"borrowers can't afford their houses at just about any rate".

EXACTAMUNDO!

Our analysis of the data suggested that the troubles in the mortgage market generally arise not from a single practice in isolation, but instead from the complex ways that risk factors and underwriting practices can affect each other, sometimes called "risk layering."

Is it any coincidence that the "troubles in the mortgage market" arose just as the Federal Reserve began using interest rates as its primary tool in implementing monetary policy?

I think a better case can be made that the ultimate cause of these "troubles" was the Fed's manipulation of borrowing to abort the business cycle, which prevented debt from periodically being repriced (and risks from being reassessed) according to "real world" conditions (e.g. where people occasionally lose jobs or business plans occasionally go bad).

If so, I think you have to question whether problems caused by Federal Reserve intervention can be fixed by more Federal Reserve intervention.

Simple common sense suggests that might make things worse.

I never will grasp all the complexities of mortgage financing, but it seems to me that we have gotten to where we are because people believed one simple thing that is ludicrous on its face: "It's a good thing to lend people more money than they can afford to pay back."

It sounds as though Fed Guy excerpted here is still buying into the need to protect the consumer from overly-conservative lending practices that might make it harder for people to temporarily live beyond their means.

Tanta,

We hear and obey o blog goddess!

"I never will grasp all the complexities of mortgage financing, but it seems to me that we have gotten to where we are because people believed one simple thing that is ludicrous on its face: "It's a good thing to lend people more money than they can afford to pay back."

Even more ludicrous is the belief that people's moral obligations will lead them to do the right thing.

Where is Mr. Potter when you need him?

Finance has gotten too complex for our own good.

NSA,
I don't think anybody is going to bail out Mozillo. I do think he will be an attractive lover to several "female deprived" cell mates, though.

The creative mortgage options should be eliminated, but no one will go for it. 30 year fixed is all we should have for owner occupied. Anyone else gets treated like a small business. All these neat tricks haven't made housing more afforable for anyone.

Also, taking with friends, the only ones who see a bubble are those trying to sell. The only way to stop more buyers from being sucked into this Ponzi scheme will be to turn off the funny money tap.

At the risk of OT pain,

S&P says 'Show me the money!'

SLM Counterparty Rating Cut, May Be Lowered More (Correct)
By Matthew Keenan

(Corrects previous rating to BBB+/A-2 in first paragraph.)

Feb. 4 (Bloomberg) -- SLM Corp.'s counterparty credit rating was lowered to BBB-/A-3 from BBB+/A-2 at Standard & Poor's Ratings Services, and the student lender may be cut further.

The student-loan company, known as Sallie Mae, will remain on credit watch negative,'' New York-based S&P said in a report today. The decision, which follows commitments by a group of banks to provide Sallie Mae with $31 billion in financing, reflects concern that the company hasn't yet received the money. Once Sallie Mae gets the financing, S&P said it expects to revise the outlook tostable.''

[snip]

There was a time when that would have qualified me to be a bank risk manager.

No, you have this all backwards in the modern aspect. Now is the time where having been burned you are the worst candidate. All they are interested in is track record. The current financial markets are headed by the 1 in 32 who rolled 5 times in a row randomly.

But remember Marcus, we are a service economy now. These creative finacial products are necessary to replace all the actual productive work we used to do.

These creative financial products are necessary to replace all the actual productive work we used to do.

But so much of that productive work was so dirty! Far better to export those jobs, and import labor for the jobs that can't be exported. Then we can all wear white collars.

This whole situation makes me so cynical.

If we have to so strictly govern what people can buy, we're implicitly saying that people don't have the intelligence to make important decisions.

So why do we even have the right to vote?

At least maybe we need more guidelines as to whom they can vote for.

Isn't fundamentally where were going with this is that people don't have the "right" to be more than glorified house pets because they're too dumb not to self-annihilate?

This may be of interest. BTW, Sallie took an axe to their IT department a few months ago. Outsourced it to India.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ad9sHPWsqNvk&refer=home

Also of interest

http://salliemaenot.com/

SLM Credit Rating Cut by S&P, May Be Lowered More (Update2)

By Matthew Keenan

Feb. 4 (Bloomberg) -- SLM Corp.'s credit rating was lowered two levels to BBB- from BBB+ by Standard & Poor's Ratings Services, and the student lender may be cut further.

