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SGB? does this mean no sunday recipe blogging? nuts.
Why is Bill Gross such a predominant bond trader? He really has not given anyone very good returns. Maybe this is his last attempt to make up for those poor returns.
construction job losses could exceed 1 million
Construction job losses could top 1 million
| Reuters
Gross is begging for assistance on behalf of the poor American homeowner, right?
There is nothing self-serving in his appeal at all, right? He isn't trying to bail out his sinking bond funds, is he?
Of course not. He is speaking with the purest of motives, just to protect homeowners.
Therefore, wouldn't it be nice if the government declared permanent "mortgage holiday", that no homeowner would ever have to make another mortgage payment, that all deeds of trust were canceled, and that all debts were forgiven tax free.
That would certainly help the poor beleaguered homeowner, as well as extend a massive steel shaft to all the holders of those worthless MBS and CDO documents.
I wonder how enthusiastically Gross would embrace this proposal?
I believe estimates that the U.S. could lose 1 million construction jobs. But I don't think most people appreciate the ripple effect these loss could produce.
Construction is the one manufacturing industry in the U.S. in which most jobs can't be exported. Construction has always been a powerful driver of economic growth in good times. Spending on construction flows through quickly into building materials, real estate finance, contractor services, furniture and fixtures and taxes. There isn't much lag between cement going in the ground and money flowing all over.
The vast majority of construction workers are male. A lot of them aren't willing to flip burgers for minimum wage when construction slows down. They become idle, surplus labor early retirees and disability or public assistance candidates.
Watch the civilian participation rate. It went up for 30 straight years, due mainly to women entering the workforce. If it starts to decline, the U.S. economy is in trouble. The unemployment rate can stay fairly low if civilian participation starts declining, because there are fewer bodies in the workforce. But it would be very negative for GDP for some time.
The vast majority of construction workers are male. A lot of them aren't willing to flip burgers for minimum wage when construction slows down. They become idle, surplus labor early retirees and disability or public assistance candidates.
Hmmm, Time to watch 1999's "fight Club" agai
Great! My wife and I have been waiting patiently for a home. We've paid of all our debts (non of them were past due) and are half-way to having the 40k we want for 20% down on a 200k house. I gross over 130k a year and live in an apartment... gasp!!!
So how are we rewarded for financial prudence? We miss out on more free gravy from Uncle Sam. Maybe I can double-down on my social security.
Tanta- What will happen to people like us that have no debt but have always paid bills on time and have a good income? Will we have to stick it out a few more years and pay cash for a house? Is there anyone that knows how to do a full-doc loan anymore. I'm sure our FICO is 0.
Last 2 paragraphs of Cassandra post, mentioneb by Yves:
"But I will ask the question: Are not the savers deserving too? Perhaps the savers should unite and ask the government to provide them with some redemption for the lax fiscal policy and negative real interest rates that have spawned inflation in the real basket of goods and services one uses and consumes each day. It IS perverse justice that the prudent one's who save for a rainy day, and consider wisely, the possibility that something might upset the best laid of plans, and so do NOT borrow 6-times their income on absurd luxury that the less wise did, and who as a result were so stretched they could not afford to landscape in the first instance, nor now they can afford the energy to heat or cool the royal waste of space. Where is culpability or responsibility?
That there has been a large transfer of wealth from savers and the equally-weighted American to military contractors, leveraged asset-buyers and their intermediaries is undeniable. Perhaps, in similar fairness we should create a look-back tax that assesses the gains (some or many ill-gotten) made from the asset inflation and money illusion and redistributes it the ordinary savers and pensioners? We can call it the Sowood Tax in sympathy with Mr Larson's magnanimous gesture of returning previously-earned performance fees to investors following his Fund's recent debacle. America is not for wont of wealth, but is for wont of more disperse distribution of it. When however the distribution is sooo skewed, taxing the average to save the average citizen seem reasonably daft, given the enormous tax holidays and munificent gifts adorned upon the upper-most percentiles. Perhaps the time has come for more meaningful sacrifices that begins to tackle what almost every objective observer sees as a way of life that depends upon unsustainable consumption, encouraged by absent levies upon the many externalities this life spawns. The bubble, is perhaps in the American Way itself. And everyone sees it, but Americans themselves."
Big D, you should have one good credit card with low or no annual fee. Use it for all your gas and online purchases, and pay it off every month. You'll have it in an emergency, you'll be able to rent cars and book flights and stuff, and it'll get you a reasonable FICO in time.
The GSEs exist to serve customers like you. Find a credit union that makes GSE loans and stick with it. If you need a jumbo loan, a reasonably-sized CU can find a jumbo lender who will make you a loan. Trust me. There are still some old-fart lenders who don't let a low FICO due to limited debt usage stop them.
Actually, if you rent from a property management company, you can often get them to report your excellent rental history to the bureaus. Even if they won't, your lender is going to verify that you made your rental payments on time. That puts you on even footing with someone whose high FICO is based on making mortgage payments.
The folks who should worry are the ones who have a high FICO now, but it's based on exact juggling of a load of consumer debt. That kind of thing can fall fast in a recession or just a sluggish economy, and lenders are going to be much tighter about that kind of thing.
Lots of jobs in Montana - Canadian oil patch is also booming
Need A Job? Go West - CBS News
I reiterate that much as I believe that deceptive advertising is the soul of America, the people who bought using phony-baloney credit simply can't be excused. I don't think they should go to debtor's prison, and I don't think they necessarily should pay taxes on their foreclosed debt, but I don't think the taxpayor should underwrite their granite countertops and Gunite pools. That isn't Socialism, that's the kind of thing we excoriate the rich for.
A sin is a sin.
Bad credit has supplanted terrorism as the gravest immediate risk threatening the economy
Yahoo! 404 - Page Not Found
--
"Gross is begging for assistance on behalf of the poor American homeowner, right? There is nothing self-serving in his appeal at all, right? He isn't trying to bail out his sinking bond funds, is he?"
Mr. Gross and his partner, Mr. McCulley, are part of the gang of rich and powerful crooks who have control of the American econo-political system.
A comment from an American woman on BOOK TV, earlier today, "We have the head-buried-in-the sand mentality." Yup, crooks can't rule so easily, and with respect!, unless we have population whose morality must come from the size of a ostrich's brain. The payback would be nasty for allowing crooks to rule with ease.
Jas
WSJ: Credit cards boosting fees. Also cutting back on zero percent intoductory offers.
I know a few people who are shuffling debt from one zero percent introductory offer to the next. Looks like the shuffle is going to get more and more difficult.
Credit Cards Boosting Fees - WSJ.com
I find Yves Smith a lot more persuasive than Jackson. Jackson says bailing out homeowners will lower the prices of real estate in their neighborhoods... I don't see how he gets there.
