What about the people that wanted to buy a house and couldn’t because they were too expensive because of bubble market conditions? Why don’t most people look at the flip-side as an opportunity for them? The responsible homeowners of the current crop are overwhelmingly keeping their homes. Let that bubble burst and give the newlyweds a chance of buying instead of renting an apartment for years on end because someone wants to protects the misdeeds and pain of bodies that should have known what they were getting into. No one needs to be protected during this. My wife and I bought a house during the middle of this bubble but did it very responsibly and we are more than fine now. That isn’t a magic spell and anyone should have followed the philosophy.
That is the way markets work. Someone may endure pain because of poor choices or simple bad luck but there are others on the other side that might be given an opportunity because of it.
The movie Airplane has an appropriate quote from a fictional reporter:
“They knew the risks when they got on the plane. I say let them crash.”
Seconded. I want the housing market to drop back to pre-bubble levels, perhaps a little higher (inflation and all). Artificially propping things up just forcibly keeps me out of the market. (Well, that and not wanting to have to mow a lawn.)
A few years ago ,it was required that a person put 20 percent down on a house. Then later it became 10 . The ability of the borrower to pay was heavily scrutinized. It was not easy to get a loan.
It changed but it was not the borrowers who made this condition possible. This whole mess is a creation of a greedy short sighted industry making a killing.
The bailout will come. It will help the corporations. They will get saved for their malfecience.
BTW, someone mentioned above that they needed to pull backthe reins on lending. Trust me, they have. I just signed loan papers on my first house and getting the loan was not easy.
Most people are specialists in production and generalists in consumption. A lot of the borrowers were scammed by middlemen who wrote an inherently unsustainable loan, sold the loan to naive investors, then pocketed their fee.
As the late and lamented expert Ned Gramlich asked: “Why are the most risky loan products sold to the least sophisticated borrowers? The question answers itself — the least sophisticated borrowers are probably duped into taking these products… the predictable result was carnage.”
Those who permit these shucksters to continue to lead comfortable lives after making loans with no reasonable fiduciary basis should be punished. We do that to protect the market. I challenge those who think the solution lies with caveat emptor and all that to show me an example where curbs on unscrupulous business practices resulted in disaster. Sure, conservatives predicted disaster the SEC was established. But history shows that to have been pure hysteria.
Prices are at unsustainable levels, as shown by price/rent ratios. Actually, I’d prefer that they approach their equilibrium faster, rather than slower.
But that doesn’t mean that mean that a forced easing of mortgage terms wouldn’t be appropriate.
Not exactly true. From the LA Times 2% of loans are in foreclosure, and an additional 6% are behind in their payments. This rate may be manageable, today, but it’s been going up over time, and doesn’t show signs of stopping. My point is, don’t wait until we hit unmanageable levels before taking steps to control the problem. We can take modest steps today to prevent disaster, and we could have taken even more modest steps 5 years ago, but it’s too late for that. I don’t want to sit for 12 more months, then look back at today and wish we had done something before it got really bad.
Well, I don’t know much about economics, but I have a hard time seeing what is all so fantastic about the current US economy that it needs to be preserved in its current state.
An unstable financial community developed to encourage more and more people to own single family homes, because construction of American homes was one business that remained in America. So we build homes larger than anywhere else in the world, in distant ex-urbs requiring greater use of fossil fuels. Meanwhile, industries are sending jobs overseas, and businesses and governments are selling off assets to prop up current expenditures. To stimulate the economy, the government proposes handing out cash, and encouraging folks to immediately spend it on (most likely foreign made) consumer goods.
So what is so all-fired great about our current economy that it needs to be propped up, other than that it allows us all to have huge quantities of “stuff”? I would be happy to sustain a present correction, if it would lead to a more sustainable economy and lifestyle for my kids and grandkids. Instead, we seem bent on propping up a house of cards.
Bear in mind a lot of foreign investors got burned in our mortgage crisis, which makes America less attractive to foreign investors. If our real estate and housing markets turned out to be a hollow shell, what other Potemkin villages have we got going over here?
I’m irrational about this, but when I see dumbasses that make like one third I do living upside down in houses 3 times as big, I tend to say damn the economy and let them swing.
