Ustwo

You know, most myopic people would think I've never shown displeasure with Bush, and I in fact have on multiple occasions, this is one of those times. This is classic socialism, where people made very poor choices, despite having every opportunity to do otherwise, and instead of having to pay for those choices, the government intervenes, interfering with an industry and those who invested in said industry.

http://www.reuters.com/article/polit...sp=true&rpc=92

I took a slightly higher rate to get a fixed rate, and that was when i was making 40k a year. I have no financial training yet I could see the danger of a low starter rate if I couldn't afford later payments. Turns out I made the right choice too since we decided not to move after all last year.

But looks like I might have made a mistake. I could have saved a point or so and still been bailed out by the government.

This sets an ugly precedence of direct government interference in an industry, and I have to wonder where the next 'oh you screwed up, you poor babies, here, we will protect you from yourself' will be.

If this is that big a problem, how about better economic training in highschool, like don't spend more than you will be making.

No one forces someone to sign on the dotted line for a mortgage, god knows how many lines I had to sign for mine.

__________________
Agents of the enemies who hold office in our own government, who attempt to eliminate our "freedoms" and our "right to know" are posting among us, I fear.....on this very forum. - host

Obama - Know a Man by the friends he keeps.

loquitur

The result is going to be fewer people being able to get their own home because the subprime adjustable mortgage option will be restricted from here on in. Yes, there will likely be fewer defaults but there also will probably be fewer mortgages.

Willravel

The industry pushed adjustable rates too hard in an unstable market (read: ultra high interest market) and now everyone is paying for it dearly. The "free" market fucked up, and now big players in sub-prime are paying by filing for bankruptcy (which is still possible if you're a corporation, apparently).

The hilarious part to this whole atrocity is that a more socialist government could have prevented this horrible mess by controlling interest rates, preventing the jumps to adjustable rate loans. But hey, we all hate Bush and Uswto hates socialism, so let's all jump on the train.

Charlatan

I think you can label this action how you will but it seems to me that this an effort to save the businesses that took on bad debt than just an effort to save consumers who made bad choices.

You can point out that consumers didn't have to sign on the dotted line but it is also true that the lenders aggressively marketed these mortgages to "borrowers with a spotty credit history" who are defaulting on their loans now that their variable rate mortgage is climbing.

In other words, if the system were left alone, people would default and lose their homes and, given the volume of bad debt, the lenders would have to write down the value of these debts.

It looks to me that nobody involved in this (lenders or borrowers) really thought all that much about what would happen if rates were to go up. And looking at it that way, it seems that an individual certainly has responsibility for their actions and how it might impact on their own lives but the organizations have a responsibility to their investors to not take on so much bad debt (so much that it threatens the viability of their organization).

__________________
"My hands are on fire. Hands are on fire. Ain't got no more time for all you charlatans and liars."
- Old Man Luedecke

Elphaba

Ustwo, if you look deeper into Bush's "socialist" intervention you will find that it benefits those investors that got caught in the subprime crash. (Well documented by host months ago). This legislation will be paid by the tax payers long after Bush is gone, and it only temporarily benefits the lenders, not the buyers, by avoiding further bankruptcy writeoffs.

I believe many important issues are being pushed into the next administration. I applaud you in seeing the farce of this move, if not it's underlying cause.

__________________
"You can't ignore politics, no matter how much you'd like to." Molly Ivins - 1944-2007

host

Elphaba, he doesn't get it....he's proud that he doesn't read my posts...I've been posting about this since March. There was no need for this thread that he started....he has what is happening, exactly opposite of what it is....a bailout for lenders, the realty "industry:, and the economy. The people who he believes are receiving, "special treatment"...the ones who he openly resents in the OP, are the VICTIMS of this Bush endorsed "plan", not the beneficiairies...SHEESH !!

From roachboy's thread, a few days ago:

Read some of my other posts on this subject

http://www.tfproject.org/tfp/showpos...29&postcount=4

http://www.tfproject.org/tfp/showpos...11&postcount=2

http://www.tfproject.org/tfp/showpos...9&postcount=73

http://www.tfproject.org/tfp/showpos...4&postcount=54

Charlatan

I think your frustration is clear but really, to call people who just received a reprieve from losing their homes because they weren't going to be able to pay their mortgage, victims, is hardly accurate.

The five-year plan is something that is going to benefit both sides in the sub-prime mess. I don't see how keeping people from losing there homes is a bad thing.

