Politicians and Bush say ‘F-you’ to RESPONSIBLE Americans and extend the housing bubble 5 more years (at least)
I don’t have time for a long post right now, but I will expound on this later.
Today marks the day that America goes bankrupt in more things than just it’s finances. We are bankrupt in personal responsibility, integrity, risk assessment, and admitting our mistakes. But look at the bright side…I have found the ‘next BUBBLE’ that exists in pandering, blaming others, and crying to politicians to save people from their own poor decisions.
By pushing this off 5 years, you did nothing more than make this worse for the long term. We will not be able to get to the real market value of these ‘assets’ by government stepping in and selectively helping irresponsible people. Not to mention the message it sends to the rest of the country.
Read the comments at the bottom of this article about the situation. Looks like more people than just me are pretty fed up with things. Here is a quick sampling:
dear mr. president - i have been advised of a rent increase in my rental apartment - i can’t afford to pay the increase (and maintain my overextended lifestyle) but i wopuld like to stay anyway - do you think you could add a rider to your little mortgage rescue plan that saves my aprtment for me - thanks - oh and after that could you put a freeze on my cellphone bill - thats too high also.
boy are we all suckers for getting fixed rate mortgages -or waiting until we could afford a house before we bought it- or saving our money - or being fiscally responsible - who knew our president would be effectively subsidizing peoples mortgages - who knew that the government would bail out the people who bit off more than they could chew
I am absolutely disgusted by the pandering of our politicians…both to Wall Street and the borrowers that made poor financial decisions. We didn’t share in the profits for those 5-6 years of Real Estate bubble madness…but now it is OK for us to share in the losses.
There will be more to follow later on. I need to gather my thoughts, get some more work done, and get a workout in. I take personal responsibility for more than just my ‘financial’ health.
Stay tuned…this thing just got extended a few more YEARS!!
SoCalMtgGuy
December 5th, 2007 18:48
I share your frustration, but I don’t think this will drag things out five more years.
This will generate tremendous pressure in unexpected places elsewhere. Given that it is axiomatic that thick-headed govt intervention always makes things worse, I’m expecting an even better deal on a house because of it.
December 5th, 2007 18:52
I’m listening to Hillary. She just said: “I don’t see this as a bailout.”
G** D*** politicians. This is fu**ed.
December 5th, 2007 19:34
This whole situation makes me sick. Responsible people get screwed all the time and nobody is around to help them, not least politicians. There are not enough of us for the votes to count.
For years my wife wondered how all these people could afford the homes, new cars, vacations, home entertainment centers, bling and whatnot. Now she knows that they could not afford it and were living a lie. We did not. Until last week my only car was a ‘94 BMW pushing 200,000 miles. Now I have two used cars. It is not that we can’t afford things, we have prioritized saving as much as possible for the eventual time that we do buy.
Any assistance. if any, should come from those who the money is owed. If this goes through, watch, in a year or so, those that end up being helped will bitch that they can’t take advantage of lower rates because their rates are ‘frozen’!
Just wondering, how many of these defaults are full-doc loans?
December 5th, 2007 20:29
I can’t imagine how many unintended consequences will come out of this.
For example, A lives next door to B. A doesn’t qualify for help, but B does. A knows that B falsified his stated-income papers. Whatcha think A is likely to do next?
Or, A knows that B bought a spec condo in Florida and was claiming it as his principal residence. But A did a little research in B’s hometown tax records and finds that B is claiming homestead there, too. Whatcha think A is likely to do next?
And on and on…
December 5th, 2007 20:49
Chip,
Yeah, it sucks when you ‘change the rules’ in the middle of the game.
There are so many unintended consequences…but don’t expect guvment to think anything through.
The only real winners will be the lawyers. They will collect their fees from both sides no matter what happens.
Very sad…
SoCalMtgGuy
December 6th, 2007 00:31
This is really making me physically sick. We’ve got to do something about this! Organize protests, letters, whatever. But we can’t just do nothing.
Mad As Hell
Howard Beale
December 6th, 2007 01:53
Time to leave this POS country…it ain’t worth hanging around anymore to see what happens while my life goes by. Gave it enough time and chance but not anymore.
My wife and I were planning on buying perhaps next year. Not anymore….it just ain’t worth it.
December 6th, 2007 02:22
Amusing that’s how I would describe the situation. These people are simply trying to forestall the inevitable,actually Bush is trying to save his fellow Republicans until the election is over.
Its certainly nice of him to be so thoughtful about his party. But in reality I don’t think it will do anything since these programs tend to target such a narrow spectrum of distressed borrowers.
Also I don’t think the problem can be solved by preventing a few rate resets,I know people who have refinanced but find themselves sitting on a potential financial ruin in the years to come. If the day reckoning is not today then tommorrow.
However I think these politicians are really putting the cart ahead of the horse. The problem now isn’t borrowers going bankrupt its investors wary of squandering their hard earned dollars.
