Sometimes life sucks. No way to eliminate 100% of the pain.
Any time we decide we must bail out those who go too far, we need to regulate them to keep them from going too far. We should have done that during the bank bailout also.
It works - the FDIC prevents bank failures from hurting relatively small depositors, and can do so by regulating the banks in order to keep them from going crazy and failing. Of course when those who complain that this limits the profitability of the banks get their way (and it does limit profitability) we get the banking crisis of the late '80s.
I’m in the same good boat as you. But we would get some benefits from our neighbors being helped. First, we don’t get stuck with an abandoned property next door, with the grass and weeds growing at best and squatters at worst. Second, propping up these houses helps the comps and helps our housing prices. If you happen to want to sell, having a bunch of foreclosures in the neighborhood is really going to hurt you. Our assessment came in low when we refinanced due to this. We’ve got so much equity it is no problem, but I’m happy the inventory is getting sold near us.
In any case if you are like me, you are paying your mortgage on the value of the house before the boom. (Being in California I’m also paying property taxes on this value.) We are doing quite well thanks to our good fortune in buying at the right time. Making the bank take a hit isn’t hurting us, and, like I said, the bank takes a hit anyway.
I’m not arguing against the quick infusion of liquidity for the banks. I’m arguing for support for homeowners. Unlike the immediate banking credit crisis (action within days was needed), homeowner redress is less urgent and months are available for planning, assuming (perhaps) only an early moratorium on foreclosures. Instead many months have gone by and the topic has only just started to catch on.
As for TARP money begin paid back with interest, please note that Warren Buffet also participated in the cash injection to save Wall Street but he will probably be much more richly awarded than U.S. It is a shame that taxpayer was provided no significant upside in bank recapitalization.
Yes, homeowners should have been bailed out instead of banks. The form of that bailout should have been that the government paid some percentage of the difference between the value of the home and the amount still owed on it. This would have prevented prices from falling so far, and insulated both banks and borrowers from the worst of the disaster.
In the same way that home values were “artificially high” then, they’re “artificially low” now, due to the banks’ extreme reluctance to lend to qualified buyers. And why should they lend money now, anyway? Current mortgage rates are pitiful. There’s no significant money in the mortgage lending business anymore.
By bailing out the banks instead of the homeowners, the government got much less “bang” for their social buck. Now there’s no political will to help struggling homeowners. In fact, responsible homeowners who saw the value of their home drop six figures (like me) in value are choosing the “strategic default,” and can you blame them? A default ruins your credit rating, sure…but the banks aren’t loaning money anyway, so who cares? I could be 150,000 dollars richer tomorrow if I just stopped paying my mortgage and let the bank foreclose.
People judge the strategic defaulters like they’re evil people, but honestly, why are we supposed to care when the people on the other end from us on that bad business deal are getting public assistance to insulate their risk, and we’re not? Why should homeowners be the only people not protected by a safety net? Why should I treat my mortgage as anything other than a business decision, and just like any other business just cut my losses when it goes bad?
Now, considering all the above, the government has created conditions which ENCOURAGE people to stop paying their mortgages, by bailing out banks and not homeowners. It’s creating a negative feedback loop. Prices go down, so people foreclose, so prices go down, so people foreclose.
So far it looks like the government did not lost any money and may have even made money bailing out the banks. As much as that is repulsive, it worked as far as the banks are concerned.
Administering big loans to a few dozen banks is doable. Administering hair cuts to 20 million individual mortgages is not doable.
Be that said, a welfare state run for the benefit of corporations at the expense of human beings is a crushing kind of fascism. It is better than millions starving in another great depression, but as far as freedom goes, we still have the idea and whatever the courts will enforce.
(The first paragraph here confuses me. What here was “repulsive” ? )
Claiming that changing 20 million individual mortgages is not doable reminds me of the claims that Florida recount was infeasible – there were too many ballots. :dubious: Banks administer millions of credit card accounts, etc., and could amend millions of mortgages easily, at least if the changes were clear, and accounting well computerized. The mortgages are mostly worth $100,000 or more so any paperwork expense as a portion of total value is small.
