Sub-prime Bail Out

[Radar]

Originally Posted by Aliantha

Again I ask, where are the thousands of people going who have had their houses repo'd? Are they moving into the already existing slums which in turn perpetuates the social problems already evident there?

They are moving into apartments. They aren't homeless and they haven't lost their jobs. They just can't afford their homes anymore.

Originally Posted by Aliantha

I ask you, why would you not try to keep people in a better situation? If someone has to spend money one way or another, why not do so in a productive manner which will help all concerned.

I am trying to keep people in a better situation. A situation in which they have personal and economic freedom without the government meddling in our markets. A situation in which those who make poor economic decisions don't look to government to bail them out.

Originally Posted by Aliantha

If you leave a house untennanted for a year, you're losing $5k/annum straight up. Then there are the issues of vandalism. More dollars to spend. Neighbourhood values depreciating because there are too many houses vacant.

The house isn't vacant for a year in most cases. In fact it's not vacant until the hose is already lost and repossessed by the bank. Then the bank sells the house and are willing to lose 5k to sell a house they may have already gotten 100k on. But this isn't an issue in America because houses do not stay vacant for a year. In fact they don't stay vacant for 6 months before they are sold.

Originally Posted by Aliantha

Yeah, I can see how people who borrow beyond their means are stupid and don't deserve a hand out, but they're your fellow citizens. They don't deserve to be kicked when they're down either.

Expecting them to live with the consequences of their decisions without having their "fellow citizens" pay for it is not kicking them when they are down. When they lose their house, someone else will snap it up at a better price.

[Happy Monkey]

Originally Posted by Radar

The house isn't vacant for a year in most cases. In fact it's not vacant until the hose is already lost and repossessed by the bank. Then the bank sells the house and are willing to lose 5k to sell a house they may have already gotten 100k on. But this isn't an issue in America because houses do not stay vacant for a year. In fact they don't stay vacant for 6 months before they are sold.

Maybe, maybe not.

[tw]

Originally Posted by Aliantha

If too many homes exist, there can not be inflated prices. Your statement in this paragraph is false.

Having run prices so high with low interest rates, sub-prime loans, and other money games; homes around here are selling for $30,000 less and are still too overpriced.

Welcome to the conundrum of why a liquidity crisis exists. Your logic assumes no liquidity crisis. Your post makes the same mistake that bond rating agencies made - measure risk only in terms of capital. Too many homes can exist AND prices remain inflated. Many cannot sell their home for what it is really worth. Why? Liquidity crisis. Please appreciate the difference between capital and liquidity. Appreciate why so many financial experts making $hundreds of thousands annually also did not grasp the concept. A problem that should have been obvious four years ago when this problem actually existed.

Numerous options exist for homeowners. Hold properties in hope prices might rise, or earn enough money by doing two jobs for five years to pay off their loans, or get enough money (liquidity) to eventually sell at a loss, or just suffer through bankruptcy, or ... numerous options. But the only acceptable options also must be painful for years. Emotion or empathy only makes reality worse.

No way around this reality: economics takes revenge when we solve money games with more money games, as you have advocated. That pain is good and necessary. Not in the short term. But the responsible person is only concerned about 10 years from now. How many obvious examples do you need - including NYC, Ford, and Chrysler? Or Baring, Northern Rock, AT&T, IBM, Apple Computer, Enron ... The music industry in denial for so many years needs some horrific threats of bankruptcy.

Almost nobody is going homeless. They are now living in two bedroom apartments or living in post WWII densities. They are suffering in 1000 or 1700 square foot homes. Good. Still living quite well but suffering a severe reduction in living standards because of their mismanagement.

What is the proactive action? Learn from history. As Gerald Ford is paraphrased to NYC - "Drop Dead". That is the proactive situation; the best solution. Anything else is classic bleeding heart liberalism that Urbane Guerrilla so criticizes AND actually rewards the wrong people. Who would prosper most from your solution? The rich financial houses that created this mess by playing money games so that their failures stayed off spread sheets for maybe four years. You want to reward them with government welfare?

