FYI: David Leonhardt of the New York Times wrote an easy-to-understand commentary explaining how subprime mortgage loans — which are a small percentage of the mortgage business — could cause so much havoc in the financial markets and threaten our entire economy.
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I was just reading how the Central bank is contemplating stepping in and buying up in balk some of these mortgages. This would spread out some of the impact between the U.S. and Europe, the Bank of England seem to like the idea?. But many within the Central Bank are not too keen on it. It sound like if one ship is filling with water then they are talking of transferring some of the water to other ships to forestall the first ship from sinking. Now granted, if the U.S. Ship were to sink the vacuum would pull some others under.
That is why we are seeing other parts of the world economy starting to pull away from a dependence on the U.S. Making deals and new paths that exclude the path through and dependence on the U.S. influence and economy. The formation of the E.U. in part was to achieve that goal of breaking away from the U.S. dependence.
The financial industry / mortgage companies saw a way to make a buck or two — they loosened their requirements for marginal borrowers to get loans for their American dream — at the onset it was win – win. WHat happened to the mortgage insurance that many people had to get to qualify for a loan?
Bad enough we have to bear the cost of Howdy Doody’s misguided escapade in the middle east —-
Subprime loans are part of the imbroglio, but people are low on money for other reasons. Credit card companies have been loaning loot for years at one interest rate, and then when they have the fish on the hook, they think up a reason to raise the rate.
That happens and then food, health care, and gasoline prices continue to go up. People are doing well to hold on to jobs in an outsourcing environment. Employers tend to give raises that don’t even keep pace with inflationary pressures. Those who get laid off had better not get sick.
People were having cash flow problems before the subprime house of cards fell apart.
Someone will surely weigh in with a comment that people shouldn’t put the balances on the credit cards to begin with. Well, true.
Even still, loaning out money at seven percent and then upping it to twenty-five percent when balances accumulate creates a scenario in which customers have little or no room to maneuver.
That means people who are caught in the zipper lack funds and purchasing power, which means retailers and players on the business side of the equation don’t have anyone to work with.
It’s simple, houses were being arranged for loans for people who should otherwise not even come close to qualify for said loans.
Pressure from political groups to re-enterprise depressed neighborhoods as a reason to qualify for loans was introduced. There was no viable financial assets there, no homes worthy to be over-appraised, it was a purely ‘politically correct’ move.
The chickens have come home to roost.
We went through all of this in the early 1030s and laws and regulations were put in place to assure that it never happened again. But over the years, the banking industry found ways around regulations they found “restrictive”. See where it’s gotten us. This will be, in effect, a massive bail out of the banking industry by the taxpayers.
I’m not big on regulation, but when there’s so much money involved, there needs to be some kind of oversight.
Let this be the lesson for the subprime loan problem:
1. You can’t buy a home unless you have established a good credit rating.
2. Your historical credit rating should cover at a minimum the last ten years.
3. No loans for the poor, the elderly, race based, or diability. Soley based upon credit reports and credit history. No federal backing of loans for these people. No special programs for special people.
4. Ability to pay. Define the percentage of expendable income required for loan values.
5. Selling of loans. Following the above, there will still be those at the lower end of the scale. These are the most risky loans (lower credit scores). These loans may NOT be bundled up for joy and sold. You make the loan – you eat it.
6. Lenders. Any lender not following the above, will forfeit their license for ten years. Additionally, any debt accumulated from loans may NOT be written off as loss. The lender will remain responsible for payment forever. Corporations managers will be held personally liable. (loan officers)
Let us learn from our mistakes. Otherwise, we are bound to repeat them.
You old stingy coot! Your “fix” would be as ill-conceived as the problems. You don’t need to throw the baby out with the bath water.
Interesting thoughts ‘Earn It’ – but I disagree here:
2. Your historical credit rating should cover at a minimum the last ten years.
I’m not sure you should be so quick to cut out the 25-year-old college graduate who is making good money but hasn’t been around all that long.
Otherwise you make very good points. I might also add that we could have specific pools of money available at higher interest rates and lower ratings. IF packaged they should carry the appropriate lower bond rating and risk should be known.
Linda, please stop with the bleedy heart.
Your compassion is why we got into this mess.
All I am advocating is personal responsibility
and ability to pay. Simple sound business practises.
Actually, from much of what I have read, it was not compassion that led to this. It was unscrupulous loan originators deceiving borrowrers who were pretty much ignorant of what they were signing.
It was definitely NOT the “Jimmy Stewert Building and Loan” who created this mess – it was the high-flying financiers.
How is the 10 year credit history accomplished?
You see, responsible users of credit who pay their balance in full each month don’t use credit therefore have no credit history. Same as 90-day same as cash — treated as a cash transaction. You are suggesting policies that will make it difficult for the most credit worthy to follow.
7. No more PMI. Home buyers must have a minimum of 10 percent C-A-S-H to buy property. PMI typically runs up to 20 percent. (this is a bleeding heart compromise.)
This would encourage people to save and take time.
Time allows for a cooling off period, rational thought, and re-evaluation.
Homeownership is an investment. Force the buyer to be responsible for that investment from the beginning. There are no rags to riches to homeownership. This will help ensure properties purchased are not destroyed by owners who had it handed to them.
Additionally, it will encourage risky owners to better handle their financial affairs. They have a real stake in foreclosure. Not a write off.
They may have to wait a few years before buying flat screen TV’s, top dollar furniture on loan, and an expensive car they cannot afford. They may have to (gasp) start with used furniture until they save enough to buy new.
sniff, sniff, sniff…
I smell tippy!
Back to my original thought since you can’t even answer simple questions — you old stingy coot.
stinks badly.
Linda – I think the ‘credit card as management’ approach many of us use will count toward that. However, as i noted, I have ‘issues’ with the 10-year time frame.
That said – a significant portion of this mess would have been avoided with due diligence of loan officers. I am thinking especially of what are called ‘liar’s loans’ without income verification.
“deceiving borrowrers who were pretty much ignorant of what they were signing.”
That’s BS and deep down you know it. No one twisted peoples arms and forced them to sign. The disclosure statement for subprime is no different than the one RESPONSIBLE homeowners signed. I do admit, lenders are always quick to lend money. Ancient profession. Loan sharks and pay day loan places sprout up around casino’s too. And banks just love handing out those “pesky” credit card applications – to anyone breathing. My above solution includes penalties for them.