We’d need to know the details of any scheme to benefit homeowners. Beginning with a moratorium on foreclosures would be easily feasible, and would mean a reduction in paperwork! Relatively simple formulae could be designed for house value estimation based on old value and its date, and geography. I’m not qualified on details, but there are various proposals by serious people for homeowner relief. To dismiss any such proposal as “undoable” is to give up, or to disagree that homeowner relief is a way out of the crisis.
I’ll grant one point: Paperwork and negotiation complexities are exacerbated by the slicing/dicing of mortgages. I think such slicing should have been inhibited or prevented by regulation in the first place. Which of two systems makes more sense: (1) a single banker, up-to-date with local conditions, backing a local homeowner he may even know personally, (2) the slicing /dicing hodgepodge which benefits Wall St. primarily with its scope for scamming, irresponsibility, and a perverse hyper-efficiency, and little public benefit beyond a theoretical and very tiny reduction in interest costs ?
(The first paragraph here confuses me. What here was “repulsive” ? )
Claiming that changing 20 million individual mortgages is not doable reminds me of the claims that Florida recount was infeasible – there were too many ballots. :dubious: Banks administer millions of credit card accounts, etc., and could amend millions of mortgages easily, at least if the changes were clear, and accounting well computerized. The mortgages are mostly worth $100,000 or more so any paperwork expense as a portion of total value is small.
We’d need to know the details of any scheme to benefit homeowners. Beginning with a moratorium on foreclosures would be easily feasible, and would mean a reduction in paperwork! Relatively simple formulae could be designed for house value estimation based on old value and its date, and geography. I’m not qualified on details, but there are various proposals by serious people for homeowner relief. To dismiss any such proposal as “undoable” is to give up, or to disagree that homeowner relief is a logical remedy for this crisis. (My idea of no foreclosure, temporary rental, future reckoning should appeal: simple fast-term relief, without any necessary permanent abrogation. If better schemes are possible, present them, don’t just feet-drag)
I’ll grant one point: Paperwork and negotiation complexities are exacerbated by the slicing/dicing of mortgages. I think such slicing should have been inhibited or prevented by regulation in the first place. Which of two systems makes more sense: (1) a single banker, up-to-date with local conditions, backing a local homeowner he may even know personally, (2) the slicing /dicing hodgepodge which benefits Wall St. primarily with its scope for scamming, irresponsibility, and a perverse hyper-efficiency, and little public benefit beyond a theoretical and very tiny reduction in interest costs ?
The idea is much less insane than what we did with the banks, and there’s plenty of ways to do it without it being totally stupid. A really stupid thing was allowing people to be kicked out of their homes that had stable incomes. The government could have also basically paid employers to keep their employees (as long as they weren’t financial sector vampires). Tax breaks, jobs programs, all sorts of things. They did some of this but state governments went bankrupt and cut their spending negating what the feds did do.
The banks should have simply been nationalized if they could not stay solvent. And if they were fine by betting against the market like Goldman Sachs did while selling bad investments at the same time the company leaders should have been arrested and charged with treason.
But he who has the gold makes the rules so why are we even talking about it. We do not get to contribute anything to these people’s decision making other than how we’d like to be manipulated most this month instead of last.
No. The reason we bail out the banks has nothing to do with the housing market. If banks become insolvent, they can’t lend money. No lending means businesses can’t expand or in some cases even make payroll. The economy grinds to a halt.
If they have a stable income, then they can move to a home they can afford. A lot of people lost their homes because they lost their source of income.
I heard somewhere that if we had just paid off every sub-prime mortgage in the country, it would have amounted to $300B. That’s half of TARP and a fraction of all the quantitative easing that’s happened since. That tells me one important thing: The real problem wasn’t the loans.
The problem is there is about 230 trillion dollars of wealth on the planet (money and stuff). The financial derivatives market is 600 trillion dollars. There are more bets between banks than there are things to bet. That’s the problem and it’s getting worse, not better.
Keeping banks solvent is a good idea. But I’d rather do it via legitimate recapitalization, either with normal market activity (Buffett was happy to inject a few billion with favorable terms) or if needed with government purchases of new stock, rather than huge and secret(!?!) government loans. Much of the government program was to maintain high share values for current bank stockholders, a goal which is counterproductive if instead we want to attract fresh bargain-hunting capital.
