Monday, September 22, 2008

Revenge of the deadbeats.

Everyone knows someone to whom they wouldn't lend a Kleenex, much less a few hundred thou to buy a house. Suppose the government told you that you had to lend them the money, but then let you sell the risk to someone else?
Making loans means lenders make money. There's an incentive to make loans. If there wasn't, no one would make them. But there's also risk, which is why the old cliché goes "You can only get a loan if you can prove you don't really need one." If the risk is minimized, then the money flows freely.

And it did.
And who ultimately gets stuck with the risk at the end of this game of musical chairs? Well, it's spelled "U-N-C-L-E S-U-C-K-E-R" and pronounced "You and Me".

7 comments:

og said...

I especially love how the morons who created this bullshit are just glowing over the bailout. The whole "Everyone4 deserves to own a home" bullshit (I'm trying to remember the nutjob who sat up in the senate and brought forth THAT gem) is what took us here in the first place. Only people who can afford it deserve to own a home. The forced lowering of restrictions so the indigent could get $500,000 loans was NOT MY CHOICE, and now I get to foot the bill. Retards.

Brian J. said...

You're heartless, Tam, or perhaps just use your head, which is kinda the same in some quarters.

Read this heartrending story of a woman making $11 an hour who managed to leverage that into a million dollars in mortgages for a string of rental properties in a depressed area in Milwaukee. When it all went south, she was a victim.

If that doesn't make you weepy, well, you're probably not the target audience of a city newspaper.

Nathan Brindle said...

I'd rather be heartless than stuck with the bill for this.

And I sure as hell don't want Obama making it worse come January 20.

Zendo Deb said...

At least the government isn't buying the debt at face value. The first transaction put the valuation at something like 22 cents on the dollar.

Of course there were also incentives to increase lending to "economically disadvantaged" people. Hence the sub-prime loans in the first place.

Traditional lending calls for 20 percent down. Even 10 percent at today's prices is enough to cause people to think about walking away, but if I buy a house with no money down (or nearly no money down) why would anyone think I wouldn't walk away if things got bad?

Were these people buying homes or renting from the bank? It might sound like a joke, but there really aught to be a difference.

Also, I think if someone looks a little closer, we might find that a few laws were broken - like getting owner-occupied financing for rental properties.... this happened a lot in Tampa. Don't expect to see any prosecutions.

Anonymous said...

“The forced lowering of restrictions so the indigent could get $500,000 loans was NOT MY CHOICE, and now I get to foot the bill.”

Which is also ‘not your choice.’

Well, at least there’s symmetry!

-Zathras

José Giganté said...

I bought my house in 2000 and with little money down. I, however, didn't go apeshit and buy a McMansion that I couldn't afford, hell, I was terrified of a nearly $600 mortgage at the time and lost sleep.

Contrast that with some of the, admittedly extreme, stories you hear about folks getting millions when working for McDonalds and I look like a fool for not taking all I could and letting everyone else bail me out. Because, you know, I deserve a McMansion.

Tbeck said...

The sight of Congress standing up on its hind legs and apportioning blame is funny as all hell. Let’s see, CRA basically held a club over the banks’ heads; if you want to grow, then make crappy loans. But don’t worry, you can sell them to a theoretically private entity that carries an implied federal guarantee on their debt and whose executives get paid based upon asset growth rather than financial performance. They also cook their books, but since they own a good chunk of Congress nobody dares speak of it.

So for Congress to offer to step in and fix things just begs for a smallish asteroid or a disgruntled JAL pilot. And the Hank and Ben show isn’t really about socialism. These men do not WANT to have to make these deals. They fully recognize that this bailout is pushing us up against a here-to-fore theoretical debt limit. The unthinkable might happen…China might actually STOP BUYING OUR DEBT! But the alternative is uncharted waters that could possibly lead us right past the R-word and into the D-word. Monetary policy economics has come a long way since FDR’s time, but nobody can say for sure what kind of shockwaves an AIG or Fannie Mae failure would cause.

So, they cut the best deals they can. I thought the AIG deal was rather elegant. If the executives and shareholders don’t turn things around, they lose some 80% of their investment. The Fed is also buying mortgage securities at something like $0.25 on the dollar. Since most believe that the actual loss rate will be something like $0.50 on the dollar, the Fed could pocket a tidy profit in a couple years when the securities market settles down.

Oh, and somebody needs to drive a stake through the heart of FASB’s “Fair Value” accounting rules or this monster will eventually rise again from the grave..