Please remember Ben, 94% of homeowners in America are NOT in default.
“You are suggesting policies that will make it difficult for the most credit worthy to follow.”
Bat shit. You should only be able to buy a home if you can afford to make the payments on whatever loan payment schedule YOU sign. Again, you are voicing the bleeding heart.
Where the hell does COMPASSION come into a business contract?
‘Earn It’ – I dod all those things when I bought my first house – EXCEPT the prior 10-years existence. Scrimpt and saved and got my 20% down. Used furniture for a while. Why cut me out only because I was young?
Today, many years later, I am firmly ensconced in the system.
“can’t even answer simple questions”
I believe I’ve answered every question you have put forth, except your stupid question, which you admit is simple. So simple, it should not have been asked.
They have apartments, trailers and other means of occupying a living space instead of going into massive debt trying to buy a ‘dream’ home.
To many people think a nice house is going to bring their ‘ego’ up to a standard where they will be recognized for their achievement (what achievement? For going into debt?)
It’s materialism at its worse case scenario.
How about my question EarnIt? Why cut out the young college grad making good money who has the 20% down saved up?
We bought our first house in 1966, a VA repo which wasn’t much of a house but our monthly payments (including insurance and taxes) were much lower than rent on a comparable. We lived there 7 years and used the profit for the down payment on the better home, etc. etc. I’ve been a homeowner for 42 years and that is my credit history. We did finally finance a car with credit in 2003 because the credit rate was lower than our money was earning and it didn’t make sense to pull money from savings for the purchase. I know what personal responsibility means.
Ben,
Was thinking about the first post you made regarding the “fresh out of college” young person, and your second post on the subject further validates yours position.
If you are in your twenties, first time home buyer, you may not have a ten year credit record. O.K., starting at 18-28, allow examination of the credit record accumulated to date. Of course, now you can use the forumala for ability to pay by doing the income/expenses breakout. Again, the buyer must have the resources to pay – to include whatever maximum ARM adjustments are in the contract. I agree with you.
But if you are 29 or older, you should have ten years of history…. Certainly, if you are 35, 40, or beyond. At that point, I would question why you don’t have a credit history (unless they are rich (income/expenses) and pay everything in cash.
“a nice house is going to bring their ‘ego’ up”
Ditto a thirty thousand dollar car/SUV/PU.
Statis symbols some cannot afford.
#
Ben
Posted March 22, 2008 at 9:09 am | Permalink
How about my question EarnIt? Why cut out the young college grad making good money who has the 20% down saved up?
———————-
If the college grad is $30K in debt from college loans and has jacked up their credit cards to the max, why should a banker give them money for a house?
That’s just stupid and bad business.
That’s better! Told yopu the baby didn’t need to be thrown out.
You two are putting all young people into one category. Never a fair thing to do.
2. Your historical credit rating should cover at a minimum the last ten years, unless under age 29 and potential buyer has met the PMI downpayment and whatever credit history exists supports credit worthiness and (income/expenses) ability to pay.
“That’s just stupid and bad business.”
It would be, but as Ben says, the twenty something HAS the minimum PMI downpayment and income/expenses qualify the buyer.
I like babies, I would never throw them out. Just wish our married offspring would hurry up and deliver us some GRANDbabies. Damn young professionals!
Regular – you added a non-fact to my question. In my case I held ZERO debt. In fact, that was my problem – because of no loans I had little paper trail.
My issue is not with requiring credit QUALITY – rather it is with QUANTITY of history.
#
lindainks55
Posted March 22, 2008 at 9:14 am | Permalink
You two are putting all young people into one category. Never a fair thing to do.
———————–
No we are not.
We are putting people regardless of age, that are credit risks into one category.
The guy who didn’t go to college, saved his money and made investments who busted his buns as a construction worker and now wants a nice home is what Bankers should be looking for to loan money.
Or the guy who went to college, re-establishes himself FIRST, then applies for a loan.
lindainks55, even you admitted starting off in a humble home. Not everyone needs that $100-200K home as their first home, especially if they cannot afford it.
The general rule of thumb for owning a home is that the cost per month for home and its utilities should not exceed 25 percent of your net income.
It’s a good plan to keep in mind. If one’s salary is for husband and wife is $5000/month and they have other bills for 3500.00 month (all bills) that leaves them $1500.00 for living quarters.
Applying for a loan on a $200,000 home is just stupid because the payments will exceed their net income.
The same applies for all income levels regardless of income.
How about a little common sense on the matter?
Ben
Posted March 22, 2008 at 9:20 am | Permalink
Regular – you added a non-fact to my question. In my case I held ZERO debt. In fact, that was my problem – because of no loans I had little paper trail.
My issue is not with requiring credit QUALITY – rather it is with QUANTITY of history
————————
Creditors should look at the ability to manage money by prospective home buyers not just the ability to save.
Having a down payment of 20 percent is a good thing. It says nothing however, about their spending habits if they barely squeak by due to impulse buying habits.
I suspect that after all is said and donw we are not all that far apart. I am in agreement that lenders relaxed standards FAR too much and that they need to tighten things. Still, I DO have some ‘issues’ with how we define credit-worthiness when we can have people who have paid cash all along then finding themselves with ‘no credit’ when they show up to buy a house. Making 80K a year between them; 50K ready to plunk down; but ‘not enough history’. Even a 30-year-old can run into this if he ahs been a cash user – although perhaps in this case his rental record might suffice.
Some good ideas EarnIt but needs further refinement.
I still remember how difficult it was for me when I was in by 20s getting credit. No black marks – just a blank. Today they will pretty much give me anything I want. (Some of this is just the change in times)
Regular – I agree. My issue was the arbitrary 10 years. I got my mortgage and kept it up. However a 10-year cutoff would have cut me off.
Like I said – we ain’t really very far apart here.
I held ZERO debt.
Regular, “debt” is covered by the income/expense statement we all fill out when we apply for the home loan. Debt is not necessarily a bad thing. In fact, it contributes toward your credit history!
You can have all the student loans and student credit cards you want. But your total income must provide for all expenses AND the new home loan percentage.
now the troll-boy THINKS he is an expert in real estate.
go figure……………
“Making 80K a year between them”
I think this way too. Maybe it’s time us old timers (me)start thinking about the new living arrangements young people have.