The student-loan company, known as Sallie Mae, will remain on credit watch negative,'' New York-based S&P said in a report today. The decision follows commitments by a group of banks to provide Sallie Mae with $31 billion in financing. It reflects concern SLM won't receive the money becauseit is subject to various conditions.'' Once Sallie Mae gets financing, S&P said it expects to revise the outlook to ``stable.''

I was wrong about the word "Axe" though I work in IT in the same area
is what I have been hearing.

This from 4 hours ago.

...and that Sallie Mae, which a week ago obtained new financing and ended its court battle over a failed $25 billion buyout of the student lender, is now the subject of a class-action suit.

Law firm Coughlin Stoia Geller Rudman & Robbins LLP said it filed a suit against Reston, Va.-based Sallie Mae in the U.S. District Court for the Southern District of New York on behalf of purchasers of Sallie Mae common stock between Jan. 18, 2007, and Jan. 3, 2008.

The firm said the complaint charges Sallie Mae and certain officers and directors with violations of the Securities Exchange Act of 1934. The complaint alleges that the defendants issued materially false and misleading statements regarding Sallie Mae's business and financial results.

Sallie Mae slapped with class-action suit - Baltimore Business Journal:

What is the best way to determine which "financial product" serves the economic goal of increased home ownership at affordable prices?

We need programs to help first time buyers that are not scams. Low interest and low down payments through FHA seemed to work fine for a while.

The HELOC interest deduction moved debt from CC and auto loans to the subsidized mortgage industry. Mistake? Fix it by reforming this tax deduction?

We need basic consumer protections. We've seen that unregulated markets have unintended consequences. You need not be cynical to realize these protections are necessary. Our goal as a society should be, IMO, to create systems where even the average can prosper.

Hasn't the United States been one of the most successful institutions in acheiving prosperity?

Is it a coincidence that the nation with some of the least regulated markets has been one of the most prosperous over the past century?

Don't regulations also have unintended consequences?

I'm not arguing against regulation per se, but I don't see much evidence to support the idea that heavy government intervention is going improve the situation. In fact the evidence seems to suggest that excessive government intervention in the markets caused this particular situation.

I think the discussion we are having here is how to find the fine line.

I'm worried that too many people are looking at regulation as a "golden hammer" and aren't even looking for the fine line.

I worry that we could be missing the forest for the trees.

Why, for example, is nobody saying that we need to get rid of all the policy makers who stood around doing nothing while we wrecked the economy?

Shouldn't step one be to say "Hey you who doesn't understand that a person with no job can't pay a $500,000 loan -- Get the hell out of my banking system. Get the hell out of my congress."

That sounds more like a real solution to me.

This whole mess must really steam these guys. They are so blatantly anti-regulation of everything, even when their good sense books back in the academia days clearly laid out many many examples of how markets fail. It just cracks me up to watch them wiggle now while so many people have their lives shattered by the gods of financial innovation, tiptoeing ever so carefully to find the words that will sooth those who dont yet realize how fully they failed in their responsibilities. And then, to top it off, charming us with these clever little speeches of how they will now fix those tiny things that were not right, with perfectly ineffectual but carefully crafted calculated "remedies". Just one big pile of turd, and yet, there they all, pronouncing upon high how they, the masters, have everything under control.

Where were these people when it mattered? They couldn't stop praising the system enough to get off their lazy asses and see just how screwed up it was, and now they dissemble about it, as if they share none of the blame. Egads!

Look, we know some people are still really, really, really into the whole deregulation-solves-everything religion.

My point is more that the "regulators" haven't demonstrated much competence, so I have to reject the notion that the solution necessarily lies with them.

I would suspect that regulations are as beneficial or harmful as the people that make them and enforce them.

I think the real problem here has been willful ignorance. People deliberately not thinking. I have a hard time focusing on regulation as a solution because helpful regulations can simply be ignored.

What good did the Glass-Steagall Act do when it really counted? I would assume none since we simply got rid of it when it became an inconvenience.

Rich - Regarding your relatives' expensive health care. Just curious. Are they are on medicare (which sometimes - but certainly not always - pays reasonable reimburements to providers)?

My two relatives are both on Medicaid, not Medicare.

And - if not - in what type of facility did they get their health care?

Quite honestly, they were in the finest hospitals in the NY City area for their given situations, receiving the highest quality care on both an in-patient and out-patient basis. And one of them went through the in-patient, out-patient cycle three times. All medications paid. All therapy paid. All TRANSPORATION to out-patient program paid. All doctor visits paid.

I am so grateful to New York State taxpayers for paying all these bills.

