I absolutely agree that prices got driven up artificially. And I don't thin everyone involved was duped. I just think the situation has many faces and while some deserve to take their medicine because of their choices, some others deserve a helping hand.

How you determine that is the real problem, and one I don't have an answer for. I just want people to remember that families are being broken apart by this. Some of the same people who claim to honor family values are also the first to condemn folks trying to help their families get a better life.

Some of the borrowers made a mistake and not all of them should have to see their lives wrecked.

They'll lose the house they couldn't afford in the first place. And they'll have their credit destroyed, which is a reasonable consequence for someone that borrows recklessly.

Why should they be entitled to keep a house that a similarly-positioned but more responsible family could never have?

At the end of the day, both the responsible and irresponsible family live in a similar place - the only difference is that the irresponsible family has worse credit. Isn't that the way it's supposed to be? The family that did it's research, used caution, is certainly a better credit risk for any lender than the reckless family.

It's like if someone borrows to buy a car they can't afford - why should they be entitled to continued ownership of that car when they can't make payments? What the hell kind of sense does that make?

+1

Like I alluded to before, you don't do anything and let all of those families get kicked out, you may start a large panic felt throughout the economy.

We have a 10 year ARM. The payment now is $3,700. After ten years there are caps of 2% and 2% - so it can max out at 9.7% which moves the payment to $4,500.

The 30 year mortgages were coming in around $4,150.

It's a bit of a gamble, but we could make the $4,500 payment now, nevermind ten years from now.

I'm still liking the decision.

If your family is "broken apart" because of a stupid house (or any posession for that matter) it wasn't a true family to start with. My wife and children are my life partners, whether in this house, a tent in the forest, a box under a bridge or a mansion on a tropical island, my family is mucch stronger than any house, mortgage or material good I can imagine. If "their's" isn't then thee mortgagee is a symptom of a much larger problem.



in your case an ARM may well have been the right move. But you did the homework and didnt bury your head. Anyone who bought a house at 40 year low interest rates and thought they wouldnt go up is foolish, naive or ignorant. I can have sympathy for all but I can not be held financially responsible for them.

BTW in 1983 the AVERAGE mortgage was at 18% and guess what people still lived in houses and had families. For those that have said that we can not afford thee life our parents had, most of those single income families had 1 car, no car payment, and a much more overall modest lifestyle. Hell I have a grandfather who is a multi millionaire and built a house in 72 for him,his wife and their 2 kids. It was a manssion at 1900 square feet, today thats a starter home.

prices were slightly less...

IMHO in earlier days peoples expectations and wants were less.

People were more content with what they had and enjoyed somewhat simpler pleasures, these days there is a constant barrage of advertising what you 'should' own and also much wider knowledge via. the internet of things out there.

The worst trick which has been played on society imho (and this is in pretty much all countries) is convincing families that they 'need' loads of luxury items so both parents have to work to provide them, it isn't items which families crave but relationships ... which only come with spending time together (which is much harder imho if both parents work).

Just my tuppence worth - but its something I live by, I don't have a huge house but I am lucky enough to have a wife who shares these values and we both spend as much time as a 'family' (and couple) as possible and value that far more than material things.

.... but yeah I have to admit I'd be lost without a PC and internet connection .... hey no ones perfect and I'm a self-confessed geek ;)

PS> Sorry don't know where that soapbox came from ... just sort of stumbled onto it ;)

I agree with you....now we did I score that indirect free kick? :)

CUTiger: Studies have shown that financial difficulties are the number one reason for divorce. You may not like it, but it's true.

true too.

I understand and am well aware of that.

Point is if you are so concerned aout your marriage and the effect that financial strain could have, DONT GET INTO A RISK IN THE FIRST PLACE.

Unfortunately we will never agree on this. I am an indiviual isolationist by nature. I wwant no help from anyone and dont want to be expected to help anyone. If the lending companies had decided to relieve consumers I would have no problem with it. For a Gov't program to mandate it, thats a whole other story. Not to digress but undderstand where I come from philosophically, I do not believe in handouts, if I fail to plan for retirement I fully expect our society to allow me to lie and starve in the street. But i expect to do the same...

I think that they do that in India, seriously...I watched some story on a city full of shunned widows. Crazy stuff and dont want that to happen here or anything similar so understand where I come from Philosophically and I hope you and yours will accept my offer for a blanket and a hot meal should you ever need it.

we are way off based, but there is a BIG difference between you offering a blanket and a meal, and the GOVERNMENT MANDATING you buy me a blanket and a meal

I was home over Thanksgiving and was reading this scrapbook/mini-biography thing one of my great aunts wrote. The most interesting thing was her descriptions of day-to-day life in the 20s and 30s, and what was going on in her neighborhood.

When someone was in need, there was always discussion of someone from the church, or from the neighborhood, helping in ways that seemed incredibly generous by 21st century standards, but was just part of life then. If you lost your job and had no money, your neighbor would take care of you until you found another job. If someone's mother got sick, a woman from the church would take care of the kids until she got better - sometimes for weeks or longer. I don't see how my family could have possibly survived without the Lutheran church in Philadelphia. I guess in a sense, that's a mini-government, though obviously one with optional membership.

When did we decide that the government was better as such things than our neighbors? Did neighbors suddenly stop caring for some reason, or more likely IMO, was there just a cultural and political shift that just put the responsibility on the government.

Government handouts are mandated caring and charity from people. That's just incredibly backwards to me.

molson: I don't doubt what you read, but individual charity has never and will never be universal. It doesn't mean that government intervention always works, but at no point in human history did neighbors take care of each other in anything but small enclaves. There was a reason that the populace was ready to demand the government put in safety nets.

