.
Raise it to what age? It’s already at 67. Raise it to 75? 80? You could raise it to 100 and say that you still have a social security system, I suppose. And increase contributions? Great — that assumes that our kids and grandkids, when they become voters, are going to vote to double their contributions to compensate the boomers and Gen X for blowing everything they earned… on top of handing them tens of trillions in government debt we ran up! Move the income cap higher? That might make a dent, but bear in mind that the vast majority of boomers have saved next to nothing (I believe it’s $50K on average), so most of them will be under any reasonble cap.
You can’t compare SS to an insurance annuity system because insurance isn’t predicated on paying everyone. And on those rare occasions when they have to, they run into big trouble. If you don’t believe me, check out Montpelier Re’s stock price since Katrina (MRH).
The bottom line it, SS was created in an era where there were 10 earners for each retiree and the ratio is headed toward something like 1:3. At some point, you can’t fiddle with the fine-tuning knobs anymore and still make the system work.
Damn right! As soon as that first old bag who put NOTHING into the system received that FIRST check, the Ponzi scheme of all Ponzi schemes was unleashed on the American worker/taxpayer. I loss almost $6,000 a year to this steaming pile of shit socialist program and I won’t see a dime becuase the generational cohort ahead of me is hust too damn big for the system to survive. The best part of SS is that we are taxed on the amounts withheld at both the federal and state levels as the employee share of SS is included as part of our gross incomes on our W-2’s.
So it’s wrong to throw people on the streets, but if a person supporting the family dies young…then it’s ok to throw a 35 year old mom and her kids on the street?
Social Security is a horrible thing. It caused older folks to think they are ‘owed’ a ‘retirement’ or time to just do nothing productive and have fun/sit at home. Well, when that group started saying this was a “right”, then famlies with a bread winner passing away said it was their “right” to get money to continue life. If the older folks don’t have to save for their later years, why is it fair to force younger familes to buy enough life insurance? This cycle continues on and on. Now welfare and Section 8 living is a “right.”
The coming burnoff is going to be ugly, very ugly.
SS was never a retirement thing. It’s an annuity insurance. Why you think people feel they are “entitled”? They have been contributing their dollars to the system, and want their annuities paid, what is wrong with that?
Max, I really don’t get you. Why do think that it is a good thing for people to be forced into putting money into an annuity insurance program? SS is based upon perpetual growth of population/employment and/or perpetual devalutaion of the currency that the SS program is defined. I don’t understand your defense of what is truly defined by John in VA as a Ponzi scheme. Please elaborate how this system is workable for the next 50 years without destroying purchasing power of the dollar on a year to year basis.
SS is not an annuity. There is no contract, no agreement like there would be with a real annuity. As an employee there’s no way to opt out of it. SS is nothing more than an inter-generational Ponzi scheme. 15% of my income is gone off the top and there’s little chance of ever getting any of that back. Hell, that 15% was spent by our government as soon as it came in. Not a great way to maintain solvency…
Also, I believe that no citizen has a right to social security - the
government can opt not to pay. This has been tested by the
supreme court if I recall correctly. I say end it and tell people
to use 401k’s and IRAs. They’ll take charge of their savings when the know there’s no safety net. I think a lot of gen x and y’ers are already doing this and I’d really like to see
savings rates of those generations at their current ages versus the boomers and silent generation when they were an
equivalent age.
“So it’s wrong to throw people on the streets, but if a person supporting the family dies young…then it’s ok to throw a 35 year old mom and her kids on the street?”
Joe Sixpack is supposed to buy life insurance if he has a dependent family. Since his wife is only 35 and hopefully not obese, she only needs a few years of support before she’ll attract someone else; the kids benefits will continue until 18 yrs of age unless they’re in college.
Oh please, nobody will bail out Sally, are you kidding me? Sally will go the usual default/BK/foreclosure route, and live for the rest of days in crappy holes.
The ones who WILL get bailed out are the industry fatsos. In case you haven’t noticed how the USA Socialism works, is you see - only the big guyes get to have socialism. LTCM, Chrystler, maybe soon GM and Ford, oil companies, Savings and Loan, airline companies.
The pervasive trait of american “free economy” is externalization of the risk onto the taxpayers.
This is depressing, for a Saturday morning.
Please forgive me if this has already been posted. I have been away the last couple of days
Real estate insiders go bearish in blogs
In mostly anonymous postings, agents are reporting big problems in the markets.
By Les Christie, CNNMoney.com staff writer
April 18, 2006: 9:57 AM EDT
NEW YORK (CNNMoney.com) - If the secret worries of real estate professionals are any indication, home prices could be heading for a swoon.