And I'm also grateful to you people, federal taxpayers, for providing them with Social Security SSI or disability benefits. This really is a wonderful country in some ways, more socialist than you may know.

Misean,
I am sympathetic with your frustration, but being intimately connected with the health care system, I think it is a deteriorating disaster.
I think there will eventually be some kind of single payer system. I kind of liked Edwards idea of one in competition with the private sector. Health is not a simple supply/demand thing and it is very easy to extort people. Add the complication of huge knowledge gaps.
As for paying for others stupidity,well, we all have failings and there are tons of things I don't like paying for that other voters don't mind.
I am originally from southeast Texas, chemical row, where oil is refined and a variety of chemicals produced for much of the country. There are higher than normal cancer rates there. I knew personally a 19 year old who died of cancer (other teenagers in the town have also been diagnosed) that BKed the family even though they had insurance.
SE Texas takes a pollution hit providing chemicals for itself and the rest of the country. How do you factor such externalities into the price of goods? I am not sure, but they aren't being factored in now, and it is not right.
All this talk of optimizing growth starts to ring hollow when your kids are dying.

The Clintons' proposed health care plan is NOT single-payer. In fact, it is about 95% identical to Obama's, except for the part about making it illegal not to buy health insurance.

Nemo,

When both Democratic candidates talk about their health care programs, they are talking in political code. They know these programs won't achieve much and either a single-payer or comparable multi-payer system is required to bring down U.S. health care costs, as a % of GDP. If they can get a large enough majority in Congress, they'll move toward single- or multi-payer quickly.

Hillary is a much more experienced politician than Obama, and she has no intention of freezing mortgage rates in reality. But she knows she has to get elected first, and it's a good sound bite. Obama is an impressive illusion, not totally real underneath. But he would make a good VP now and maybe Pres later once he learns how politics works.

Tomorrow will be the biggest turnout in U.S. history for Hispanic voters! Ain't that grand?

rich,

It is grand - and the repeated waves of immigrants entering this nation are a large part of what has made it great - that and the possibility of profiting from the fruit of their own labors.

It will be interesting to watch in the downturn that is progressing whether the areas hit hardest and sink farthest correlate with the most punitive anti-immigration policies.

idoc: If the smack is strong enough and if it's done in conjunction with other governments, then I think you have a real possibility to stabilize our high and make it better,'' Thomas Russo, vice chairman of Lehman Brothers Holdings Inc. in New York, said in a Bloomberg Television interview Jan. 24.If the smack isn't effective or strong enough, you're in for a real downturn.

Stephen King, chief economist at HSBC Holdings Plc in London and a former U.K. Treasury adviser, says the crisis may get so severe that taxpayers will be forced to bail out homeowners who fall behind on loan payments and to buy up worthless assets that are hurting banks.
http://www.bloomberg.com/apps/news?pid=20601103&sid=arcwG_0LM0lM&refer=us 

Well, that's a paraphrase at least... I think taxpayers reads better than government.

Well this thread is several hours old, and no one enjoyed my Mr. Potter quote.

Tomorrow is Super Tuesday - Mrs. gary and I will be voting Obama (John Edwards sadly no longer an option).

Anyone else voting tomorrow?

Dr. Strange

is it my imagination or is the threat of monetary inflation progressively being shoved to the wayside? almost daily now we are getting wilder and wilder ideas about propping up asset prices with little to no regard concerning inflation. Fed policies have clearly moved into inflationary mode with TAF and rate cuts.

i mean, where were these guys educated? they are going to throw us all into the abyss.

It is grand - and the repeated waves of immigrants entering this nation are a large part of what has made it great

energycom,

The legal Hispanics in this country are quite unified in their disillusionment and disbelief at the anti-immigration wave. They regard it as racist, un-economical, and un-American. It's the biggest unifier in the history of Hispanics in America, almost like their Civil Rights movement.

Hispanic media is much more honest and emotional than white people's media, and it tells the truth about what Hispanic Americans feel. I love to watch it.

I see mothers...drop food stamps at the register and hop into an SUV regularly.

A Hummer no doubt Sorry, just can't resist - its a tale, no doubt true for you, that's akin to the ones about the homeless man on the exit ramp jumping into a chauffeur driven Rolls Royce at the end of his daily shift.

-K

Jesus to stimulate the U.S. economy with "a fresh infusion of loaves and fishes."

Oh Lord protect us from the fury of the Jinglers

A Hummer no doubt Sorry, just can't resist - its a tale, no doubt true for you, that's akin to the ones about the homeless man on the exit ramp jumping into a chauffeur driven Rolls Royce at the end of his daily shift.