CUTiger: I don't think you're a bad guy, but your philosophy seems incredibly cynical to me. There are times people need hand and often it's in society's best interest to do so. You're right, we'll never agree, but I hope that if it comes to that point society won't let you lie on street.

I wonder if this is a scaled equation. As one dissipated the other filled the gap. I dont know which came first, more govt. meant less "village" treatment/caring or less "village" treatment/caring therefore more gov't. (help).

I think you can be for some level of a government safety net but be against massive mortage bailouts.

Someone who loses a house they can't afford anyway isn't doomed to "live on the streets". I think there's too much discussion of extremes here. They'll have to rent a smaller place, perhaps using more responsible friends and families as credit references or co-signers. Could a few actually end up homeless? I guess, and I'm not against government assistance to those truly in poverty. I think what we're more dealing with here though, is middle-class families overextending themselves, and their foolish decisions knocking them down a class. I don't have a problem with that at all. Like I said, they'll end up in a place they can afford one way or another, just like someone who behaved more responsibility. The only difference is ruined credit, which they deserve.

And sure, there will be greater impacts on the economy as a whole. As others have said, such things are occasionally necessary. A generation of kids who see the mistakes of their parents will "hopefully" not make the same mistakes when they see the results.

One other funny thing I remember reading in my aunt's "memoirs". A government census guy game by, and learned that my aunt's family had 11 kids, a mother, and the father was deceased. The census guy immediately took off, apparently scared that they were going to seek out government assistance. It was considered a funny moment - I think people thought of government as a last resort, an extremely reluctant provider of services. And that was fine, because they trusted their friends and family more than the government.

I could have bought a house (my first) two years ago, but decided that the timing wasn't right even though the rates were super cheap. Now, people who made poor decisions are getting help out of a situation that they should have never gotten themselves into?

The market will always have a balence between inflation, interest rates, and prices. Over the last few years, with interest low, prices have gone up, and with that expendable income.

Nobody promised that income would last forever. Prices have to be allowed to correct back because of the change in the economy. Change is inevitable, and we would be best served dealing with it instead of trying to promote the status quo.

molson: I'm not really in favor of this plan, but I can also see a reason to help a portion of buyers effected. I'm fairly willing to let the market run, but only if there is transparency. When either the buyer or seller isn't able to see the complete picture the markets can't work efficiently and something bad is bound to happen.

That's what I think happened to a lot of buyers with exotic mortgages. Companies were working to sell as many mortgages as possible with no concern as to the financial viability of those mortgages. That could have been alleviated to some degree at several levels, through self-regulation of mortgage brokers, education/independent analysis for buyers, transparency of the CDOs and SIVs that bundled these mortgages, honest/independent ratings for these investments, etc.

Most of the regulation I favor boils down to transparency and knowledge for buyer and seller. When that happens I believe in the power of the market. When things get hidden and information is not freely shared things go awry.

This whole thing is liable to get much worse over the next year or two.

The government has to get involved for the sake of the overall economy. It's not about individual families, it's about the economy as a whole.

I guess its a product of me living in a small southern town.
If someone is in touble they go to the Church office and let people know about their situation, they dont ask for anything just make them aware. The communities bounty will see to it that they make it through.

Just last year, I spent $700+ on a family I dont know just so their kids could have a good Christmas, and I was happy to do it. (BTW even the Mom doesnt know who left the gifts under the tree while she worked....)
But if a govt agency forced me to do this? Hell Id sooner take up arms.

Its all about motivation to me.


All an offshoot tangent conversation. Point is the bail out is garbage, socialism at work.

And no offense but anyone who think the collapse of pseudo stable financial institutions and an overall lowering of housing valuees will hurt the macro economy, is either short sited, overly simplistic and pessimistic in their views, or not thinking through the whole process.

Sometimes a rock backwards launches a great leap.

So give the handouts to the ones that acted responsibility rather than the reckless losers that damaged the economy.

No, it's about banks that currently are sitting on a pile of bad loans equal to 100 billion dollars with double that or more coming in the next two years. The majority of ARM resets haven't happened yet. The problem is that banks and/or mortgage companies can't do much on their own due to the contracts written when these CDOs and SIVs were sold. Having the government put pressure on, or at least appear to allows banks to skirt the regulations and refinance the debt instead of losing the entire loan.

CU: There's no socialism at work. The government isn't spending any of your money on this. It's just pressure on financial institutions so that they can do what they need to do to at least make back some of the loan. Home values have fallen enough in some markets that banks couldn't get more than 50-60 cents on the dollar at auction. Foreclosures hurt banks, but these investment vehicles often came with guarantees that they would never renegotiate the terms and so banks need the government to step in so that they can refinance.

My guess is that this was initiated by the financial industry and not the government.

The problem as I see it is 'advancements' which might tehcnologically help people cut down on their 'work' but also have destroyed much of the essential fabric of society.

For instance in the 40's in England people would generally live in their home town their entire lives and because of this people knew each of other and had deeper relationships than they do today.

Today even if you stay in the same town for several years chances are you're commuting to work and probably don't know that many people from your neighbourhood - especially if you don't have children to draw you into the neighbourhood via. their playmates.

Similarly in earlier times women would be at home and thus form the 'gel' of a neighbourhood through their friendships with other wives in the neighbourhood (in a similar way kids do this role today - but to a leser extent).