I think youre interpreting Bills plea too literally. I think hes trying to hype the crisis surrounding mortgage securities to enhance the value of Pimcos portfolio. How could he belittle the hooker in six-inch heels in one breath and then complain that shes walking all over him in the next?
A sin is a sin.
arbogast
Do the sons and daughters of david believe in Sin?
Mish (Mike Shedlock) did a great analysis of Bill Gross' position (globaleconomicanalysis).
evidently, his bond fund is chock full of mortgage backed securities. And many of his "governmental securities" are actually Fannie and Freddie...
sounds like Bill is trying to boost his Pimco returns.
Disgusting.
Don't forget construction impact on light truck sales.
If there are responsible people in our government, a careful look the relationship between foreclosure and homelessness should be made. I doubt if foreclosure leads directly to homelessness even in our era of weakened family ties, but moving in with friends or relatives is not a permanent solution. Seeing people you know living in their cars (along with the proper priming from the media) can lead to sudden changes in savings. (Also, its not very pleasant for the either the viewer or the viewed). It would be good if people saved more of their salaries, but it would be a disaster if it happened too rapidly. Carefully monitored pilot programs designed to keep people in their houses would provide a good foundation for later large scale programs if they are needed.
Truth Minister cited the article on the National Association of Business Economists survey. Here is a little nugget:
"NABE said the market turmoil is considered a short-term risk because the five-year outlook for housing is still strong. More surveyed members expect home values to appreciate in the next five years than fall. Very few expect a serious drop in home prices in the next five years."
I believe the majority of economists & financial press are top-down, macro-oriented voyeurs of reality. They cannot grasp the ground-action of slowing wages, insolvent comps & deflating asset values. It took a while for the Street to figure out this was not a liquidity issue. The rest of the business world thinks Tsunami Imelda will blow over by Labor Day.
--
More expectations of help from the Fed by rich folks --
It may not be as bad [in Marin County, CA] as it is in some other places, but I think its going to be a little worse than people think unless the Fed steps in and takes some radical steps.
Even the rich areas need the Fed to step in. Don't these guys have any shame? It is disgusting to see so many Americans who want the Fed to step in only in one direction -- when markets are in trouble. When things are flying high they want the govt. to keep out and let the free market work. Moral bankruptcy in America is widespread, especially, among the relatively rich. How most of then got to be rich in the first place?!
Yes, good Americans must never talk about morality problem in the economic system. That should only be limited to non-financial crimes.
Jas
Tanta, I think you're on the wrong track here. Here are some reasons why providing some kind of assistance to people who can't pay their mortgages is appropriate:
I think there are some very simple rules which would make a mortgage bailout fair:
1. Owner-occupied, primary residences only. No speculators.
2. Pain to be divided between borrower, lender, and taxpayer.
3. Preference to be given to middle class borrowers versus upper income borrowers.
People were given mortgages at, say, 6%, when a realistic evaluation would have required that they pay, say, 20% (which means that they would never take them). So, suppose the Feds freeze the mortgage at 6%, but guarantee it. If the borrower doesn't pay, s/he gets evicted. So, the taxpayer may not have to pay anything unless the borrower loses his/her job or has a serious illness.
I have to admit that as I read posts and comments on this topic, I feel as though the America I was born in has ceased to exist. We used to understand that if we let our neighbor's house burn down, our own might also catch fire. We didn't try to charge them for the water with which to put it out. Or at least, we'd put it on account.
Probably we shouldn't get in a lather about homeowners (or lenders, or brokers, or IB's) getting some sort of bail-out at the expense of those rational folks (like me) who were cautious with their incomes.
Because that can't be done without destroying the financial structure of the US. It's just too damned much money. Even if the US were still the world's creditor, it couldn't afford to buy its way out of this mess.
Thrifty and debt-free savers should invest a portion of their savings now in gold and silver to protect against the inevitable hyperinflation, which will come when the government tries to bail out one or more of the above groups.
Both metals are relatively cheap right now. They are hedges against inflation, and hold their value well in deflation. It seems to me that anyone smart enough to save, in the face of the chorus that urged them to spend, spend, spend, should be smart enough to see that the ultimate in conservative investments is precious metals.
And it's easy to do. Go downtown to a respectable coin dealer, buy gold and silver coins--bullion, not the collectibles. Keep them in a SD Box or at home.
And stop anguishing about who is going to get an undeserved bail-out.
recession risk greatest since 9-11
US recession risk highest since 9/11 -- ex-Treasury secretary
Tanta - which is more funny:
Mortgage Grapevine: How Lenders Can Bail Themselves Out.... BUT WONT
YouTube
- Mozilo Monster
Trolls on parade.
from Silicon vally:
YouTube - Collapse Update from California
Asia Times online
Cracks in credit - with a Bill Gross analysis included.
Asia Times Online :: Asian news and current affairs - 'Cracks' in credit
A - 5. If we want to avoid recession, the alternative seems to be to pay off the companies who, often fraudulently, issued the bad mortgages.
B - 2. Pain to be divided between borrower, lender, and taxpayer.
C - 3. Preference to be given to middle class borrowers versus upper income borrowers.
D - People were given mortgages at, say, 6%, when a realistic evaluation would have required that they pay, say, 20% (which means that they would never take them). So, suppose the Feds freeze the mortgage at 6%, but guarantee it.
E - I have to admit that as I read posts and comments on this topic, I feel as though the America I was born in has ceased to exist. We used to understand that if we let our neighbor's house burn down, our own might also catch fire.
ok, you seem to be a nice person, but:
A - why should the goverment pay the criminals?
B - why should the normal people who save not be able to buy cheap homes or do you think 500k is ok price when most people earn max of 50k?
C - AMT is still there and the congress is sleeping, not gonna happen in 10 years
D - do i get also a 6% mortgage or do i have to perform a lobotomy on myself to get a one?
E - no wonder neighbours house is burning, when i told him when he was building it, that he should not build it from straw, but he listened to the TAN MAN ...
Tanta---Been following this blog for some time now. Truely appreciate and enjoy not only your and CD's blogs, but also the comments of your loyal followers and their (sometimes) very diverse opinions. By and large , this is a reflection of the 'informed and concerned' part (wish it was larger) of our citizenry.
A special thanks for mentioning a credit union as a place to get a mortgage--great suggestion.
Pls. keep up the great work. From the land of real crab cakes--O.C. (Md. , not Ca.) Rudy
Regarding the bailout biz, it looks like catch-22. Essentially, it looks to me like there's a lot of denial in the face of obvious supply demand imbalances. A ton of houses were sold to people who could not afford those houses, let's say maybe 2 million or so. It's pretty obvious that under no circumstances considered normal would they ever have been able to afford those purchases so now, the roughly 75 million homeowners who responsibly bought and own their homes are being asked to buy homes for the 2 million or so who are defaulting or will default no matter the terms. The fact remains they never could have afforded to buy in the first place and thus the invention of liar loans. Bailing out the liars doesn't sound all that appealing to me. Above, Charles suggests why it would be prudent to do so. His arguments strike me as blackmail and thus stiffen my resistence to such a notion.