Figure out a way for a couple who are not traditionally “married” to include two incomes into the income/expense ratio. I don’t just mean alternate lifestyle folks. There are many young people who live together for years – but don’t want to get married “right away”. I think there should be a way to “BIND” them both to a contract.
Earn It,
All the credit cards you want?
I agree with your analysis, except that too many credit cards could spell doom. Don’t forget that credit card companies use every excuse they can find to raise interest rates and squeeze the customer. The financial dynamic can shift rather quickly.
now the troll-boy THINKS he is an expert in real estate.
go figure……………
Now Apophis announces his/her presence without an opinion or original thought. Just name calling.
Falls right into the definition of a troll.
I guess I can’t have an opinion, if I’m not a recognized poster?
Instead of put downs and name-calling, why not comment on the content of peoples posts?
People who buy houses valued at the most they can qualify for often don’t think about how life happens. In the 30 year period it takes to pay off the mortgage, someone will lose their job, get sick, divorce, etc. It always makes sense to buy with the idea that if something happens (which it will) the house will still be affordable.
The way we buy real estate is this: We ALWAYS buy a fixer upper, then we pour a lot of work (and NOT a lot of money) into getting it up to par, and end up with a lot of sweat equity right off the bat. That way if something happens and we have to sell, we know we’ll make money no matter what.
We did that with the house we live in now and it’s worth almost 4 times what we paid for it.
We have 4 rental units and we’re getting ready to buy two more. We’re not counting on Social Security to take care of us in our old (fast approaching) age. With the cost of this war there probably won’t be anything left anyway.
too many credit cards could spell doom
Agree with you. But, your credit rating reflects “available credit”. This would disqualify those without the INCOME portion reflecting an ability to pay potential debt. Already in the loan formula’s. Maybe instead of “all the Credit Card you want”, I could have chosen another way of saying it.
And I’d love a thread about the CREDIT CARD PROBLEM.
Naw Earn it,
Apophis was addressing me.
He usually has nothing to say other than insulting other posters.
stick it “earnit”………………..
I’m just stating the truth as many of the other regular bloggers realize.
I could have started in on you and your asinine views on home ownership, but I just let you keep posting your trash.
Who are YOU to make the rules about this blog anyway?
It is also a good possibility that YOU are the troll-boy under another of his multitude of nics anyway.
This is just another reason to loathe the reichwing, the true danger to this great country.
Correction trol-boy……………..I generally restrict my “insults” (the truth, actually) to reichwing sock puppetts like you and nathan and hank and the rest of your narrow-minded buddies.
As I said in my 9:39 post, Apophis has nothing to say or contribute to a thread.
What’s funny is that he spends all his time calling others trolls, when that’s all he does on this blog.
irony…
Do you even understand the meaning of “irony” troll-boy?
I read this blog quite often, I just don’t spend all my time posting asinine comments as you do.
I don’t see how that makes me a troll.
McCluer, I thought you promised back on December 31st of 2007 that you would NEVER return to this blog?
Apophis proves my point once again.
(chortles)
Regular
Posted March 22, 2008 at 9:57 am | Permalink
Apophis proves my point once again.
(chortles)
It’s too bad you are so mentally disturbed little Jimmy McCluer. Let’s see another jimmymac meltdown when someone posts his sister’s name sometime today.
Now THAT is something to “chortle” about.
I’m off to do something constructive………
D
N
F
T
T
As yet Apophis does even more troll posting.
Some one take that shovel away from him, he’s burying himself.
(chortles)
Apophis
Posted March 22, 2008 at 9:59 am
“It’s too bad you are so mentally disturbed little Jimmy McCluer. Let’s see another jimmymac meltdown when someone posts his sister’s name sometime today.”
Oh, and a personal attack, harassment and generally bad behavior.
Ben
On this we agree:
“It was definitely NOT the “Jimmy Stewert Building and Loan” who created this mess – it was the high-flying financiers”
But my “hedge” on your analysis?
It was the “hedge fund” folks, not the original lenders, not the borrowers, not the brokers, who really made this mess explode like it has.
As Leonhardt says, it was the leverage, ON TOP of leverage, that really made this a mess.
The old-fashioned market could far more easily handle the defaults, by themselves.
The problem was compounded by the CMO and Hedge Fund leveraging. A loan that was risky, to start with, was used as collaterol on another loan.
Think of it this way:
If you have a United States Treasury Bond, in your “trading account” with a brokerage firm, you can “borrow” against that bond. Part of the “job” of the Feds is to tell brokers how much CAN, legally, be borrowed against such investments. “Reg T Requirements”
I think that the CMO and Hedge Fund people got around the “Reg T” requirements, in that those vehhicles are not standard accounts, to begin with.
Ok, so you have a “shakey” $100,000.00 mortgage. That mortgage is “bundled” with many other mortgages, for a combined total of $1,000,000.00.
This CMO, or bundled mortgage packages, is then sold off in units, to other individual investors.
Those other individual investors are allowed to “margin” up to a set amount, against an investment that is ALREADY margined.
Ok, that would be bad enough.
What if, instead of individual investors, the CMO is purchased by a “hedge fund” that then borrows against the mortgages at several times the “value” of the mortgage?
I am a free market guy, but even I think that the CMO and Hedge Fund stuff needed to be reigned in.
I feel bad about the Bear Stearns situation. However, those who own stock, in companies that did Hedge Fund and CMO business, should be liable for these risky ventures.
Those who simply hold other, more conservative investments with these same firms?
Whether they deserve to be “protected” or not is not the point.
The Fire Department will still try to put the fire out, at your house, even if you did something stupid to start the fire, in the first place. The Fire Department will try to put your fire out, in part, to protect your neighbors.
it’s a greed thing.
on every other street corner in wichita is a sign…
“home loans still available for people with bad credit”
find a person making 8 bucks an hour who has no experience with loans other than pay day loans, promise them the sky, have them sign a blank app, fake job info, and, ya gotta buyer.
six months alter when the payment jumps from 500 to 2500 a month the banks look to the government to bail them out.
meanwhile, the criminal mortgage rep retires not to jail, but to florida.
so, who the hell was checking the app info ??