Without knowing other people well and having real relationships with them people are naturally reluctant to risk pain and loss by committing themselves to enduring help in many instances ... thus while on the 'tally count' of capbalism and income society might have 'improved' in many ways imho man-kind has lost a lot ...

(bah humbug ;) )

I agree the government should not bail out people for making decisions they know were wrong.

So in that vein, no bail out for the banks that bought investments they no longer understand (or do and look the other way). Capitalism is all about removing subpar performers through competition, and if there happens to be 200 billion dollars worth of banks that are the subpar performers, well so be it.

The market will overreact and cry havoc for a while, but after the dust clears you will have a healthier banking system.

Same goes for getting a crazy expensive house with a risky loan package, even if the prices were hyper-inflated by an irrational herd of dumb buyers. Help people deal with the shock in the most extreme cases, but ultimately a lot of people will just have to sell/foreclose and live at a lower standard of living then they have put on credit the last few years. I feel no sympathy, I got railroaded by the banks because of a mere $5,000 in debt during the worst year of my life (lost job, lost school, lost my credit rating). You learn to suck it up, pay your bills, and do without the many luxuries we take for granted these days. A person can get by for not too much money if they are smart about it, without any loans, even with obligations.

Or absolutely correct. What exactly do you think will happen if financial institutions go under as a result of an obscene number of foreclosures? It's not going to just stay in the housing market.

And the fear wasn't a "rock backwards", but your great leap in the opposite direction. The economy does not need a crisis right now, when it is already attempting not fall into recession.

Look I dont feel like arguing the minutia of mcro economics, it is probably my least favorite academia subject in the world.

But for a $.10 answer, some banks amy go under but the big boys will survive and pick up the scraps the fly by nights left behind. This will increase their holding capital and cause them to offer incentives for joe public to get his money into savings vehicles instead of funds/stocks. I.E. interest rates will climb. It may take 10 years, but the economy would emerge stronger. It is a sad fact but an 80% of populus middle class is not good for long term viability. a 25-50-25 is much better and a 30-40-30 is even better. For these things to happen a few in the middle need tomove up and many more need to slide back.

Im exhausted andd dont feel like typing anymore, but it would be a HORRIBLE 2 years and a bad 5 years but a GREAT 25 years.,... of couse no politician can see past the 4 year mark

Shit, right now it's more like 30-55-5 isn't it?

Here's some info from the US Census Bureau:

"Households that earn between $25,000 and $75,000 represent approximately the middle half of the income distribution tables provided by the U.S. Census Bureau. Over the past two decades, the number of households in those brackets decreased from 48.2% to 44.3% while at the same time the number of households overall increased almost 30%. During the same time period, the number of households with incomes below $25,000 decreased slightly from 28.7% to 25.2% while the number of households with incomes above $75,000 increased over 7%, from 23.2% to 30.4%."

So, if you use the 25-75K number as the middle class (again, adjusted for cost of living), you end up with 25-45-30. The rage now is breaking up the middle class so you have the "lower class" (under 16K, ~15%), "working class" (16-30K, 25%), "middle class" (30-85K, 40%), "Elite or upper middle class" (85-140K, 15%) and the "Upper class" (140+, 5%).

Just like anything, if you torture the numbers long enough, they will tell you anything. The main issue seems to be income level to jump from the middle class. As you shift that closer to 100K, the middle class gets bigger. So, that's why many groups are focusing more on education/job level AND income and not just a straight income tree. IE, a school teacher and fireman with 4 kids making a combined 120K in New York is not the same as a lawyer making 120K when it comes to discretionary income. When you start equating these, you start to get the 25-80-15 numbers some throw about. But, if you group much of the analysis done from 2005 to 2007 with this in mind, it seems that our current setup is somewhere in the 30-45-25 range.

CU: The problem is the big boys. That's what's gotten everyone so spooked. BOA and CitiGroup carry so much of this stuff that right now it's practically impossible to figure out their worth. Each may take one hundred billion or more in losses over bad loans. That's why they're out front in offering solutions.

And if the choices are a bailout that costs me nothing or a depression that leads to 2 horrible years and 5 bad years, please sign me up for the former. Of course I don't think your "depressions are good for the economy" theory really stands up anyway.We haven't had a major recession or depression since the thirties and we've done pretty damn well. Mostly because of brakes put in place to alleviate financial problems before they become meltdowns.

Thats really interesting stuff Arlie. I can tell you that my modest income <45k/yr feels a whole lot different being the sole provider and having 3 kids at home all day, compared to when I was making 35k being a single guy 10 years ago.

Sounds a lot like a family credit counseling plan for credit cards for families. Plans that are in place to help credit card companies recoup as much money from individual families so that they dont go into bankrupcy.

Wasn't there a recession in the early 90's? I have to agree that if you are correct about 7 bad years, then it's an easy choice. I am just not sold that the overall effects are that predictable.

Pilot: Exactly. The banks want a way to get something even if it's less than 100%. I don't think this bailout plan will do much, but this is more about big financial companies than individual buyers.

As to the effects of the mortgage problem, I don't think it will be that bad either, I was just using CU'spremise. The recession we had in the early nineties and the other recessions we've had since the Great Depression have been very minor in comparison to the boom/bust cycle common in the early twentieth and nineteenth centuries.

Unfortunately i didn't have internet access for a few days so I fell out of this conversation.

But, this seems to be the big point that bothers me that Flasch seems to have summed up here.

Flasch says that if the responsibility is shared between the lenders and the borrowers that the lenders should be punished and the borrowers helped?!

Wha?

That's shared responsibility?