The only thing I can see is that the "free market" did fail and it isn't going to take it's lumps and accept the adjustment. The thing is, those that are feeling the pain of this adjustment extend way beyond the US borders. The debt is held by many foreign interests and has resulted in fluctuations in markets around the world.

I don't think you can blame Bush for this.

__________________
"My hands are on fire. Hands are on fire. Ain't got no more time for all you charlatans and liars."
- Old Man Luedecke

Willravel

Could this the first thing that Bush will have done right?

Charlatan

Right or wrong, Ustwo is correct to point out that this is more to the socialist side of the spectrum.

__________________
"My hands are on fire. Hands are on fire. Ain't got no more time for all you charlatans and liars."
- Old Man Luedecke

Elphaba

That is nonsense, Charlatan. Read the details of what Bush is proposing before doubting his corporatist heart.

__________________
"You can't ignore politics, no matter how much you'd like to." Molly Ivins - 1944-2007

Charlatan

Elphaba, I have read the article in the original post a few times now and what it suggests is that Bush has a plan to freeze mortgage rates for some of the borrowers that are being effected by the raising rates.

The articles suggests there are three types of borrowers:

1) Those that have strong credit and will be encouraged to move their loans to more affordable loans offered under the Federal Housing Administration (read: take your variable rate mortgage and lock it in at a fixed rate).

2) Those that do not have the credit or the resources to make payments. They will lose their homes and return to the rental market (read: probably should never have taken on a mortgage to begin with -- bad debt).

3) Those who have reasonably good credit but can't afford their mortgage given the new rates. This group qualifies to have their interest rates capped for five years (read: group that got screwed because they either didn't understand what a variable rate mortgage was, or are living slightly beyond their means).

Bush is essentially bailing out both the consumers that have taken on a mortgage they can't afford AND giving a break to the corporations that wrote the bad debt to begin with (as I pointed out above, if this group were to default on their loans, the write down would be significant, when added to the second group). He is doing this because, "Rising defaults on U.S. subprime loans, aimed at borrowers with a spotty credit history, have spooked financial markets around the globe in recent months, tightening credit conditions and threatening to derail the U.S. economy."

This is bigger than just some Bush cronies or some fat cats around a boardroom table. These businesses fucked up. They wrote a lot of bad debt... enough to effect the US and International economies. It's not a pretty picture.


I am suggesting that on the spectrum between an absolute free market and and absolutely controlled market, Bush's program here is more socialist than neoliberalist. I am not, you should note, commenting on his actions or inactions revolving around the sale of these mortgages to begin with. That would be another discussion.

No good neoliberalist would meddle like this. They would let the market decide what should happen to the people who are losing their houses and to the businesses that wrote so much bad debt.

__________________
"My hands are on fire. Hands are on fire. Ain't got no more time for all you charlatans and liars."
- Old Man Luedecke

host

I totally disagree. No one who cannot refinance "on their own", will benefit from this plan. The few with "good credit" who cannot refinance into a loan with more attractive terms as their "time bomb" adjustable rate mortgage, or "no interest" for the first X number of years adjustable rate mortgage RESETS to a higher interest rate, and includes payment of some principle, are unable to refinance because the property that they took a mortgage loan on is worth less than they paid for it.

If they put down a 5 percent or smaller down payment, they have to pay the difference between current appraised value, and closing costs, in order to pay off their current mortgage. If the difference they would have to bring to the closing to qualify is a small amount, and they were credit worthy, they would have refinanced before it became a problem.

I'll post it again. The folks who took out the loans that are now "a problem", were almost all borrowers who, at higher appraised values than the current ones, were stretched to qualify for the high amounts that they borrowed, and now owe.

Housing valuations are not going to be rising until excess inventory, unsold new units still being built by builders not yet bankrupted, along with the finished units languishing and overhanging on the market, along with rising foreclosures and from the people who have the means to keep paying but who are smart enough to "walk away", will pressure prices down.

Added to that are the buildup of sellers who will grow more impatient and concerned as prices continue to drop. That kind of a market triggers a growing, mass realization that residential real estate is an illiquid, unattractive investment, except as a necessity.

Again, anyone who already is "upside down" on their loan vs. valuation....in this, only the morning of a long period of decline, is much better off walking away from their mortgage and property now. They will walk later.