When Brad Inman of Inman News, which tracks the real estate industry and is widely read by industry insiders, recently gave real estate agents the opportunity to blog about market conditions, they almost uniformly described them as bad – and getting worse.
“Normally, brokers and agents tend to sugarcoat the news; they don’t want to affect consumer confidence,” says Inman. “By letting them post anonymously, we gave them a way to really share their thoughts.”
Most responded with tales of high inventories, slow sales and languishing prices.
Here’s a sampling of their comments:
“Portland, Oregon is mixed . . . more inventory, sitting longer. . . . Sellers no longer king.” Posted by anonymous.
“Minneapolis/St.Paul . . . 15 houses per buyer. If we had buyers. Huge inventory in every price range. More foreclosure properties coming on daily.” Posted by anonymous.
“East Central Florida Coastal area inventories up four times year to year and sales down 75%.” Posted by Ramon Rivera (Not all bloggers craved anonymity).
“Some Realtors, Mortgage Brokers & some clients have been more testy than in months previous. Something is in the air.” Posted by S. Crowe.
“Northern Ca. Let’s not beat around the bush here. There is a slow down!! Home prices are not going up. Sales are down.” Posted by anonymous.
Inman grants that there could be an element of self-selection, with agents suffering a slowdown more inclined to vent. But usually, comments from posters tend to be very diverse, with no clear consensus. “This round of blogging,” he says, “has been conclusive; no one said the markets are great.”
Stat support
Statistical evidence of a housing slowdown appears almost daily. On Tuesday, the Census Bureau reported that March housing starts were down to their second lowest monthly pace in the past year.
So far prices have not suffered any notable decline - the median home price nationally in the fourth quarter was up 13.6 percent from 12 months earlier, according to the National Association of Realtors.
Still, NAR chief economist, David Lereah, is on record predicting price appreciation will drop to the mid-single digits. And NAR has recorded an uptick in inventory, though not enough to be troubling.
NAR spokesman, Walter Molony, characterizes conditions today neither as a seller’s nor a buyer’s market. “Probably, balanced is a better word,” he says. “There has been a steady rise in inventory since last fall, but, broadly speaking, it’s still a little tight.”
Rates are going up
What argues against any big fallout is that, absent a serious economic crisis in which unemployment spikes or wages plummet, real estate markets generally do not fall very far or very fast.
But this time markets have to contend with rising mortgage rates - the average 30-year mortgage rate, at 6.49 percent, is now near a 4-year high, lowering home affordability.
That will have a bigger impact in hot markets, where many buyers would not have been able to afford their purchases without resorting to financing through low-downpayment, low-interest ARMs (30 percent of recent sales or more in some markets). As rates rise, some could face close to a doubling of monthly mortgage payments. And if their home value has fallen, they could wind up underwater, owing more than their house is worth.
How much potential for disaster there exists can be debated. According to Lereah, the next few years will feature a stable, more balanced, healthier market.
Even some of Inman’s bloggers are not totally bearish. One poster wrote, “Northern CA - oddly enough, higher priced inventory (luxury homes) still moving.”
Another one opined, “Wilmington, NC, market still active, except on barrier islands, where inventory of $300-500K condos over-supplied. . . . good to great condition, well-priced properties move quickly.”
Still, these shaky endorsements come nowhere near the unbridled optimism of a year or two ago.
As for Inman, he sums up his blog-induced sentiments rather succinctly. “It scares me,” he say
And this
http://www.bcaresearch.com/public/story.asp?pre=PRE-20060420.GIF
And this
http://www.mtgprofessor.com/scams.htm
Good Morning All,
As a renter who sold about 18 months ago, I too am concerned about a possible “bail-out”. But what form would it take?
Is a bail-out some form of debt forgiveness? By whom? To whom? Is it a credit to income taxes? I just don’t how a “bail-out” would be put into action.
If it’s a payment moratorium, think about the consequences. I don’t pay my mortgage so the pension that owns my mortgage doesn’t get paid so the pension doesn’t get paid so grandma doesn’t get paid…..well you get it.
Please help me understand.
i kind of doubt a bailout. it is just tooo big and too complicated to carry out. plus, once the corruption and fraud from the flipperealtorindustrialcomplex hits mainstream media, the public will be outraged. right now, things are still quiet… we are in the ‘calm before the storm’. but just wait…. i remember the same ‘calm, back in 1989 nycmetro, right after a huge rally from 83-88 in home/condo prices.. by 1991, the few buyers that were around were write 60cents on the dollar low balls for property… 1m home in 1988, worth 600k in 1991
PTF,
I agree, bailouts depend upon the greater economy absorbing the losses of one sector. In this case, virtually everyone is at risk.
