I apologize for “blogging and running,” but here we go . . .
I have mixed feelings about the bailout. As someone who has worked in the business world and watched markets, I understand it. AIG is in the business of insuring corporate defaults; for that and other reasons, its failure has serious ramifications for the rest of the financial system. That system as a whole is under serious strain, which is limiting the availability of credit, which is in turn constraining both small and large businesses and consumers alike. I understand the need to reassure investors and stabilize the market, where so many people and institutions have their wealth (including retirement savings) tied up.
Of course, the government has bailed out private enterprise before. Serious business people don’t really believe all that bunk about an unfettered free market, where only the fittest, smartest and shrewdest survive. The irony — that some of the loudest advocates of radical deregulation are among the first to seek government salvation — is also not lost on me.
What bothers me most is that we rarely see this sense of urgency when it comes to the suffering of ordinary people. It took less than 24 hours to find $85 billion to shore up AIG and the investment markets. And only a few days to come up with a broad-based plan for $700 billion to shore up the financial markets. Yet when it comes to homelessness, education, health care, job training, foreclosures, or anything else having to do with helping ordinary strivers, the response is always “how are we going to pay for it?” I cannot make my peace with that.
It seems to me that if we are indeed going to support this bailout for Wall Street, then we had better accompany it with measures for Main Street. How about, for starters, a fund to buy non-performing mortgages and renegotiate terms for people in or nearing foreclosure? That way we have a central decision maker to restructure the debt so that people can stay in their homes or so that vacant and foreclosed properties can be rehabbed for reuse as affordable units. And average people get the kind of attention paid to their calamity that the big shots at AIG are about to get. It would be good for the economy as a whole, too, because it would serve as a place for lenders whose shaky balance sheets have undermined the credit market to send their bad debt and significantly stabilize credit markets.
I am a capitalist, but not a market fundamentalist. I think markets need parameters within which to operate, and that the role of government is to impose those parameters. In addition to exposing the failures of the free-for-all marketeers, I hope we get from these events better oversight of those markets and clearer rules of engagement.
What do you think?
… that I haven’t really heard anyone on the inside talk about debt restructuring. Outsiders looking in have commented on it.
how many mortgages could Uncle Sam buy?
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p>Let’s say the average mortgage is $250,000. Cheap in MA, but a nice sized home in many parts of the country. $700 billion would buy 2,800,000 homes outright.
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p>Why not let Uncle Sam buy the debt, restructure it to 30 year fixed rate, and collect for a while? Banks would get the bad debt off of their balance sheet and be flush with cash. Citizens would have safer loans. The mortgage need not be 30 year — why not offer 35 or 40 year loans, resulting in lower monthly payments for those who own too much home but find themselves stuck? This need not happen all at once; all of these 2.8 million homes have to be processed one at a time. The Feds could float the mortgage lenders a pre-payment to give them some liquidity and confidence, and then buy more and more mortgages every month up to that $700 billion. Then, we’ll be making 6.5% interest on some money while paying 4.5% on some bonds — helping offset our massive deficit.
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p>Alternatively, why not let Uncle Sam simply buy 50% of the mortgage of troubled homes, and own the homes? The mortgage payment will be cut in half, making it far easier for families to make the payment. When they sell, the government takes their share of the profit. In the mean time, the family is paying less interest, and therefore getting less of a deduction on mortgage interest, saving Uncle Sam on the other end.
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p>Under both of these plans, individuals could still default, and the property could sell for less than what the Feds paid for it, resulting in a loss. But, under the current proposal the government simply gives away $700 billion and gets nothing.
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p>For $700 billion, the government could stabilize the lives of millions of families struggling with home payments, while simultaneously remove bad debt from balance sheets and inject cash into the financial industry. Why not do it all? Why are we willing to punish people who make bad financial decisions, but not punish companies which do the same?
If you accept the initial premise that THE problem is first and foremost, a housing bubble and excess of supply over demand and;
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p>If you believe, as I do, that the foreclosures issue is a problem caused generally by people who secured loans they couldn’t afford, then stopping foreclosures won’t slow the decline in housing prices, and therefore doesn’t address the bigger problem.
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p>People, homeowners, speculators, et. al are simply no longer of the opinion that a house is a guaranteed investment. Expectations of asset-price inflation have vanished.
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p>So assume the Fed announces a large, say 2.8 million, mortgage welfare program, I (“I” being the moral hazard players) would have a significant incentive to join the defaulting crowd. You know, why should I pay my mortgage, give me a piece of government handout, so 2.8 million gets much larger and the credit market much worse.
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p>Meanwhile, there’s no mechanism–nor should there be–to stop house prices from continuing the slide (because they’re overvalued now to begin with) and as long as house prices are sliding, lenders will be reluctant to lend: credit crunch not averted.
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p>At least foreclosures will hasten the supply/demand mismatch. In fact, there are some very attractive deals being made now and many Massachusetts Brokers doing a rather brisk business in the ‘short sale’ real estate market to negotiate an out for defaulting homeowner.
