I am trying to figure out what to make of the Paulson and Hillary ideas for homeowner bailouts.
The first thing is that some sort of government lead thing is going to have unintended consequences. Michael Shedlock had a good post that mentions among other things that anyone who lied to get a loan can't really come back with W-2 that shows a different number meaning that the idea will turn out to be nothing but "lip service."
The entire situation we are in now is an unintended consequence of rates being kept low for too long. Whatever they have in mind now and then whatever it is they actually end up doing will cause problems. I am not going to be the one to figure out what all the issues are ahead of time nor do I know if the problems caused will be worse then the original issue but if they actually execute a plan, watch out.
One aspect of this that also troubles me, especially after hearing what Hillary had to say, was that we need to help people who were the victim of unscrupulous lending practices yada yada. My wife and I each have family who have made catastrophically bad personal finance decisions. Much as I hate to say these family members don't get it and I doubt they ever will.
Lying about income and taking on more mortgage than can obviously be afforded ultimately falls on the borrower no matter what anyone else says along the way.
This is more about individuals making very bad decisions than it is unscrupulous anything and now we are going to bail people out to go on and make more bad decisions in the future.
I realize my stance is particularly unsympathetic.
Speaking of Hillary, I may be wrong but I am convinced she either does not understand how capitalism works or she does not believe in it, except maybe in her commodity trading account.
Just curious, how many jobs are going to be created if people making $50,000-70,000 pay $500 less in taxes and we pay for that by increasing the tax for people who actually make enough to create jobs?
The solace is that if Hillary wins she will not be able to enact a whole lot from the standpoint of very few campaign ideas ever get implemented.
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41 comments:
if Hillary wins she will not be able to enact a whole lot from the standpoint of very few campaign ideas ever get implemented.
My worry is that if Hillary wins what will get enacted are some of the even more ridiculous ideas that would surely find life in a Democratic Congress.
In light of your comments, The "Mao of Business" book ad looks extra red today.
Agree with your comments Roger....
however, first time homeowners
being told that they could
refinance when the teaser rate
ran out...then finding out they
couldn't might have something to
do with it. My own experience
years ago buying many properties
was that a realtor would tell you
anything(or not tell you what you
needed to know)just to sell the house. Greed is not good:-(
Will we be seeing realtors in
the unemployment lines?
Here is a related article from Safe Haven.
Here's what you should make of it:
"Hey, don't worry about being stupid. The government will bail you out."
Not that I'm bitter. I mean hey, why should I expect to get an edge from doing a lot of research and working hard to keep my debt down, etc.?
anyone living within their means or better yet below their means does have an edge.
While I don't feel bailing out people is the right thing to do I don't wish the stress of dealing with this, whatever that ends up meaning, on anyone.
I don't minimize what that will be like for those folks.
Re "Hey, don't worry about being stupid. The government will bail you out."
Could this be a form of socialism for capitalists? Nah, perish the thought.
On a similar sympathetic note as Anon 7.37a, I have family that made borrowing decisions in part based on bank and realtor assurances that refinancing would be a "snap".
One of the realtors was family.
But I agree with Roger. Bad decisions need consequences to minimize unnecessary uncertainty premia. The family member that made the subprime loan is dealing with the upcoming teaser reset; but of course will not "insist" on paying the step-up if Hillary&Co deliver the windfall. (Most likely they'll take advantage of the "pause" in the slide in prices and sell.)
Rick
Re, Perish the thought.
I'm John A to distinguish me from the other John
Excellent post Roger. I think that you have it right about Hillarious. She and her fellow socialist elites believe in the redistribution of wealth for everyone but
themselves. What scares me about as much is that Bush
and Paulson are the ones pushing this shell game!
Where did the idea of personal responsibility go?
Then again, the Congress lacks responsibility
when it comes to financial discipline so what should
we expect. A fish rots from the head down.
Say, on another note, since I am managing my own retirement portforlio now, I sometimes wonder
how my wife and kids will deal with it when I go to heaven. I have tried to educate my wife but she can
barely remember where I keep the passwords to the accounts (she is a special ed teacher and up to
her eyeballs teaching those little kids). Are any of you in a similar predicament, or how have you planned to pass the portfolio management on once you go?
Thanks for any ideas,
Scoot
Anon:7:37
Per TV news, one of the shooting victims in Omaha mall was a Realtor doing Christmas wrapping to make ends meet!
Roger have you had an opportunity to look at RJA, which is a recently listed commodity vechile. I would like to know your impression of its usefulness. Thanks
It is not more about individuals making very bad decisions than it is unscrupulous anything. It is about individuals making very bad decisions and a great deal of intentionally unscrupulous or negligent behavior by everyone from Central Bankers to regulatory and ratings agencies to Wall Street to mortgage brokers and local appraisers.
True, financial ignorance (on the part of buyers) is, in the end, not an acceptable excuse. But it comes a lot closer to acceptable than intentional behavior on the part of those who would never be accused of being financially ignorant.