Read the first posts on the <a href="http://www.tfproject.org/tfp/showthread.php?t=113978">1992 redux</a> thread. Read the stock prices mentioned then, look at them now. I know what I am talking about. Read a few thousand posts, over five or six years, on these sites:

http://siliconinvestor.advfn.com/sub...ubjectid=51347

http://calculatedrisk.blogspot.com/

http://globaleconomicanalysis.blogspot.com/

This guy had been correct for months:
http://search.messages.yahoo.com/sea...thor&within=tm

Here are the prices offered for Mortgage backed bonds:
http://www.markit.com/information/products/abx.html

Here is a description of what E*trade just sold $3 billion of these assets for:

Citicorp is bankrupt, the largest US bank is getting a "bailout" at 11 percent annual interest, form an Abu Dhabi state owned "entity" to put "lipstick on the pig", to delay the FACT that Citicorp is insolvent. The Fed has allowed the four biggest US banks to loan up to 30 percent of their assets to their brokerage subsidiaries, instead of the ten percent limit conditioned by FDIC deposit insurance. They've put that insurance fund at risk by raising the limit:
If you still see this as a "subprime" loan problem, you have a lot of reading to do. I cannot believe you posted so adamantly.

It borders on insulting.

This is a global credit crisis. Major banks do not trust the solvency of each other...even to the extent of lending to each other "over night". It is not that they don't know the "value" of their own SIVS, Derivatives, and MBS, they refuse to accept, or let on that they have accepted, that much of what they hold is near worthless, crap.

This has nothing to do with opinions stated in this thread's OP. The decsions are not "socialistic", they are not intended to provide any benefit to individuals. The US banking system and it's paper currency are "on the brink".

Toronto Dominion bank is facing similar challenges, but your currency is sound. You enjoy a trade surplus, your country exports a million barrels of petroleum per day. We import 14 million bbls of petroleum equivalents per day, at $90 per bbl, all with borrowed money.

Our government along with the Fed, which is a private bank, and the executives of the major financial concerns will screw the entire populace, as the dollar and these corporations "go down". The US is heading into, believe it or not, an economic depression. Anyone paying a mortgage on a house that is worth less than they paid for it, is a debt slave.

Only a dramatic collapse in the exchange rate of the dollar...say 50 percent in the next two years, will aid "upside down" mortgagees enough to matter. The Fed talks about battling inflation while their critical concern is a repeat of what began in 1929, a deflationary depression. In housing, it is here. The fiscal policy is to attempt to inflate, and it is going to fail, unless they work even harder to destroy the dollar's purchasing power.

World demand for everything is beginning a decline. US imports will drop dramatically. This will help to stabilize the dollar, by easing the $840 billion annual trade deficit. The Fed keeps lowering interest rates, dropping the dollars' exchange rate, hurting rates of return for small savers and CD purchasers. They try to make borrowing more attractive to consumers and businesses increasingly unable to qualify for loans, or uninterested in obtaining them.

I hope the above info and this will help put things in perspective for you. Again, there is not justification for this thread's OP:

Charlatan

You know host... I clearly don't know as much as some do about this. I, like many, are trying to understand this the best they can. You may have something to teach me but as long as you continue to take this sort of tone with the people you are trying to engage with, you will not meet with much success, "If you still see this as a "subprime" loan problem, you have a lot of reading to do. I cannot believe you posted so adamantly. It borders on insulting."

You have essentially called me stupid and insulting. Instead of me hearing what you are saying, I just get upset. I have said it before, you have done a lot research and I can see that you really want to share what you know with people. Time and again, I see you are passionate and instead of trying to win people over you toss up stat after stat after article after stat. I have been watching your frustration grow of the years.

I will say it again, your methods are not working. You are not reaching an audience the way you intend. All of your research, your passion is lost and it makes me sad. Please take what I am saying to heart.


All of that aside for the moment...

You appear to be talking about two different (but related things). You start off by talking about people who have entered into mortgages they couldn't afford (or could a few years ago but now can't) and then shift to the Global Credit crisis.

One is micro and the other is macro.

To look at the sup-prime issue as the OP suggests, is to look at it in the micro. To look at it in the level of how this is going to effect the average person. The average person really doesn't care about the Global Credit Crisis. What they care about is do they have a roof over their heads and food in their belly.

Yes, I understand that the two are related but so are the US and Chinese economies but the average person does care as long as they have the necessities of life.

The housing bubble hits people where they live... literally.

I admit, that I don't know exactly how this came about. How did so many bad debts get written? Did nobody at these lending agencies see that giving mortgages to people with shaky credit was a bad idea? Especially en masse? It's one thing to issue credit cards to this type of consumer and have them on the hook for $50,000 but many of these people are on the hook for hundreds of thousands of dollars in mortages on houses that now have less value than the loan.