For Banks, a $300 Billion Hangover - Barrons.com
Reminds me of what happened to the S & L's in the early 80's(loaning out on fixed rate mortgages that were returning less than they had to pay depositors in current market rates). You would have thought the IB's would have learned a lesson from that- Hello.
Looks like "everyone"(consumers and banks) "believed the hype".
"A fool and his money are soon parted"
Over at the FT Larry Summers thinks that the portfolios of Fannie Mae and Freddie Mac should be expanded
I am among the many with serious doubts about the wisdom of the government quasi-guarantees that supported the government-sponsored entities, Fannie Mae, the Federal National Mortgage Association, and Freddie Mac, the Federal Home Loan Mortgage Corp , as they have operated in the mortgage market. But surely if there is ever a moment when they should expand their activities it is now, when mortgage liquidity is drying up. No doubt, credit standards in the subprime market were too low for too long. Now, as borrowers face higher costs as their adjustable rate mortgages are reset, is not the time for the authorities to get religion and discourage the provision of credit.
Here's the link
FT.com / Columnists / Lawrence Summers - This is where Fannie and Freddie step in
Put another way, if someone sells you the Brooklyn Bridge, do you have a right to the bridge?
I think most people would say, No.
However, if you get sold the Brooklyn Bridge, I don't think you should receive any additional penalty. And, if possible, I believe that you should get your down payment back...from the guys who sold it to you.
--
Charles,
People have problems -- they can't plan and think of consequences -- therefore we need govt. help. More govt. help means less people are likely to think and plan.
The Road To Serfdom must continue on.
Govt. must protect against failures. All price must be paid by responsible individuals who must be constantly punished via unfair taxation while others are bailed out.
The Road To Serfdom must continue on. The guiding principle on the Road To Serfdom is moral blindness of the population that supports the govt. help for fully foreseen problems and failures that are normal part of life.
Jas
This is important (especially page 2)
On the trail of lenders who borrow - Telegraph
Charles, I've made the argument many times that we should work out as many of those loans as we can. "We" here should be the lenders, servicers, and investors who own this problem and who created it. You all really should be asking the industry to take the hit, not yourselves as taxpayers.
I also have zero problem with saftey net protections for people who lose their homes due to circumstances outside their control, like job loss, illness, etc. You won't hear me whining about my tax dollars going to that.
What I think everyone has a hard time with is the idea that Americans just have this Constitutional right to middle-class suburban homes that cost too much to heat, get filled with overpriced or underpriced junk, as the case may be, and that there is some unalterable social good in keeping them all in those homes when there's just no way they can afford them.
Gross's argument is a problem because he isn't arguing that those who can be saved be saved. He's arguing that those who can't be saved be subsidized to protect everyone else's home values.
I have this idea of these "responsible" homeowners who made their "responsible" 40% down payments for the brand-new cathedral-ceilinged Dream Home by the simple expedient of having sold their old perfectly good home to some starry-eyed naif with a 100% subprime loan, you see. These righteous souls, secure in their own rectitude, cannot fathom why, since they "responsibly" sold at the top of a bubble to a greater fool and used the proceeds to lever "conservatively" into their Dream Home, they shouldn't get a break from the government by having it keep the subprime borrower in their old home.
Of course not every homeowner out there got where he is today by having taken advantage of someone else to get there, but plenty of people did. We just have to give up on this "all sheep" or "all goats" rhetoric.
Where the hell was Bill Gross when the president was threatening to veto a measly increase to the minimum wage that might have brought some of these homeowners into the wage standards of the 70s? I'll listen to people I respect, like Krugman and Baker, try to make arguments about some kind of bailout of working people. (I don't have to agree, but I listen respectfully.) There's something about Gross' argument that makes me think this isn't about keeping Joe and Jane Sixpack off the street.
I really enjoyed P. Jackson's logical trajectory. Paint? Corner?
I think what he's saying in his example is that intervention would lower the neighborhood comps. And that non-intervention, which he favors, would lower the neighborhood comps. Glad that's cleared up.
SloMo, I also like the Oscar Wilde variant, "A fool and his money are soon invited everywhere."
I don't understand how anyone can think foreclosure leads to homlessness. No income, high rents and low rental inventory lead to homelessness. Most of these people who end up in forclosure will be SAVING MONEY because rents are far below mortgage costs. The only issue we should be worried about is the banks keeping REOs vacant and employment numbers.
Charles
"Pain to be divided between borrower, lender, and taxpayer."
As a debt free taxpayer all I can say to that is kiss my ass, let the other two groups sort it out between themselves.
As for your fire analogy I have good insurance on mine, let it burn.
My reading of PJ's argument is that using "debt forgivness" to bring the subprime mortgages down to a balance the borrower can handle has the same effect as foreclosures from the perspective of bringing all the neighborhood values down. So it's hard to use the argument that such a plan would "protect" everyone else's asset values. Therefore, if you're going to see values drop, why make taxpayers subsidize that in a way that also has that perverse moral hazard?
(I am not making this argument, I'm trying to summarize PJ's.)
Charles:
I too am in the "no bailout" camp.
1. If people are foreclosed and end up in the streets, then there are social costs which the rest of us pay.
If we bail them out, we're paying anyway. I'd rather pay money and keep them in austerity than pay money to keep them in an overpriced McMansion.
2. Foreclosures damage asset prices in the broader community.
Asset prices often move up and move down. this is nothing new. My 1999 Passat has lost value... so? Most assets owned by regular people depreciate. It has always been thus.
3. Empty houses create a law enforcement problem, since they may be taken over by criminals or vagrants.
why do they have to be empty? simply foreclose on them, and then resell them (at significant discount) to a new first time buyer!
4. Empty houses suffer the damage of neglect. So, not only the price of the asset, but its underlying value declines.
again, why do they have to be empty? foreclose on them and resell them (for much less money)
5. If we want to avoid recession, the alternative seems to be to pay off the companies who, often fraudulently, issued the bad mortgages.
who says giving handouts to these scummy lenders will avert recession? We've been experiencing slowed growth for some time now, PRIOR to housing showing its cracks. this is just the latest sign of impending recession.
no, indeed, it is better to foreclose on people who cannot afford these homes. then they can go on with life. Currently, these people are slaves to their overpriced homes, and many have 2-3 jobs to try to wing it. they have no disposible income, no savings, no nothing. In fact, they're DRAINING their savings for these overpriced alligators.