I find this attempt to shift blame completely towards those who perhaps should have known better and away from those who did know better to be reprehensible.
Sure, we can blame the borrowers for their greediness.
But, what can we say about the "financial institutions" that participated and were left with these "Junk Mortgages" on their books?
How about stupid and incompetent for starters!
Maybe I'm mistaken but I remember a few years back when everyone was fat and happy that the Democrats were angry that everyone wasn't able to get a piece of the American dream, a house of their of own. As true socialists they complained that poor people should be able to get a mortgage too. And now those same dolts are pretending to be mad at the banks.
With that thought in mind...
Presidential candidates, Hillary Clinton, Barack Obama, and John
Edwards were flying to a convention.
Barack looked at Hillary, chuckled and said, 'You know, I could
throw a $1,000 bill out of the window right now and make somebody
very happy.'
Hillary shrugged her shoulders and replied, I could throw ten
$100 bills out of the window and make ten people very happy.'
John added, 'That being the case, I could throw one hundred $10 bills out of the window and make a hundred people happy.'
Hearing their exchange, the pilot rolled his eyes and said to his
co-pilot, I could throw all of them out of the window and make 200million people very happy.'
We could turn all the foreclosed
homes into jails...and lock up
the guilty inside each;-)
Let's not fight - bailouts for all!
One thing I've been wondering about is the banks and brokers who got stuck with this mortgage stuff: how many were just stupid and lazy, and how many expected to be bailed out? You know, the old privatize profit/socialize loss thing we do so well.
a few things re the unscrupulous people at the bank... of course this is just my opinion but the salespeople who were involved are often motivated by interests other than those of their clients. Is this news to million or just a few?
I have never had an encounter with a realtor, loan salesman or a car salesman where I did not feel the need to shower immediately afterward. I'm sure honest ones are out there but I have not had any dealings with any.
Scoot, hire someone who lives near you--not a shill I don't live near him.
RJA? I wrote about it for TSCM if you care to dig it up. I like that JJA has more coffee. This is not to say JJA would do better because I don't know.
anon 10:09, reasonable point of course and articluates a portion of the other side of the argument pretty well.
I still think the negs outweigh the positives by quite a bit but i hear you.
"I have never had an encounter with a realtor, loan salesman or a car salesman where I did not feel the need to shower immediately afterward." LOL
with disinfectant....
I got a 0% interest rate on a credit card for 12 months...
now they are raising the rates
to 10% plus...would someone please bail me out? ;-)
Yeah, and what about the people that ARE making their adjusted
payments...what incentive do they have to pay....?
Punish the intelligent and honest?
Something has to be done before a melt down.
Yes in an ideal world many of these home owners should be in jail for bank fraud. A lot of them lied on their mortgage applications.
A lot of the mortgage brokers should be in jail for bank fraud. They told the mortgage applicants how to lie and get the loans.
I could go on about Realtor and banker mistakes but I think you get my drift.
I think Bush and Paulson are just trying to clean up easy Al's 20 year screw up that he finally culminated with the ultimate excess debt creation bubble (housing bubble) to correct his previous debt bubble (Nasdaq bubble).
There is plenty of blame to go a round and no nice way to punish any one. Although history will finally rewrite the maestro (makes me sick) for the ultimate bubble machine that he was.
Now that Hillary has decided that Wall Street is evil, will she send back the campaign donations?
This is a problem that will be solved with money. First order of business is to find someone with money. If you have been living a fiscally sound life then you are just the person the Robin Hoodlums are after.
Fred
give the foreclosed homes to
returning USA troops and
their families!!!!
and to still homeless families
of Katrina!!!!
Send the guilty to fight in Iraq!
You think I can get the Canadian Government to front me some relief on a Canroy I've been holding? I'm not asking for much...
I bought a house in 1983 with a mortgage at 10.75%. No one offered to bail me out when I had problems meeting the mortgage payment. We just tightened our belt and figured out a way to do it.
This is nothing but a bail out for the finance centers/banks/mortgage companies spearheaded by Hank Paulson the former head of Goldman Sachs and now Treasury Secretary. Goldman Sachs was playing both sides of the street in the subprime mess by pushing bad products onto their retail clients while simultaneously shorting those products. Read Ben Stein's brilliant article in the WSJ a few days ago to see what's really going on here.
This bubble is the same as the stock bubble, with one change. This time it was done with credit, not with savings, pensions, and cash. Therefore, the change is that it's other people's money. Isn't that what rich people do? Someone has to give up money here. Taxpayers, banks, governments...I think the "crisis" comes from there being no cash rich party to take from. Perhaps the wealth of real estate needs to come back to affordable prices. charlie
Off topic, but not off Hillary.
One of my goals with Section 8 tenants (subsidized or free rents) is to educate them off the welfare rolls, into education or a trade and thus, gainful employment.
I have had more than a few success stories, many of whom stay in touch with their "teacher" as they mature into self sufficient citizens.