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… “… is a problem caused generally by people who secured loans they couldn’t afford, then stopping foreclosures won’t slow the decline in housing prices, and therefore doesn’t address the bigger problem. “
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p>But isn’t the question of affordability mitigated by a homeowner debt restructuring effort? Such restructuring is neigh impossible in the regular credit market with the liquidity freeze and the reluctance to underwrite. But in an intervention context, when the taxpayer owns the debt, we can choose to make the common sense restructuring for those people who could formerly afford payments before they ballooned. After all, it’s not necessarily the mortgage they can’t afford, its the payment.
Presume a restructuring program. Agree, it keeps people in their home. How to deal with the moral hazard. i.e. cool, my neighbor got a cramdown; I want one, so I’ll default to get it.
Why should we be penalized for making all of our payments?
I misunderestimated my ability to make my minimum payments. Sorry!
who expected you to understand what a finance charge is.
Bankruptcy has its benefits, but they don’t come without cost, not all of which are directly monetary.
… but nobody seemed interested.
And one that I missed.
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p>I was not referring to bankruptcy by a firm, but bankruptcy by the distressed homeowner.
I wonder. It strikes me that the problem may be larger than the housing market: a general lack of capital in the US caused by our many years of current account deficit.
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p>In which case the housing crisis, severe though it is, is a symptom — exacerbated perhaps by deficient regulation — not the illness, and buying $700 billion of hard-to-value securities is not going to solve the problem. In that case, the only way to solve the problem is to increase domestic savings rates (to create more home-grown capital) and to let the dollar fall (to bring exports back into line with imports).
There’s no lack of capital in the US. The current account deficit came right back to the US as foreign investors bought bonds. All you have to do is look at M1, 2 or 3 to know we are and were awash in cash. If the foreign investors, invest elsewhere, then the CA deficit could become a problem. But, historically, it’s not.
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p>I agree the current crisis is a symptom, but it’s a symptom of the larger problem which is a housing bubble. Too many houses built and an enormous inventory overhang.
Hmm. But then the foreign investors own the bonds, not the domestic investors. True, the bond issuers have the foreign money, and I take your point about money supply, but there is a difference between borrowing money by issuing a bond and owning a bond which carries the right to future payments. Plus, the threat still exists of a complete collapse in the dollar.
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p>Which explains the jump in gold and oil yesterday.
So where does that leave us. Not at the “non-starter” point of a few comments back, I’d suggest. Rather, at the place I started, which is that this is a broader problem than just $700 billion in bad loans to the housing market. Which suggests that buying up the loans is just another short-term solution, similar to the series of bailouts the Bush administration has engineered.
in the past, but now they’re scooping up more tangible assets. The only way to reverse this curse is for us to become more savers and less consumers.
… that’s an odd choice of words, doncha think?
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p>But what about mechanisms to stop selling bad loans to credit risks?
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p>I mean, you said it, not I, they ‘secured’ the loan. Who ‘secured’ if for them? Somehow people kept selling more and more bad loans. At some point people had to figure out that this was unsustainable. You have two choices: unscrupulous moneylenders or incompetent moneylenders. At what point, mr free-marketer, was the market supposed to come in and save itself from people buying things they couldn’t afford?
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p>People who got into bad mortgages might have a share of culpability here… but they’re not the only ones… At some point, if free market theory holds any water, somebody should have policed themselves and said “let’s put a hold on this crazy selling…”
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p>Tell me… why didn’t that happen?
The worse loans are secured with mutual stupidity.
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p>If the history of the culpable is relevant, I’m happy to start the list:
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p>Buyers/borrowers
Mortgage brokers
Mortgage companies
Rating agencies
Politicians, all denominations
Investment banks
It is the fiduciary responsibility of banks to assess the risk of money they lend out. It is not the fiduciary responsibility of an individual to figure out the risk they pose to the bank they lend from.
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p>People as individuals can be as stupid as they want, but a bank not making risky loans stops all this in the first place. The #1 hands-down responsibility rests with the people giving out money. The banks failed at doing this (mostly because they sold these loans anyway, and were not going to be dealing personally with the risk when the chickens came home to roost). This is largely the result of the deregulatory scheme. The banks(/securities/insurance companies) were allowed to make short-term decisions about making money hand over fist, mix loaning with securities with insurances on securities, and no one was minding the store, especially as regards to the credit agencies which gave these securities a AAA rating. No investment vehicle that buys into a security with a AAA thinks that security is going to go south. So the individuals were sold a bill of goods without full disclosure (of COURSE you can refinance out of that variable rate in a couple years!) and the investors were sold a bill of goods (of COURSE these mortgage-backed securities are a good investment!) and the culprit was deregulation (that allowed the overextension of these banks into these funds) and lack of transparency (due to the fact there were NO rules on reporting on these securities). It all ties back to trickle-down and Ray-gun, my friend.
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p>The individual aren’t responsible as fiduciaries to the bank, but they as heck are responsible or should be, maybe, for example, to their family who moved into the too expensive house. There’s some personal responsible there for plenty of foolish financial decisions.