Apophis
Posted March 22, 2008 at 9:59 am | Permalink
“I’m off to do something constructive………”
And he admits to having nothing constructive to contribute to the blog.
Apophis: You really need to google “troll” so you can recognize yourself when you look into a mirror.
And please, do not come back and post until you can do so responsibly.
Thanks for the shot Apophis! You sad little troll, you know absolutely nothing about me or the ‘truth’! I could teach you a quite a little bit about ‘home ownership’.
Credit rating be damned. Truth is, you can just about buy any house you want these days with or without good credit. Problem is keeping it!
My wife and i have a modest little home that seems to fit our needs. We bought it as bank repo. Like Mary we’ve put a lot of ’sweat equity’ into it and probably a lot more money than we should have, when we had it to spare.
We saved for three years to have enough money to allow us the flexibility to take advantage of the right opportunity. We’ve live here going on 16 years and our initial 5 year remodeling plan is about 10 years behind schedule. Our house is worth about three times what we paid for it and about 50% more than what we hav in it.
Mary and her husband are very fortunate. They have the talent to be able to do almost any thing associated with remodeling and general house maintenance. I have the ability to do almost anything associated with the house, just not all the time and money I want.
Better idea.
Everybody helps everybody else buy/build a house.
Take the greedy lenders and landlords outta the equation.
Econ – I will add to your scenario the fact that the bundled CMO was misrepresented to investors as being high quality when it was really junk.
exile – a lot os agreement here as well.
Funny thing on this thread – where we have actually discussed the mess there are not huge gaps in our positions.
“our initial 5 year remodeling plan is about 10 years behind schedule”
Boy, THAT sure sounds familiar!
;)
Earn it
There is NOTHING wrong with people taking risks.
Risk taking is what really drives a healthy economy.
However, the problem here is that people, at all levels, probably did not understand all of the risks.
It is the multiple layers of leverage that caused this problem to impact the entire economy. You are dealing with the “rubber hits the road” contract decisions and that bothers people on the left and the right, it seems.
I think the borrower, if properly informed, should be able to take any risk that a lender is willing to agree to.
I then think that that “paper” should be properly rated, based on that borrowers ability to pay, and marketed based on that ability.
Hey, the insurance industry has something called “reinsurnance” where one company can get another company to “guarantee” or reinsure part of its “book of business” — it works with insurance because insurance companies, generally, have a better track record of what each contract might experience, and a better track record for how a “large pool” of such contracts might behave.
CMO’s and Hedge Funds, IMHO, needed some “actuaries”
and numbers crunchers before stacking leverage on top of leverage, compounding this problem.
Again, I would support some reforms that would place a “firewall” between CMO’s and Hedge Funds and the general credit market and brokerage industry.
I think Risk Taking should be encouraged.
I think that those who TAKE RISKS should be rewarded or punished, based on the rewards attached to those risks.
I think that the rest of the financial market should not be held hostage to risks that we had nothing to do with.
The 10:39 am post is not mine. My nic stolen once again.
er 10:30 post
Earn it
You CAN be a co-signer on any loan, regardless of a marriage contract.
All a marriage contract does is make the spouse liable, perhaps, even if she does not sign.
(Most lenders would require a signature anyway, but if you get a “line of credit” against your house, then go blow that credit line in Vegas, the spouse is on the hook, even if he/she did not agree to the Vegas trip).
Don’t throw the baby out with the bath water?
I agree with Linda for once. You don’t have government take complete control over the mortgage business because of a small percentage of bad loans.
Similarly, you don’t have government take complete control of Health Care because of a small percentage of uninsured Americans.
But, but Max, a huge SIX PERCENT of mortgages are failed loans! We MUST change the system.
And, and Max, a whopping 10% of Americans don’t have healthcare insurance (they get care).
You-you, (sniffle, sniffle), you angry white man would throw them out to the wolves?
PEOPLE ARE TOO DUMB to know any better. They are products of the educational system. What are we to do? Provide them mortgage contracts written by Dr Suess? The Cat with the Loan. Or maybe Horton Buys a Who?
We must change. We must advance the socialist agenda. (My recommendations were directed at personal responsibility).
My recommendations:
You can’t afford to buy a home: NO LOAN.
You provide a risky loan: You eat it.
Without the CMO or Hedge Fund situation, there might have been LESS money available to lend.
However, I too agree with Linda here, lets not make it harder for people to get loans.
I suggest this book, Liars Poker, about Salomon Brothers:
http://www.amazon.com/Liars-Poker-Rising-Through-Wreckage/dp/0140143459
That book explains the transition from the “Building and Loan” days to the Wall Street mortgage finance days.
This is difficult and different to explain, perhaps, but Liars Poker is a great book, for back ground.
Look at it this way: US Government Bonds are easy to value. Usually the only variable will be current interest rates, compared to the original rate on the bond. Rates go up? Bond goes down. Rates go down? Bond value goes up.
Look at corporate bonds. These are multi million dollar or billion dollar firms. They have agreed to let Standard and Poors, AM Best, Moodys or any number of other accounting and rating firms have access to their books and records, regularly, to rate credit quality. For “publicly traded” firms, they also have to release quarterly earnings reports and annual reports, which Wall Street hashes over.
Now, try to create an investment “pool” of individual mortgage loans. Who in the world can keep track of all the various life events in these various “pools” made up of individuals with deaths, divorces, layoffs etc.
So, the drive was to make the “pools” HUGE so as to diversify the individual credit risk.
Study “risk”
There is credit risk
There is market risk
There is interest rate risk
The investment pools sought huge growth, as a way to minimize “credit risk” of individual loans.
However, this gave them even greater exposure to “market risk” and “interest rate risk” —
In an effort to minimize an individual default, they got bigger.
However, the rise in interest rates put EVERYONE in the “pool” at greater risk of default.
—-
Doubt my analyis?
Most “junk bond” mutual funds are at about “break even” over the last 12 months. They hold BBB rated corporate debt as well as some mortgage debt. They just dont “leverage against leverage” so they have absorbed the defaults, so far.
You don’t take MY MONEY and bail out irresponsible people!
Not banks.
Not Mortgage lenders.
Not homeowners.
Where the hell is THAT in the constitution?
Am Way
“promote the general welfare”
FDIC
SPIC
NCUA
SEC
Federal Reserve Bank
And, so far, the government has NOT “bailed out” the OWNERS of any failed firm.