Better that they foreclose on the home. then they can get cheaper accomodations, which will allow them to save money again, rebuild their life, and consume!
the lenders will all take big losses. They shouldn't have lent this way anyway.
the investors will take big losses as well. they shouldn't have invested this way.
house prices will fall substantially around the country. they never should have been that high anyway.
unwinding of a bubble is horrible. let's get to it.
Tanta, I expect you're right. He just let the point settle between the lines.
As a debt free taxpayer all I can say to that is kiss my ass, let the other two groups sort it out between themselves
MR Fisher is disappointed in you...
He regards you as a loser..
you could be living much higher on the hog... no bacon for you
Your status as a taxpayer indicates your still working.. Chances are that means your middle class
But your debt free attitude makes you look 3rd world...
My solution for you... LEVER UP
4. Empty houses suffer the damage of neglect. So, not only the price of the asset, but its underlying value declines.
they need not be empty fot this to be true...logical fallacious argument
Yearning to Learn,
Your a fast learner...I agree with everything you said! House prices need to come back in line to incomes--only then can the US rebuild on a solid footing. Let the baby boomers whine about their depreciating home that was going to fund their retirement. Let the gen Xers who rolled their SUV and credit card debt into their mortgage, in which payoff now is more than their house worth, learn a hard lesson that will serve them for the rest of a generation. Houses need to become "homes" again, not vehicles of usury.
If we want to avoid recession
Who is We?
the BK attorney?
the auction house?
the faith community?
Paul Kasriel also addressed Gross' plea at Econtrarian: "There's No Such Thing As a Free Bailout" (pdf).
MR Fisher is disappointed in you...
He regards you as a loser..
Fork him!
"Your status as a taxpayer indicates your still working.. Chances are that means your middle class"
I don't work, other people do, but I still have to pay taxes from income on my investments.
I suppose it would be grossly insensitive to suggest that the Golden Boys and Girls think about relocating to an area they can afford. Last time I checked, the median home price in San Antonio was under $150,000 and the unemployment rate under 4%. Not much different in Austin, aka Techie Heaven. Should they prefer to spend the next 7 or 8 years in a single wide, of course, I can deal with that.
"House prices coming back into line with incomes" will equate to about a 40% fall from the peak -- about $8 trillion in nominal valuation for the US housing stock.
Ballparking the number of home sold during the peak and near-peak years of the bubble at around 25 million new and used, and average valuation loss at, say, 30%, from a nominal average price of around $330,000 (median is above $200k, and average is surely much higher than median), the direct losses on those homes will total about $250 billion. Add in $750 billion or so from illusory-equity-withdrawal refinance mortgages, and you get to $1 trillion of debt unsupported by the collateral.
See, I think that the 2 million number is something of a red herring. Any such rescue program is going to be telling a lot of folks that the best they can do is arrange an orderly foreclosure. The best we can hope for is reduce the magnitude of the carnage. A lot of the subprime coastal buyers (the 400K house next to the freeway in a bad neighborhood) are in a hopeless situation. But the Lower Middle class worker in Cleveland who was fast talked into a subprime Exploding ARM (and probably could have qualified for a prime loan) probably could be saved with a reasonable rate. Someone in the middle would have a prospect of being saved with a reasonable rate and a term extension (say to 40 years). These folks will all be on the hook for the closing costs, appraisals, etc for a refinance and will see their payoff date get farther, perhaps much farther, away. Nobody is going to be handed the keys free and clear by Uncle Sam.
It's hard to take these suggestions for a bailout seriously. The promoters themselves don't really seem able to conceptualize a form that seems even remotely practical.
If there is any sort of a publicly mandated bailout, I have a feeling that the lenders and bondholders may suffer the most.
Where the hell was Bill Gross when the president was threatening to veto a measly increase to the minimum wage that might have brought some of these homeowners into the wage standards of the 70s?
hey now, watch out or BG will attack CR next time they run into each other at yoga...it will be like battling that stretchy indian dude from Street Fighter II...that can't end well....
These proposals to save subprime borrowers seem to me to be mostly polical activists furthering a personal agenda. Has anyone seen polls on how the public stands on this?
At the risk of annoying everyone, I'd like to introduce some data...
There are presently 3.7 million vacant housing units for rent and 2.0 million vacant housing units for sale.
Source:
http://www.census.gov/hhes/www/housing/hvs/qtr207/q207press.pdf
Now if we assume (yes, I know about the dangers in that) that all those 2.0 million soon to be foreclosed are capable of making some amount of a monthly payment, why not assume they will be making for a rental?
Add "a monthly payment" between makng and for.
" There's something about Gross' argument that makes me think this isn't about keeping Joe and Jane Sixpack off the street."
You're likely correct, he sees the flip side and is likely the reason for his stance.
He sees a crisis brewing in the ABCP markets, much of which is backed by mortgage debt.
This problem is much begger than you or anyone else realizes, my opinion is that he sees the crisis and has offerred an opinion to the solution & restoration of confidence. He may have presented it in a way that lawmakers would latch on, my thoughts are that his stance is far more insightful than most of the minds here can comprehend.
Speaking of foreclosures and bailouts, here's a thought I picked up from another site and fleshed-out with some data: It isn't as bad as everyone thinks, which I think is good news for both the thrifty homeowners and the morally-superior-for-renting among us.
Example: According to Case-Shiller, if someone had bought a house at the very top of the market in San Diego (November, 2005 from C-S data) using a 100% LTV interest-only loan they'd only be "upside-down" on their mortgage by...wait, wait...about 7.4%.
That's if they'd bought at the absolute peak, with nothing down, and paying no principal.
If they didn't buy at the peak but on either side their "pain" would be even less. If they'd put down only 5% they'd only be looking at a minor amount of "upside-down-ness."
The homeowners who actually made reasonable down-payments would be in a position to just sit tight, since they wouldn't be forced to sell.
So, good news all around. If there's a bail-out it won't be that big, and I think we can all be happy about that (those of us who can be happy about continued prosperity and economic growth, at any rate).
Sebastia
Tanta- What will happen to people like us that have no debt but have always paid bills on time and have a good income? Will we have to stick it out a few more years and pay cash for a house? Is there anyone that knows how to do a full-doc loan anymore. I'm sure our FICO is 0.
Big D, I'll second Tanta's excellent answer and illustrate with my own story: In 1999 I came back to the US after many years of living abroad. I had no credit history whatsoever. My husband and I worked temp. jobs for most of the year before we both landed full time positions. I joined the credit union at my work and I asked for a credit card secured by a $1000 deposit. In less than a year we qualified for a special 'first time buyer' loan guaranteed by our state. This involved a standard loan, fully verified by pay-stubbs, tax forms, etc. In addition I had to follow a self-paced course and pass an exam on financial literacy. In addition to the usual stuff about percentage of income you should pay for housing, savings, etc. it included things like the benefits and dangers of leveraged investments.