I've got a brother-in-law that runs a community food pantry. I'd say that he's got a little more insight than most on the subject.

There's a lot of slack in the system. Food stamps would provide well in excess of either of our families monthly food budget (including eating out). If you Google "Thrifty Food Plan" you'll find more than a few bloggers that came in under-budget trying to live on a food stamp allocation.

He's never really mentioned anything specifically about food stamps and SUVs but he been vocal about the 2K+ worth of tires/rims on the cars.

That doesn't mean that there aren't a lot of people who have legitimate needs but he has to spend the majority of his time trying to sort them out from the people who game the system.

But, that being said I don't think the biggest abuse of the system is through the food stamp program. From what I've seen, the Social Security Disability Insurance program has become is far more abused.

That doesn't mean that there aren't a lot of people who have legitimate needs but he has to spend the majority of his time trying to sort them out from the people who game the system.

Two words answers it all: black market.

When you have a thriving black market you have some people with official reported incomes 'very low' but who still make a bunch in the shadows. It has always been that way.

It isn't the failure of the concept of food stamps specifically or charity in general to help 'legitimate poor' - however you want to define what is 'legitimate' - its the failure to capture how much of the real economy is underground & how much folks really make.

My guess is more and more income is generated underground everyday. The trouble with 'more regulation' as the primary answer to every problem is that it feeds the environment where the black market thrives. Regulation increase the start up and maintenance cost of doing business... so to avoid that go underground.

I am not anti-regulation or pro-laissez faire... but you had better know what you are regulating & why and then enforce the shit out of it. With that in mind 'less is more'.

BTW- 2K rims doesn't mean they have a lot of cash, it just means their priorities are seriously screwed up,...but then that's not surprising. I get a feeling that not too many people on this blog deal with the lower income groups, let's just say that logic and proportion are definitely not their forte.

Nah, I'm talking about ordinary poor people who wish they had some black market income! They buy the stuff because everyone around them buys it. One claimed mice ate through the concrete slab to get inside her house (although she couldn't point out the hole)-even after I saw one saunter through the wide open backdoor to eat the dog food.

idoc: Is it my imagination or is the threat of monetary inflation progressively being shoved to the wayside? almost daily now we are getting wilder and wilder ideas about propping up asset prices with little to no regard concerning inflation. Fed policies have clearly moved into inflationary mode with TAF and rate cuts.

We are already screwed. That happened when financial innovation expanded too far without a stress test. I don't think anybody is afraid of inflation as much as they are afraid of a 30s style collapse. I think either way, nearly everybody on this board will eventually be horrified with events and responses as they unfold. The only people that understand the crime are the ones that understand 'privatize the profits, socialize the losses', but that is too abstract a concept for most people to protest in the streets -- hence making it the favored political outcome.

What dryfly said. I hope the Fed is listening: "enforce the shit out of it".
If the Fed does not comply, come November, December, the knives will be out for Bernanke.

They call those sovereign wealth funds, I think.

ref to the "helpful mortgage broker" in the 2nd quotation...

I can't help but wonder, how many of these helpful professionals were looking forward to repeat business from the same borrower a few years down the road when it came time to refi (or flip as the case may be).

This random though first crossed my mind a week or two back when the blog subject was about the guy that wanted to jungle-mail the house he was in, and buy the FC one across the street. Who knows if the same helpful mortgage broker was trying to work all these deals (and thus hang on to his repeat customer).

Random thoughts about a lousy situation.

Ray

Robyn - as an employee of a very large pharma company, i thank you for your health care tithe.

Hint - stop smoking, drinking and eating whoppers and the cost of health care will fall quickly.

Oh wait - there I go blaming the victim again. So sorry.

If only we had better disclosure that a whopper freak-out was hazardous to your financial health!

Seriously though, this is an interesting metaphor. Is a whopper just like a jumbo subprime?

But you see, I profit over his bad habit.....

This is a way out of the upside-down mortgage mess.

It is in keeping with our Anglo-Saxon Common Law heritage were judges apply the rules of Equity to set precedents which solve legal problems using the facts and circumstances of actual cases.

Jill's link shows a practical way out of the mortgage mess.

Stuck with a bad loan, a Staten Island family fights back | Staten Island Featured Entries - Breaking News - - SILive.com

If the regulators won't do their jobs, then the local judges can void the claims of lenders who violated the laws and regulations.

It will not be pretty, but it will be damn effective in disciplining this industry.