Where is the risk management? I don't get it.

I still say that Bush is saving BOTH the people trouble and the corporations... though, given the scale, it is the corporations that will benefit the greatest as they have a lot more to lose.

What would you have had the government do?

Let the banks and lenders go bankrupt? Let the foreclosures happen in greater number than they already are? Let the US economy deteriorate further?

This is what a neoliberal would do. Leave it to the market.

__________________
"My hands are on fire. Hands are on fire. Ain't got no more time for all you charlatans and liars."
- Old Man Luedecke

river_ratiii

That would be a good outcome then; the free market at work.

Asking tax-payers to bail anybody out of this, either borrower or lender, is completely anti-free market.

Seriously, people make bad financial choices and your answer is socialism????

You aren'r really serious are you?

Charlatan

River, I don't see this fix as spending tax dollers per se. Rather the American Securitization Forum is suggesting a cap on mortgage interest rates and Bush appears to be backing the plan.

Unless I am missing something.

__________________
"My hands are on fire. Hands are on fire. Ain't got no more time for all you charlatans and liars."
- Old Man Luedecke

river_ratiii

On Monday Henry Paulson made a number of proposals:

http://www.treas.gov/press/releases/hp706.htm

I was going to cut and paste key points, but perhaps his speech better left intact. It still proposes a number of State, local and Federal actions, that would cost tax-payers. But I was wrong to overstate is as being a complete government bail-out.

dc_dux

The primary beneficiary will be the lenders and investors. As I understand it, the proposal would exclude many sub-prime borrowers, including those already delinquent on their payments, those whose introductory rate expires before the end of the year, and those borrowers whom mortgage companies conclude (by whatever criteria they choose) are making enough money to afford higher payments.

The Bush/Paulson proposal is hardly a socialist response or a government (taxpayer) bail out.

__________________
"The perfect is the enemy of the good."
~ Voltaire

river_ratiii

I don't see that in Paulson's comments. It seems the focus is to ensure more people are able to keep their homes by pressuring financial institutions to roll-back rates. The only Federal money seems to be going to the FHA to provide MORE lower income low rate mortgages. This is all Federal...how are the lenders and investors benefiting?

The way I see it, the financial institutions are going to "eat" the additional income they were expecting from higher interest rates, and the tax-payers are going to fund government plans to aid borrowers who made bad financial decisions.

Ustwo

Charlatan - I'm very upset with you. At some point you turned into the voice of reason

__________________
Agents of the enemies who hold office in our own government, who attempt to eliminate our "freedoms" and our "right to know" are posting among us, I fear.....on this very forum. - host

Obama - Know a Man by the friends he keeps.

dc_dux

It seems to me that with the exclusions of groups of borrowers I mentioned above (and others like those whose homes are worth less than what they owe) that the financial institutions will benefit most.

There is also the question of the investors:
We should know more details about the plan later today from the Treasury Dept and White House.

__________________
"The perfect is the enemy of the good."
~ Voltaire

river_ratiii

[QUOTE=dc_dux]It seems to me that with the exclusions of groups of borrowers I mentioned above (and others like those whose homes are worth less than what they owe) that the financial institutions will benefit most.
QUOTE]

I still don't see where they will benefit. From the quotes in your post, the financial institutions lose either way - i.e. if they accept the deal they forfeit profits, or they forclose and lose the difference in what the home is worth and what is owed.

Willravel

Of course I am. Or are you okay with "people making bad financial decisions" resulting in people being kicked out of their homes and the entire planet to be negatively effected? All it would have taken was policy that was slightly less "you stay on your side of the apartment". Responsible regulation could have prevented all of this, and I'm sure I wasn't the only person to see this coming.

The free market is great in a Reagan speech, especially when walls are involved, but the reality is that no single market or governmental system works by itself. It's when you create an amalgam of the most successful traits from different systems that one tends to have a more overall successful system. Don't let the boogeyman from 30 years ago, aka socialism, scare you into making bad decisions. No one had a problem with socialized fire protection, after all.

filtherton

Well, socialism or not, sometimes it makes sense for the government to step in and stop certain markets from imploding, which is what it seems like is going on here.

A free market should be a means to an end, not an end.

river_ratiii

Bad financial decisions were made by BOTH the borrowers and the lenders. Do you want government negotiating your mortgage rates on your behalf?

"Socialized fire protection"??? Do you mean "volunteer"?...there's huge difference between the two, specifically in the word itself...you don't voluteer for anything in a socialized system...and that is precisely why it never worked.