The government has provided financing to other, private firms to purchase failing firms, in order to prevent a general “run” on financial holdings.
The government MUST act, to prevent panic.
It is a sobering thought, to sit back and realize that most of our economy is built on trust.
The public has been assured that they do not have to pull all of their money out of “uninsured” money market accounts and brokerage “cash accounts” and put it under their matress.
The country can not afford a “run on the banks” and that is what would happen if we allowed a large firm to fail. Yes, the stockholders must take the majority of the risk.
In the case of Bear Stearns?
Click here, and then click on the “1 year” under the Chart. It went from $160.00 down to $2.00.
http://online.wsj.com/quotes/main.html?type=djn&symbol=bsc
I think Stockholders have taken the hit.
A large portion of the Bear Stearns stock was held by employees. Many of those folks are financially ruined.
sorry
SIPC
The federal government should promote the public welfare by getting the hell out of the way.
This broad statement will be used to crush our medical system and turn us into a socialist society.
What? We have no right in America to a Free Home?
A Free HillaryHome, to go with Free HillaryCare, to go with Free HillaryFood, etc….
HillaryCar!
We need Free Cars!
I want free health club memberships.
It is not fair.
“Rich” people can be more healthy, since they can go to more expensive health clubs and I can’t.
(And don’t tell me that sit ups, push ups and walking are all “free”)
Free Hookers Too!
(Spitzer can’t afford them anymore!)
Ok, I remembered one late night joke:
“If the Democrats are the Party of the little guy, and the Repubicans are the Party of the “rich” how come Democrats are spending $5 Grand on hookers and Republicans are begging for it in public restrooms?
That’s a classic Econ!
The Christian ethic is so evident on this thread…
There’s another side to “I got mine! Go get your own!”
If someone comes to take yours or hurt you?
What is it to me?
(shrugs)
Econ – I would like to see the executives at Bear Sterns take it in the rear -not just the shareholders. But I’m sure their parachutes are well-gilded.
To appreciate risk taking you have to take risks.
To appreciate ownership you have to own something.
Yes, “go get your own” — and then have the balls and the brains to invest that money, and make it grow, which will benefit society as well as benefit you.
If you make a good decision? You should keep most of that money for yourself and your family.
If you make a bad decision? You, and you alone, should pay for that bad decision. (It is funny how the government is my “partner” when I profit, but I seem to be all alone, when I have a bad year.)
I do, however, expect the government to protect the general public from the bad mistakes of individuals, while forcing individuals, themselves, to suffer the consequences of bad decisions.
Show me a businessman not humble enough to admit a few mistakes?
RUN from him. Pride does come before the fall.
Show me a businessman who learned from past mistakes?
I would rather have THAT man as a partner, rather than Uncle Sam!
Truth
Their “parachutes” were largely based on Bear Stearns stock value, I believe.
It will be a rather hard landing.
More likely, a “dead cat bounce”
And Truth
What did in Bear Stearns, in the end, was NOT the mortage problem, it was the FEAR caused by the mortgage problem.
If not for all of the people cashing out their Bear Stearns accounts, and if not for the fact that other firms refused to deal with Bear Stearns, Bear Stearns might well have survived.
Assuming you are ‘active’ you can take your losses against other income. If you have losses overall you can carry either back or forward. So, in that sense that ‘partnership’ cuts both ways.
What I have seen, however, is that with the big guys we socialize risk but they get privatized reward.
Ben
I do understand what you are saying.
However, In the event that a loss does happen, you still only can deduct that loss against other income, to REDUCE what you have already paid to the government, in a previous year, or reduce income in a following year.
However, the government never is “at risk” for the operation of your business, the IRS simply “average” your income, in a way.
And, if your business tanks so bad that you are really in the whole?
The IRS might refund lots of taxes that you paid already, but once you use up that money?
There is a limit on the “risk” of the IRS.
There is NO LIMIT on my risk.
That is the clumsy point that I was trying to make.
in the hole
Darn, worse than usual typos today.
“And please, do not come back and post until you can do so responsibly.”
Take your own advice, McCluer.
Ben
There is also a “limit” on how much loss can be carried forward, each year.
Again, no limit on MY loss.
There is no “bail out for stupid Schedule C filers” or even for “unlucky Schedule C filers” —
Anyway, back to the topic, I DO think that the OWNERS of Bear Stearns took a huge hit.
Life is not fair, but it is more fair for Bear Stearns to take this hit, than it is for anyone else to take it, on their behalf.
And, to tie it all together, much of the Bear Stearns stock, sadly, was held in retirement plans or employee stock ownership plans, I believe.
http://www.hbsslaw.com/bsc
There is no “write off” of that stock loss if it was “before tax” money.
It never got taxed in the first place.
Now? It is just gone.
“it is more fair for Bear Stearns to take this hit, than it is for anyone else to take it, on their behalf”
Sort of agree, sort of disagree. It will be interesting to watch the derivitive action suits against those involved. I really get irritated when I see guys like the Merrill Lynch guy ‘retire’ with millions and leave his firm holding a bag of garbage. It will be enlightening to see just what kind of deals the B-S guys get.
Blog Monitor
Posted March 22, 2008 at 10:20 am | Permalink
Apophis
Posted March 22, 2008 at 9:59 am | Permalink
“I’m off to do something constructive………”
And he admits to having nothing constructive to contribute to the blog.
Apophis: You really need to google “troll” so you can recognize yourself when you look into a mirror.
And please, do not come back and post until you can do so responsibly.
……………as most anyone can see, this is just another of little jimmymac’s sock puppets.
************************************************
Hank, thanks for you being ALL-Knowing about my experiences in the world of real estate.
FYI: My wife and I have owned this home outright for a few years now. It is a modest home, but we call it ours. We resisted the temptation that others have had in dumping huge amounts of our capital into property that we would make us heavily indebted.
In reality, I agree with ideas of fiscal responsibility set out by many on this thread. What I don’t agree with is the class warfare that was coming from some of your compatriots on the right. Wide reaching assumptions does nobody any good, and that is what I was reading.