As a result of their increase in pride and self worth, many have indicated to me that they now vote Republican.
They have discovered that many of our Democratic friends want to keep them dependent on the freebie plantation for political purposes -to, in effect, buy their vote.
No present Democratic candidate will end this hideous practice.
T, your comment takes a more sinister tone than what I had in mind. I can't say I you are wrong but I have not thought about it to that extent.
Summed up nicely T.
And now from the deja vu category (see my above post) we get this from Hillary:
"As president, I will restore the American Dream of homeownership by...
(don't you just love it when presidential candidates talk like the position will be a dictatorship)
http://tinyurl.com/2bsuwe
More creative social engineering from the National Socialist Party. The same party that wanted to restore the "American Dream" the last time too by making mortgages free for everyone, especially the poor that vote their way. A chicken in every pot! (no work required)
An I thought that Easy Al was on board under the Clinton administration. What's this dingbat complaining about?
And BTW, I'm 58 and spent all of my life as a blue collar worker that made about 40k a year living within my means. I don't need Robbing Hood to steal from the rich and give to me. Socialists bums take note.
record high foreclosures.
record high energy prices.
record high deficits.
record high government size.
record high government meddling with everything.
record high health care costs.
record low dollar.
record low purchasing power...
and they are worried about the policies and politics of a democratic president.
some people just get what they deserve.
Hillary will be a disaster. The bigger disaster are the people that believe this administration knows anything about capitalism.
Sami, bringing your Libertarian A game, nice.
Amen Sami.
Ditto Sami -
And the republican's haven't learned a damn thing from the last election by the look of their presidential candidates. Where's the small government candidate?
I want one of them to make this speech to the American people:
"If you want a president who will plunder the property of your fellow americans so you can have subsidized education, housing, healthcare, food, transportation, arts/entertainment, etc., please, don't vote for me."
Don't look at me...I'm a registered Independent. :)
I can't even vote in the Primaries. It is true that there's not much if any difference between the parties. They both will do and say anything to get elected. And as usual I will be voting while holding my nose.
"If you want a president who will plunder the property of your fellow americans so you can have subsidized education, housing, healthcare, food, transportation, arts/entertainment, etc., please, don't vote for me."
Ron Paul
Is STeven Pearlstein worth listening to on the mortgage crisis?
"It's Not 1929, but It's the Biggest Mess Since"
http://www.washingtonpost.com/wp-dyn/content/article/2007/12/04/AR2007120402186_pf.html
Freedom Works had a couple articles about the mortgage bailout today:
Sixty-One Economists Sign Letter Opposing Mortgage Bail Out
Four Reasons to Oppose the Sub-Prime Mortgage Bail Out
This is a replay of the Savings and Loan debacle of the 80s. Remember that?
The taxpayers bailed the savers out when the savings institutions couldn't pay them back because of so many bad loans.
The suggested plan of having the lenders allow the borrowers to continue to pay at the lower rate sounds much preferable to foreclosures, which cost money, inflicts pain on the borrowers, and does not insure that the lender will get his money out. Yeah, it helps some clueless borrowers, but it ionflicts less pain on everybody.
The problem is that many of these loans have been packaged into collateralized debt instruments most of which are owned by institutions. The instrumenta are difficult to evaluate because no one knows for sure how many loans are bad in each instrument. However, somebody is collecting the mortgage payments or knows that the borrower has quit paying. This whole thing can be unraveled through bookkeeping detctive work. Unfortunately the lenders (owners of the debt instruments) may just dump the paper on the market for whatever they can get. So they will lose. And maybe they are the ones who want to be bailed out. Whoever buys the instrument, will probably make money if they do due diligence and work to keep the few borrowers in their houses.
If the sub prime loans are only 5% of all loans then this is a very manageable problem. If it is 20% it could be much worse. The main problem as I see it is that the size of the problem is not known and fear is driving most of the market reactions.
I own a lot of investment grade preferred stocks. They have gone down 10-20% since this thing started. No reason I can see except that everyone is afraid that all debt except treasuries is suspect. It's a good time to pick up preferreds that are paying 7-10%and have enormous payouts to redemption.
Interesting, I just read about PGF, Powershares Financial Preferred Portfolio ETF, today. It was yielding 6.27% at the end of September.
PGF fact sheet
Another perspective...Is that permitted on this red BLOG?
http://www.nytimes.com/2007/12/07/business/07mortgage.html?_r=1&hp=&adxnnl=1&oref=slogin&adxnnlx=1197027324-GgNpO/jwgUM6dL/snxF57g
Steve.
Fidelity's FFRHX which is in junk bonds yields about the same and is safer IMO.
http://tinyurl.com/2fptex
I wouldn't be in either in this environment though. I can get a brokerage 3 mo CD with a 4.6% yield right now.
What will happen to people who can barely afford to live now if this goes though?
http://httpwwwlumikancomhowtobuystock.blogspot.com/
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