Willravel

So what you're saying is that you're so afraid of "socialism" that you'd rather have people out of their homes and the global markets all negatively effected? Are you that afraid of helping people?
All fire protection is socialized, not just volunteer. The government pays for it and organizes it.

Please go look up socialism in an encyclopedia.

ratbastid

This might be a case for some Socialism.

The Free Market is what got us into this mess--a bunch of individuals out for their own short-term gain with no attention on the large-scale and long-term repercussions.

host

To me, this is how obvious it is that your opinion is wrong, and you did not state it tentatively:

Willravel

That's what I've been saying for years!!!

host

From the lower part of a post I did on Nov., 23:
The "free market" was much less regulated when thousands of banks and "building and loan" entities failed in the early '30's and left their depositers with nothing.

Real reform was instituted to restore confidence in the banks. The CNN money article shows the biggest banks "at work" to help themselves after they "structured finance" to the point that they effed themselves.

The FDIC deposit insurance lured folks who had lost their deposits in the '30's, back to the banks. Who is undermining this insurance fund? Read the CNN money article above, for the answer.

The "banks" are clearly in no position to extend anything that would cost them a dime, to any mortgage holders. You can think that they will "lose" money that was coming to them via larger mortgage "reset" payments, but it wasn't going to come to them, anyway. The borrowers are not able to pay the higher monthly "reset" payments, and it they could scrape by...falling home valuations offer them no incentive to try, or to stay in "their" homes.
The buyers of the last few years could only be held to their obligations to make mortgage payments if property continues up in value, or if they perceived themselves to be trapped because they were trying to salvage what remains of an original 20 percent or more, down payment. No one else with no or negative equity in their home, <h3>has an incentive to stay in the loan or the home,</h3> if their credit rating has deteriorated.

Citicorp has been a cancer on "the system" for 85 years. Please read the linked articles in the post above. "Free markets" become schemes. The regulations were neutered by financial industry lobbyists, and the ones still in place were not vigorously enforced. There is no intent to "bail out" or aid "the public". The banks screwed themselves, they thought they had "put" all the risk of the shakey loans onto bagholders, pension funds, other banks, etc.

The big risk to them now is fraud investigations of their lending origination, appraisal, and marketing methods. The statute of limitations, if fraud can be proven, makes them responsible to buy back MBS now selling for 27 cents on the dollar, or less, at full purchase price...in excess of a dollar on the dollar.

Ther is no intent to do anything but trap people in loans that can be squeezed longer for high monthly payments to lenders, delaying the day of recognition of the mortgagees....HEY !!! MY HOUSE IS STILL DROPPING IN VALUE, AND I CAN RENT FOR MUCH CHEAPER THAN WHAT I"M PAYING THE LENDER TO STAY IN THE LOAN.

Willravel

I'd be all for the free market if it could, by itself, prevent corporatism. It can't. Government and the population needs to be there to balance things out.

Yes, Citicorp is one of the worst offenders so far as corporations out of control (corporations gone wild?). There is a consistent history of lying, cheating and stealing, in a free market.

samcol

Government is what facilitates corporations. Governments grant businesses group rights and immunities thus becoming corporations which allows them to become larger and more abusive.

Are corporations not 'legel entities' will? How do you achieve a legal status without government?

__________________
It's time for the president to hand over his nobel peace prize.

Willravel

Totally wrong. We are living in a corporatocracy, or a system where corporations have strong sway to control over the government. This is a result of government allowing the market to be too free. There should be an almost adversarial relationship between the government, market, and populace, in order to maintain balance so that one group does not get too much power. If the government gets too much power, then you have totalitarianism. If the market has too much power, you get corporatocracy. If the population has too much control, you're probably coming out of a revolution because of one of the former.

flstf

If freezing ARM interest rates is such a good thing (bailout) for the mortgage lenders then why don't they do it without the government forcing them?

It seems to me that house prices must fall to the point where average wage earners can afford them with a traditional mortgage. For the last few years prices have been propped up by using creative mortgages to allow people to borrow much more than they can afford.

Real estate agents encouraged people to spend more than they can afford by taking out an ARM or sub-prime mortgage with the understanding that they can refinance to a fixed rate before the payments reset too high. This worked fine when real estate prices were rising and buyers had equity to secure the new loan but does not work at all when prices fall. Now they are stuck with payments resetting higher than they can afford and have no chance to refinance.