Then, your resident rightwing shill starts piping in like he’s an expert in the field OF real estate and mortgages. of course, that troll thinks he is an expert in every field. Here’s a concept you on the right need to really comprehend; some of us you perceive to be on the “left” are quite adept to fiscal responsibility. We know how to properly invest and save. Some of us could considered “tight” with our money. The difference between those of us who are fiscally responsible and fiscally conservative is that we truly recognize there are those individuals in our society who haven’t made the best decisions and we understand the concept of compassion. Comapssion is supposed to be one of the most important “christian” principles, but I see it lacking in many of those who profess a profound faith. Often, these people are aligned with the right wing political movement.
It seems a little hypocritical to me.
D
N
F
T
T
Apophis,
There is a huge difference in being compassionate with YOUR money and being “compassionate” with OTHER PEOPLES money.
I and many other Conservative Christians give our money and time to help others locally, through the church, or to whatever.
Not supporting the government taking money from people to redistribute to others doesn’t make us hypocrites.
You see Hank, there lies the problem…………..your “compassion” is conditional.
You use the excuse of your “church” to justify hate and discrimination.
It is nothing more, nothing less.
Apophis,
What does that even mean, that my compassion is conditional?
Your compassion isn’t? Well, why don’t you come over to my house and rake the lawn. I will be expecting you and your unconditional compassion.
What “hate and discrimination” do I justify? Last I checked, I have yet to preach any hate.
Your post is full of your usual crap. Nothing more, nothing less.
Your mere existance is full of hate and discrimination little man.
Why else would you put so much emphasis on your “guns” and “military experience”?
Whay do you preach so much and pronounce judement on life styles that conflict with your “faith”?
As usual, your post is full of your usual crap. Nothing more, nothing less.
Whatever happened to bank auditors who were supposed to show up unannounced and check to make sure things were being run according to Hoyle, like the value of a mortgage was secure vs. the a fair market values, and that a certain % was already invested by the home owner? Why do we listen to the markets who says they are best equipped to monitor and regulate themselves? Remeber the home and loan bank scandals in the 90’s? I was always told to never tell a professinal how to do his job and most of the folks caught in this scam were convinced their actions were prudent by reason of what professional bankers told them. Lots of people made lots of money and will claim they did nothing illegal, as in so many other prostitutons of trust. There are days I think fines for these ubercapitalist/for-sale politicians/auditors should be accompanied by corporal punishment. Fines are just a cost of doing business for them, before they move onto another way screw the avergage citizen. I’m annoyed!
Apophis thought I was attacking the left when I addressed the topic?
What a maroon.
I was attacking the political correctness climate that happens to be in the Banking industry or was until they learned their lesson about making home loans to people who wouldn’t other qualify.
There was no claimed expertise on Real Estate. Anyone that has eyes and ears has seen what has happened. Anyone that knows several young couples like I do, that have piled up Credit Card, Auto and other debt, then bought a house they couldn’t afford can see the tragic results.
I think they call it common sense. Now if Apophis is claiming that I attacked him for lack of common sense, then so be it. :)
Well Apophis,
The hate and discrimination is all in your court. You can’t find one example of hate in any post I’ve ever made.
Not one.
Furthermore, my twisted little educator, you’re not worthy enough to shine Nathan’s shoes.
“You can’t find one example of hate in any post I’ve ever made.”
Wanna bet?
Realestate and Obama?
Nice issues to link here:
“The indictment of Rezko on federal charges has drawn attention to his relationship with Illinois Senator Barack Obama, though Obama is not accused of wrongdoing.[8][9] In November 2006, it came to light that in 2005, Obama had purchased his house on the South Side of Chicago for $1,650,000, $300,000 below the asking price, on the same day that Rezko’s wife, Rita, purchased the adjoining empty lot for the full asking price.[10] According to Obama and others close to the sale of the properties, while the properties had originally been a single property, the previous owners decided to sell the land as two separate lots, the properties had been on the market for four months, with Obama’s offer being the higher of two bids and Rita’s bid beating another offer of $625,000, and the owners had made it a condition of the sales that they be closed on the same date.[11] Obama subsequently bought a 10 foot (3.0 m) wide strip of Rita’s property for $104,500, $60,000 above the assessed value.[10] According to Chicago Sun-Times columnist, Mark Brown, “Rezko definitely did Obama a favor by selling him the 10-foot strip of land, making his own parcel less attractive for development.”[12] Obama acknowledges that the exchange may have created the appearance of impropriety, and stated “I consider this a mistake on my part and I regret it.”[11] On December 28, 2006, Rita sold the property to a company owned by her husband’s former business attorney for $575,000, netting a profit of $54,500 prior to expenses and property taxes.[13] In October 2007, the new owners put the still vacant land up for sale again, this time for $1.5 million.[14]
In June 2007, the Sun-Times published a story about letters Obama had written in 1997 to city and state officials in support of a low-income senior citizen development project headed by Rezko and partner Allison Davis. The project received more than $14 million in taxpayer funds, including $885,000 in development fees for Rezko and Davis. Of Obama’s letters in support of the Cottage View Terrace apartments development, Obama spokesman Bill Burton said, “This wasn’t done as a favor for anyone, it was done in the interests of the people in the community who have benefited from the project. I don’t know that anyone specifically asked him to write this letter nine years ago. There was a consensus in the community about the positive impact the project would make and Obama supported it because it was going to help people in his district.” Rezko’s attorney responded that “Mr. Rezko never spoke with, nor sought a letter from, Senator Obama in connection with that project.[15] In an interview with the Sun-Times editorial board, Obama said that Rezko has raised $250,000 in campaign donations for him,[16] of which, Obama has returned or donated to charity more than $84,000.[8]
In the South Carolina Democratic Party presidential debate on January 21, 2008, Senator Hillary Clinton said that Obama had represented Rezko, who she referred to as a slum landlord.[17] Obama responded that he had never represented Rezko and had done work indirectly for Rezko’s firm for an estimated five hours.[18]
On Friday, January 25, 2008, Matt Lauer asked Hillary Clinton on NBC’s Today show if she remembered taking a photograph with her husband and Tony Rezko. Clinton commented “I probably have taken hundreds of thousands of pictures. I wouldn’t know him if he walked in the door. I don’t have a 17-year relationship with him. There’s a big difference between standing somewhere taking a picture with someone you don’t know and haven’t seen since and having a relationship that, you know, the newspapers in Chicago have been exploring”.[19][20]
http://en.wikipedia.org/wiki/Antoin_Rezko
To be fair, Hillary and some Republicans get their share of hedge fund, mortgage lending, and Wall Street money:
http://wallstfolly.typepad.com/wallstfolly/political_contributions/index.html
From the article:
“Those same global investors demanded good returns. Wall Street had an answer: subprime mortgages.