Bush can do whatever he likes but the bottom line is that if investors are not forthcoming with their capital and refuse to play his little game what good are his actions?
Liquidity and solvency are the main issues now and the latest series of “measures” do nothing to create either.
If Bush is serious about resolving this housing bubble he should really be watching out for the interests of the creditors. In the unlikely event that the United States does everything to protect mortgage bond holders investors could sink even more money into the US housing market. But this really depends on a government that’s keen to look out for the interests of investors. Which isn’t very likely,especially before an election.
Even if our leaders were so thoughtful and far sighted its difficult to imagine that investors would be happy even in the best case scenario because they would still have to realize massive losses.
I wouldn’t worry about this. In fact I think in the long run this sort of talk will be just the sort of thing that really does bring the credit market to its knees.
Bush has thrown fuel onto the fire of an already burning housing market. Today’s actions will only insure a faster and more spectacular collapse.
Let the proud and idiotic taste their well earned fruits. As that old Bible verse goes:
“Sow the wind, reap the whirlwind.”
December 6th, 2007 07:53
As many commentators have pointed out, this measure is a break of 200 years of contract law. Investors would expect such things in banana republics but not in the US. With the forced modification of securitized loans, future mortgage rates should show higher spreads to treasuries, to pay the investors for higher risk of political intervention. Higher mortgage rates cannot be good for the housing market.
There are two interpretation of the measure, help for the borrowers and help for the lenders. The first is emphasized, the second is more important: Doing nothing would lead at some point to an avalanche of foreclosures, resulting in big losses for some investors now, in rapidly falling house prices, and in uncovering more of the fraud and idiocity of the housing bubble than the leading figures want. The measure extends the pain in the housing market, allows some last end-of-the-year bonuses, and leaves it to the next administrations to deal with it, maybe for the next 10 years - Japan becomes more and more of a blueprint what is expecting us.
December 6th, 2007 09:08
I don’t remember government doing anything like this since Nixon’s wage and price controls. (Also a Republican adminstration, btw.)
That didn’t work out so well back then. It’s like putting a dam up after the river has already flooded. The market needs to be left alone to deal with it, the way forest fires are a natural part of the ecosystem that clears out the old so that new growth can occur.
I can only imagine the size of the losses that the holders of these cdo’s economic models were projecting for them to agree to this. It’s kind of like a pre-packaged bankruptcy. They’re willing to take pennies on the dollar because they know things are so bad.
Here’s what I think: this deal will fall apart. All it’s going to take is one big holder of this paper to challenge it, and a foreign bank is most likely to be the one since they won’t be as concerned about American political pressure.
This is like taking the housing bubble and instead of gently deflating it, hooking up the air pump and pumping till you get the biggest explosion ever.
December 6th, 2007 10:13
I understand the frustration being expressed by many on this and other blogs. And I share that frustration.
But as another poster has indicated, this “bailout” will have very marginal effects. The target beneficiaries of this plan are too few and represent only a small portion of the subprime market. Not to mention this mortgage crisis extends far beyond subprime and into Alt-A and prime territory. E*Trade is a great example of that. All their recent issues with their mortgage backed securities; in actuality, E*Trade had very little exposure to the subprime market. They still had to offload their collaterized debt and great discounts despite the fact that over 70% of that debt was backed by prime borrowers.
The point is, this is political grandstanding. Nothing more. And it will make no difference. In actuality, it may even accelerate the downturn. How? Because now it will be even more difficult for loan reselling to occur through the derivatives market. Now that investors realize the government is potentially going to step in and break contractual promises, what investor worth his salt would want to put their money into an asset class of any sort whose ROI is dictated by our government? (I think that’s called ‘communism’ by the way)
So now, we will be looking at a situation whereby lenders will need to compensate for these frozen rates by increasing LIBOR rates for others. And in all likelihood, demand higher down payments. Do you think that will increase liquidity? Not a chance. Those on the sidelines waiting for a correction have even more reason to wait because they have been priced out further due to mortgage interest rate increases.
So there is only one possible outcome: house prices will continue to drop. And drop hard. Nothing has changed. While we may be screaming to blue heaven that these individuals receiving this bailout are getting a free ride, that is actually incorrect. They are pawns in this game and they are being given a false sense of hope from corrupt politicians looking to gain votes. But how do you think this will play out? Answer: they are going to slave away for an additional five years to pay for a home that is depreciating in value. And in the end, they will likely get foreclosed upon anyway. Or be forced to continue paying an inflated mortgage for a property not worth half of what they paid for it.
So everyone be patient. I know it’s frustrating to see our government to asinine things. But in the end, normalcy is ALWAYS achieved. All excesses eventually find equilibrium.
December 6th, 2007 12:15
“In actuality, it may even accelerate the downturn. How? Because now it will be even more difficult for loan reselling to occur through the derivatives market.”
It might also accelerate the downturn in other ways, such as increasing the amount of foreclosures in the chort-term as all those people who can manage their mortgage otherwise might now stop paying their mortgage in a race to be foreclosed on prior to the Government helping the less responsible, leaving them to pay higher rates.
