Mortage Bailout

[JPhillips]

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.

[molson]

Originally Posted by JPhillips

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?

[Young Drachma]

Originally Posted by molson

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

+1

[ISiddiqui]

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.

[lynchjm24]

Originally Posted by wade moore

Sorry, but that doesn't fly with me. I could objectively look at almost every circumstances where someone chose an ARM, no interest, etc and say it was a bad decision before it happened.

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.

[CU Tiger]

Originally Posted by JPhillips

I just want people to remember that families are being broken apart by this.

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.

Originally Posted by lynchjm24

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.

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.

[Flasch186]

prices were slightly less...

[Marc Vaughan]

Originally Posted by Flasch186

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

[Flasch186]

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

[JPhillips]

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

[Flasch186]

Originally Posted by JPhillips

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.

[CU Tiger]

Originally Posted by JPhillips

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

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...

[Flasch186]

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.

[CU Tiger]

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

[molson]

Originally Posted by CU Tiger

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.

[JPhillips]

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.

[Flasch186]

Originally Posted by molson

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.

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).

[molson]

Originally Posted by JPhillips

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.

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.

[PilotMan]

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.

[JPhillips]

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.

Analysts at Credit Suisse Group estimate more than 30 percent of borrowers with subprime adjustable-rate mortgages are behind on their payments before their loans reset higher and 775,000 homes with $143 billion of mortgage debt will go into foreclosure through the middle of 2009.

[lynchjm24]

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.

[CU Tiger]

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.

[molson]

Originally Posted by lynchjm24

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.

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

[JPhillips]

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.

[Marc Vaughan]

Originally Posted by molson

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.

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 )

[SportsDino]

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.

[ISiddiqui]

Originally Posted by CU Tiger

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.

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.

[CU Tiger]

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

[path12]

Originally Posted by CU Tiger

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?

[Arles]

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.

[JPhillips]

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.

[PilotMan]

Originally Posted by Arles

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.

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.

[PilotMan]

Originally Posted by JPhillips

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.

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.

[JPhillips]

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.

[wade moore]

Originally Posted by Flasch186

If this is the case [that the responsibility is shared] then the people should be helped and the industry punished (or gently forced to comply with this voluntary bailout [which IMO should be broader])

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?

[ISiddiqui]

Originally Posted by CU Tiger

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

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).

[molson]

Originally Posted by ISiddiqui

Sometimes policy makers do have to realize that real people are being effected by the somewhat abstract numbers on the board.

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.

[Flasch186]

Originally Posted by wade moore

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?

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.

[ISiddiqui]

Originally Posted by molson

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.

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.

[Marc Vaughan]

Sometimes policy makers do have to realize that real people are being effected by the somewhat abstract numbers on the board.

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!"

[wade moore]

Originally Posted by Flasch186

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.

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.

[CU Tiger]

Originally Posted by ISiddiqui

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 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.

[chesapeake]

Originally Posted by wade moore

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

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.

[wade moore]

Originally Posted by chesapeake

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.

[ISiddiqui]

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.

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.

[Arles]

Originally Posted by ISiddiqui

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.

[JPhillips]

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.

[molson]

Originally Posted by ISiddiqui

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.

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.

[ISiddiqui]

Originally Posted by JPhillips

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.

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.

Originally Posted by Arles

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.

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.

[Arles]

Originally Posted by JPhillips

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.

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.

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.

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.