Stupid Government to Bail Out Homeowners - Page 2

These loans are brokered out to countries all over the world. If this situation spirals into an all-out crisis, we will drag the financial stability of the world down with us. And if that happens, China, the primary lienholder of our record deficit, might decide that US tender is toy money.

It's in all of our interest to see this situation stabilized, though it shouldn't be solved by bailing out the brokers, lenders and investment banks that made billions from subprime lending. Freezing interest rates is probably the most sober stopgap considering how the Bush administration and its cabal of "free market" greedheads and nutcases have f***ed us once again.

Freezing interest rates is the worst possible idea. The reason we're in this situation is because to stave off deflation and ultimatly a depression post dot-com boom and 9/11 the Fed decided to cut interest rates and keep cutting until the economy was stable, it worked! One of the key reasons it worked was we replaced the dot-com boom with a housing boom. Unfortunatly, less intelligent people opted to do ARM loans instead of FIXED loans, because FIXED was more money at the time. If we freeze the interest rates it will do three things.

1. 5 years from now we'll be back in the same boat when the interest rates go back up from the people who purchase from now until that five years is up.

2. it will take away our biggest weapon against deflation\inflation. (this is the biggest reason)

3. It will not help the people who got new homes or refinanced from 2002-2005 as the fed rate was sub 2%. (meaing more forclosures, bank losses, panicy world economy)

Naw, they were on United 93, 175, 11 and 77. I never gave you Rep you didn't deserve.

The sub-prime meltdown is the love child of "innovative" (read: unregulated) free market capitalism and human / corporate greed. You can blame the borrowers until you're blue in the face, but the facts tell a different story. The market does not take care of itself -- it allows individuals and entities to sock away its ungodly profits as Rome burns.

This month-old BBC News story breaks it down into graphics so that you can understand how much bigger than "irresponsible borrowers" this situation is:
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The US sub-prime crisis in graphics



The US sub-prime mortgage crisis has lead to plunging property prices, a slowdown in the US economy, and billions in losses by banks. It stems from a fundamental change in the way mortgages are funded.

Traditionally, banks have financed their mortgage lending through the deposits they receive from their customers. This has limited the amount of mortgage lending they could do.

In recent years, banks have moved to a new model where they sell on the mortgages to the bond markets. This has made it much easier to fund additional borrowing,

But it has also led to abuses as banks no longer have the incentive to check carefully the mortgages they issue.

THE RISE OF THE MORTGAGE BOND MARKET



Growth in mortgage bond market
In the past five years, the private sector has dramatically expanded its role in the mortgage bond market, which had previously been dominated by government-sponsored agencies like Freddie Mac.

They specialised in new types of mortgages, such as sub-prime lending to borrowers with poor credit histories and weak documentation of income, who were shunned by the "prime" lenders like Freddie Mac.

size of the mortgage bond market
They also included "jumbo" mortgages for properties over Freddie Mac's $417,000 (£202,000) mortgage limit.

The business proved extremely profitable for the banks, which earned a fee for each mortgage they sold on. They urged mortgage brokers to sell more and more of these mortgages.

Now the mortgage bond market is worth $6 trillion, and is the largest single part of the whole $27 trillion US bond market, bigger even than Treasury bonds.

HOW SUB-PRIME LENDING AFFECTED ONE CITY

For many years, Cleveland was the sub-prime capital of America.

It was a poor, working class city, hit hard by the decline of manufacturing and sharply divided along racial lines.

Mortgage brokers focused their efforts by selling sub-prime mortgages in working class black areas where many people had achieved home ownership.

They told them that they could get cash by refinancing their homes, but often neglected to properly explain that the new sub-prime mortgages would "reset" after 2 years at double the interest rate.

The result was a wave of repossessions that blighted neighbourhoods across the city and the inner suburbs.

By late 2007, one in ten homes in Cleveland had been repossessed and Deutsche Bank Trust, acting on behalf of bondholders, was the largest property owner in the city.

THE CRISIS GOES NATIONWIDE



Sub-prime lending had spread from inner-city areas right across America by 2005.