In 2005 we sold and have been renting ever since. My mind still boggles at the profits-- safely invested now for the retirement I might have been prudently saving for all along if I hadn't profligately decided to 'waste my life' living in other countries and learning those durn-furren languages.
It was 1% good sense (i.e. having lived long enough to have seen this kind of thing before) and 99% sheer dumb luck of timing-- with an assist from one of those awful socialist programs people love to complain about other people getting.
So to Kevin and others eager to let the fires burn and the blood flow, speak for yourself. I'm also a 'debt-free taxpayer'-- and I'm absolutely on Tanta's side: work outs where the numbers work, sufficient pain to the parties responsible for making the bad loans that they think twice about it next time, and yes, more tax dollars for post-foreclosure relief to the poor, dumb kids who have to be kicked out of the 50's era, run-down starter home that they foolishly paid a half-million bucks for.
yal,
thanks for the post on the telegraph article. its interesting that they mention barclays as having to go to the BOE hat in hand. barclays is a lender to one of the affiliated entities of the german bank that is being acquired today and apparently has large exposure to them. see the wsj article below.
Sachsen's 'Conduit' Hit - WSJ.com
Its amazing. We have created federal institutions whose mission is to make home ownership attainable. Cities across the country struggle with the issue of affordable housing. And yet now I regularly see politicians and community leaders arguing that great tragedy will befall us if we allow property values to plummet by 10% or more! Hello, anybody home?
risk capital,
I'm sorry to hear that the problem is much bigger than anyone here realizes, but how does that makes Bill Gross' comments any more insightful?
I'll agree "He sees a crisis brewing in the ABCP markets, much of which is backed by mortgage debt." So what?
Capitalism works just as well in periods of severe crisis as it does in periods of multi-million dollar bonuses.
Let the chips fall where they may. Some J6Ps may end up on the street, but some packagers and some investors may end up BK, too.
houston: interesting. I don't think any US bank of importance has had to merge due to insolvency, but I presume that is what has happened to this German bank. Amazing. Does this foretell what may happen here too?
OT-Interesting feature on CBS national TV news a few minutes ago.
A single female lawyer with high income, big down payment and excellent credit had her previously approved loan for an investment property in NYC pulled. She was surprised, since she felt that she could easily handle the payments.
The announcer basically said that buyers should consider waiting a year or two before buying a home to avoid "catching a falling knife." And she was not talking about investors. The feature also talked about bad new for boomers who thought that RE would fund their retirments.
Seems like the notion of buying property as an investment is being shutdown by lenders. Lending may be getting tighter than most of us expected and even the most cautious of us were asking for.
"He sees a crisis brewing in the ABCP markets, much of which is backed by mortgage debt."
News Flash! The brew cycle is complete and it has now spilled across the counter and onto the kechen floor.
So, risk capital, care to tell us what the really ugly outcome is that is hiding behind door #2?
That'd be kitchen floor.
chris,
i wouldnt be surprised at all. without naming a specific bank, i will say that if you check bank money market fund assets, as of 7/30, you will find alot of asset backed paper in the portfolios along with repos from bsc, cfc, kkr, and other related entities. so, they dont guarantee these positions, but, in essence they do, or it could cause a run, so to speak. i am surprised at the risk that these banks are, and have, taken.
Seb said:
"If they didn't buy at the peak but on either side their "pain" would be even less. If they'd put down only 5% they'd only be looking at a minor amount of "upside-down-ness.
The homeowners who actually made reasonable down-payments would be in a position to just sit tight, since they wouldn't be forced to sell."
Point taken, but I think there's more to the story for a number of people.
Some won't be able to sit tight if they can't make the payment on their ARM. They won't be able to refi due to issues already covered on this blog at length. So, foreclosure and eventual sale that reduces comps, which starts the cycle all over for others -- the death spiral scenario.
Furthermore, the overall figure for San Diego may be 7.4% underwater for 2005 buyers, but some are 20% underwater and some are 0% underwater. Does it seem so unlikely that the 20% crowd will drag the 0% crowd down to 5%, 10% underwater over time? Again, the death spiral.
I'm not saying this is how it will play out, but Seb, you have to admit it is plausible, no?
Another way to look at 7.4% underwater figure. If the average downpayment for 2005 vintage purchases was 10%, we're just a few points away from wiping out the investment. Doh! Leverage!
Last word, the argument that we're only 7.4% underwater strikes me as of a kind with "sub-prime is only 10% of the market". That one hasn't worked out so well.
touche:
"How could he belittle the hooker in six-inch heels in one breath and then complain that shes walking all over him in the next?"
That's a lap dance she's giving him. And, my my, look at that grin on his face.
Just finished reading: A demon of our our design" by Bookstabler.
He has an MIT math undergrad and an MIT Ph.D in econ with a specialty in the theory and math of options and derivatives. He went from being a professor to working for investment Brokers and later, hedge funds.
A great book with insights into highly leveraged exotic instruments.
The IB "gunslingers" had a good deal. Find a new idea, make 1 billion a year + for the company and 30 mil in bonuses each year. When the method collapses or just peters out (after 1-3 years), get fired, leave for elsewhere or retire. I'm not sure that running a hedge fund is as good, since it's difficult to get out before things go bad and they often have a lot of skin in the game.
The big problems that lead to the end: liquidity drying up/or too many traders doing the same thing. This is what causes those "1000 year breakdowns" to occur every few years. The models do not do well taking into account how the funds, especially those with high leverage, affect the system.
In order to get their PE sale of their home sale unit, Home Depot had to give a $1.8 blln discount!
In one of the most closely watched deals on Wall Street, Home Depot reached a tentative new agreement today to sell its wholesale unit to a consortium of private equity firms for a reduced price of $8.5 billion, according to people involved in the transaction.
The new price is almost $1.8 billion less than the $10.3 billion announced in June.
Here's the link
- NY Times
Twu weeks ago, Dean Baker published the paper titled Midsummer Meltdown".
Some excerpt:
"For these reasons, tens of millions of homeowners or potential homeowners will be far better off if the housing bubble deflates quickly, so that they do not make extremely important life decisions based on temporarily inflated house prices. Allowing the housing bubble to grow to its current proportions was an extremely serious policy error by the Federal Reserve Board. Delaying the deflation of the bubble would compound this error.
When the bubble eventually does deflate, many of the secondary effects will also be substantial. For example, property tax revenue for many state and local governments soared along with property values. If these governmental units made plans based on the assumption that property tax revenues would remain at current levels, or, even worse, sustain their recent rate of growth, they will face serious budget shortfalls in future years. Similarly, many public and private pension funds may find that some of their investments turn sour especially those based on real estate or heavily leveraged investments that are dependent on access to cheap capital. Large pension fund losses could pose a substantial burden on state governments that are already coping with under-funded pensions and employee health care retirement funds.