Fair enough about not arguing micro economics (though I don't share you POV on it ;)). However, regardless of whether the economy would end up stronger in 10-20 years if it allowed everything to fall, the problem is the fall itself. A big time recession is not going to be good on a number of people. Sometimes policy makers do have to realize that real people are being effected by the somewhat abstract numbers on the board. Sometimes what seems to be good economically may not be the best policy course of action because of the impact it will have on the people, and it isn't necessarily about seeing past the 4 year mark, but about how much egg breaking you feel like you can handle.

Oh, and I do doubt that many investors will be tempted by bank offers to shift away from mutual & hedge funds and stocks. The market is, as of yet, not in that much trouble. And by the time the big banks will be in a position to offer such incentives (after righting their ship), there may not be that much to lead investors to the banks (probably more of a "buy low" mentality).

One pet peeve of mine when discussing "liberal" v. "conservative" economics (and I don't really like those terms), is this idea that the entire argument boils down to liberals caring about people, and conservatives not. That liberals are thinking about helping people, and conservatives don't. It's just not fair or accurate. It's two different philosophies about how all people can be harmed or benefited by a an economic systems. Just because a conservative may look at it differently, and feel a different approach will benefit people longer term, doesn't mean they enjoy people's misery.

not quite the context I had in mind when it's pulled out of the debate like that.

Someone had said that no one is saying that the industry isn't culpable too therefore I was stating that if you are arguing shared responsibility than the idea that the banks aren't culpable too vs. your argument that the people shouldnt be helped doesnt make sense to me. If the banks are culpable than they should have to pay the price too. In this case paying the price would mean helping a subset of those that they screwed in the first place (referencing back to Flere's statement of fact of the limitations of those the plan actually helps).

I dont think I meant it to be pulled out that way....at least in my brain it worked during the debate. I see your point when it's pulled out like that that it looks like I want the only blame on the banks. thats not true as many many of the mortgagers are not eligible for the help, myself included.

I never said they "enjoy" the misery, but I do think that many conservatives just don't care. One factor of capitalism that cannot be ignored is that it is a system of winners and losers. And there have to be losers. How each philosophy wants to treat the losers speaks volumes, IMO. Plenty of conservatives seem to want to blame the losers for their fate.

I actually think people learn and its better for society for people not to be molly-coddled. If people are always protected from their mistakes then they never learn and will continually mess up, if they make mistakes yes it hurts - but they and others who are watching them will hopefully learn and avoid these problems in the future.

*Incidentally I still own property in the UK (advertised and available for purchase if anyones interested ;) ) and am watching nervously as the market looks to take a downturn on the back of the US mortgage kerfuffle knock-on, if it does drop heavily I'm not expecting handouts to help me or anything else - I bought it with my eyes open and want to be treated like an adult thanks all the same.

Strangely enough my favourite Poem is "if" which is all about taking risks learning from them and going on ...

If you can make one heap of all your winnings And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings And never breathe a word about your loss;
If you can force your heart and nerve and sinew To serve your turn long after they are gone,
And so hold on when there is nothing in you Except the Will which says to them: "Hold on!"

The thing you seem to be missing here is the banks and lenders DO suffer. We're here talking about how this stuff needs to happen so that the banks/lenders don't go under.

They lent say 500k for a house. The owner has paid oh... say 5k in the last 2 years on the principal. Now they foreclose on the house. The bank sells the house for 300k on auction. The bank loses.

The banks/lenders are not harm-free here by any stretch.

I see where you afre coming from, but my "conservative" view is more in line with "how you define help"?

I have a family member who had/has a major addiction problem. I stayed with him through his early physical withdrawal period.(mainly because the family didnt want him instituionalized, and I was the only one deemed strong enough to keep him from killing himself) During this time I watched him beg me to either A) Give him his "medicine" (heoin) or B) Kill him.

To him a needle would have been "help", ten years later he hugs me everytime he sees me and says I saved his life. But there were 14 AGONIZING days that left us both bruised, cut, and phsically and emotionally scarred.

Giving someone who is careless with their money and who has made poor decisions a bail out, would be just like me giving him the needle. Sure he would have felt better, but he'd be worse today.

What is the "Greatest Generation"? It is the children of the 30s. The despair and pain brought by the GD instilled character and drive into a group that produced wonders that few societies have ever equaled. As we try to isolate ourselves from pain and hardship we may alos alienate ourselves from drive, determination and personal responsibility.

I'm not sure I'd call that suffering. Yes, the CEO may lose his/her job if things get too bad. Let's look at how painful departure may be for some of these folks who for whom dismissal is either likely are already done, according to numbers reported in BusinessWeek in November.

Richard Fuld, Lehman Bros. - $299 million
Stanley O'Neal, Merrill Lynch - $161 million
Kenneth Lewis, Bank of America - $120 million
Charles Prince, CitiGroup - $40 million

Other top execs at these companies get payouts upon dismissal as well. Although not quite as rich, they'll still be able to make their house payments. On all their residences.

This is why many, including myself, have little sympathy for the lenders. The mistakes they made are often far worse than the family that stupidly accepted the ARM that the lender made the hard sell on. But it does not appear to me that the punishment for failure in the lender's case is overly harsh.

Admittedly, $40 million is a lot of money to me. YMMV.

Bail-outs do NOTHING to change this though. Nothing that happens (outside of criminal prosecution which is totally outside the realms of anything i'm talking about) is going to change this.

I don't have sympathy for the lender's either, but the COMPANIES are certainly going to suffer. Nothing I've seen suggested would have any impcat on these top execs.