December 6th, 2007 12:51
Just to help asage people’s fears in regards to this bailout, take a look at the actual criteria Paulson and his merry band of imbeciles have outlined as being necessary to qualify:
* Mortgage had to be issued between January 2005 and July 2007
* ARM must reset January 2008 to July 2010
* You must not have more than 3% equity in your home
* Home must be worth more than the mortgage
* You must have income
* You must prove that you can make the payments
* You must not be more than 60 days past due
* Program is voluntary with the lenders - government has no authority or legal status
That being said, that bailout will help, oh, about 5 people in total?
Seriously, is this a joke? I know the government assumes its people are imbeciles. And with good cause. (See 2000 & 2004 election results for confirmation of human stupidity)
But honestly, do they actually think this transparent tripe will fool anyone with at least three functioning neurons?
December 6th, 2007 13:13
The whole plan reeks of bailout for wall street.You can wipe your @ss with as far as I see.It is a total joke to baliout gamblers.
December 6th, 2007 13:25
The whole plan reeks of bailout for wall street.You can wipe your @ss with as far as I see.It is a total joke to baliout gamblers.
That was the 5 people I was referring to in the previous post.
Clearly it is not designed to help Joe Sixpack. Any actions taken by the government are there to mitigate the damage to Wall Street.
December 6th, 2007 14:55
From above, “boy are we all suckers for getting fixed rate mortgages”..
I’m not sure about that. The rates and terms of these are still very crappy. I don’t think the rates are the true teaser rates of 2% and if they are, the neg, amort isn’t going to stop, just delayed.
Being in a fixed rate mtge is still the best bet, as it lets you sleep at night.
Just because the prisoners are getting a stay of execution, it doesn’t mean that they are getting a full pardon and you wouldn’t want to be one of them. Now, they have become prisoners of their debt.
Somehow, I wonder if this temporary bailout is going to make them worse off in the long run.
Just my thoughts.
December 6th, 2007 15:11
Somehow, I wonder if this temporary bailout is going to make them worse off in the long run.
I believe it will make them worse off. Having a few shleps bleed themselves slowly while Wall Street balances its books will not be a winning situation for these people receiving a bailout. What will they do in 5 years after they’ve been slaving away to pay for a house that has depreciated in value? What then?
As some author noted in another article, it’s akin to placing a bandaid on a severed limb.
December 6th, 2007 15:17
I keep thinking I have read this all somewhere before..
What are all these people counting on?
Why do I have to pay for it?
Who is John Galt?
December 6th, 2007 15:27
43% of foreclosures are subprime.
What about the other 57%? They are prime and alt-a.
There is no way they can fix this.
December 6th, 2007 15:59
stuck in nnv
Atlas Shrugged…what a great book. Sadly, the politicians never see the REAL effects of their poor decisions, even when it stares them in the face.
SoCalMtgGuy
December 6th, 2007 16:39
The more I read and hear about this “relief” program, the more I agree with those who say that it is merely political grandstanding. I really see no benefactors, just bigger losers than there was already destined to be. Anyone who bought using an 80-20 ARM during this time frame will simply have little or no equity to show after making 7 years of payments instead of 2 years of payments. Just crazy!!!
December 6th, 2007 19:47
Even when you vote for the lesser of 2 evils, you are still voting for evil.
Ron Paul 2008!
December 6th, 2007 21:27
[NB: This is a lengthy rant but there are some questions embedded within . . .]
I don’t post much on this blog. I mainly read and learn. I am feeling angry and worried about the state of our economy/country. The idea of a bailout for people who are in over their heads really burns me up. I was about to jump on board the real estate ship myself a few years ago. My realtor responded to my concerns about handling payments by saying things like, “don’t worry, you’ll have a higher salary in a few years”; and “If you have trouble making the payments you can just sell.” All of my friends own their apartments in NYC and were encouraging me to buy.
I’ve always been a diehard democrat/liberal and I shamefully admit that I’ve historically never attended much to money matters; in fact I disavowed my need for a lot of money. While I didn’t know much about finances or markets, I do understand something about logic. And my realtor’s sales pitches to ease my anxiety about making payments (see above) actually raised red flags. How do I know I’ll be making more money in a few years? I could be laid off in a few years. How do I know that I can sell my condo in a few years (I did know that markets change)? I told the mortgage broker that I had student loans coming due in a year’s time and I didn’t want to get into a situation where I couldn’t make payments. My own rudimentary calculations indicated that I could afford a property worth X and the mortgage broker indicated, after seeing my financial information, that I could afford “X + 90K!
Putting all this together I concluded that my Realtor is a salesperson and makes his living by selling. He’s not looking out for my best interest—that’s my job. I decided to give up on buying a place for the time being. Then I discovered this blog.
Over the past 2 years, I’ve been reading and learning a great deal here. And even though I know much more than I used to, I realize that I don’t know nearly as much as many of you do and probably never will since my field of expertise his nothing to do with financial markets.
