Sub-prime Bail Out

[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.

[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.

[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.

[DanaC]

Mmm. *nods* sounds insecure. In terms of having enough housing, we have a serious shortage of 'affordable housing' as it's usually termed. The soaring house prices over the last few years have made it very difficult for first timers to get onto the housing ladder. Developers are mainly building for the high end market, gentrifying areas that previously had fairly low house prices. Councils are responsible for ensuring that an appropriate mix of housing is developed within their borough, done through regulations on large scale developments (if you're building more than x number of houses you have to include within that 20% 'affordable housing', or some similar stricture). But, not all councils push that enough and there is plenty of room in interpretation of the term 'affordable'.

Currently in my borough, there are about 2-3000 people on waiting lists for housing association lets and the like. Bout half of them are of a socio-economic status that ten years ago would have had them on the housing ladder by now. So we have several thousand people who cannot find permanent homes, whilst at the same time we have over developed areas with houses and flats (especially flats) standing empty and unsold.

[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.

[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.

[Aliantha]

TW, if you already think how the system works over there (the USA) is perfect, why are you even responding to me?

Obviously the strategy I've suggested would be far more involved than what is written here. I'm not prepared to compile a whole financial report on the benefits of the scheme I would propose just for the sake of refuting your argument.

Just think about the social issues in your country and try and consider that some of those issues are directly related to poor social services and a basic lack of safety nets provided by your ever so brilliant government.

Yes people make bad financial decisions and no it's not good if people who toe the line have to pay for that, but there is a middle ground, and for a western country, your government provides precious little safety for your citizens in comparison to other western nations.

So in summary, whatever you think is the best thing for your countrymen is fine by me. I can't be bothered arguing with you anymore. Just take your fucking blinkers off every once in a while and you might find there's a whole wide world out there.

[tw]

Originally Posted by Aliantha

TW, if you already think how the system works over there (the USA) is perfect, why are you even responding to me?

I obviously don't think the system is working properly. But your plan only rewards those who are the problem.

Again, too few financial firms operated with the ethics and transparency of Goldman Sachs. Its smells too much like Enron, the manufacturers CA energy crisis, Adelphia Cable, AT&T, and...

Well GM was expected to announce another massive loss at $0.25 per share. What has GM been doing with losses so large? GM has been hiding so many losses as to suddenly announce a $68 per share loss. Where have $67.75 per share losses been hiding for the last decade? Did GM suddenly lose tens of billions only in one quarter? At what point do we call for life sentences on another Enron corruption?

Look back upon my justified criticisms of the financial people including stock brokers who routinely underperform the market. These are the same people who are supposed to provide oversight and therefore recommendations on companies such as GM? The GM accountants only suddenly discovered $67.75 more losses per share? Bull. Why have I routinely seen here their products are that bad - and Wall Street analysts don't?

Anything we do to reward people who take home $hundreds of thousands annually (plus bonuses sometimes in the $millions) - well that is just bogus. Your plan would only remove pain from these people who created the problem by not doing their jobs.

I believe the president of Merrill Lynch, having hidden all those losses for so long, received something like $200 million just to quit. He is the one who ordered Merrill employees to purchase massively in risky investments. Merrill was once the benchmark for Wall Street stability.

So we reward him? So we have the government reduce their losses buy buying those conduits or collateralized debt obligations?

The system has another problem. The rich keep collecting more of the wealth. Why does the average American's incoming keep dropping every year (when adjusted for inflation)? Oh. And why have my groceries gone from $20 to $30 over the past year - but there is no inflation according to government core numbers?

No, I believe there are serious problems in this finance industry. So how did we fix NYC when it was playing money games in 1975? "Drop Dead". The resulting turmoil finally caused castration of the problem. Is that word harsh. Well unfortunately we did not address the CA energy crisis as it deserved. We were not that harsh. We did not go after the ones who got rich by creating it. IOW anything less severe than castration of such problems only permits problems to fester.

You would tea-tattle people who need to suffer severe budgetary constraints for up to five years? It cannot be harsh enough. So how many others will we reward for perverting the American economy - because greed is good?

In 1981, Americans stopped buying Fords as Ford, Chrysler and GM begged for government assistance and protection. It took near bankruptcy in Ford to save all Ford employee jobs, to remove a man who did more to destroy American than Nikita Khrushchev (Henry Ford), and to finally let engineers design the first Ford car in 22 years. Because we attacked the problem with threat of bankruptcy, another problem at Ford was eliminated. 48 levels of management were reduced to five. Many who were the problem - managers - were made redundant or reassigned to the lower skill levels where they belonged. Castration.

Financial penalties were so severe as to save Ford Motor. So severe that engineers were finally permitted to design the Ford Taurus. Any government bailout or assistance would have killed the Taurus and probably cost massive American jobs in Ford. It is how economics works.

We cannot be severe enough with these finance people who believe Gordon Gekko's "Greed is Good". These were not accidents. These finance people did not do their job. Many are so corrupt as to believe the purpose of a company is profit. That is mafioso reasoning. And yet they are so corrupt as to believe those lies. We have a serious problem in our finance industry where they routinely get fat and drunk on everyone else's sweat.

I am appalled that you would recommend something that is finance company welfare - and be so naive as ignore the corporate welfare you are promoting. To not recognize you are preaching their propaganda - what they need you to say to save their sorry asses. Those homeowners have plenty of options. There are near zero homeless despite what others have posted. But there is this massive and corrupt finance industry were 'greed is good' rather than customer service: their job is to service the financial needs of America.

[deadbeater]

tw, individuals in the US don't have the bankruptcy option anymore; George Jr took that away, at the behest of, yes, financial companies.

And Radar, GHB is a date rape drug. I'm surprised that molesters don't have the wicked idea to slip Aqua Dots on children.

[Aliantha]

tw said: But your plan only rewards those who are the problem.

No it does not only reward those who caused the problem, but if you can't see that, then there's no point in me wasting my time here anymore.

Thanks for your input though. I see where you're coming from.

[Radar]

Originally Posted by deadbeater

tw, individuals in the US don't have the bankruptcy option anymore; George Jr took that away, at the behest of, yes, financial companies.

And Radar, GHB is a date rape drug. I'm surprised that molesters don't have the wicked idea to slip Aqua Dots on children.

It's not a date rape drug among kids or ravers. I was a raver for a long long time, and people used GHB on themselves to relax and come down from ecstasy.

[Ibby]

Yes, and date rapists use it to 'calm down' their victims, and their inhibitions.
That's like saying a pencil isn't a writing utensil among 'office darts' players.

[lookout123]

tw, individuals in the US don't have the bankruptcy option anymore; George Jr took that away, at the behest of, yes, financial companies.

misconception alert. BK's are still available. filing BK on $30K in credit card debt while having $150K in home equity is no longer an option.

[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.