By then, one in five mortgages were sub-prime, and they were particularly popular among recent immigrants trying to buy a home for the first time in the "hot" housing markets of Southern California, Arizona, Nevada, and the suburbs of Washington, DC and New York City.

House prices were high, and it was difficult to become an owner-occupier without moving to the very edge of the metropolitan area.



But these mortgages had a much higher rate of repossession than conventional mortgages because they were "balloon" mortgages.

The payments were fixed for two years, and then became variable and much higher.

Consequently, a wave of repossessions is likely to sweep America as many of these mortgages reset to higher rates in the next two years.

And it is likely that as many as two million families will be evicted from their homes as their cases make their way through the courts.

The Bush administration is pushing the industry to renegotiate rather than repossess where possible, but mortgage companies are being overwhelmed by a tidal wave of cases.

THE HOUSING PRICE CRASH



The wave of repossessions is having a dramatic effect on house prices, reversing the housing boom of the last few years and causing the first national decline in house prices since the 1930s.

There is a glut of four million unsold homes that is depressing prices, as builders have also been forced to lower prices to get rid of unsold properties.

And house prices, which are currently declining at an annual rate of 4.5%, are expected to fall by at least 10% by next year - and more in areas like California and Florida which had the biggest boom.

HOUSING AND THE ECONOMY

The property crash is also affecting the broader economy, with the building industry expected to cut its output by half, with the loss of between one and two million jobs.

Many smaller builders will go out of business, and the larger firms are all suffering huge losses.

The building industry makes up 15% of the US economy, but a slowdown in the property market also hits many other industries, for instance makers of durable goods, such as washing machines, and DIY stores, such as Home Depot.



Economists expect the US economy to slow in the last three months of 2007 to an annual rate of 1% to 1.5%, compared with growth of 3.9% now.

But no one is sure how long the slowdown will last. Many US consumers have spent beyond their current income by borrowing on credit, and the fall in the value of their homes may make them reluctant to continue this pattern in the future.

CREDIT CRUNCH



One reason the economic slowdown could get worse is that banks and other lenders are cutting back on how much credit they will make available.

They are rejecting more people who apply for credit cards, insisting on bigger deposits for house purchase, and looking more closely at applications for personal loans.

The mortgage market has been particularly badly affected, with individuals finding it very difficult to get non-traditional mortgages, both sub-prime and "jumbo" (over the limit guaranteed by government-sponsored agencies).

The banks have been forced to do this by the drying up of the wholesale bond markets and by the effect of the crisis on their own balance sheets.

BANK LOSSES



The banking industry is facing huge losses as a result of the sub-prime crisis.

Already banks have announced $60bn worth of losses as many of the mortgage bonds backed by sub-prime mortgages have fallen in value.

The losses could be much greater, as many banks have concealed their holdings of sub-prime mortgages in exotic, off-balance sheet instruments such as "structured investment vehicles" or SIVs.

Although the banks say they do not own these SIVs, and therefore are not liable for their losses, they may be forced to cover any bad debts that they accrue.

BOND MARKET COLLAPSE



Also suffering huge losses are the bondholders, such as pension funds, who bought sub-prime mortgage bonds.

These have fallen sharply in value in the last few months, and are now worth between 20% and 40% of their original value for most asset classes, even those considered safe by the ratings agencies.

If the banks are forced to reveal their losses based on current prices, they will be even bigger.

It is estimated that ultimately losses suffered by financial institutions could be between $220bn and $450bn, as the $1 trillion in sub-prime mortgage bonds is revalued.

Less facts, more rhetoric please.

Christ, just tell folks to quit contributing to their 401K. Or ever investing into anything for that matter. Why can anyone in their right mind blame the government for everything? "We" are the government. When and if one stops believing that, its over.

That's very depressing and cynical. True, but I don't think blaming everyone for my lot in life is heathly, quite frankly it's degrading.
Ireland is the example we should be emulating by cutting taxes on Industries so they don't get the bright idea of outsourcing to Mexico or overseas. They are out to make a profit and when taxes eat most of it up, the choice is obvious. Unethical, absolutely, but business is business. I'm not defending, just saying...