The irony in that is that the 30s was also the era of the New Deal. When government started to step up and help individuals who were on hard times. Maybe that experience, as well, brought about a sense of community and a feeling that you should help society because it may need to help you at some point.

The difference between your example with the addict and this one is that you were there to give your support to the addict. You were there, telling him it'd be alright on the other side. If the government just turns away, it seems like they are just ignoring the plight of these people and seems somewhat cruel. As does the message, ie, you need to suffer so you learn not to do this again.

This has been a very interesting thread. The way I see it, we have three phylisophical paths discussed in this thread:

1. Do nothing and let the market sort itself out.

2. Some kind of financial bailout focused primarily on helping victims of the lenders for a few years. IE, tax writeoffs and other financial assistance for those deemed to have "bad loans".

3. Try to limit the impact of the "hit" by freezing rates for a certain period or even targeting a certain "maximum jump" in rate hike (ie, to prevent someone with a 5% mortgage from hitting 10%).

Here's the problem I see with items 2 and 3 - they're just delaying the inevitable. Many of the problem issues involve someone buying a $500,000 house on an interest only "teaser" rate with a bump in 2-3 years. These payments start at $700-$900 as you are paying less principle and increasing the loan size. So, let's take this case with item 2 - the loan jumps to 8% and this person now has a payment of $3500. Even if the government helps him for a few years and eats half his payment, the moment the help stops he will be forced with a payment in the $3000-$3500 (even with a sweet refinance). Now, item 3. Let's say the Gov't says the most you can charge this person is 5% (instead of the 8%). Even with this phenominal rate, the person still sees their mortgage jump from $800 to $2800. So, again, are you really helping this person? It seems all that either 2 or 3 does is allow people to throw more money into a house they can't afford and then be forced into a foreclosure a year or two later than the market would have caused if left alone.

In the end, you have people in houses they have no business being in. No matter how you try to help, unless the gov't just pays their mortgage indefinately, these people are going to hit a point where their payment "gets back to normal" and becomes an amount they can no longer afford. So, is it really better to string people along for 2 years before they go into default? Instead, you could simply use this time as a learning experience for people and banks with a focus on improving education at the HS level and lending process for the future. Heck, maybe offer a "lending class" (like a driving class for licenses) for first time buyers that gives you an extra gov't tax benefit for the first year if you take it.

In the end, people that got hit on buying houses that were 200-300K more than they can afford with be forced to rent or settle on much cheaper places until they can build their credit again (4-5 years in many cases) - but they won't be living on the street. And, if these "horror stories" help improve the industry standards and overall education level, everyone will be better off down the road.

Arles: That's not necessarily what will happen. If these rates are frozen for five years and in that time the market rights itself many home owners would be able to sell and get out from under the bad mortgage.

But again, this isn't som much about buyers. The big banks are scared to death. Today UBS wrote of ten billion in bad loans and BOA froze a 12 billion money market fund presumably due to a big discrepency between actual and stated values. Banks are hopeful that they can find a way to get out of this mess with the company intact. I don't expect a financial catastrophe, but I think we're closer than people want to admit.

There's definitely people in all political spectrums that don't care, but there's definitely also those that just believe that a capitalist system with limited restraints ultimately provide more net happiness, wealth, and success for the civilization as a whole, both in terms of net results, and a desirable dispersion of succes and wealth (or at least an opportunity), across the whole.

It's really not good v. evil, despite how people try to frame the discussion. "These are REAL people!!!", etc.

Exactly. This isn't something that will just blow over easily. There is the potential for a really nasty recession, especially when you start seeing the big banks getting really scared about things.


As JPhillips pointed out, one thing it may do is allow those buyers to sell when the market is better. At worst, it spaces out the foreclosures, so the bottom doesn't fall out all at once.

One thing to realize is that consumer confidence matters a WHOLE lot and thereby, having the foreclosures spaced out instead of all at once may be far, far better, even though you may have the same foreclosures in the same 5 year period of time.

OK, let's take this case. First, even if you freeze rates, the problem still exists. The problem most people in the danger area had is not that their 5-year ARM goes to 8%. That would suck for many people, but you are still only looking at an extra $400-500 a month. Most people could surivive that - and if they couldn't then there's just as good a chance something else similar happens in the next 5-6 years to cause an increase in their expendatures for $400. The problem areas are the people with interest-only. So, in these cases, the people would see a jump of $1500-$2000 if the rates freeze and they are just made to have a legit 30-year principle payoff loan at 5%.

Now, maybe you want a "payment freeze". If that's the case, every month that goes by will increase the debt on their home. So, if someone has a 500K mortgage, that means they will be at 510K mortage after a year - with it getting worse every year. So, if in 2 years they sell their home for 475K or even 500K, they would still owe between 25 and 50K after the sale just to cover the mortgage. Now, let's look at the higher % chance. Someone tries to sell their house for 3-4 years and can't (because they want atleast what they paid to cancel the mortgage) and then they miss their window and foreclose. Now, instead of just forclosing in 2008 and renting from 08-11 to build up credit (or equity with some apts), they've just thrown 40-50K away between 2008 and 2011 and are back in the same spot they could have been earlier had nothing been done.

You'll just have more buyouts of the little guys (like the gas/airline companies in the 90s, early 2000s). The big guys will take a hit (and take a writeoff on some), but will have less competition on loans down the line. This is going to happen no matter what. The difference comes in if you bail out consumers and allow all this litigation. Then, a bank will have two issues with average to below average credit consumers - 1. the chance they default and are stuck with the loan and 2. the chance they default and sue. If these kinds of legal actions take place, you will find it nearly impossible to get a home loan without a credit score of 700+.