I have also read stories where real estate agents and mortgage agents coerced appraisers to evaluate houses to match the inflated selling price or they would refuse to do future business with them. It seems like the whole industry was making lots of money with the high commissions. Now we are stuck with millions of house buyers who will have to walk away.

I put most of the blame on the buyers who were talked into these deals by agents looking for high commissions. But real estate agents and mortgage brokers are not blameless for taking advantage of naive house buyers.

Elphaba

Charlatan, to address Ustwo's micro question of Bush "socialism" you must look at the macro economics that actually underly his intervention. There really isn't such a state as a "free market" as long as the Federal Reserve can crank out more monopoly money to settle the markets, or a president can temporarily defer a greater credit crisis than we have now. The "little guy" about to lose his home isn't a consideration in this equation.

__________________
"You can't ignore politics, no matter how much you'd like to." Molly Ivins - 1944-2007

Charlatan

Elphaba, I agree that the "free market" doesn't exist, just like I would suggest that "socialism" doesn't exist. Both are ideal states in direct opposition to one another.

All I have ever suggested here is that there is a continuum between the two and that what Bush is doing inches towards the socialism end of that continuum. I have not made any effort to quantify by how much or little that shift is, nor have I indicated where on that continuum these actions have left anyone.

Honestly, I don't really care. The fact is, if there is such a thing as a "free market" then the actions the government are taking are not supportive of that sort of system.

Beyond that part of the discussion, I then went on to point out that roughly 1.2 million homeowners are about to get some help. They are going to get out of a bad situation where they are likely to lose their homes. Yes, some are still going to end up pay higher rate or losing their homes because they do not qualify for this assistance.

On the other side of the issue, the lenders that have written a lot of bad debt will still lose a lot of money through defaulted loans but will now, instead of having to deal with defaulted loans (which represent a loss to their bottom lines) they will be able to keep receiving payments (though it appears that those payments will be subject to an interest rate cap for five-years).

As I said above, I don't know how this all happened. From where I am sitting it looks like this:

Banks marketed a number of variable rate mortgages to people with "shaky credit"

People who could afford these variable rate mortgages because the sub-prime interest rates made their monthly payments affordable signed up.

The variable rate mortgage is subject to whatever the prime interest rate is. If it goes up so to do the variable rates (this is the type of mortgage I had and when I saw that rates were going up I called my bank and locked into a fixed rate).

Enter the US economy. The US economy, in the throes of a massive shift. The dollar is dropping. Interest rates are climbing. The variable rate mortages going up.

Add to this, a massive real estate bubble. I have been hearing for years now that the US real estate market is over inflated and due for an adjustment. To much supply, not enough demand, etc. Housing prices start to drop.

Suddenly, the collateral on those mortgages, the actual value of the houses, is worth less than the mortgage used to purchase it in the first place.

What is a homeowner to do? They either default on their loan, refinance, or continue to put money into a property that is worth less than what they are paying into it in the hopes that one day the market will rebound.

Ordinarily, this sort of thing happens all the time but in small pockets. This time, it is a nation-wide 1.2 million house crisis.

The amount of money about to be lost to the lending institutions due to defaulted loans is going to be huge.

The number of homeowners about to lose their one (formerly) great asset is massive.

I am sure much can be said about the role of government in getting the economy to the state where it is. I am sure a lot can be said about the lending parties inability to forecast risk. I am sure there is a lot to be said about people who spend beyond their means and that don't understand the implications of what they are signing.

The fact is, it's a mess. I don't believe that there is one person you can point to for this (and I can appreciate that others do feel this way but I just see it as more complicated than that).

Assuming I have this right, and I don't know that I do. What would you suggest that the government should do to alleviate a situation that will not only impact people losing their homes but also effect businesses that employ many people, investors around the world, etc. etc.

How would you suggest we try to fix this problem?

__________________
"My hands are on fire. Hands are on fire. Ain't got no more time for all you charlatans and liars."
- Old Man Luedecke

Elphaba

My solution would require going back in time and back handing Clinton for agreeing to the deregulation of banking and lending institutions. I think you and I are in agreement that there is no perfect economic model and that adjustments are required to any model to meet some measure of success. Where we might disagree is that I believe that some key institutions *must* be regulated for the good of all.

I watched the value of my home plummet in value as a consequence of the Savings and Loan deregulation debacle a couple of decades ago. The subprime fiasco is identical in every aspect, but it appears that we don't learn from our experience.

Charlatan, I'll stop beating this poor horse after saying once again that a very small group of people may get some temporary relief, and the lion's share of the initiative is to protect the banks and lending companies that leveraged themselves to dangerous levels.