I don't care what "the numbers" say, if you get a good job, work hard enough, all things considered, you will move on up just like George and Weezy.

That would be fine, Zod, if there were a "good job" available for every person of working age in America who had the desire to work one. But there aren't, so I think you should try and accept that the world is sometimes less than perfect.

There is enough blame to go around. The lenders weren't entirely wrong, they offered a multitude of borrowing options (however, there should be some serious consequences for those companies that offered loans for people with no SS#!). Don't forget to blame the individual for being uneducated. You borrow $300,000 or more you should think a little bit about how you plan to repay it. Also, don't forget to hold the realators accountable.

edited -- added the word entirely

If you're going to blame people for being uneducated, you can blame Reagan and subsequent governmental forces that starved/homogenized/dumbed down public education in America. You know in terms of math and science education we're like 23rd in the developed world?

All of this, I think, supports my point, which is that we pay legislators to nurture the general welfare, which includes protecting us from getting ripped off by unscrupulous pyramid schemes described in the comprehensive BBC article above. Individually you can say, 'Hah, stupid rubes!' but when you look at the ripple effect caused by this short-term greed mongering in the real estate market, the bond market, all the way to retail and credit cards, enabling their greed has turned out to be pretty destructive.

Ps. if we're spreading blame, I'd like to throw in my least favorite boogeyman on the planet: big developers. F*** them! I'm sorry for people losing equity, but I'm glad something has finally stopped their hideous raping of open spaces across America.

Of course, but as long as you are educated and a hard worker there should be no excuses. Tons of opportunity out there if you really want it.

Honestly, if someone suggested the abolishing of the Department of Education and letting the states cater their education programs to the students needs instead of the students having to bend to Federal rules and standards, I'd vote for that.

Yeah, well, you're a schmuck. Abolishing the Department of Education would be a terrible, terrible idea akin to supporting torture.

Oh. Wait...

hell,
lets give them all a prayer rug. :P
Allah

You see, because Muslims are bad. Also, Hitler.

That's the point. Abolishing the Department of Education is not going to further the meritocracy. Quite the opposite.

It was a GD joke. Christ. :P

Taxes, by no means, eat up the majority of any business profits. The effective corporate tax rate for an American corporation is somewhere in the neighborhood 0-4%. The amount of deductions available to a business is staggering and they all reduce the amount of money you pay Uncle Sam. Also, bear in mind, that we only tax on profit. Some very successful businesses have only rarely turned a "profit." (Amazon.com springs immediately to mind). Furthermore, if an American corporation goes overseas with its operations, it does not escape the IRS. The corporation is still taxable at the American rates on all world-wide income. If the Corporation forms a foreign sub in another country (like Ireland), it's not taxed until the money is repatriated to the US as a dividend. Thanks to George Bush, dividends are now taxed as capital gains, where they used to be taxed at a higher rate. This used to encourage investment. Not anymore.

Here's the deal: if people move their businesses overseas, it's because of two reasons: 1) a lower local tax rate, or 2) cheaper labor. The low tax rate may be a marginal benefit because of various treaties and the US Foreign Tax Credit (which credits businesses and people for foreign taxes paid against their American tax), and furthermore, in some jurisdictions (like certain Asian countries...I forget which), the low tax rate is a teaser -- after five years it goes away. So what does that leave? Cheap labor. Which goes to your original point.

Because companies are moving their operations off shore, we're seeing stagnant growth in wages in America. The guy with a Ph.d. in Computer Science (educated by anyone's measure) is getting his job shipped to India. What is this person supposed to do? With a house payment, kids and health care costs? Start his own business? That's great if he's single and can eat Government cheese 2 meals out of four, but if he's got a family, that aint an option.

Furthermore, why shouldn't corporations pay their fair share of taxes? They get the benefit and protections of US laws. Why should they get a free lunch?