I don’t see where any bailout money could come from, either. All levels of government are already deeply in the red, and the resulting depression will cut revenues dramatically. Those people not already not rioting will tar & feather any politician that suggests raising taxes, too.
Can’t look outside the US, either; we’ll take everyone down with us.
Gotta have the three G’s: Gold, Guns and a German shepherd!
Gotta have the three G’s: Gold, Guns and a German shepherd!
Damn, I got that wrong. I thought it was “gold, guns, and a German supermodel”. Gisele’s not going to be happy about this.
The market will correct it’s self. I recently bought some precious metals, and so far this year have done well and I believe they will continue to do so. If next month prices fall flat and I lost half of my investment no one should bail me out any more than stupid people who overpaid on real estate or banks stupid enough to over lend on the same. And remember, for every house seller who has “Made” hundreds of thousands in profit, a new buyer must in effect lose hundreds of thousands, so bail out who?
ok, suppose you’ve located a number of 5 star banks on the web. what additional digging would you do before opening up cd’s?
Doom and gloom is one of my favorite hobbies but sometimes some of the comments really make my day! Yeah, lets all stock up on gold coins and can openers. I mean come on! Is it possible that the entire world economy will totally melt down and paper money will become totally worthless and all of the banks will fail and we will all have to grow our own veggies in a window box? Yeah, its possible. So is an asteroid the size of Texas crashing into the earth and wiping out everything. I saw the movie. Both of them actually. The Yellowstone caldera may erupt and cover the entire U.S. in three feet of ash. Saw that show too. And then there is the giant tsunami from a landslide in the Canary Islands wiping out the Eastern seaboard. And on…and on.
Plan for what is LIKELY people! Tons of foreclosures. Deep recession with lots of layoffs. Hard to sell property but lots of bargains for buyers. Keep some extra cash available for emergencies. Don’t bet the farm…be cautious and conservative in all things financial. Be prepared to switch jobs voluntarily or otherwise. Credit crunch from banks wary to lend money. Lots of firesales of “goodies” for people to raise cash. That means nice sh!t at garage sales.
Keep a little perspective as to the economic position of the U.S. vs. other major economies. Our national debt is large but our economy is large too. As a percent of GDP we are pretty much in line with everyone else BUT our overall tax bite is about a third less than the rest of the G7 so our ability to pay it off is greater than theirs. Social Security is an absolute disastrous mess but so is everyone else’s retirement systems. However, our demographics are better that theirs too (we don’t have a rapidly aging average population age like Europe’s or Japan’s or even China’s.) Want to easily (loaded word for sure) pay the S.S. bill? Raise the retirement age. It is a political problem more than a financial one. We spend too much money and don’t save nearly enough. Also a POLITICAL problem. Change the tax code so it rewards saving rather than rewarding debt accumulation.
Our only really serious problem as a nation is our out of control merchandise trade deficit. Simple fix: STOP BUYING IMPORTED CARS. It takes an awful lot of imported Chinese injection moulded plastic dollar store sh!t to add up to one Toyota. We need to get serious about keeping high value added jobs here and that is ultimately up to each and every consumer.
And no, I am not in the auto business nor am I in a union. I am just allergic to bullsh!t. And if I hear/see/read one more person wailing about high interest rates/falling dollar/high trade deficit who can’t make the simple logical step that they are the cause of it in the first place because of the choice of purchases I am going to go postal. Or fix another Martini.
Lots of firesales of “goodies” for people to raise cash. That means nice sh!t at garage sales.
In the mid-90’s, people in Seattle were driving to San Diego to buy yachts and sail them back up the west coast, the prices were so low. I agree with you, the next few years will see fire-sale prices on boats, SUVs, BMWs, plasma TVs, jet skis, and other consumer toys. Oh, and houses.
Don’t forget Harley-Davidsons. The days of 2-year waiting lists and 20% above list price are long gone.
rjsasko - Take the martini, for Goodness sake. It does us all good to hear a voice of reason now and then. Cheers.
Yea it is amazing to me that GMAC and Ford are about to lose thousands of jobs and folks continue to support foreign auto builders. I’ve often wondered why 2 and 2 wasn’t put together on that.
Because “buying American” is essentially a form of self-taxation which few wish to engage in when the products involved cost many thousands of dollars. It’s one thing to buy an American-made shirt for $20, but it’s another to buy a $40k truck. And it’s a bigger sacrifice when the products are substandard, as US autos have been since the 70’s.
Many of the Honda and Toyota automobiles are now assembled in the U.S., and they are far better engineered automobiles than what Ford or GM currently produce, hands down. Why spend $600/mo on a piece of shit?