“Because these loans go to people stretching to afford a house, they come with higher interest rates and thus higher returns.”
But then those bad loans were commoditized and sold, so the people doing the deals weren’t liable for the deals–a moral hazard as Econ accurately identifies the economic term for it.
Nano is absolutely right. The fault lies with regulators. It happened when it happened because the regulators had their teeth pulled . . .
http://www.opensecrets.org/pres08/contrib.asp?id=N00009638&cycle=2008
Obama’s money
This whole economic downturn puts the lie to the idea that “any individual can make their life better just by working harder.”
We’re all in this world, in this society, in this community together. We sink or swim together.
Econ, this thread is not about Obama.
So kindly shove it.
Thank you,
The Management
capn
When, and by what order, and by whom, were any “teeth pulled”?
Capn
Real slick trick there.
You WANT it to be about: Bush and Republicans.
It is not, but you want it to be.
When I bring up Obama and Hillary and THEIR real estate and mortgage ties — you tell ME to get back on topic, or more bluntly, to “shove it” lol
Ya right!
BTW, Econ, how many new accounts are you snagging these days, what with the markets in the toilet?
Or as Stephen Colbert said, not only “in the toilet but out the drain pipe into the illegal sewer line and out into the ocean where it is fed upon by lobsters and crabs . . . “
I love it.
“Individual responsibility” Econ is getting his ass handed to him because he supported the people who said that the free market never needs to be a fair market.
Reap what ye sow, little man, reap what ye sow . . .
And Capn
“A rising tide raises all boats”
The same also works in reverse.
Your comment makes no sense, the entire country is NOT falling behind.
Even if it were, that is not a justification for more bad policy moves.
As for “being in this together” — OK, we, TOGETHER, figure out the rules.
Then, after that, we have winners and losers.
Failure is an event, not a person.
Those who fail, today, will likely be successes, tomorrow, that is how a healthy system works.
Translation: “I’m getting my ass handed to me.”
One guy said to the other: “Yeah, and I missed it by a day. It was, they usually set it, the due date’s on the fifteenth.”
The other guy said, “Yeah?”
“Right. So that’s, and, well, I had a busy week, there. I had to go to St. Louis. They sent me out Monday.”
“Right.”
“And then, well,” the guy said, “I get home the fifteenth, there. It’s dinner time. I got the spaghetti. I got the roll. I’m putting butter on it. And then it hits me.”
“The fifteenth.”
“Right,” the guy said. “I get up, I let my spaghetti get cold, I’m diggin’ around for the bill. I can’t find it. I’m pissed. Then I see it, under the pile.”
“When’s it due?” The other guy said.
“The fourteenth.”
“You call ‘em?”
“That second. I told ‘em what happened. I paid fifty over the minimum.”
“Then you got your next bill,” the other said, “and they raised your rate.”
“Twelve freakin’ points,” the guy said.
And, for the record, no politician could have possibly prevented the current problems.
Nobody really saw it comming.
Wall Street Real Estate Finance is a relatively new idea, and we were not ready for it.
McSorely’s Saloon,
You can have your bank make payments for you automatically on certain dates. It saves the procrastinators from themselves.
“Nobody saw it coming.”
Right. Because after all, if you let people buy a house for a grotesquelly over-valued appraisal with no money down and then raise the interest rates to a point where the owners can’t pay, they’ll never just walk away and let the property sink into foreclosure.
Except, any damn fool will see that’s exactly what they’ll do.
Also, nobody saw 9-11 coming either. Nobody saw Hurricane Katrina coming. Nobody saw five years in Iraq and half-a-trillion dollars coming either.
Just amazing what this administration “doesn’t see coming.”
Capn
In your dreams!
That won’t wash, Capn, the real estate and mortgage business have ALWAYS been closely tied to the political process, giving heavily to BOTH parties.
When did ANY Democrat worry, before all of this mess, about the default risk of low income home owners?
And, if you want to blame it on Bush, — by WHAT administrative decision? By WHAT law? By WHAT act of any regulator?
Beyond that, STATE regulators are heavily involved in banking and realestate issues.
Beyond that, Wall Street is heavily involved, and if you check my links, Wall Street has strong ties to Hillary and to Obama.
Quit poining fingers, Capn, it won’t work.
This is everyone’s fault and nobody’s fault, all at the same time.
“This is everyone’s fault and nobody’s fault, all at the same time.”
Individual responsibility for ordinary citizens, absolutely no responsibility for RepubliCONs.
Yeah, I see how it works now . . .
It should not be a POLITICAL issue, Capn.
If you make it one?
Well, ok, plenty of real estate news is comming up, with Rezco and all.
I THINK your party will want some “bi partisanship” on the real estate issue.
Real Estate Agents: State Licensed
Real Estate Appraisers: State Licensed
Real Estate Lenders: State AND Federally regulated.
That’s exactly my point.
Under Bush, regulators were told not to do their jobs.
It’s hand-in-glove with polluters writing the secret energy policy and sex-ed materials that claim that condoms don’t work etc.
“Then, after that, we have winners and losers.”
Cons SO need for there to be losers.
So they can feel better about themselves and judge other people as less than them.
CapnAmerica
Posted March 22, 2008 at 5:42 pm | Permalink
That’s exactly my point.
Under Bush, regulators were told not to do their jobs.
—————————-
Gonna need a source for that. I call B.S.
JR
BULL!
Almost every successful person has faced failure.
Those who are successful? They are not quiters. That is what makes them different.
Econ…and they’re not afraid to work hard, either.
Ya know?
I was just thinking.
Maybe this is tied up back channel with the bush administration changing the rules and making it almost impossible for folks to declare bankruptcy.
Get rid of the escape hatch for folks and then burn the ground under them.
And Capn
To get EVERY regulator, in the ENTIRE country, on board this “grand conspiracy” of yours, shouldn’t there be a memo, an email, a directive out there, somewhere, to “stop enforcing the law”???