Why were the seventies so bad? Rather than address the problem, we did bleeding heart solutions. Nixon used price controls. Gerald Ford even distributed campaign badges that said WIN. (Whip Inflation Now). Therefore stagflation only got worse. Everyone suffered even more. What did we do to finally fix the American economy? Interest rates went to 14% and 22%. Only then did the American factory worker stop getting poorer. How can this be? Raising interest rates on everyone that high make everyone's life miserable. Of course. We all suffered. Our economy had been playing money games to mask lies from top government and industry criminals. It took 20+% interest rates to create enough pain; finally fix the economy.

Welcome to what we knew was coming when some here instead mocked The Economist for what was obvious.

Best thing that can happen to those who were not fiscally responsible? Five tough financial years where household budgets are made daily. Anything less would have meant even destruction of Ford and Chrysler - everything sold to fiscally responsible foreigners. It takes something that vicious to educate even our so called financial geniuses who make big bucks by playing money games rather than doing things productive. They go by titles such as stock brokers, bond traders, and equity analysts.

It is only a liquidity crisis; not a capital crisis. Shame on anyone who treats it like an accident by recommending welfare. Like car crashes, this liquidity crisis is directly traceable to human brains that must witness or suffer pain before they decide to learn. That sometimes means five years working two or three jobs.

Bankruptcy threat must be that vicious to change mindsets. Would you rather wait for people to actually become homeless? This liquidity crisis is almost trivial; will be solved in only a few years IF we don't aggrevate it with corporate welfare. Aliantha, your solution would only be corporate welfare to those who created this problem by not doing their jobs. Your solution would mostly enrich those finance firms.

[Aliantha]

The house isn't vacant for a year in most cases. In fact it's not vacant until the hose is already lost and repossessed by the bank. Then the bank sells the house and are willing to lose 5k to sell a house they may have already gotten 100k on. But this isn't an issue in America because houses do not stay vacant for a year. In fact they don't stay vacant for 6 months before they are sold.

This is not what your news services (various) are reporting. It's also contrary to what some other posters have said in this thread. This is the main reason for the views I hold. A large proportion of untennanted houses is bad in anyone's books, regardless of whose fault it is.

The whole point is that if an economy is not growing - regardless of how slowly which of course is generally preferable to rapid growth - then it's slumping. If the economy slumps because of massive slumps in the housing industry, particularly the US economy, the whole world suffers.

This is the reason for my interest in this problem.

Ultimately, it's your country and you and your fellow citizens will do what you want without consideration for how those actions affect the rest of the world (seemingly), but people from other countries will definitely be affected by what is happening in your country right now.

[Aliantha]

Well again, I wouldn't involve a finance company.

And with regard to market value of homes. The market sets the value. You may want $30000 more than someone is willing to pay for it, but if that's all people will pay, then that's what it's worth.

[tw]

Originally Posted by Aliantha

Well again, I wouldn't involve a finance company.

But everything you have suggested can and must involve those finance companies. Who is the at the center of these problems? Who holds those defaulted properties? Who prosper most if these defaults are removed from their books? Everything you have posted is corporate welfare for the most irresponsible financial institutions.

And with regard to market value of homes. The market sets the value. You may want $30000 more than someone is willing to pay for it, but if that's all people will pay, then that's what it's worth.

I should not have to use the word again - liquidity.

My $200,000 home is now worth $100,000. But I cannot sell it for $100,000 since my mortgage is $150,000. I cannot pay my mortgage, cannot sell my house for market value, and my neighbors are in the same position. To sell my home would make me homeless. My home must sell for $150,000 because of a liquidity crisis. I have no choice. Either that or bankruptcy. The market value is only $100,000. But it cannot be sold at that price. Again. Liquidity crisis. Please stop using economic concepts (law of price and demand) that assume no liquidity crisis. Stop making the same assumptions that those big shot finance experts also made to create this problem.

Those simplistic economic rules of supply and demand are based in assumptions that do not exist here. Again, I keep using the word because your posts ignore its significance - liquidity.

[Aliantha]

Originally Posted by tw

But everything you have suggested can and must involve those finance companies. Who is the at the center of these problems? Who holds those defaulted properties? Who prosper most if these defaults are removed from their books? Everything you have posted is corporate welfare for the most irresponsible financial institutions. I should not have to use the word again - liquidity.

The gov buys the houses from the finance companies at their current market value (much lower than the going rate) and then sits on the asset while recieving 'rent' until such time as the 'tenant' leaves. Then the house is either sold at a profit, or re-rented.