Geebus, how could CitiGroup be so reckless?

__________________
"You can't ignore politics, no matter how much you'd like to." Molly Ivins - 1944-2007

Charlatan

While that is an interesting solution, it really doesn't solve the current crisis in a practical way. It is certainly one thing to look at the root causes of how we have arrived at where we are it is also important to talk about how we are going to solve the current problem.

Does anyone have any other way of fixing this that doesn't require a time machine ( ).

__________________
"My hands are on fire. Hands are on fire. Ain't got no more time for all you charlatans and liars."
- Old Man Luedecke

flstf

I don't understand why you think this initiative is to protect the lenders. Like I asked in my previous post, If it is in their best interest to freeze rates then why do they need the government to force them?

I think the biggest losers may be the lenders and those who own their stocks and bonds in their mutual funds. Also I believe this initiative will cause house prices to fall even more when prospective buyers are unable to qualify for mortgages due to lenders reluctance to make loans after this government interference.

host

flstf, I think that I can answer your question. The "lenders" are in denial to the point that they believe their own BS. They only look at "this quarter" as far as their "bottom lines". This "bailout" might negatively impact anticipated revenue increases from ARM "resets" in the near term.

The CEO's of the largest US bank and largest brokerage, by capitalization, both lost their jobs because they either lied or did not grasp the gravity of their organizations' predicaments:
(Click on the actual post links, not the threads...to read more):
http://www.tfproject.org/tfp/search....archid=1042853

The bigger point, though, is that it is not even possible to discern who "the lenders" are. Corporations such as Countrywide made profits by underwriting ever growing numbers, until early 2007 of mortgage, heloc, and refi loans, and from the lucrative mortgage servicing operations.

They obtained "warehouse lines of credit" from money center banks and investment firms like Citi, Merrill, BofA, Lehman Bros., Morgan Stanely, etc., billions of dollars that were then loaned, and the individual loans were then "sent" to firms like Lehman and Bear Stearns to be "packaged" into multi-million dollar "tranches" sold as mortgage bonds and other mortgage backed investment paper. A "tranche" might have been made up of 95 percent 30 year mortgages of fully document AAA credit rating mortgage applicants, and 5 percent "no doc" or "low doc" applicant's loans.

As housing prices "skyed" from the ever growing influx of liquidity....the warehouse credit lines were constantly replenished by selling the "tranches" to pension funds, insurance companies, Asian and European banks, and to hedge funds and money market funds, and etc., etc....even more liquidity at looser lending terms, were offered.

It became possible because housing prices rose so predictably to sell crappy loans in tranches that contained only or mostly crappy (sub-prime and ALt-A) loans, at nice premiums (Above $1.07 per loan dollar), with few stipulations demanded by the MBS tranche buyers. Recently, resistance to increasing risk of this paper crap was overcome by conditions of purchase demanded by MBS buyers. An example is a requirement that no more than say... 3 percent of individual loans in a tranch could default due to none-payment by mortgagees in the first three months after loan origination.

Excess defaults in that narrow time window gave MBS buyers the right to "put" the entire tranch back on the issuer...say Bear Stearns, at the original purchase price. Bear could then "put" the failed tranch back on the issuer, Countrywide.

No one in the chain was concerned because they were confident that housing prices would encounter no obstacles to their continued rise. These were the guys turning the knobs on the liquidity faucet. They were underwriting new loans and refis, home buyers were "trading up", and the packages of mortgages were sought after by investors and funds. The "bubble" hinged on the increasing liquidity, and that still is not appreciated, as seen on this thread. Houses will sell for what the market will bear, and, as prices decline, potential, qualified buyers anitcipate still lower prices to come....causing still lower prices. This is the mirror opposite of the "I better buy now, or I'll have to pay more if I wait any longer. This is only the beginning of the opposite of the "up" trend in prices that began as far back as 1998....

Most of the default time windows for the tranches of the "sub-prme" mess have expired.

Now the risk is due to fraudulant underwritng. Pension funds, for example, will hire lawyers and accountants to pour over the individual loans in mortgage backed tranches that the funds are now stuck with and are either untradeable, illiquid, or worth less than 30 cents per dollar paid for the tranch by the fund. If lax underwriting or easily verified false assertions are found, or things like threats of loss of assignments by the mortgage underwriter against appraisers who do not provide a high enough number, or worse...collusion between underwriters and affiliated (in house) appraisers to inflate appraised values, to a attempt to prove in court that the fraud justifies "putting" the tranch back on the issuer in exchange for a full refund.