The question is: Which debtors, creditors and stockholders are to benefit from any plan, and who is to suffer?
The spendthrift Greek government? Bail 'em out!
Greek bondholders? Screw 'em!
Commercial banks, dominated by greed rather than public interest? Keep their stockholders happy!
Entrepreneurs like Trump who structure deals to make it easy to walk away from failing real estate? He’s a smart businessman!
The American Homeowner? Not one penny. Sanctity of contract. He’s at fault. Penalize the stupid. Blah blah blah.
Homes were overbuilt relative to income levels even then, and income has fallen in the recession. Even ignoring the expense and inconvenience of playing “Musical Chairs” with today’s homes, the Bubbled Overbuild would lead to unoccupied homes at the higher prices.
sure, this only caused a cascade of home devaluation in neighborhoods that became ghost towns and havens for crime and pest infestations.
Way to only address the part of my comment you had a chance to make an assertion about and move on with lol.
If the government takes control of the banks there is no problem with lending, the difference is that a bunch of already rich guys don’t get even richer with bonuses and salary paid out of tax money bailout funds.
The issue isn’t really the number of mortgages – the problem is that there would be a lot of work to determine who would qualify for a bailout. Then you multiply that work by the number of mortgages, then suddenly there’s a hell of a lot of work to be done. Unless you are suggesting that the government should just send a $10,000 check to every American with a mortgage, of course.
Let’s keep in mind that to get a mortgage, it seems to take a bank weeks to evaluate the creditworthiness of an individual. Under a homeowner bailout, the government would have to replicate at least a good part of that process, when there is currently no rules, regulations, capability, or people to do that job. Just look at Obamacare: it isn’t actually a health care system, and it is taking years to get up the exchanges to deal with the actual health care market.
Add in the fact that a bailout needs to be done quickly, and I am really skeptical that it would have been feasible to examine millions of mortgages in a fair and informed way.
Just to be clear, there were efforts to help homeowners. IIRC, we’re on the 3rd iteration of that effort. I’m not too familiar with the history other than that none of them seemed to have remotely lived up to the promise of what they were supposed to accomplish. Perhaps someone more knowledgeable can fill in the details.
Now, I’m not saying this is equivalent to what some people are suggesting should have been done, but it would interesting to see what was tried and why it failed.
You wouldn’t pay the mortgage just the interest on the mortgage, thus allowing 100,000s of families to stay in their homes and entire districts to remain populated.
I have no idea how you quantity that in financial terms but I’m sure our friends at Goldmans Sachs Inc and Goldmans Sachs-in-Government would find a way to block it.
Along a similar vein - the use of Cramdowns was proposed and struck down. This was by far the least expensive route for taxpayers and the most fair for others.
Goldman has no consumer business. It was the big mortgage companies who killed the idea of cramdowns.
I actually applied for the first iteration. Looked it up on the Gov’t website, found that my basic numbers met the criteria for the program, and went to my bank. A couple of months later they let me know I didn’t qualify. I think the main issue was that the programs were still at the discretion of the bank, and they did very little to push the refinancings forward.
I think the quickest and easiest way to help out bad off homeowners would have been to restrict the allowable interest charge. Let’s say for 2009, all mortgages are capped at 6% interest. You maintain all of your documentation, all of the basic terms of your contract, but you pay a maximum of 6%. The banks keep track of the payment shortfall, which is made up by the gov’t. In addition, the banks agree to waive any late payment penalties on these loans, to help folks get current.
It’s a benefit, but you only get the benefit if you actually pay your loan. It’s fairly transparent for the lender, probably a net positive as more troubled homeowners will pay rather than go delinquent. It’s also not hideously expensive, as the gov’t only pays the difference, a couple thousand per loan, rather than tens of thousands in principle reductions.
But if you just paid off the mortgages outright, rather than just making payments, then the housing prices could settle out, because no one would be facing ruination from having to sell at the new low market prices.
I’m not arguing against the quick infusion of liquidity for the banks. I’m arguing for support for homeowners. Unlike the immediate banking credit crisis (action within days was needed), homeowner redress is less urgent and months are available for planning, assuming (perhaps) only an early moratorium on foreclosures. Instead many months have gone by and the topic has only just started to catch on.