Now if I, with paltry knowledge of finances/markets/etc., understand that signing loan docs when I’m unsure about my future means to repay is a bad idea, why couldn’t everyone else? I took responsibility for not getting myself into an impossible financial situation, why couldn’t they? If there are really going to be bailouts then STOP, I promise I’ll be quick—let me buy a place now so I can get in line for a bailout!
With all the news and commentary that I’ve been reading on this blog and elsewhere, I’m rapidly becoming disenchanted with the democratic party and worried about the state of our nation. It seems that both parties are in a race to see which party can pander the best and the most to the uneducated masses. Politicians are appearing to me to be high-priced administrative prostitutes, sold to the highest bidder, and will push whatever paper is necessary to ensure that their campaign contributors are satisfied. There is little regard to what is best for the country, rather the priorities seem to be “what is best for my political career right now”, seemingly paralleling, in a disturbing fashion, many Americans’ fiscal priorities. I therefore believe that our democracy currently is illusory.
I grew up learning that “free markets” and Laissez-Faire economics were vastly superior to any other economic system. Yet as I read this blog and other sources about what free markets entail, it seems that we do not truly have “free” markets. Market participants seem perfectly happy to keep any and all profits made for themselves. After all, they “earned” them. Then why is it such free market exponents believe that government should bail them out when their losses mount? Now, losses in the CDO markets seem so high that our banking system could be in jeopardy (we’re already seeing state pension funds in trouble, e.g., Florida). Are we headed for “The Greater Depression”? Should I completely withdraw my 403b and rollover IRA and place the funds in a bank? Sure, I’ll pay a penalty but at least if it’s in a bank I’ll be covered by FDIC (for what that’s worth). And from what I’ve read, higher taxes in the future are highly likely so perhaps I should take advantage of the Bush tax cuts now before it’s too late???
Is this the paradox of laissez-faire economics/free markets: That participants in unregulated markets are allowed to behave in ways that put the country’s entire economic system in jeopardy? Then what do we do? We can perpetuate moral hazard by “bailing out” those in trouble; Or allow them to learn their free market lesson but risk the fall of the entire economy? The democrat/liberal in me says “government regulation is needed”. But what regulations? Law is odd; Once you specify what the law is, you also specify what the law is NOT.
It seems that the US is between a rock and a hard place now. And I’ve become quite cynical that politicians will do anything of substance about it. In 1992 I couldn’t wait for the presidential elections and I was elated when Bill Clinton was elected. But looking back on his presidency, I have mixed feelings. Was NAFTA really a good idea? I certainly don’t think allowing pharmaceutical companies to advertise direct to consumers was a good idea at all. I hope Clot’s method of reform is not our only option. But right now I’m not very optimistic. I’m considering a vote for Ron Paul. And if Bloomberg were to run I would vote for him in heartbeat.
Any comments or feedback on this [lengthy!] post are appreciated.
December 6th, 2007 23:46
I have a few comments about this so-called “Bail-out” -
First, I don’t really believe this is actually a bailout of the people! it’s just one of many band-aids that will ultimately drag out the problem and hurt more people over time, while temporarily obfuscating the massive balance sheet problems at our financial institutions.
While it is wrong, all this nonsense of locking the ‘Bubble Buyers’ teaser rates is only going to keep people in a house that will continue to fall in value, all the while, they think they are being helped if they continue making payments on a constantly depreciating asset. People really believe this is helping them? Well, clearly, they truly are idiots. But they already proved they were idiots by buying into what was so obviously a bubble. I don’t buy the “poor me” nonsense. Where is personal responsibility and due diligence? There were plenty of people out there warning what a massive bubble this was years before it peaked.
Fundamentals matter! Borrowing 2 or 3 times income is standard. Why did people think RE appreciation was going to continue in perpetuity? Paying 6, 8, 10 times incomes is not only TRULY STUPID - but actually SHEER LUNACY! PRICE MATTERS!
I’m not afraid to call these people stupid. They were idiots to buy the hype - Did these folks not learn ANYTHING from the internet bubble only 4 to 7 years before ? (depending on when they foolishly “bought” and overpaid for their bloated home)….
The fact is - this MASSIVE BUBBLE in RE prices will still deflate, albeit perhaps somewhat slower with these constant band-aids being placed on this gushing wound.
What this nonsense really does is allow the holders of all this bloated (realistically worthless) mortgage paper to continue collecting payments and thus pretending the so-called collateral is still worth the amount of principal they foolishly loaned out with “sub-prime” loans, etc. They won’t have to mark it to market and can continue to pretend in the fantasy prices.
In reality, they are HELPING THEMSELVES!
For example - say they loaned out $700K on some 1800 sq. ft. house in CA. (I’ve seen it) - Now that house is worth $550K and headed back to it’s 1998 price of $230K (or lower). It’s better to keep the idiot borrower in that house paying a lower rate on the $700K, then walking away and leaving them stuck and having to recognize and “write-down” that loss.