Any action that happens will have reprocussions - some extremely serious. The best course of action is probably to focus on educating first-time buyers before they sign anything and let the market work itself out over the next 2-3 years. Now, if things start getting real bad, you can revisit some kind of savings-and-loan style tax benefit. But, doing something now as you try to predict the damage is just going to cause more problems down the line. The horse is out of the barn in terms of damage to many financial institutions and bad loan consumers, trying to chance them down now with the barn door open will just allow more horses to leave (and prolong the pain for 3-4 years). Shut the door, let the market correct itself and count on the idea that the big guys will be left after the dust settles and the process of getting mortgages will just be tougher for people without good credit. At worst, you have a 2-year recession that picks itself back up when people see the worst is behind on these bad loans. Spacing it out over 5-6 years can create a culture of loan fear that doesn't go away or have a light at the end of the tunnel.

dola, look at it from another way. Would it have been better for consumer confidence to have an aggressive ground-attack from day 1 in Iraq that had 8000 casualties, but an end to the war in 2 years? Or, the 6-7 year war with slightly fewer casualties but guys still fighting it years later and seeing it on the news everyday?

It doesn't work that with the economy. Mostly because people actually have power with the economy and a big "offensive" could cause ordinary people to start to panic and make things worse.

I don't buy it relating to this issue. With our 24-7 news cycle, it's much worse on consumer confidence to have 5 years of bad news instead of 2 years of worse news. As long as there is a defined cause and a known timetable for improvement, people can handle 1-2 periods of bad news. Also, this isn't something like gas prices that impacts most people on a consistent basis. It's one of those items where the result of most surveys would be "I'm OK, but I'm worried about my neighbor". As soon as things start to get better, most consumers bounce back fairly quickly. If, instead, they keep hearing bad news on it year after year, they may just default to the fear state even when good news comes.

Here's another analogy. Let's say you drive to work downtown and get hit with a $200 speeding ticket. You go to traffic school newxt weekend, pay the fine and move on. It sucks, but next month you are probably OK and moving on with your life. Now, instead, let's say that every working day for the next 4 weeks you get hit with a $10 parking ticket - no matter where you park downtown. Now, the damage is the same (200 vs 10*20), but you are probably much more afraid to go downtown and park next month in the second instance. You can make similar parallels with investing. If we have a one-day 400 point hit - and then back to a gain/loss situation, it's much easier on consumer confidence than if you had 40 straight days of losses.

Only if you think the news media is going to give 5 years of below average news the same coverage as 2 years of bad news ;). The news media doesn't like the stories that don't lend itself to alarmism, such as foreclosure spread over 5 years. They'd prefer to raise the alarm over it happening all at once. For example, how much do we really hear about the moderate growth the last few years? Most people seem to think the US was in a recession for far, far longer than it actually was (about 2 quarters in 2001/02, IIRC).

Arles: I get what you're saying, but it would only really apply if we were near the end of the problem. We're not. Mortgage resets escalate dramatically over the next 18 to 24 months. The problems today are really only the beginning. And the problems for the big guys are worse than you think. When big banks start freezing access to accounts it's a really big deal. Also, a couple of big mortage companies are near bankruptcy already. Seeing foriegn banks write off billions is also a bad sign.

A lot of this problem can't be fixed now, prices are too inflated to expect to get a full return in the short term. However, big finance is scared to death and don't be surprised if this bailout plan is only the first of many.

I think if it does get to this point of impending mass bankruptcy, something will be done. I just don't know of the scope of bad loans that will be coming to fruition over the next 24 months. If that data shows reasons for alarm, I think someone should be done to help keep the main institutions afloat (much like the savings and loans). However, I don't think the focus should be the consumer with the loan (which was what started many of the discussions here). Whether some "economy-buoying" tax effort is made to help the top institutions survive the hit, it doesn't change the fact that the people with bad "teaser" mortgages are going to probably lose their house and not much can be done to stop that.

I don't doubt this. My point was that it is not in anyone's best interest to help soften the blow on people who have bought a house they had no reason buying. Now, it may be in everyone's interest to help some of the big finance players get through it, but the backlash will be big. It will be another "Enron-style" press story where the little guy gets taken by the big, evil company. However, much like the Enron logic in putting all your retirement in one stock, the truth will probably show education (and not bailouts) are the only real answer to helping this issue moving forward for consumers.

We won't even really attempt to sell to mortgage companies anymore. Just too much of a chance they either
A. Lay off all their employees polluting their risk pool
B. Go belly up instantly sticking us with their liability

just wanted to point out that much of the fedspeak, Congressional trumpeting, and campaigning the last few weeks has said exactly what I and the other people that have proclaimed the same things have said. Boiled down, systemic fraud from top to bottom in the industry, from Brokerages to appraisals. Now I can admit when I am wrong, for example, much to my surprise, the Bush Surge in Iraq either directly or indirectly has been a success (more positives than negatives)....I look forward to when you all on the opposite side of the fence can open your minds to the empirical evidence and say, "I am (was) wrong."

Not a threadjack regarding the surge so let's stay on topic :)

I didn't read every post...but wasn't the whole argument that everyone on both sides, including the "systemic fraud from top to bottom in the industry, from Brokerages to appraisals" as well as the homebuyer who didn't do his/her homework deserved to share blame equally? Did you expect Congress to come out and say "John Taxpayer is to blame for the mess he got himself into?"