Finally, the hedge and private equity funds that have thrived on access to cheap credit may suddenly find that their mode of business is considerably more difficult. It is far easier to provide large returns with cheap credit in a rising stock market than expensive credit in a falling market. The rapid growth of these funds is likely to slow and possibly be reversed when the housing and stock market adjust to more normal levels."
I my memory works, he proposed as solution make a sort of government entity to settle a right price for renting the houses going to foreclosure, and so avoid homeless people and split the looses between lenders and borrowers.
It might work in many cases...
Pat in OH, sportsfan-
that is precisely my point, you and likely most others cannot comprehend the severity of the problem.
jim kingsland gives a comment on 2 reasons why housing prices could revert to 1995 or 1997 levels!
The Kingsland Report- Markets, Subprime, Mortgages, Derivatives, Options
risk capital,
By refusing to support your assertion that no one else here understands what only you and Bill Gross know, it is clear that you are living in a world of your own.
Enjoy it.
dis,
Gee, I didn't call that one the other day did I?
Though I must admit that ALL the elements in the first deal since my prediction is a little weird.
PE guys are the HUGE winners here. After all, what they are buying is exactly the same as it was, but now the risk is MUCH lower with less debt invoilved. IB's also win. Home Depot? Well, they were committed sellers so what were they going to do?
What's that about blind squirrels
houston,
I second the jim kingsland article - well worth the read and my exact position: by focusing most attention on the ridiculous mortgage finance of the last several years, many housing bears ignore that the mania in houses should be treated like any other asset mania, regardless of what happens to the financing from now on. I.E., even if extended financing could be arranged, the houses would STILL drop to their fundamental values (1997 prices) and perhaps below for overextension effects.
Good grief, risk capital. Either tell us why you're insulting our intelligence for our own good, or quit it. It's not like we make you hang out with us simpletons.
I've learned too much. I thought I was a democrat, now I say let the foreclosures happen, let the lenders who made these loans go under.
However, we'll still be faced with a recession. We need a policy response to the coming recession, not a financial bailout. A response that will educate our workforce into a competitive global asset, reduce our energy dependence, rebuild a sustainable manufacturing base and create jobs in this country...
Ok, despite the apparent cluelessness of the latest round of responses from democrats to trade and finance issues... maybe I still am a democrat... small d.
risk capital,
"you and likely most others cannot comprehend the severity of the problem"
Well, perhaps you might try to give us a bit of insight? Who knows, we might be able to understand it a bit better if you would explain it to us.
A few random questions...
What percentage of the ARM's have ballooned and hit the brick wall... 5% ... 10% ?
If I understand all this correctly, these ARM's are spread out for another 2-3 years... so this drama may be still playing out during the election next year.
When a borrower gets foreclosed on and then gets this dreaded 1099, does the note-holder (who forgave the debt) get a tax-credit ? (which I would assume would be based upon the difference between the outstanding balance and the new lower fair market value)
Ray (sitting out on the farm wondering where this is leading to)
btw, anybody else think Bill Gross sounds like Mickey Mouse?
banker,
i agree on your analysis. i think HD took a big hit though. this is almost 20% less than the original price, and they have a risk with 1 bn of the paaper. the price haircut is also 33% more than what was discussed less than a week ago. if this happens across the board, there will be alot of unhappy shareholders.
Tanta,
risk capital has provided some good comments in the past. He sounds pretty stressed with these recent remarks and I'm curious to know what he's looking at that's got him so wound up.
"yes, more tax dollars for post-foreclosure relief to the poor, dumb kids who have to be kicked out of the 50's era, run-down starter home that they foolishly paid a half-million bucks for."
Mommy Dearest you have been bailing these spoiled little dumb asses out all you life, that is what most women do. What they need is to get a good kick in the ass, grow up, get off the teat and take responsibility for their actions. I have been on my own since I was 19, I retired at 52 and Mommy Dearest never got a call from me to bail me out and even if I was in a bind I wouldn't have called her or expected her to anyway although she probably would have because that is what Mommy's are prone to do.
If you really want to help these kids let housing prices fall with the collapse of the credit bubble, 50% would be reasonable in some areas and drop the mortgage deduction. Basically get homes to be viewed as what they are for most people which is a liability that they spend their whole life working to pay off by being debt slaves for the bank. I own 3 homes and a fall of 50% would not change my mind and I would much rather see that then a bailout which will only lead to more inflation and more bubbles which is what Sebastian seems to call growth.
"The eastern German state of Saxony abruptly sold a troubled state-run bank Sunday as the global liquidity crunch sparked by the U.S. subprime mortgage crisis claimed its first major European victim. "
I think the a bailout, a la the one Charles suggests, would create a bailout cascade. How do you decide which borrowers to reward with new terms? those in default? You've just created an incentive for everyone with less than optimal terms to default....
You'd be talking trillions of $$....
And unlike the Chrysler bailout or the S&Ls, you wouldn't even be pretending to gain some asset in exchange for the tax dollars, just huge transfer payments...
I believe the reins will be loosened on the GSEs and lenders and bondholders will be forced to cough up some relief, but there isn't going to be any robbing the ant to pay the grasshopper.
When it's all over, I bet the GSEs are once again doing the vast majority of lending, and if you want a jumbo or low-doc loan, you better have a stellar credit history, savings, etc.
houston,
I think you are dead on. The question is, is the retreat from 14000 on the DJIA sufficient to account for how the speculation in LBO stocks has got to change?
I am only an occasional reader of Mr
Gross, but I know he has been on record
for a long time about inflated stock
prices, options abuse, and other things
that have contributed to where we are
now.
Do we grant that some fraction of
homeowners may have been victimized
by misrepresented mortgage terms,
inadequate house inspections, and other
abuses by the mortgage industry?
Pursuing legal redress requires
significantly more resources than
the individual homeowner has. Perhaps
the experience of those who have won
judgements against Glaxo and been
unable to collect is relevant.
The reality is that taking no action
means that NONE of the homeowner
class will receive any adjustment.
I certainly hope that providing assis-
tance in seeking redress for plausible
cases of lender misconduct can be
done in a way that stops considerably
short of a "bail-out".
that is precisely my point, you and likely most others cannot comprehend the severity of the problem.
Welcome to the dark side, RC.
Let's encourage the govt to step in and help those poor homeowners that got cash-outs for cruises, ATVs, Lexus & SUVs, Plasma for every room...
This bust is going to last years and workouts will only be a temporary bandaid that will result in jingle mail once the home in questioon is worth 25% less than the note.
I think help with rental assistance for reasonable rent prices is something the government can do on an as needed basis in conjunction with credit & financial counseling.
Repricing of assets is what we need to brace for. Could be shocking as credit gets tighter and tighter and REOs begin to priced lower in step function fashion as lender compete with each other to unload NPAs in a hurry...