No one knows who "owns" an individual loan. In addition, derivatives and "SIVS" were issued and purchased by counter parties to "insure", or simply to "place bets" on the appreciation or decline of the mortgage backed paper resale value....it's liquidity.

No one knows which "counter parties" are responsible for "covering" the exposure of an issuer or current holder of mortgage backed paper, if the "paper" loses value or is "put" back on the issuer, because fraud or lax underwritng is proven, or because too many mortgagees with loans packaged in a given tranch, were to stop making monthly payments, so no one knows for certain of the soundness, the ability to cover a derivative or SIV counter party obligation.

Merrill has been caught issuing "SIVs" of untradeable or devalued mortgage backed paper and transferring them to "shell" entities, to keep them "off the books" of Merrill itself, to disguise it's actual "paper" losses. Enron did the same thing. All of the other banks and brokerages involved are suspected of doing likewise.

I've only touched on a description of what a fucked up, obscured mess this has become. The lack of transparency begets a liquidity crisis. Banks refuse to lend to each other "over night" out of fear that the executives of bank "A" may arrive at their desks the next morning and hear that bank "B" that it lent a billion to, just the night before, has been closed by the Fed due to insolvency.

The "lenders" are not even the actual "lenders"...investors and funds own the actual mortgages, and they cannot gauge the "health" of the tranches that the mortgage they hold are packaged in, especially if they were rated AAA-prime. Underwrites who once enjoyed unlimited warehouse credit lines, such as Countrywide, choked on mortgage loans they kept issuing that couild no longer be packaged by Bear, Lehman, et al, into tranches. They had to eat them, and this caused their credit lines to become illiquid, and then reduced and closed, and then came margin calls when the large providers of the credit lines demanded higher collateral (margin) in cash....to cover the increased risk caused by the "Countrywide level" in the chain, being stuck with mortgages no one wanted to repurchase, and no cash to make new loans and maintain the stream of underwriting profits.

The depths of what is going to happen have not "sunk in" for these knuckleheads. They do not appreciate that housing valuations will sink much lower than they can imagine, without the ever rising liquidity "pump" of warehouse credit lines feeding cash to any mortgage applicant who could fog a mirror.

They see a bailout impacting immediately anticipated cash flow.

<h3>This is about an attempt to "save" the world economy and fiat paper currencies, the US dollar being the most in peril and consequential. I predict that "the save" it will not succeed, and I know that everyone who can sell their house now, for whatever they can fairly get for it, will come out ahead of those who attempt to sell five or six and maybe longer, years from now. My opinion does not apply only to folks who are "upside down" on their loans, it applies to every homeowner.</h3>

We've been through this before, on a much smaller scale, and after fifteen years, it did "work out", In between it took the effects of WWII, and consider that the average amount "refinanced" was under $3,000 per mortgage. We are probably at an average magnitude of 50 times that amount, today. <h3>Do you suppose that anything,(besides the average size of morgage loans...) wages....the price of a new car, the price of an ounce of gold (it was $20.00 in 1932, revalued by law to $35.00/ounce by 1935...) have risen to a multiple of 50X the 1935 cost?</h3>
It is a valuation bubble that the bailout attempts to preserve, or appreciably slow the deflation of. It cannot be done except by allowing anyone who can fog a mirror to qualify for a 100 percent loan, fed by warehouse credit lines of mortgage originators. Feeding some sheeple bagholders into the combine by letting them "keep their homes", ain't gonna help any of them....or "save" "the system".

Willravel

This is a good question. Besides what's being done it would seem prudent to aggressively suggest that people do their homework so as to avoid making stupid decisions. I can't imagine how many times the market has suffered as a direct result of uninformed consumers. I of course feel for them, as they're going through tough times, but a bit of research (maybe even a post on TFP?) could have told them that they were making a mistake.

On the other side, it was clear pretty early on that sub prime was a time bomb. Hey... psst... market.... we know you want to make money. We get that, we really do. But how about getting your head out of your ass an looking ahead 5 years instead of 2 quarters? Your giving money to people with bad credit at a high interest rate, and you're doing it A LOT. This isn't rocket science. It's not even econ 101. Did you see what happened to New Century? Do you want that to happen to you? THEN DON'T GET SO GREEDY YOU LOSE PERSPECTIVE. The funny thing is, I doubt people will learn from this. People will get greedy again and people will suffer and companies will go under.