Basically, who argued that the mortgage lenders were saints?

there is an insinuation, perhaps I read too much into it, i dont know, that the homebuyer's knew exactly what they were doing AND the group that didn't deserves exactly what they get. That pretty much covers the entire buyer's side as being culpable, each one in that they get the shared effect of what is going on. However, from what all of the experts, the last 2 weeks have said, is that MANY of these people WERE taken advantage of and preyed upon and DO, in fact, deserve help. The brokers, appraisers, realtors, lenders, underwriters, speculators, together share the great majority of the responsibility for what is going on and if I said otherwise I take that back. They deserve the bulk of the blame on a macro and micro level and deserve to share the bulk of the effects as opposed to the individual who was victimized.

by being against helping those in need due to the current situation you are, IMO, placing ALL of the blame on the individual because they are the one's who will suffer the harshest effects. The Brokerage companies and their big wigs will be fine in the long run but the individual who got taken will not be. I think we just went full circle in this thread. :)

Washington Mutual was just sued by Baltimore and the Mayor said that it's just the first.

The Attorney General of NY is looking into widespread fraud.

And you wanna know who really really really made the most out of this?

I've heard about this. Maybe banks like Goldman Sachs will have to par back those billions of dollars of bonuses they've paid out the last few years.

"The loans were made to people who did not have any documents to verify their income or other verification for key requirements normally applied to mortgage borrowers," he said. "Many of the lenders made large amounts of loans, so that the exception swallowed the rule, or became the rule."

If that didn't give a borrower a red flag, I don't know what to say. People with bad financial sense deserve bad credit. That the way the system works. They'll lose their house, be back in an apartment they should have been in all along, and future lenders will have warnings about their lack of credit-worthiness. All is right with the world.

The way I read that, they're more concerned with the next stage after the initial loan: the packaging of the loans into securities to diffuse the risk. The concern is whether the risk of default on these specific loans was properly disclosed in the packaged investment vehicle.

....all the way to the top.

So the post before shows that the fraudulent thoughts went all the way to the top....now you see it went all the way to the bottom too.

The tip of the iceberg

http://money.cnn.com/2008/06/19/real...ex.htm?cnn=yes

Today's WSJ has a front page article on the trial of some Bear Stearns honchos and their emails which show them telling each other that the investments were junk but that they were recommending them to their clients anyway. Good stuff.

It takes a while but sometimes, if it's not to do with equities, I end up being right.

I hope the criminals are prosecuted, and that restitution is ordered. Though this wouldn't change my position on any government bail-out.

There should be no government bail-out. Buying a house is just like any other investment.

I guess instead of redebating the same thing to this point you can just go back to page 1.

Your back must be sore from all the self patting. :devil:

Nobody disagreed with you about the lenders/brokers being crooked. So we're all right.

Hire a lawyer before you enter into a major financial transaction. If you can't afford the lawyer, you can't afford the house.

It's a good thing these guys turn out to be incredibly stupid.

unfortunately it wont help the people who've lived in their homes for 50 years only to be swindled into a crappy Heloc and now have lost just about everything.


not everyone is as smart as everyone else, unfortunately Wall Street preyed on Main Street and, as Ive stated in this thread, I think the Government should keep that from happening.

Seriously. Between this and Enron it really boggles the mind sometimes.

Do you feel this away about other "criminal losses", like theft caused by the victim's negligence?

I'd think there would be $$ available in criminal restitution as well as potential civil lawsuits from entities that have the resources to pay up.

To: [email protected]
From: ITAdmin
Subject: Job Security

I love my job.


-----Original Message-----
To: Exec 1
From : Exec 2
Subject: RE: RE: Should we screw people?

Sounds good, I won't say a word. No one will know. We are genius!!


-----Original Message-----
To: Exec 2
From: Exec 1
Subject: RE: Should we screw people?

Yes. As much and often as possible. Keep it on the down low.


-----Original Message-----
To: Exec 1
From : Exec 2
Subject: Should we screw people?

So? Should we?

I had a long night and am exhausted but I'm confused by the first question.

I won't be offended if you nap instead of answering the question.....

What's novel to me is this idea that because some third party is at fault for your financial loss, the government should help out.

Clearly borrowers made mistake. But it seems like you're saying that IF someone else (the lender/broker) acted criminally, than the government should help out the borrower.

I'm wonder if you feel this way just about mortgages, or if the government should pay back others who are criminally deprived somehow. Like if I leave my door unlocked, and someone comes in and takes my stuff.

Well, I think that when a federally regulated group breaks the regulations or it is admitted that the regulations failed or weren't enforced it changes the dynamic. This especially goes when it becomes racketeering wherein the lender is in kahoots with the appraiser whose in kahoots with the underwriter, etc.

I am absolutely not saying to help the speculators but those that were honestly duped, which it is actually quite easy to find out by looking at their paperwork, underwriting standards, appraisals that we're done, etc. should be helped. what help means, I dont know, but they deserve to be helped.

Im sure there have been other events similar to this in our past and will likely happen in our future but when the Government is shouldering the blame and admitting it and asking for more regulation during a Republican admin (where generally theyre for less gov't.) I'd say that theyre likely right and should help.

I lost $80 on Amway. Damn illegal pyramid scheme. The government needs to pay me back!

They promised me I wouldn't have to work after I got 200 people underneath me!

We are so far on opposite sides of this we'll never agree, but I'm curious about the regulations aspect. There is no regulation that says I cant lend money to someone with a 400 Beacon, nor is there a regulation that governs values and appraisals. Furthermore judging the validity of an appraisal in a purely speculative market retro-spectively, is damn near impossible.