It’s simple - the banks and mortgage lenders REALLY REALLY don’t want to foreclose, because of the simple fact they’d have to recognize the HEAVILY REDUCED VALUE of the properties they’d be stuck with and burdened with unloading into a collapsing market with more and more inventory coming online due to this spiral. So this slows it all down, but DOES NOT AND WILL NOT STOP IT FROM DEFLATING DRAMATICALLY!
There is still way too much bullishness about prices and people think RE is going to come roaring back when the decline has only just started. RE WON’T COME BACK AGAIN! This was a once in a generation event (as most bubbles are) It’s simply not possible to repair this damage without decades of pain! That’s just reality….
Also consider that all these folks who overpaid for their homes by stretching to buy using these exotic loans, etc. aren’t really getting a favor by being allowed to “STAY IN THEIR HOME” - first of all, it’s not their home, that’s a myth. They’ll NEVER own it (short of winning the lottery). This “American Dream” nonsense is pure BS!
More like American Nightmare since at best they will be STUCK IN THE HOME THEY HAVE!
They will never have any equity build up in what will be a very protracted decline - and thus won’t be able to move because prices will continue to fall regardless of these band-aids being orchestrated. They’d actually be better off walking away now and renting, saving money and buying in the future when prices come back to reality sometime WAY in the future………
People should study Japan as an example of how Government interference / intervention (MORAL HAZARD) worked out for them.
Hint - IT DIDN’T! Japanese RE prices are actually 80% lower than in 1989 and they’ve only this year had the first slight uptick in prices in 18 years. The funny thing is the Japanese people don’t even trust it. Imagine that! After an 18 year and 80% decline, they still don’t believe it’s a bottom. Talk about a change in psychology.
In the US, we are at least a decade away from that here - if we’re lucky - because OUR BUBBLE IS SO MUCH BIGGER & Extends to the stock market - which - along with housing - needs to (and will) fall 50% or more……
Sadly, this is going to get so much uglier than most can even comprehend or fathom……….
But hey, maybe I’m just too bearish. Let me also say I blame GREENSPAN for all of it. He’s the father of Moral Hazard!
Vote Ron Paul 2008!
December 6th, 2007 23:46
Wait, did I read that right? The f’d borrower has to have between 0% and 3% equity before the lender can volunteer to freeze the payment?
December 6th, 2007 23:58
SoCalMtgGuy,
Did you catch the ONE cut away from HRC in her CNBC spot? It came after the Money Honey asked her where the $5B bailout funds were going to come from. HRC: “It comes from where it comes from, …pregnant pause…, you know, the budget.” They cut to Maria’s co-anchor (Dylan Ratigan), who was busting out of his chair laughing increduously at what Hillary was saying. I wonder if he still has a job! Unfortunately CNBC cut it out of the video on their website (2:20 in).
http://www.cnbc.com/id/15840232?video=604127957&play=1
Anyway, a rate freeze, bailout, etc., really burns me up. I moved to CA (SF Bay Area) in 2005, and when rent was 1/2 cost of buying, I chose to rent. Especially when the news headline the day I arrived was Home Prices Increase > 15% YOY for the 5th straight year! I checked my pay stub and didn’t recall any 15% YOY increases in pay. I mean, Joe Six Pack KNOWS he hasn’t seen his paycheck turn into Joe Case, has he? SERENITY NOW!
December 7th, 2007 00:53
Joatmon,
I saw Dylan Ratigan interview HIllary several weeks ago. I thought he did a good job figuring NOBODY will keep their job or get another interview anymore if they really ‘go after’ a politician (especially her) with a line of questioning.
SoCalMtgGuy
December 7th, 2007 00:56
Road Trip Boy,
Great post!! You pretty much nailed it with regards to ALL POLITICIANS now. Both parties do nothing but pander. You can’t get a straight answer from a politician on ANYTHING anymore!!!
But hey, this is what you get with continued lowered standards and never wanting to ‘offend’ anybody. You get a bunch of sheeple that are easily steered because they cannot think for themselves.
I could go on and on…but it is getting late and I still have some more work to get done.
Stay tuned….this thing is going to get REALLY ugly!!
SoCalMtgGuy
December 7th, 2007 01:02
Diomedes is mostly correct in his[her] observations. This is much adoo about nothing. The president would have a hard time forcing a creditor to acquiesce to such a plan. I have yet to read where the real “teeth” is.
At best case, this may forestall the inevitable for less than 50,000 - 100,000 mortgage debtors. But most everyone here realizes the downside of gub’ment interfering in this manor with free markets will be beyond disastrous. Freezing teaser rates on any mortgages will lead to a total collapse in credit ratings on bonds backed by the loans. Since a good percentage of these “packages” are held offshore, we will probably see the dollar devalued even more.
If/when this happens, start looking for global crude oil to be traded in Euros in response, thus collapsing the dollar completely. That’s when the real fun will begin.
