Well, yeah, I guess the OP has to decide whether he considers people with no financial education and/or a relatively low ability to understand loan and mortgage terms to be “guilty” or “innocent”. A lot of people seemed terminally stupid and naive, but the media sure wasn’t helping, and it seemed like there was a ton of inaccurate information floating around.
As I pointed out in a different foreclosure thread, the government isn’t helping Bear Stearns “keep its house”. Let’s pretend Bear Stearns is a homeowner. The government has told Mr. Stearns if he sells his house, keeps 5% of what his equity used to be, and moves in with his parents, the gov’t will guarantee the mortgage to the bank, so the bank doesn’t get hurt. Can I sign up for that deal?
The BS chairman, BTW, lost $950 million dollars, 95% of the wealth he had in BS stock, and you’re complaining that he didn’t lose the last 5% too?
The fed kicked in 30 bill of taxpayer money.
Renters, who are living in investment property, for which the owner isn’t making payments on the mortgage and is being foreclosed, are “innocent” people.
They’ve been paying their rent, holding up their end of the lease. Then, when the house is foreclosed, they are evicted.
Those people I feel sympathy for.
It seems like a lot of this discussion hinges on to what extent customers were misled by loan officers. How much of it was flat-out fraud, and how much of it was “butter the customer up and hope they don’t read the fine print too closely, while never technically lying”? Is there any way to determine this after the fact?
There was a shift that caught a lot of people flat-footed. The image of going to the bank, hat in hand, and humbly asking for a modest mortgage from a loan officer who likes nothing better than to look quizzically at you over his pince-nez and trample your dream of home ownership underfoot is, I think, an idea that’s still alive in the mind of a lot of people.
Having the loan officer saying “Sorry, the bank cannot undertake that risk” morph into a car salesman saying “How much can you afford per month?” caught a lot of people (who should have known better) off guard. If the bank would let you have the mortgage, it meant that you were an OK risk, right? They’re professionals, after all. Of course, they weren’t professionals - as in, “working based on a distinctive body of knowledge and skills underpinned by abilities and values” - at all.
Exactly. The neighborhood I grew up in wasn’t fancy, but it was solidly middle-class–1960s ranch houses, well-kept yards, very little crime. As people started upgrading and moving into big-ass McMansions, many of my parents new neighbors were working class folks who got subprime mortgages. Most of them were nice people, but when the rates on their ARMS went up, a lot of folks didn’t have enough money for upkeep and repairs. Others had their homes foreclosed on. My parents’ neighborhood now has a lot of shabby, falling-apart rentals and a few abandoned houses. It’s really sad. Not only has the value of my parents’ house plummeted, crime has gone up in the neighborhood and my parents don’t feel safe there anymore.
Let’s fight a little ignorance and re-state that the $30B that the Fed actually “kicked” in was a non-recourse loan. The Fed, and ultimately, the tax payer, only stands to lose if Bears Sterns assets (not covered by JP Morgan) fails spectacularly, i.e. Bear Stearn’s liquidation value goes to negative, unlikely to happen as wiki states that BS was pretty liquid; though, the competition from other banks and massive negative news surrounding its funds with CDOs, was priming to expose BS to a run (which would have caused massive negative effects on the markets).
Anyway, as Cheesesteak aptly describes, this wasn’t a bailout.
And why does this make me think of the children’s game of musical chairs?
But the point was in order to make sure this doesn’t happen the Fed has actually taken over the RUNNING of Bear Stearns:
Your right its not a bailout. Its a nationalisation. The government steped in to not only FUND a private company but to take over its running and decision making.
I think one angle I hold is that I generally consider people foolish, at the least, if they don’t protect themselves. Maybe I’m cynical, but I go into any negotiations expecting people are trying to take me for a ride and I expect false information. I want it all, in writing, and if they don’t give me what I want I’ll walk. If they mess with me I’ll walk. I mean, it surprised me that people didn’t watch for the stab in the back. I certainly don’t understand everything, particularly in finance, and I steer way clear of it because it freaks me out - I don’t know if I’m being used or not.
Actually, now that I read it, it does sound cynical. :eek:
Many are saying that Bear’s competitors ‘unfairly’ (and don’t ask me to define what they mean by unfairly because I don’t know) withheld liquidity in order to participate in a fire sale of Bear’s assets. Conventional wisdom was that Lehman was next, consequences be damned. Blood was in the water and the sharks were circling. Instead, the Fed stepped in and chased the sharks away by insisting there would be no feeding (and that is what fed control of the assets amounts to - not allowing others to cherry pick and stick the fed with bad stuff).