I really, really get pissed when these dumbasses fvck up my house value (both up and down) and retirement savings with their dumbassery enabled by the sheer evil of mortgage lenders.
Up against the wall, the lot of them; I don’t care If I have to eat wormy hard tack for the next twenty years, as long as the dumbasses and evil lenders (not to mention day-trading bad actors in the stock market) are completely disabused of ever fvcking with my money again.
If you bail people out of bad home loans, why stop there? Why not bail them out of bad car loans, or credit card deals? I was smart enough not to get a house out of my means, my friend wasn’t, now he gets rewarded for a stupid decision? Bull jive. Its not the government jobs to help stupid people or people who took a risk and lost.
If you bail corporations out that caused this mess,how do expect them to learn. They will bail out the companies,not the people. Mismanagement is the hallmark of American capitalism. No amount of poor management will be punished . Top executives get huge salaries and bonuses as the company cuts down to pay off its losses.
People who received mortgages were told by the companies that they could afford them. They were told by people in the industry who were supposed to be professionals . They were educated and in the field. Yet they spent a lot of time trying to sell borderline mortgages. Quit blaming the people.
This economy will collapse when all the equity, savings and credit available to consumers has been exhausted. We can no longer grow by spending only what we earn.
When Alan Greenspan is telling you that the mortgage you just got is perfectly safe, I don’t see why it’s unreasonable to assume that your mortgage is perfectly safe. There’s nothing foolish about getting an adjustable rate mortgage when even the top economic minds of the world don’t see a problem with it.
Instead of this rapid decline in home prices driving so many people into the poorhouse, wouldn’t we rather see a solution that kept home prices stable? I have a traditional home loan that I can afford, but it really sucks that the house I bought 3 years ago is worth 20% less than I owe. The government should be (and already is!) looking for ways to stabilize housing prices, and I don’t see anything wrong with that. The banks survive, the borrowers survive, and everyone is a little bit wiser in the process. That is, presuming an answer exists, and that we can find it.
No, the corporations are suffering the worst penalty known to man - some execs won’t get their bonuses.
I think a 10% down rule (or some large amount of money, whichever is less) would help a lot in keeping things rational. The same should go for home equity loans - only loan to get things up to 90%, at most. That would decrease prices somewhat, but wouldn’t affect people already in houses.
As for the crash making houses affordable - I can’t afford a Bentley either, but I don’t want a Depression to arrive to depress prices enough so that I can. The problem with destroying the economy in order to save it is that a lot of people who’d theoretically be able to afford a house will be out of work or have their income cut, and so wouldn’t anyhow.
Let’s not stop there. Let’s bail out the guy who was told by his stock broker that Enron was a great deal.
For most people, buying a house will be the greatest single financial investment they will ever make. They should treat it as such. No one put a gun to their head to buy these homes that they fundamentally could not afford. There’s a thing called personal responsibility in this country. Or at least there used to be.
On NPR yesterday was the interesting finding that 20% of the mortgages in minority neighborhoods were subprime, as opposed to about 4% in regular ones. The person I heard said that the incomes of the borrowers could not explain this, and that a lot of people in these neighborhoods were steered to subprimes when they qualified for regular ones.
The stockbroker didn’t know the truth. A better analogy was the execs of Enron who said it was a great investment when they knew it wasn’t. Some of them went to the slammer.
And maybe the execs who see their sales falling as a result of building up their profits and minimizing wages will finally get a clue. I only wish the retail market had crashed four years ago, when it wouldn’t have been as serious.
In 1929-30, commentators talked of a welcome spell of liquidation, all the better to pave the way for growth on a more solid basis. It made intuitive sense. Yet for some reason, businesses just kept … liquidating. We really don’t need another Great Depression.
At the time macroeconomics had not been invented: that would happen in 1936, when Keynes published the General Theory of Employment Interest and Money.
Aside from that, the experience of the 1930s shows that puritanical stances towards the economy can lead to great unpleasantness. A more focused approach is prudent.
The economist and macroeconomic textbook author Alan Blinder endorses plans to establish a Home Owners’ Loan Corporation to deal with the mass foreclosure crisis. The idea merits attention and discussion. However. The goal of such an operation should not be to maintain housing prices artificially sustained by fraud and the suspension of sound business practice.