RoadTripBoy (and others who feel the same way) -
Don’t blame the politicians we keep electing over and over. We can’t demand “personal responsibility” from over-extended mortgage debtors, then cry victim ourselves. Most of the anger here is rooted in what I think is, and has been a deep rooted cancer most of us are afflicted with.
We tend to despise these few mortgage welfare recipients not because this situation morally reprehensible, but in our heart of hearts, we just hate the fact that someone else is getting someTHING we didn’t.
We have been conditioned to love our THINGs, our crap, our material possessions. We as a country stopped being producers of goods and most services long ago, yet we still consume literally for the sake of consumption. It is our true, defacto religion. Some other jerk gets to consume someTHING, in this case a house, that we don’t get to consume…at least not at the perceived value point they do. And we hate it. It’s not fair!
So we blame the politicians. Or the Financial industry. Or Big Oil/Tobacco/PHarma/et al. Because the politicians are on THEIR payroll.
Well duh!
When the mayor of New York city, spends $100 Million on his election campaign…to earn him the right of a JOB that pays $280K/year (or whatever) and…WE VOTE FOR HIM. We vote for the guy that spends the most on TV advertising. The same TV advertising that has conditioned us over the past 50 years to be totally unhappy, because we have not consumed enough THINGS. Those same advertisers that “donate” to the politicians so they can afford TeeVee time. We vote in every politico/administration that advertises on TV. We refuse to vote in anyone who can not afford to advertise on TV.
We know there are no differences between Republicans and Democrats. But we want desperately to believe there is. And if another party can’t afford to advertise themselves on TV, they must be bad.
So just who is the fool here? The elected officials…or us?
Our consumption of THINGS validates us as humans in our culture. Our hoarding of materialism defines our social pecking order in our culture. This is why people signed onto loans that they knew they would never be able to afford, because they got one of the big THINGS our very sick society values…a house…even if it is only for a short time.
And we get really pissed when someone else gets some THINGS that we think we are more deserving of.
As a so-called home owner for over 20 years, I can tell you there is absolutely zero joy in owning a home. Well really, it’s owning a home mortgage. I won’t own this house until the last payment is made. So we LIE to ourselves don’t we? We call ourselves “home owners”, and we don’t own anything. The mortgage holder owns it (miss a few payments and you will see who really owns that house). We have some rights to any leftover profit, if any, ONLY when that house is liquidated [sold]. A “home is an investment”. Another LIE. A home only “performs” as an investment (a performing asset) once it’s completely paid off or sold for profit. Otherwise it’s housing, a necessary expense everyone has.
Yet in light of those facts, here we are thinking someone else is getting someTHING we are not, and it hurts us. We attempt to rationalize our anger by saying “…but I wind up paying for that welfare in the form of taxes or higher prices”. Another LIE we have convinced ourselves is true. Our production is taxed at over 66% (fully burdened with all taxes) regardless. Our taxes will NEVER get lower. Because it will take a lot more than bitching about it. Sorry.
I am rambling now I know. Bottom line; we get exactly what we deserve.
December 7th, 2007 09:31
Interesting posts from everyone. This blog is certainly filled with some well rounded and intelligent individuals, which is very refreshing.
One thing to state, although perhaps it may be taken the wrong way: politicians have ALWAYS been that way. From the initial birth of democracy in Greece, to the Roman Senate, to the British Parliament and now, to our own Congress. The game of politics has always been played in this fashion. And not to disparage anyone’s view of the USA, we do not live in the Garden of Eden here. We are a country with our own problems, just like everyone else.
But speaking as someone who is an immigrant to this country (originally from Hungary, grew up in Canada), understand that ALL countries have similar political structures and ALL politicians placate to their constituents. They do what they think they need to do to get elected. It isn’t about what is best for the country; it’s about what is best for their campaign.
One thing I will say is that I think the political establishment here is out of touch with its constituents. Often times I am baffled at the actions taken by some politicians for what they perceive to be something that will increase their popularity and in the end, actually hurts their campaign. This is very demonstrative of the fact that most politicians really have very little inkling of what people truly want. And in the end, they often fall prey to the lobbyist establishment that feeds them nonsensical information that has little to no bearing on what the general populace wants or needs.
What I find surprising is that politicians still haven’t clued in on why Ron Paul has surged in popularity. They are so out of touch, they cannot fathom it as anything more than a fad. Yet they are oblivious to the real reason for his popularity, that being his MESSAGE. He is one of the first politicians I have ever come across that is actually in touch with the general populace. And how does he do it? Well, he has this bizarre habit of actually adhering to our Constitution. What a concept!
Will he ever get elected? Unfortunately, probably not. The general populace is still too oblivious to the true nature of our economy and political situation. We have become a society where adherence to the political party’s decision of a candidate supercedes the candidate themselves. If we fall back on the notion of actually voting for the person and not the party, we’ll all be better off.
December 7th, 2007 10:35
Let’s play devil’s advocate here. If you had one FB unable to pay an ARM held by one lender on one underwater property, the best solution for both would obviously be some kind of workout to share the paid.