No matter soon Obama will save us all by taxing the big bad businesses, thus sparking the worst inflation since the Reaganomics days.... And we'll keeep hand outs alive to all the poor uneducated PHDs....and mean while old men will sit around hardwaree stores and wonder why China is kicking our collective asses.

We ALL need to man up, grow up, and get a fucking clue....

That's what happens when you take LOTS of equity out of your home and don't understand the terms you are signing up to. No market is safe, you take risk anytime you make an investment or if you take money out of your house.

KIM, Obama has said to be leaning towards cutting the corporate taxes while increasing the income tax on those making over $250K/yr. So Im not sure if you didnt hear that or not.

Yes, and it will be all Obama's fault. Even if he doesn't win the election. Particularly since we aren't already experiencing a lot of inflation and signs of more :rolleyes:

SI

:D

SI

No then it will be bush's fault for making Obama lose.....Gee whiz dont you know anything about politics :p

Taxing success is not the answer.

Remember, Obama wants to tax you in other ways (that McCain should pounce on, I think). They key word Obama uses is "Income". However, he wants to:

-Increase SS taxes.
-Increase Capital Gains tax to an insane rate (I think that CGT is a very important tax system for creating businesses, spurring investments, and creating jobs). This impacts everyone. From retirement accounts, houses, investments, savings, ect.
-His spending plans are out-of-control. He blasts the GOP on spending, but he's doing the same thing (his health care proposal scares me in what the cost will be in 10-15 years)

I just don't see how you can raise taxes (and ones that are geared towards investments) in this economy. We need to cut spending, not increase spending and taxes.

I'm no fan of either, but I can't behind Obama for a lot of reasons.

The right has not been able to curb spending and has done nothing but push though tax cut after tax cut pushing our deficit to incredible levels that even Buffet and Greenspan think is the biggest threat to our country. Voting for the status quo is not an option, IMO. Someone who can go back to fiscal responsibility is a good thing AND support of "Pay go" and understand that the health care system, as it is now, is broken. Too many people are one sickness away from destitute....but that's not the point of this thread, there's another one for that.

I can agree with you on the first part. However, the Democrats aren't going to tackle the deficit either. Both parties are both full of themselves, creating class/social/political divisions as usual. Just frustrating to watch.

Well the last Democrat in office did a fairly good job with the budget so Im not sure where the historical assumption is, but again, probably for another thread.

Quoting Obama's website for specifics:


Seems reasonable. I have no idea why SS payroll taxes were capped at $102,000 in the first place anyways. Speaking as someone who will be directly affected by this, I support it.


Hey look! A tax cut. :D


If by "insane" you mean "roughly in line with where they were from 1986 to 2000".

Specifically:



You probably wouldn't be able to get behind McCain either, except that he's hardly spoken of any specifics on finance and/or economics, so it's hard to tell, quantitatively, how bad he'd be for the economy.

I'm on board, as long as that logic is applied to every business as well. I'm not signing onto the idea that banks can be bailed out because they entangle themselves together to the point that they would fall down like dominoes if allowed to experience real market forces. Let's not have one rule for big business and another for individuals. One rule for all. Either bailouts are provided to all, or to no entity. How will these banks learn to keep themselves free and clear of dependence on each other if they know they will be bailed out? It just encourages them to continue the bad behavior that created this situation.

They don't extend that same protection to people in a subdivision, where they will all lose equity in their homes if other homes are foreclosed. That's a domino effect as well.

That wouldn't have helped anyone pretty much. It wasn't the language or terms of the mortgages that got people into trouble, it was their ability to pay. A lawyer is not bound nor necessarily qualified to say, "this loan document is fine but you can't afford this and the ARM is going to kill you in two years." That's not the job of a lawyer.

No one is talking bailout. The terms of the Housing Rescue and Foreclosure Preventing Act would only cover primary residences, so speculators and investors are on their own. To take advantage of the foreclosure prevention measures, you're going to have to be willing to split the profit with the government. To my mind, this is exactly the type of assistance government should provide -- in the S&L debacle, we simply took the hit and charged the government. Now, the government is getting an equity stake so if you keep your house and sell it for a profit later, the taxpayers get their money back. You can't beat that.

We've already bailed out the banks, but it was done on the sly. The Treasury now holds billions of dollars of crap mortgages as collateral for loans to the banking industry. Not only did we bail them out, we did it through fiat of the Federal Reserve.

http://www.washingtonpost.com/wp-dyn...062401389.html

Credit Suisse, a large investment bank heavily invested in mortgage-backed securities, proposed allowing hundreds of thousands of homeowners to refinance their mortgages with lower-cost government-insured loans, relieving financial institutions of the troubled debt.

After the bank proposed this to Congress in January, it became known as the "Credit Suisse plan" among congressional staffers and lobbyists. It later formed the basis of housing provisions in both the House and Senate.

Bank of America, which is acquiring Countrywide Financial, the country's largest mortgage lender, followed with a similar and more detailed proposal, principal negotiators on the legislation said.

In approaching congressional aides, the lobbyists suggested that banks take less than full payment for the distressed loans on their books. But the measures would allow financial institutions to get cash out of foreclosed properties that would otherwise sit on their books as dead weight.

Since the new loans would be guaranteed by the Federal Housing Administration (FHA), taxpayers would ultimately pay for defaults. The Congressional Budget Office projected that this could cost $1.7 billon over five years.

So, even when a bill is marketed as helping the little guy, the individual, it is really only out there because big business wants it to be? Nice system we have here.

Gah, what f***ing bullshit!

So I am guessing this is not a good thing.