It's very simple really, and creates a lot of jobs in the process.

My $200,000 home is now worth $100,000. But I cannot sell it for $100,000 since my mortgage is $150,000. I cannot pay my mortgage, cannot sell my house for market value, and my neighbors are in the same position. To sell my home would make me homeless. My home must sell for $150,000 because of a liquidity crisis. I have no choice. Either that or bankruptcy. The market value is only $100,000. But it cannot be sold at that price. Again. Liquidity crisis. Please stop using economic concepts (law of price and demand) that assume no liquidity crisis. Stop making the same assumptions that those big shot finance experts also made to create this problem.

Those simplistic economic rules of supply and demand are based in assumptions that do not exist here. Again, I keep using the word because your posts ignore its significance - liquidity.

You shouldn't have been stupid enough to buy a house that you couldn't afford. Shame on you.

[tw]

Originally Posted by Aliantha

The gov buys the houses from the finance companies at their current market value (much lower than the going rate) and then sits on the asset while recieving 'rent' until such time as the 'tenant' leaves.

Aliantha would keep houses vacant longer. Your solution 1) gets the most irresponsible finance companies off the hook at the expense of responsible people, 2) leaves homes sitting vacant longer because government always takes much longer to do this stuff and has no structure to process this problem, 3) means homes sit unsupervised and decaying again because government has no organization to maintain vacant homes, 4) ends up making government into the landlord of public housing - 'the projects' - which we all know do not work, and 5) provide best welfare to those who are the least responsible. Only five reasons? More are below.

Aliantha - "gov buys the houses from the finance companies at their current market value ... and then sits on the asset while recieving 'rent'" is the perfect example of corporate welfare to the finance companies AND is what every American knows as "The Projects" - welfare housing. We spent decades eliminating that mistake. Aliantha would bring it all back while also rewarding finance companies.

The best solution already exists in current laws and organizations with this experience. Why would Aliantha use government welfare to subvert what already works best? Why would she advocate public housing - "the projects" - and so few call her on this massive 1960s proven mistake?

Aliantha, do not grasp a fact: nobody is going homeless. People who were so irresponsible have earned the right to years of economic rehabilitation - maybe even bankruptcy. This is called good economics. Either they must move into small apartments or townhouses, OR they must take on two or three jobs for the next five years, OR they must take in tenants, OR they must get rid of the two $30,000 SUVs that nobody needed anyway, OR they must cut expenses such as weekly dinners at the steak house, OR they must start taking public transportation or carpool, OR ... every useful solution means no government and personal financial responsibility. Yes, these are the people Aliantha calls homeless.

Every solution means both the irresponsible financial companies and the irresponsible homeowners must suffer through well proven legal and financial hoops designed to rehabilitate the irresponsible. Necessary so that these mistakes do not happen again AND so that the economy fixes itself. Welcome to what the most sympathetic endorse: economic rehabilitation that has proven for generations as the best and most generous solution.


Where does Aliantha reward Goldman Sachs? GS was a more responsible company who admitted up front to their few mistakes, addressed them early and openly, minimized their exposure, and therefore did not contribute to an American recession. Instead Aliantha would reward Merrill Lynch who operated to maximize profits rather than financial services. It’s called greed. Aliantha would now reward companies whose greed is most likely to create an American recession. Merrill Lynch finally admitted to $8billion in mistakes. Merrill Lynch is rumored to have another $10billion problem. Why does Aliantha reward the guiltiest? Who gets most rewarded by Aliantha's solution? Not Goldman Sachs. Aliantha would reward Merrill Lynch with massive corporate welfare for being irresponsible AND again for not be candid (honest). Aliantha - your solution is a 100% reward to the most guilty finance companies. And you also deny this?

I no longer expect Aliantha to understand this. She is more worried about minimizing pain to America's irresponsible homeowners. Just because one has an ARM does not mean one is irresponsible. We are discussing people who can hardly afford the ARM when its interest rate was low. We are taking about finance companies who loaned money on NINJAs. They had no business buying that house or offering that mortgage. Aliantha would reward both with government assistance.