But with all the mortgages securitized, and with millions of possible foreclosures, the system for doing such workouts is about to be overwhelmed.
So the players are trying to agree to some rules to, in effect, do it wholesale.
One of the criteria for “assistance” is that the equity in the home has to be 3 percent or less. In a falling market, the lenders seem to be willing to have the FB keep paying something.
In a non-recourse state like California, isn’t it fair to say that the borrower would be better off walking away in that case?
December 7th, 2007 11:48
In a non-recourse state like California, isn’t it fair to say that the borrower would be better off walking away in that case?
Yes. That is the true egregious nature of what the bailout actually entails. It is not helping these people; it is bleeding them over a longer period of time. If they were so certain that housing will stabilize, why not also allow people who are underwater currently but can afford the lower interest also be part of the plan? Answer: that is a greater risk for the bank.
The government and the banks know damn well that these people will eventually end up in foreclosure anyway. What they are hoping to achieve with this plan is to mitigate the damage for the banks and the economy by spreading things out over a longer time frame. So rather than a shorter duration “crash” that could disrupt the economy and cause damage to the banks, they are looking for their, *ahem*, “soft landing”.
In the end, the result will be the same. It will just take slightly longer.
December 7th, 2007 16:34
This is not going to help many homeowners, its just another dog and pony show for bush idiot. When you are talking about 500 trillion in derivates which represents all this (illegal) lending…..NOTHING will save this country along with most of the world. Financial Armegeddon is here!!!!!
December 7th, 2007 16:36
“I grew up learning that “free markets” and Laissez-Faire economics were vastly superior to any other economic system. Yet as I read this blog and other sources about what free markets entail, it seems that we do not truly have “free” markets”
One assumption that underlies free market theory is the assumption that the market is implicitly “strong”. What this means is that assets are priced properly. For example let’s say the cost of tv’s(for sake of argument will assume that all tv’s are identical) has an average price of $400. Although prices may vary in a strongly efficient market the market as a whole know’s whats going on you probably wouldn’t be able to find one for $200. Or if was available for $200 it would be nothing more than a one time freak event.
However if there is someplace where you could constantly get tv’s for $200 it would imply a weak market efficiency. Because buyers should be able to bid up the price to $400.
The same thing is true for financial assets. An asset’s current price should reflect the current and future risks and appreciation built into that price.
Unfortunately we had a distortion in the 2000’s where investor’s mispriced the value of mortgage securities and housing if all the possible long run risks were considered.
But then again I don’t think its possible to have a strongly (especially in the long run) efficient market because the demand and supply for future assets can’t be determined. The market today simply can’t tell you what the demand for oil,housing or credit will be in 10 years or the potential risks involved with any of the aformentioned areas especially over long time frames.
Of course you are also right in the sense that modern financial regulators are afflicted with a “Too Big to Fail” mentality when it comes to financial institutions. Because this behaviour does reward risky players at the expense of more safe and cautious players. Its really a risk subsidy.
Although this really isn’t taught in any of the schools I strongly believe that subsidizing risk only builds up more risk in the system. Think of dead vegatation and forest fires. Fighting small brush fires can be good in the short run but leaves alot of fuel for the big fire in the long run.
This is what we are doing to the financial system. We are simply delaying the day reckoning today for even more painful and severe day of reckoning tommorrow with interest.
There really is no such thing as a free lunch in the end you have to pay.
December 7th, 2007 18:04
I am so DISGUSTED and FURIOUS that I swear from now on I will only obey those laws that are convenient to me. I will steal. lie and rob whenever I can.
F$$k GW BUsh and F$$K this country.
December 7th, 2007 20:59
How is this a bailout?
Keeping a 8% or 9% rate steady, instead of letting it rise to 12% or more?
I think people need to read the details before they jump to conclusions.
If the “can’t be underwater” criteria is in there (I need to read the whole plan), then CA can’t partake of the freeze, since even in San Diego we are back to 2003 - 2004 prices.
December 8th, 2007 10:42
I think Bush’s bailout is sufficiently toothless…it won’t have any real effect except to cause some false hope. They did get a stock market rally out of it. I don’t like the guy, but this is one of the few smart things I’ve seen him do.
Problem is, the election is a year off, and by then the people in trouble are going to figure out that Bush isn’t going to help them, and possibly vote in somebody who WILL hand out a few trillion tax dollars.
I’ve been feeling smug about my deliberately low taxable income and cheap lifestyle, but it hit me this morning that if the government will go so far as to mess with existing contracts, is forced labor and forced purchase of housing at government set prices that far away?
December 8th, 2007 11:21
Was talking to a friend about all this the other day and he pointed out the timing of the Bush bailout. Christmas. Could this also an be an attempt to keep the consumer spending party going through Christmas?
Then there’s the possible move to keep the economy looking better for 2007 so the Democrats have less to complain about during the 2008 election season.
Think so?
