Friday, August 31, 2007

Nerf finances.

In effect, Bush's scheduled speech this morning acknowledges the fact that there is a segment of the populace holding a figurative hostage: "Subsidize my ignorant financial screwup, or the economy gets it!" I thought we didn't negotiate with deranged hostage takers?

Geez, why don't we just give people houses as rewards for fiscal irresponsibility and not reading before signing and then provide cover for lenders making iffy loans at Vegas-like risks? I want me some of that action...

19 comments:

GreatBlueWhale said...

Let's see, I know it's in here, maybe one of the later amendments. It must be. The federal government would never do anything so blatantly bread and circuses unless there was an amendment somewhere...
Hmmm. Can't seem to find it. I guess I need to get a newer copy of the Constitution. Mine's obviously out of date.

Brian said...

You know, I read the terms of my offer. I wonder if I get a reward for actually being intelligent.

This is the last straw.

comatus said...

Once you get a bunch of professionals addicted to economic interventions, you'll spend the rest of your sad history playing whack-a-mole. It took 30 years to tamp down money-supply activism in the central bank ("not part of the government"); voter-reward interest rates was where the pent-up need to manage squirted out. So much for "home ownership" being "part & parcel of the American dream."

jimbob86 said...

GRRRRRRR!!!!!!!!!

If you subsidize a product or action, you get more of that product or action. Like we needed more irresponsibility.........

The Earth Bound Misfit said...

I really am of mixed feelings in this. I know for a fact (because I saw a lot of it happen) that a large number of less-than-fiscally-sophisticated people were basically hornswaggled by mortgage brokers who were flogging loans to people who, in a cold light, were not going to be able to pay them back. The mortgage brokers got their 2% (or more) of the loan value at closing.

The brokers got their money and walked away. The banks bet on a rising market and that they'd be repaid on sale or at a future refinancing.

I know because I saw this happen. I know because the mortgage brokers steer their clients to the lawyers who are going to go along.

I wasn't one of them. I lost a fair amount of business from brokers when the sub-prime loans came into existence and I began trying to tell clients just what the downside was and what they were betting on and the risks they were running.

I sleep well at night.

red said...

I agree, why does the government have to bail anyone out? No one forced those people to accept risky ARM loans or teaser deals. You know we'll end up paying for this crap one way or another.


Can I sue the government for not helping me out when I was stupid and couldn't pay my credit cards?

Tam said...

eb-misfit,

I personally believe in the old saying that "it's hard to swindle an honest man."

But then again, part of the reason I've been a lifelong renter is that I know I'm not responsible enough to be a homeowner, no matter how hard people with a vested financial interest in making me into one have argued otherwise.

The Earth Bound Misfit said...

Tam,

While I agree, I also am trying to keep in mind who is going to be hurt. The brokers got their money. In states where the attorneys review the documents, they got paid. The banks that sold the risky mortgages bundled them into investment packages and sold them off, so the banks that marketed the loans got paid.

The ones left holding the bag are the investment houses (they'll write off the losses) and the borrowers, who may lose everything.

I have a lot of sympathy for someone who worked hard for many years to get into a house so they and their kids could live in a nice town with good schools and now it is going to come crashing down around their ears.

If the Feds come up with a proposal to refinance those mortgages, the Feds are not going to be out a lot of money in the long run because those refinanced mortgages have a good chance of being paid off over time.

But that is helping out the little people, those who work for a paycheck and who, if they have anything in life, have it because they worked for it. And helping out those folks has never been a priority of this preznit.

Aric said...

Holy crap does did this one start me fuming.

There are vulnerable adults out there (e.g. my sister) and those people need to be protected. That is a different class than people capable of making decisions equal to the value of a home.

If you're capable of buying a home you are capable of losing it all and learning a hard lesson!

If you swindled a vulnerable person, then a big 'ole lawsuit should be what sets that problem straight.

Stupid opt-in assumption. If society is this f-ed up system of me paying for other peoples' mistakes all the time, where is the opt-out form at?

Anonymous said...

Play now....pay never...housing being used as a 24-7 ATM machine...watch for escalating credit card default in the next 6 months.....affordable used boats, ATVs and fireams etc... to follow. The value of U.S currency? Buy gold and watch out for falling knives.

Tam said...

"If the Feds come up with a proposal to refinance those mortgages, the Feds are not going to be out a lot of money"

Nope, just you and me. It is our money, after all.