If you want to talk taxes, that's great. I can do that all day (I'm earning a post-graduate degree in tax law right now). But let's move beyond the simplistic analysis we get from Fox news. Lowering taxes will not solve every conceivable ill, from a stagnant economy to genital worts.

Yeah, as I've said before in other threads, this kind of mentality leads to corporations essentially holding the economy hostage--you have to do everything they want or they'll move overseas, or the economy will supposedly crumble in some way. The example I used was the auto manufacturers, who always complain that their business will collapse every time a new safety feature becomes standard, but it applies to taxes and benefits as well.

Right because ALL kids are the same. Try debating the issues without getting personal. IF that's possible, Grey.

The idea of public school system is not that all kids are the same, but that all kids should have the same opportunity to be educated.

Not disagreeing with that at all, who would? I'm just saying the Feds need to stay out of education because they seem to think ALL kids are the
same; kids in urban Chicago do not learn the same way as kids in Alabama.

Forming the curriculum to fit the kids and not the other way around would make more sense to me.

Standardized testing is bullshit and behooves the teachers not the kids.

If not abolished than the Department's power needs to be reduced significantly. However, a few things would remain; if the schools do not abide by a strict adherence to the separation of church and state and teaching sex ed in health class, they get no moola.

Just me though.

Actually, most teachers I know don't like standardized testing as currently applied (derails the curriculum they've set for themselves). I'm not sure who it behooves, except maybe adminstrators who can work the system and agencies that don't have to do any in-depth examination of a school's effectiveness when allocating funds.

The mortgage business represents less than 1% of the fixed income portion of the economy. The banks will do fine without any help from Uncle Sam. Like everything else, the only reason this is a big deal is because people are making it a big deal.

Its not my fault that people were fucking idiots in buying more home than they could afford, nor is it my fault that every mortgage lender decided to hire 19 year old high school drop outs to sell these mortages to everybody they came in contact with. Therefore, I dont see why I, as a taxpayer, should need to foot the bill for their ignorance.

Because you, as a taxpayer, will suffer when the entire economy goes tits up.

For the last five years, the only thing keeping this economy afloat was housing. Now, that's no longer an option. It's not the lending business, it's all sorts of industries that suffer. Construction companies won't build anymore. What does that do? Means workers are laid off, supply orders are not filled, capital investment does not happen, etc.

Then, as the economy goes south, so does the confidence in our fisc. This means less hiring, less money getting invested, and less money being loaned to buy items. Items that people produce and sell, putting money into the economy.

I love these "why should I..." arguments. It's as if unless something touches YOU PERSONALLY, no tax money should go to it. It's stupid fucking idea and one that really should die out. We're a fucking country and a community. What affects me affects you dickhead. If we were to buy your argument, then I wouldn't want to pay for 1) the cops (since I can protect myself), 2) the Fire Department, (since I'm not stupid enough to set my own house on fire), 3) the military (since if the government issued everyone over the age of 19 a automatic weapon and ammo, a la Switzerland, our Country would be very safe from foreign invaders).

Whilest I do appreciate all the personal insults, I would like to respectfully disagree on a few points.

This mortgage "crisis" we speak of in no way poses a threat to the general economy. The only thing that does is the fact that people wont shut up about it.

"Well, what about Citigroup? Their CEO got fired, their stock is down 38% YTD, all because of these darn mortgages!"

Citigroup, Wells Fargo, JPMorgan, BofA, etc are all in good shape. Take a look at their balance sheets. These companies that are the backbone of the financial sector of our economy have more cash then God on hand. And remember, a "writedown" doesnt necessarily mean a loss.

And if you cant tell the difference in paying to bail someone out who was stupid enough to purchase three $600,000 properties on a $75,000 household income and paying for the ambulance to pick someone up after they got hit by a car, well then I just dont know how to respond to you.

Sure, housing demand will go down, which will effectively force those in the construction/labor industry to look elsewhere for work. Perhaps commerical real estate? Have you taken a look at the commercial real estate economy? Thats been going strong for a lot longer than residential, and all signs point to it continuing.

The economy will do fine as long as every newspaper, magazine, and television program quits making a big deal out of this.