December 8th, 2007 22:04
I’VE WORKED HARD TO SAVE MONEY AND GET OUT OF DEBT. I RENT A PIECE OF $%#^ CONDO WHICH MY WHOLE FAMILY IS COMPACTED IN, INCLUDING THE DOG. I HAVE A GREAT JOB WITH THE FIRE DEPARTMENT AND MAKE GOOD MONEY.
I HAVE WANTED TO OWN A HOUSE FOR FIVE YEARS BUT WITH $200,000 HOMES GOING FOR $600,000 HERE IN CALIFORNIA, I NEW I WOULD HAVE TO BE AN COMPLETE IDIOT TO PURCHASE, EVEN WITH LENDERS PUSHING SUB-PRIME LOANS DOWN MY THROAT.
I WAS SURE WRONG. I AM BEING PUNISHED NOW BY THE GOVENMENT WITH THIS BULL%$#@ BAIL-OUT. I SHOULD HAVE BOUGHT A MILLION DOLLAR MANSION ON THE BEACH, HELL WHY NOT GET A NEW HUMMER AND ROLEX TOO! IT DOES NOT MATTER IF I CAN’T AFFORD IT, BUSH AND PAULSON COULD JUST BAIL ME OUT.
I JUST WANT TO VOTE RIGHT NOW!
December 8th, 2007 22:48
This plan will not work. It is a plan to help investors who were blowing actually sobbing in Bush’s ear…his friends. They are getting PAID. That is all he did is get them paid. Its not a bailout for Joe Blow. I am in Arizona, the developer built in 2004 and finished very quickly and did a turnover to the association in early 2005. He eliminated the parking and squeezed as many houses as he could into this development. The highest house was sold for 264k that house is now worth 180K, people who bought 4 and 5 of these homes on speculation with a 3-5 yr arm, 80/20 loan are now trying to rent them…turning the complex into a fiasco. The management companies are renting with a lock box on the door at a discounted rental rate (wonder if the owner knows), and if someone buys they move the tenants to another house they have for rent. The rent that is collected doesnt cover the mortgage note and the assessments which have just gone up due to more maintenance needed due to the mentality of certain renters. I have bought lots of popcorn for the show that I am about to see unfold for the next 5-7 years (maybe 10). Credit card debt is at an all time high, somethings got to give. You have to pay the piper sometime. By the way, I am from Michigan and Michigan is doing (in certain areas) better than Arizona.
December 9th, 2007 06:47
Don’t forget about the anti-bailout petition.
http://www.petitiononline.com/bailout/petition.html
December 10th, 2007 14:24
FOR ALL THE PEOPLE WHO THINK THIS BAILOUT WON’T HELP…you’re missing the point. The point isn’t that whether it will help or not, the point is that the government WILL NOT help or assist people who are honest, hard-working, and have integrity. No one…NO ONE cares about those things in this country. Perhaps there was a time (WHICH I doubt very much given this country’s history of lying, cheating, every man for himself legacy) where people worked like that but not anymore.
Laws are not made to keep people honest…they are made to keep people people down. It simply doesn’t pay to be honest and hardworking in this country…only the bigger fools do that.
December 10th, 2007 19:46
Please save the anti-Bush hysterics — Hillary Clinton rolled out her own bailout plan. Politicians pander, it’s what they do, regardless of party, so let’s get past the partisan blinders.
These “plans” won’t do much, except perhaps slightly ease the panic among home sellers and realtwhores. But housing “affordability” is still out of control, so there will be no rush to snap up the bloated housing inventory. I read this week that Ohio has a 20 YEAR supply of $500K homes.
Also, lenders such as Countrywide have already securitized the mortgages and sold them to investors. The train has left the station.
The housing meltdown will continue unabated.
December 12th, 2007 21:46
Dogma/Diomedes,
You both raise a lot of good points. I’ve been a life long democrat and over the past several years I have lost nearly all my patience with that party. Even today I just read an article on Yahoo about someone from the Clinton campaign suggesting that Clinton attack Obama on his admitted illegal drug use. For her to do that after her own husband went on record saying “I didn’t inhale” would be the height of hypocracy. I hope she doesn’t do it.
I’ve seen the suggestion that those of us who are registered democrats and republicans change our status to independent. I wonder if that really would get our 2 parties to take notice? We desperately need a third and fourth party in this country. Our current two parties take way too much for granted. It’s time they start to earn our votes again!
December 15th, 2007 23:38
(Posting this for RoadTripBoy - SoCalMtgGuy)
Alex,
Thank you for your exposition of market efficiency. I’ve never heard of such a concept, but then financial markets aren’t something I know much about. I think I’m really struck by the hypocracy we inject into our capitalist system. No one has any difficulty extolling its virtues, in theory. But when it comes to actual practice, it seems to me that principles of the “free market” and personal responsibility go out the window in favor of more (dare I say!) socialist approaches to
solving problems.
Someone else on this blog said it well a long time ago: Privatize the profits and socialize the losses.
RoadTripBoy
February 20th, 2008 23:47
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