Seb, you just continue to crack me up.
Soooo, SD peak FB's are only down 7.4%. Isn't that like observing that someone's only fallen 7.4 floors after jumping off the top of a 100 story building?
p.s.: Yes, I know prices won't go to the ground floor. Luckily there's an observation deck on floor 25. SMACK!
Re: much worse than we know.
IMHO, we don't know if this is a "fourth level of hell" event that will seriously and rapidly disrupt the economy or an extended purgatory event where the long running excesses are slowly squeezed out of the system. Or worse, we may get a happy days are here again type event and party on.
As I surf the Web trying to form my own opinion, my sense of the pending apocalypse sites is that they have not come to grips with the reality that we live in a world where 20 percent of the people can make, mine, grow, package and ship all of the stuff that we need to eat, wear, live in, or travel to our non-primary production jobs in (OK, some of us are in primary production activities). I also try mightily to understand the guys who say I am not earning and paying my bills with money but with debt and I continue to fail.
On the other hand, the DOW 15,000 guys seem to be very optimistic that the world can get by just fine without the USA taking down a $trillion/year in debt to finance the emerging middle class around the world. I happen to be very happy that we are willing to take on all of the debt to help the less fortunate, but I am also less sanguine that it is self sustaining. But Im just a software guy. We live in a world where hard-working people create and distribute truly magical stuff (like the dual 21 flat screen monitors that I am looking at right now). How do we compare the wealth embodied in that to the wealth in an ounce of gold. I dunno. I have a pile of equally magical 1998-99 vintage stuff that I am trying to dispose of in an environmentally correct manner. It was really good stuff back then. Its all very confusing to me. Am I rich because I have this neat technology, flush toilets, and air conditioning, or am I poor because I have a mortgage that is more than I make in a year?
So when risk capital says that it is worse than we know, he may be right. We may be about to hit the wall on how much debt the USA can take down. If it is abrupt, then it will not be pleasant. On the other hand, IMHO, Sebastian has an equal chance of being right. (OK, Im more bearish than Seb). My bearishness is driven not by total income than by an increasingly troubling distribution of that income.
So, on topic to bailouts, Im in favor of whatever Tanta and MOM say. I hope it includes the elimination of the imputed income 1099 on a short sale/foreclosure. Even if it lets speculators, flippers and outright fraudsters get out from under the long arms of the IRS.
barely,
Rental assistance? Renting is CHEAP, and will become even more so as the economy tanks.
abcp and your mm fund-
Buffalo News: 404 Error
Drop the mortgage deduction.
Does the rental owner still get to deduct the mortgage interest on his rental property?
Doesn't this create some perverse incentives for everybody to own their neighbor's home instead of their own?
ray (rof ?),
a 1099 is what an independent contractor gets as a record of payment for services rendered , kinda like a w2.
so i believe . . .
the company issuing it must look at it as an expense on its' books.
but what do i know , i am just a 130 lb. guy with glasses, an undersized cowboy hat and in a cheap leisure suit, whose best friends have similiar suits and wear gorilla masks. (ajax and delphineum)
icky
they have not come to grips with the reality that we live in a world where 20 percent of the people can make, mine, grow, package and ship all of the stuff that we need to eat, wear, live in, or travel
Irrelevant. We've been able to feed the world for decades; it's politics that leaves them starving.
Human nature never changes.
roy ,
p.s. and the i.r.s. and recipient also view it as income for tax purposes.
icky
risk capital-
I read your blog daily. I have never learned so much in such a short time.
Thank You.
I have a little ditty about Asset Backed Commercial Paper. I read from another link it is backed by people paying mortgages, but also people paying their monthly CREDIT CARDS. I know of two people who have credit card insurance and are about to lose their jobs. They are maxing out the cards and then letting the insurance cover their payments. Another leg being pulled out under ABCP?
Does the rental owner still get to deduct the mortgage interest on his rental property? Yes.
Doesn't this create some perverse incentives for everybody to own their neighbor's home instead of their own? Has always existed. Rental owners get to deduct routine maintenance that homeowners cannot.
Risk C-
If you've worried about all the crap in ABCP, I wonder where the banks are putting their bridge loans? As for their bridge equity, it's being shoved into various funds they run as a way to get it off balance sheet (until they eventually have to bail out the fund with the bank's name on it)
Banker
Re Home Depot - I think we can call this a phyrric victory for the IBs. They just have a shorter pier. I'm sure a dead deal would have suited them just fine.
rcyran-
"If you've worried about all the crap in ABCP"
Worried, NO, stressed, NO.
Pissed at these bastards for throwing this utter garbage into money market funds, damn right.
Think the problem has the potential to be bigger, damn right, this is the shit that creates a crisis of confidence as evidenced by the recent moves in the 1 month and 3 month t-bills.
These @#!$%^ bastards had no right to package this shit into money market funds, just another instance of freakin greed.
These @#!$%^ bastards...
C'mon RC, tell us how you really feel!
they kiled kenny
These @#!$%^ bastards...
Kevin says...
I have been on my own since I was 19, I retired at 52 ...
...and drop the mortgage deduction. ... I own 3 homes
You got to stay until you were 19? Why when I was a lass they kicked you out at 15 and you had to go work in the mills until your fingers bled... (And if you don't recognize what that's a riff on you're a lot younger than I am...)
I have to admire the sheer chutzpah. Having profited nicely from this very generous handout to the middle and upper classes- to the tune of three houses no less-- you're happy to yank it away from the next generation. And sneer at them into the bargain. A two-fer, huh?
You know, sometimes I have to agree with 'generation x' -- or whatever it is the current crop of 30-somethings are calling themselves. We boomers really are a bunch of spoiled, self-righteous brats who probably should have been spanked a lot more... Nah, you're probably right. Must all be Mom's fault.
looxury, looxury...
The mortgage interest deduction is probably the safest thing in our political system. Any politician who votes to take it away would not be reelected.
Taking it away (or even scaling it back) would be viewed as a huge new tax on the middle class, at a time when the middle class is already being screwed by AMT. Even more homes would flood the resale market. Many people have calculated the mortage payment they can afford on an after-tax basis, and they would no longer be able to afford payments. Some elderly people on fixed incomes could lose their homes.
Whether or not the deduction makes sense economically, repealing it makes zero political sense. Forget about it. Not gonna happen.
risk capital,
"Think the problem has the potential to be bigger, damn right, this is the shit that creates a crisis of confidence as evidenced by the recent moves in the 1 month and 3 month t-bills."
See, what a wonderful thing dialog can be. We happen to agree that ABCP should not have been allowed in MM funds and that this could get a whole helluva lot worse than it is today.
I'll leave the MM funds and the potential, but limited, losses to the lawyers, though.