If a bailout happens, it will be ostensibly to help homeowners with the American Dream. However, I can guarantee that in doing so, the government will bring relief to people with multiple homes and those who made very bad decisions.
Here’s one thing to keep in mind. Someone who is truly in it for the long haul won’t need any bailout. In about ten year, prices will return to current levels (let’s say). So why bail anyone out? If they took a bath by buying in 2005, then just wait until 2015 and sell then. No bailout in 2006!
Remember the 9/11 payouts? The government paid less to families who’s lost loved ones were insured; great disincentive towards proper fiscal behavior, eh? That doesn’t even consider the question of whether the government should have been anteing up in the first place…
When posters refer to “bailouts” I think its important to distinguish who is going to get “bailed out.” For flippers with 5 houses, for IO debtors with McMansions its hard to see why they would get any relief - but they really don’t need it - OK, their credit will be ruined (and probably rightfully so)…but they will just walk away from their house that they really didn’t own anyway - its the lender that is on the hook the the massive losses.
The Federal Government (thru FDIC) has always made depositors whole - but it hasn’t faced a potential meltdown of this proportion. Those prudent savers with stock/bond holdings, money in savings account, T-bills - they are the ones that are at risk in a financial meltdown - not the clown with 5 McMansions paid for with someone else’s money. So this whole thread about not bailing out irresponsible homeowners is quite misleading - the fiscally responsible citizens will be the ones demanding bailout of the banks NOT the deadbeats that turn in the keys and suffer only a poor credit rating which won’t mean a lot if there’s no banking system left. Even citizens with little financial assets will be crying for a bailout to keep their employers (banks, or companies that need an intact banking system) functioning.
I was thinking something similar but you articulated it much better.
There’ll be a bailout for the lenders (and therefore MBS investors), but no bailout for defaulting mortgage holders. As usual, corporate wealth will be protected but the unwashed masses are on their own.
Joe Flipper and Sally Flopper are schmucks with no political clout, and the only thing they’re getting from the govt is a new bankruptcy law to ensure they contribute something to the corporate bailout.
They will bail out big finance, urban youths & senior citizens. If things collapse (which they could), there will be riots. They will get “bailouts.” The largest financial firms will also (Fed will scare Congress, firms will remind Banking Cmtes who funds their campaigns). Old people will be bailed out too. They vote. That’s it: big finance, inner city youths & old people.
Very interesting prognostications/speculations in this thread.
As a backdrop, I want to remind folks what the “mainstream” thinks like (i.e. anyone who wouldn’t *dream* of reading like blogs such as this). Typical example: I had a dear ex-colleague visit last week, she is actively scouting for a house for her newly-wed son in our area - outer suburb of Boston. We are talking two entry-level teaching jobs in the local school systems that will need to service the mortgage. What are they paying teachers these days, anyway? Apparently their budget is 320K and admittedly a “stretch”. They have done the math. With a mortgage that size, there is zero room for error in the monthly budget. There is nothing extra to take care of unexpected repairs etc. Therefore the house needs to be “10 years or younger”.
I did bring up the “delicate” question: “Why not rent for a few years, this market is not going anywhere in a hurry?” You should have seen the eyes glaze over all around my living room. Folks, decent middle-class (or aspiring to middle-class) couples “do not rent” when they want a baby. That is what I learned. Apparently, a home with a mortgage is a cast-iron American entitlement for all aspiring parents.
With this as backdrop: I’m convinced a massive bailout is inevitable. Folks such as the above will be the ultimate beneficiaries - your average, stretched-to-the-limit middle-class taxpayers with a “situation” that seems entirely reasonable to them. These are the folks that vote, regularly visit their friendly local Congressman about issues, etc etc. They -will- get theirs!
When the sh*t hits the fan, your voice and mine will be drowned in the ensuing cacophony.
There will certainly be a desire to bail people out, but it will tricky to arrange.
The most likely scenario: a write-down of the loans to something people can actually pay if they suffer, in order to keep them in their homes and at least paying something and the homes from flooding the market. This will occur after the loan has defaulted, its holder had defaulted, and the whole thing ends up in a giant RTC.
Fair, perhaps, for those who stretched to buy houses whose value was unreasonably inflated by speculation, who will not be house poor (but not homeless) for years. Fair for mortgage investors who will take losses. An unfair transfer from the rest of us to those who sold at the peak, and those who make big money off the transactions.
The alternative? After personal bankruptcy, millions are renting from the very-ticked-off-at-their-losses Chinese. Or trying to inflate the value of these (and other debts) away, a scenario which the Fed is working hard to discredit and which wouldn’t help ARM holders in any event.