Regarding the ‘bailout’(which it wasn’t):
Afterwards, the Fed lent to investment banks, where previously they had not. Operative word is “lent”.
Not exactly as D_Odds points out.
Ok, then where is JPM in all this? If you want to argue that JPM is unfairly getting a fire sale, I probably won’t argue with that.
To further D_Odds’ comments, if the Fed didn’t secure the loan for JPM, and allowed Bear Stearns to fold, the massive unwinding process to follow would have been in no one’s best interest, not to mention the regular folk out there with pension funds, other assets, and other securities tied up in the BS liquidation. I agree that this is a controversial move. As I have no experience in managing an economy, I would still say that the Fed’s action is counter-intuitive to my conservative view of a free market economy.
You have to remember the huge time-crunch they were under: everyone was terrified that when the markets opened in Asia, everything would collapse. The $2/share, $30 billion loan was a band-aid, a worst-case hypothetical to avoid panic. That sort of action–creating enough of a breathing space so that markets can react rationally, not emotionally–is exactly the sort of thing a free market needs at times.
And to further yours, the Fed also injected $30 billion (well, $29 billion) of liquidity into the economy in return for assets for which there was no market.
The one objection I have (stolen from Robert Reich, I think, on Marketplace) is that we have no upside. If the securities tank, we the people lose the money. If however, they recover, and become worth more than $29 billion, my understanding is that JP Morgan can pay off the loan, get the securities back, and profit. Just as it seems reasonable for lenders getting a piece of the appreciation of a property if they write off a loan so that it is for the current value, it seems reasonable if the Fed and the taxpayer has an upside from a recovery. Does that sound reasonable?
http://blog.wired.com/business/2008/03/marc-andreessen.html It is a bailout. The Bear Sterns execs jumped on it quickly too.
You do realize that was mentioned a few posts back. The guy lost $950 million dollars. Not to mention that even if his stock was worth $0, he’d still have millions socked away in other investments, unless he’s the single most financially inept CEO of a Wall Street firm in the history of finance.
The firm still actually has value, and he owned a piece of it. They own a great many things that are worth money, they just don’t have the cash to handle their obligations. Eventually, all of it would be liquidated, the firm broken into itty bitty pieces, and he’d get his millions from what was left over. In the process, people lose their jobs, other companies take a hit when expected Bear Stearns cash doesn’t arrive, and have to figure out how to manage their own obligations. It’s a mess, and a ton of people inside and outside of Bear Stearns will get hurt.
If all you’re interested in is ensuring that the Bear Stearns execs get fucked as hard, and for as long as possible, that’s fine. Just realize that you’re also going to be fucking a bunch of retirees, employees and everyone who had the misfortune of doing business with Bear Stearns. Is that of any concern to you, or are you just mad that this particular rich guy isn’t going to be living under a bridge next year?
It doesn’t matter to Gonzo. Any type of corporation is evil in his world, and anyone who is successful in business deserves to be castrated. When someone above posed the question “are you mad he didn’t lose the other 5% of his money too” I’ll bet you dollars to doughnuts that Gonzo said “yes”.
Totally agree on this one. I bought a home about 2 years ago and I was shocked that the broker was pushing me toward exotic mortgages. I insisted on a 30-year fixed. “Heh heh”, he snickered, “so you want to stay conservative, OK. I’m sure Grandma would be proud”. Not quite… she goes with 15-year fixed or nothing. That guy was with HomeBanc who is now bankrupt… it warms my heart to think he’s out on the street now, but I feel sorry for his more pliable customers of more modest means.
I bought a house on a block that now has three vacant homes thanks to foreclosures – one next door. This isn’t Los Angeles or suburban NYC; we’re talking about suburban Cleveland, where the median home price is in the $150,000 range; there was never a bubble, but there’s the fallout from a bust.
How did the subprime lending crisis harm me?
- The value for my house has decreased quite a bit. Lots of supply with no demand.
- It’s limited my mobility. If I want to move to another city, I can’t - there’s no takers for my house. Even if I find someone to buy it, I have negative equity, so therefore no down payment for my next house.
- It could cause my middle-class neighborhood to decline. With shrinking property values, houses become more affordable to lower income groups, or speculators that will just rent the house.
I’m working on fixing up my house, regardless. If I had the money, I’d buy the house next to mine (asking price of $135K a couple of years ago when the owner tried to sell, the bank is now asking $50K and there’s still no takers).