It's the potentially increasing crisis in confidence that could bring down the whole system that concerns me. I'm speaking of the sort of financial apocalypse that stops electronic currency from traveling at the speed of light and relegates our everyday transactions to paper currency or even worse metal currency or even worse a rudimentary bartering system. That's what concerns me.
Luckily, the chances of a total meltdown still seem very slim, but then I'm not reading CR and Tanta and the many commentators to learn about the U.S. housing market. I'm not even very concerned about a recession, because I've already assumed that, but I am concerned about what a depression would be like.
BOL,
"Drop the mortgage deduction."
'Does the rental owner still get to deduct the mortgage interest on his rental property?'
Sure, against the rental income, this is fair. But to deduct mortgage interest against free rent is not fair.
One comment:
When a new commenter drops in from nowhere with a carefully laid out solution to a problem we've been discussing for say... months... without that person's previous input... and the solution that is put forth CLEARLY benefits a very narrow slice of the populace you might want to just question whether it is a person's actual 'opinion' or some organizations 'policy'.
Especially when the poster never returns to challenge the inevitable protests.
Trial balloon come to mind? Or even 'seagull posting'... fly in high over the fray... crap all over the thread then fly away.
Or ever hear of 'Astroturf Grassroots' organizing & lobbying?
Not saying for sure that's what happened here today but it looks a bit suspicious to me.
This forum has generated enough blogosphere activity that it is watched. If CR's peeps keep climbing we'll see lotsa astroturfers here as the election get's closer. Count on that much.
sportsfan:
Better not let the government catch you with over $10,000 in currency. They can seize it and you will have to prove that it isn't narco-money. It should take you about 12 months and a good (i.e., $$$) lawyer.
I would like to see the PE people be bailed out too. There are several reasons:
a) PE people have been living a good life for last few years. It would be more hardship for them to move from a 10 million dollar mansion to an apartment in Chicago than a poor black guy to move from a broken house to the street.
b) There will be trickle down effect, if we help them.
c) Steve Swartzman threw gala party to help others, when he was doing well. We should help in time of distress.
d) What happened to American values like solidarity? It does not make sense that we look at people in trouble as 'rich' and 'poor', when we want to help. Generous help should have no limits.
I am also going to write in details about why we should help the hedgies, who lost billions. If we help them right now, there will not be any more crashes in the market, and that means no more foreclosure.
And I do sincerely hope someone reimburses the money I lost during 1999-2002 by investing all my retirement in blue-chips like WCOM and enron.
please define "IB" for me (investment bank?)
Okay - here are a couple of things I didn't hear anyone mention. Two "revenue neutral" tax bills, they would be the equivalent of moving mountains in politics, but would help. Not the entire solution, but would help.
I didn't say this was a complete solution or they were politically acheiveable, however Florida recently attempted #2 and narrowly failed. And as for #1, you would have the suppport of 90% of Americans and 10% of elected Republicans and maybe 80% of Democrats as a starting position.
sportsfan-
"It's the potentially increasing crisis in confidence that could bring down the whole system that concerns me. I'm speaking of the sort of financial apocalypse that stops electronic currency from traveling at the speed of light and relegates our everyday transactions to paper currency or even worse metal currency or even worse a rudimentary bartering system. That's what concerns me."
You, without a doubt, are a flake.
Risk,
Whenever there's an economic challenge, the tendancy for many is to take the current trend and extend it indefinitely. If the price of oil is going up, people talk about $150/barrel; if the price is going down, it's "$10/barrel!".
There's now an unfolding liquidity problem. The free market will (perhaps painfully) correct it long before we're all trading seashells and beads. But that's all a boring story compared to tales of Armageddon.
I could be wrong, but I'm not this time.
lama-
wholeheartedly agree.
Revro, the people who are likely to get evicted from their homes are not criminals. Most of the criminals have LLCs or corporations to insulate them from the consequences of their actions.
Normal people who save should be able to buy homes. In fact, prior to this debacle, something like two-thirds of all families did own homes and were doing fine making the payments. The rise in home ownership over the last few years is a few percent.
I don't have any idea what the AMT has to do with this. The Congress would like to raise the limits so that it doesn't hit people in the middle class, but the budget is in deficit and the Republicans are preventing even tax neutral legislation, because that would mean that their corporate constituents would pay more.
Jas Jain, the United States has the least government of any Western industrialized nation. It also has above-average corruption, below-average health care outcomes, rotting infrastructure, and a declining technological base. It is also deeply in debt.
The Road to Serfdom was written at a time when government was--or at least was expected to become-- far more pervasive than it is now. There is such a thing as too much government, but also such a thing as too little. They both are disastrous to nations that indulge in them. And especially disastrous is not paying for whatever level of government you have.
Tanta, I'd be delighted if the financial industry would be so gracious as to absorb the cost of its own greed/incompetence/corruption. Unfortunately, it's not going to happen.
I also think it's very unlikely that government will help to prevent mass evictions such as occurred in the 1930s. That will be a tragedy, as it was a tragedy then.
What is most likely is that the financial industry will use its influence to buy bailouts for the largest institutions. The smaller ones will be acquired with government money for private gain. This might prevent an outright financial crash, but would leave the nation in very deep water.
But if nothing happens-- and that's the second most likely outcome-- look for a 1930s style crash.
I agree that this is not a situation of all sheep/all goats. Some subprime borrowers belong in jail. Some are the victims of fraud. Some are in the gray area in between victim and perpetrator. Many are people who made decisions that could have been good, but weren't. I think rules can be written for a bailout of borrowers that will not reward bad behavior, but will prevent us from having hundreds of thousands of new arrivals on the streets.
As for Bill Gross, I don't know what he was doing regarding a minimum wage. Not a clue. But as risk capital said, Gross probably has a sense for the magnitude of what this could turn into. He might not be pleading simply for self-interest. I don't know whether he is or not.
I got out of anything mortgage related in 2004. The only dog I have in this fight is m
I can not under why these pro-bailout thing foreclosure on a home that the buyer has no equity in and never had any equity in is such a "tragedy." In my book, they were effectively renting the house from the bank and had a call option which they would have cashed in for large sum of money if the market rose.
Like an actual renter, their tenancy can be terminated for non-payment. However actual renters can be booted from their house for no reason at all. I haven't seen a single pro bailout advocate also advocate that its a tragedy for renters to loose their home when its no reason at all. I suspect this is because renters are viewed as second class citizens in America.
The second class renters are some how morally obligated to bailout reckless or stupid borrowers who took loans they never had any hope of paying back because they are the first class citizens. The borrowers would have cashed out tax free if the market had gone up. They made their bet and lost.
Nothing will make me angrier than a bailout. There will be so much anger that it will risk rupturing the meager social safety net in America. People deserving of help are the working poor who can barely make their rent not suburbanites how took a reckless gamble and lost.