Besides, as I stated upthread, the “crisis” is in the major financial firms, or at least at a few of them. The “crisis” is caused by “leveraging” these bad loans, in CMO’s and other vehicles.
We have defaults every year. The defaults, by themselves, would not be a problem for the entire credit and lending market, if not for the way these loans have been bundled together, and used as collateral for even larger loans.
Yes, unwinding those deals, and regulating those CMO and Hedge Fund investments more, in the future, might help to avoid this down the road.
Such regulation might also, on its own, dry up some of the money available for some of the more questionable loans.
However, MOST mortgages, even MOST sub-prime mortgages, are doing very well, thank you.
The last thing we need is more snobs like “Mr. Potter” shutting down the dreams of prospective home owners by tightening credit.
Another thing we don’t need? Another Eliot Spitzer, out to criminalize honest business mistakes!
JR
Real Estate has always been protected, under “homestead” laws and bankruptcy laws, in most states.
That did NOT change.
Granted, you have to PAY your mortgage, or make arrangements to do so.
However, the other, unsecured lenders can NOT attach your property.
Yes, Mary, hard work and risk taking, together, will usually pay off.
Just look at the Vietnamese in New Orleans.
Lots of very well to do Asians down there, who came over here with nothing.
They seem to be doing great, even after Katrina, because they work hard and they do not blame other people for their problems.
And, of course, just about everything that we have talked about, on this thread, is being talked about, on Wall Street and in Washington D.C.:
http://www.nytimes.com/2008/03/23/business/23regulate.html?ei=5065&en=71e656b05114c042&ex=1206849600&partner=MYWAY&pagewanted=print
“Never mind,” the guy said.
“Yeah?”
“The guy on the blog said it’s all my fault.”
“The twelve percent?”
“Right.”
“Them chumps never made a mistake?”
“They can gouge me for mine,” the guy said, “what difference does it make?”
“They work hard at that, the card companies.”
“Real live risk takers,” the guy said.
Look, I am as angry about bad credit cards as anyone.
Got a House Hold Bank card, I think that they got ahold of me because of something I did at Best Buy.
Anyway, Household Bank has a “due date” like everyone else.
However, if READ the fine print, or the online payment system, you have to pay by 3 PM Easter, I believe, ON THE PREVIOUS DAY to the due date, for your payment to count.
OR, you can just pay, I think, a $12.95 processing fee to have your “Rush Payment” credited on the same day.
Free market guy that I am, I still think “due date” ought to mean “due date” —
However, It was the Wall Street type creative finance that actually made credit available to many people who could not get it, before.
Lets not mix apples and oranges.
There are not that many Investment Banking firms that are directly involved in preditory lending practices, or abusive credit card practices.
Investment Banking and Commercial Banking are two different things.
If you read the fine print you have to pay by 3 PM Eastern time, to have it credited the next day.
Sorry
dang, I even proof read that time.
“I was attacking the political correctness climate that happens to be in the Banking industry or was until they learned their lesson about making home loans to people who wouldn’t other qualify.”
I doubt the banking industry was ever trying to be politically correct — they saw a buck to be made and knew if they squeaked long and hard enough they could be baled out by the feds if need be ….. guess what ………………
If you remember Mr.Greenspan, there were protests by Black and Hispanic Communities being ‘zoned’ by Banks and lending institutions to qualify for home loans.
I don’t recall the specific legislation that dealt with it, but the ‘law’ was more or less lain down that forced the banks to make loans to minorities with little regard to any poor credit or horrendous credit histories they had.
The banks gave in and of course, doing it their way, they made some carnivorous Adjustable Rate Mortgages that would eat anyone alive with huge interest and higher payments.
More on the story below:
http://www.usatoday.com/money/perfi/housing/2005-03-16-subprime-usat_x.htm
http://news.ncmonline.com/news/view_article.html?article_id=3957bc07057eeb30c4fd106e6df9c347
So yes, political correctness played a big role and the banks, predatory as they were took advantage of it. That is, until they had so many bad debts – their own house of cards fell in on top of them as well.
Regular asks me to post links proving that lack of regulation is the root of the problem.
Then he posits his Regular’s contention that “political correctness” in writing loans is the real problem.
The links he provides describe no laws passed to open credit to poor or minorities as he alleged. What the links do show is that “predatory lending” has picked up.
“there has been a rise in predatory lending — unaffordable loans borrowers have no realistic way to repay — with dozens of states passing laws to curb it.
“The NCRC study comes as Congress prepares for a possible debate on a bill to set national predatory lending standards.”
And from his second source, it says this:
“Another problem with sub prime loans, and targeting known as predatory lending, is that borrowers who would have qualified for a prime rate loan were steered to sub prime loans, advocates note.
“In September testimony before a congressional Joint Economic Committee, Martin Eakes of the Center for Responsible Lending, said, ‘The sub prime mortgage market as currently structured doesn’t have adequate incentives to police itself; in fact, sub prime lenders continue to have strong incentives to make harmful loans.’
“Mortgage brokers, who issue approximately 70 percent of sub prime mortgages, are not required to offer loans that are in the borrowers’ best interest, Mr. Eakes said. Brokers and lenders make more money when they steer people into high-cost sub prime loans, even when those people are qualified for a lower-cost prime loan, advocates said.
“Fees and charges from brokers are taken out upfront, with the house, often owned by an equity rich but cash poor borrower standing as collateral. Many borrowers also did not understand their loans terms, advocates added.
“According to the report, until recently, lenders reaped huge profits by ignoring a homeowner’s ability to repay the loan and/or neglecting to document the homeowner’s income. Unscrupulous lenders gained a competitive advantage over honest lenders by excluding the cost of taxes and insurance from monthly mortgage payments to make the loan appear more affordable.”
******
In other words, the lenders did it because they could do it.
That’s exactly what I said. If they could have done it 10 or 20 years ago, it would have happened 10 or 20 years ago.
Lack of oversight and regulation, pure and simple.
When pretty And grapes, I assumed I assumed my misguided it’s name
I know Street sweet, community now reminded will never snapping it is a just their work Now, I got the boys
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Category Retirement Life Care Communities Homes…
Thanks for creating this blog. I thought it was a very interesting read. It is so interesting reading other peoples personal take on a subject….
Kumeshan…
I just wanted to write to say that you have a great site and a wonderful resource for all to share….