There is no housing shortage. There are plenty of homes. But there are not enough homes so that the Smiths can keep up with the Jones'. Too many want to live in homes they have no business in rather that in townhouses or apartments. This arrogance (a tribute to others who accurately used that description here) is what irresponsible finance companies preyed on.

It scares me how Aliantha has no respect for others who were responsible. Where do you reward Goldman Sachs for minimizing their exposure AND for being both up front and responsible? Aliantha would even punish both Goldman Sachs and me for being responsible? Where are the others who question Aliantha's socialism of rewarding the guilty? Why would you punish me by helping those who most need to learn from their mistakes? Why would you have me pay for their greed? Why would you only encourage an American recession - maybe stagflation?

Your heart is in the right place. But your solutions are vile - a tax on other who were responsible and may suffer the economic downturn created by the greedy; made worse by welfare to the guilty. How to mimimize the economic consequences? The best solutions already exist – and without government welfare. Plenty of solutions exist including apartments, refinancing, second jobs, public transportation, small used cars, and protections afforded by bankruptcy laws.

[Radar]

Originally Posted by tw

My $200,000 home is now worth $100,000. But I cannot sell it for $100,000 since my mortgage is $150,000. I cannot pay my mortgage, cannot sell my house for market value, and my neighbors are in the same position. To sell my home would make me homeless.

This would not make you homeless. You would do a "short sale" and work out a deal with the bank. They may allow you to sell your home for 100k and take the 50k loss. They may want you to pay them 20k and then allow you to sell the house at 150k.

[tw]

Originally Posted by Radar

This would not make you homeless. You would do a "short sale" and work out a deal with the bank. They may allow you to sell your home for 100k and take the 50k loss. They may want you to pay them 20k and then allow you to sell the house at 150k.

As Radar demonstrates, the best solutions already exist and would only be subverted by the corporate welfare advocated by Aliantha. Aliantha does not intend it as corporate welfare. But she advocated 100% assistance to those most irresponsible finance companies. As Radar notes and as I keep posting - Aliantha - get it out of your head. There are not all these homeless people. There are all these people who must now spend years rehabilitating themselves due to greed and using the so many existing solutions as Radar has exampled. Those with true sympathy would offer better solutions including the protection of bankruptcy.

Again, Aliantha. Your socialism that threatens productive economies is scary. The best solutions already exist if not subverted by what Aliantha proposes. In the previous post are maybe eight reasons why Aliantha heartful sympathy results in the worst possible solutions for everyone.

[DanaC]

Shame is all well and good but it doesn't stop people being made homeless.

I couldn't give a rats behind for who's at fault. What concerns me is the social cost of largescale repossessions.

Yesterday morning I visited a constituent. Her husband was laid off work. When you are in rented accomodation and unemployed the benefits system will assist you with rent. If you own your house, however, the benefits system will not assist you to maintain your asset. They put the house on the market but the recent slump in our area means they were not able to sell. They were also not able to keep up with the mortgage payments and on the 1st of this month their house was repossessed and they were evicted. Now this woman, her husband, their 13 year old son and 17 year old daughter are all living at a friend's house. It's a one bedroom terrace, in which lives their friend, her partner and a teenage son on the sofa. There are now seven people living in a one bedroom house.

They keep trying to bid for association (ex-council) housing on the open letting system...but when more than one person bids, the winner is decided by points...points which increase with length of time on the list. This family stand no chance of getting a house through that system for about 6 months. Though the benefits system will assist with rent, they do not cover moving expenses, downpayments and deposits. Since pretty much all their meagre savings went on trying to stave off the repossession of their home, they cannot pay those costs and are therefore unable to take on a private tenancy. They've been offered hostel places, which would break up the family and have them living in different towns. Their son would have a journey of several miles to get to school.

The husband has worked his whole life, since the age of 16. She used to work but was forced into inactivity by ill-health.

It could be argued that they bought too much house, given the lack of fall-back should the worst occur. They had a three bedroom house in a cheap part of town. Not exactly greedy.

Again, I don't really care about the moral dimension of credit. All I care about is that there are seven people living in a one bedroom house, and a family in crisis because the raft they built wasn't strong enough to weather the storm.

[Aliantha]

Originally Posted by DanaC

Shame is all well and good but it doesn't stop people being made homeless.

I couldn't give a rats behind for who's at fault. What concerns me is the social cost of largescale repossessions.