So, despite my minding my own fiscal house, I'll be bailing out profiteers, loan sharks, and grasping morons who thought they could get a $750,000 house for nothing down and $29.95 a month.

Swell.

Kit said...

I was listening to NPR this morning (I know, I know - but I was falling asleep in my car and needed something to stay awake) and they were interviewing German bankers who apparently bought up tons of subprime mortgages back in the day and are now, of course, sinking fast.

The Germans kept saying "The US Gov't should bail out those poor homeowners and pay the difference in their old interest rates and the new higher ones so those people won't be put out on the street." And on and on about how it was all Greenspan's fault to start with, so the goc't needed to take responsibility.

Whiskey Tango Foxtrot?

Obviously what they really want is for *their* banks to be bailed out for *their* financial idiocy.

Divemedic said...

I think the blame is shared:

40% to the home buyer for signing without due diligence. This is the biggest financial decision most people will ever make, and they put little to no effort in making it.

45% to the banking industry for taking advantage of a consumer's ignorance, and lending money to people that they KNOW can't pay

5% to the Feds, because they regulate the banks, and still allowed this to happen. Just like the firearm industry and health care, the Feds regulate it, and then do not take responsibility when it goes south.

10% The American taxpayer for allowing it to happen and putting up with it.

The only one who pays is the taxpayer.

Anonymous said...

It burns my butt to know my wife and I scrimped and saved for a nummber of years to put a down payment on a house we could afford. Finally got one that either one of use could carry and slowly paid it off. Now, all the people that did this are probably going to get screwed when all of these million dollar homes hit the market for 250K.... Jim B

Anonymous said...

Earth Bound Misfit -

Much of the problem here comes because people not only financed their homes but took cash out and bought other things as well. In fact these people did actually profit from the loans they took out.

It does not take crystal ball or a Ouija board to figure out if someone finances or refinances 120% of the purchase price of a home they will rapidly be in a world of hurt if anything changes away from the optimal conditions they were in when they got the loan in the first place.

What is offensive is that people who behaved in a responsible manner who understood that the fundamentals were flawed will in effect end up subsidizing those who benefited from this lunacy.

Anonymous said...

Aric said...
"There are vulnerable adults out there (e.g. my sister) and those people need to be protected."


Sorry, but those aren't adults. Stop squealing because a family member's ox got gored.

wolfwalker said...

Correct me if I'm wrong, but didn't Bush's proposal refer to "refinancing" these home loans, so that the homeowners can pay under better terms? That doesn't sound to me like the government (meaning us) will be paying instead of the homeowners. They still have to pay. They just get easier terms, terms that won't bankrupt them.

Also, I heard at least one radio report that said under Bush's proposal, this government-backed refinancing would be limited to people with good credit ratings. Bush did say "It's not the government's job to bail out speculators or those who made the decision to buy a home they knew they could never afford." It sounds to me like he's trying to target the ones who were suckered by dishonest lenders, not the ones who were buying multiple homes in order to flip them to new buyers at a profit.

The Fudgie Ghost said...

I'm not defending lenders, because I'm sure many of them did lend knowing it was a bad risk, but just wanted to make their sales quota---BUT: wasn't there a bit of a a hubbub a few years ago about banks "red-lining" mortgages? NPR and the other usual suspects going on about how poor minorities could not get loans, etc. So maybe some lenders changed their policies to be more, uh, PC, and now. . . as Boris Badonoff used to say, "Safe falls on who?"

HTRN said...

I've been watching this fiasco with some interest since the first hints of it some months ago.

Interestingly, the two major groups that are defaulting? One is the lower/middle middle class, who just had to have their 3000+ sq foot dream house, and took variable rate loans at historically low interest rates(Hint, interest rates were only going to go one way:UP). The fact that they have a monthly note that amounts to 3/4's of their net monthly income should have been the first clue to look at a cheaper house.

The second group is one Tam put a blog entry above this one: Flippers. After the flipping game became mainstream instead of Real estate insiders, all of them tried to act like "Pros" by getting things like no money down mortgages. Admittedly this makes some sense(don't play with your own money) but like everything in life, it depends on the details - it's a much higher monthly note, and only makes sense if you can unload the house quickly.

As for Real estate as a profit stream, best bet - commercial real estate(particularly strip malls and my favorite, storage units) - decent profits, and doesn't have the ensuing headaches of involving housing laws(IE If they don't pay, they get locked out, no eviction proceedings, no going to court, no section 8 headaches).