Yesterday morning I visited a constituent. Her husband was laid off work. When you are in rented accomodation and unemployed the benefits system will assist you with rent. If you own your house, however, the benefits system will not assist you to maintain your asset. They put the house on the market but the recent slump in our area means they were not able to sell. They were also not able to keep up with the mortgage payments and on the 1st of this month their house was repossessed and they were evicted. Now this woman, her husband, their 13 year old son and 17 year old daughter are all living at a friend's house. It's a one bedroom terrace, in which lives their friend, her partner and a teenage son on the sofa. There are now seven people living in a one bedroom house.

They keep trying to bid for association (ex-council) housing on the open letting system...but when more than one person bids, the winner is decided by points...points which increase with length of time on the list. This family stand no chance of getting a house through that system for about 6 months. Though the benefits system will assist with rent, they do not cover moving expenses, downpayments and deposits. Since pretty much all their meagre savings went on trying to stave off the repossession of their home, they cannot pay those costs and are therefore unable to take on a private tenancy. They've been offered hostel places, which would break up the family and have them living in different towns. Their son would have a journey of several miles to get to school.

The husband has worked his whole life, since the age of 16. She used to work but was forced into inactivity by ill-health.

It could be argued that they bought too much house, given the lack of fall-back should the worst occur. They had a three bedroom house in a cheap part of town. Not exactly greedy.

Again, I don't really care about the moral dimension of credit. All I care about is that there are seven people living in a one bedroom house, and a family in crisis because the raft they built wasn't strong enough to weather the storm.

Is there a housing crisis in the UK also Dana? Are you having similar issues with mortgage companies as the US?

BTW, I completely agree with you on all points you've made above. My shame on you comment was simply taking tw at his own words for the sake of continuity. I think I've argued my point fairly clearly in the last few pages.

[Undertoad]

My $200,000 home is now worth $100,000. But I cannot sell it for $100,000 since my mortgage is $150,000.

And yet I live a half-hour away and my $200K home mortgaged for $210K has risen in value to $300K in the last 3 years. And the only way I could afford to stay here was through a crappy high-interest ARM.

I am very thankful they decided to loan me money. Of course before they did they sent out their guy to look at my place and my neighborhood and put a value on it.

You shouldn't have been stupid enough to buy a house that you couldn't afford. Shame on you.

This is correct IMO. The price paid every month didn't change. The value of the house did, but this is what happens, and a house is a long-term investment.

[DanaC]

I don't think it could yet be classed as a crisis. We are having some problems though. Slow down is at different rates in different parts of the country, but where I am people are taking much longer to sell their houses and if you have an apartment for saler you've a snowball's chance in hell of selling in some parts of town.

The people above were probably not part of the sub-prime problems. For them it was just the economic winds that took the main breadwinner out of work.

[Aliantha]

Interesting.

In the part of the country I live in, we're in the middle of a housing crisis for the simple fact that there really are not enough houses to go around, even though the construction industry has been booming over the last decade. It's really become somewhat of a self fullfilling prophesy in that when it started, people started moving here for work, and needed houses which had to be built, so more people came...more houses required...more labour etc etc. The problem is, now that the boom is at it's peak, the value of properties is incredibly high. In the last 18 months since we bought our home, the value has increased not 5% which would be good, and not 10% either. It has increased by nearly 50%! This of course is good for us in so far as being able to 'get extra credit' if we wanted it - along with now having a valuable asset, but it would be foolish to do so because it's going to end because of all the other people who 'get extra credit' because they can. The bubble is going to burst and there's going to be a lot of people living in houses they can't afford. On top of that, rents are over inflated simply because prospective tennants are offering to pay more for places than they're worth (in comparison to other states and historical prices) which of course leaves out the lower income earners who're then suckered into a 100% mortgage (they'll even be loaned more than 100% sometimes) which there's no way they'll pay off before the prices are deflated in say 10yrs time (maybe less).

The only benefit we have in Australia is the amount of natural resources we can pillage from our land. The mining industry (always a good source of cash for unskilled labour and tradesmen) is of course booming also which in turn gives people more cash than they'd otherwise have had. We as a separate economy here can probably support ourselves through a large market slump because of this boom in mining, but it wont sustain us forever and eventually things will topple here also.