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p>Not that it matters, except if the understanding that they, the borrower bears responsibility, causes him who behave more prudently in the future.
from happening again, or fixing what is happening now, can we please just stop bitching and moaning about the individual who made bad choices? In a world which actually is sane, they couldn’t get those loans in the first place. So let’s knock off the conservative whine game.
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p>Once you sign a piece of paper called a promissory note, a person is liable for making those payments. Yes, they are responsible, and yes, they should make those payments, or suffer consequences (ie credit woes for defaulting). However, the bottom line is that borrowers’ risks can be assessed before you even get to that point, and no one bothered to do this. Underwriters were looking the other way. That some people are going to be stupid is a given. There always are! However, this was a structural, broken system that brought us here, not boneheaded or oversold borrowers. A good system protects against the sheer stupid. You can’t stop the stupid (from either someone who bought more home than they could afford, who was talked into it by some slick salesperson, or from the salesperson and underwriter who handed them this loan). You can, however, regulate against the stupid. Ie make sane regulations that stop stupid things like this from happening.
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p>On top of this, you actually have responsible people getting the shaft (ie told they could easily refinance in 2 years, or else people who were qualified for fixed rate who were put into variable anyway). Do those people deserve what they are getting? Do the people who have been laid off deserve what they are getting? My point is, none of this should have happened in the first place, and it starts with regulating the banks.
… it is assumed that the banks better at assessing risk than the borrower. It’s their business. Just look at the paperwork involved in obtaining a mortgage and it is clear the the uninitiated borrower is depending on advice from the much more knowledgeable in the subject matter. Ignoring this imbalance in the ability to assess risk while ‘assigning blame’ is wishful thinking IMO.
The one best positioned to determine whether I can afford to repay a loan is me.
… of your head what your debt to income ratio is? Chances are no. The lenders make a point of finding out, plus finding out a whole host of other facts concerning your qualifications. The reason is so that they can determine if you fit the guidelines for a particular program. These guidelines are developed so as to be able to assess the risk that they’ll be paid back.
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p>They’ve done the assessments for these risks as part of their business must be considered to be better informed as to the risk as such.
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p>lenders have been getting burned since the advent of credit because of statements like this. If you were the best informed and most able, why wouldn’t they just take your word for it and fork over the cash? Because the grand experiment we call ‘loan applications’ shows repeatedly that people, especially those not specifically trained in fiscal ninjitsu, are often completely, sometimes laughably, wrong.
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p>multiply by orders of magnitude for complex instruments…like, say… oh, I dunno… subprime mortgages?
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p>Add another variable in the form of market assumptions over the long run…
It is amazing that you all believe the average person to be such a simpering idiot that they cannot tell if they can afford to have their mortgage payment quadruple after 36 months.
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p>Watching you people attempt to place all of the blame on Reagan and deregulation is as irritating as watching the posters on some other site attempt to blame it all on the Community Reinvestment Act. Nothing more than politicians trying to score a few points by spewing nonsense.
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p>Nobody forced borrowers to sign these notes, they did it voluntarily. They knew what it meant, and did it anyway. Now they can’t afford it.
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p>They should be given a limited option to restructure the mortgage (and thus keep the house) using the bankruptcy system, if they choose to subject themselves to it. If they can’t restructure in that context, then the property should be the subject of a foreclosure forthwith, and they should look for an apartment.
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p>They aren’t victims. They, like the failing financial institutions that lent to them, are perpetrators.
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p>No, but I do believe a lot of people were convinced they could sell their house for a tidy profit after 2 years and 9 months and thereby avoid said quadrupling of mortgage payments. After all, the market’s gone up by 4% a year for the last ten years; it’ll just keep going up, right? And 3 years from now I’ll realize a 13% profit on a $300K house – that’s $40K of free money! Just sign on the dotted line…
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p>The housing market was converted into the world’s biggest Ponzi scheme… a lot of buyers got talked into it, and a lot of them got away with it. The ones we’re talking about are merely the ones left holding the bag.
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p>You know, if you actually read more than ranted, you’d see that I said exactly that:
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p>However, for future good, whether it’s the ‘conservative whine game’ (i.e. it’s the democrats, irresponsible borrowers…”) or the ‘liberal whine game’ (i.e. it’s the evil brokers, bankers, CEO’s, Reagan…), if you actually concede that buyers were responsible and stupid and overborrowed in the hubris of a buying bubble, AND I’ll easily concede that lenders, politicians of each stripe, and regulators were greedy and stupid and acted poorly in the hubris of a buying bubble, then in the future perhaps we wouldn’t repeat the actions that led to this moment.
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p>Or, you can stick with the ‘it was Reagan’ that did it and sally on. YMMV.
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p>Buyers don’t act in concert. Buyers aren’t unionized and don’t have conventions. They neither co-operate nor compete. They don’t conspire and they don’t, in fact, care all that directly about what other buyers are doing. There was never a throng of ravenous debtors clamoring for bad loans hatching schemes to “secure” loans they had no intention of paying.
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p>Lenders, on the the other hand, do co-ordinate. They also compete and care very very much what other lenders are doing. They see the big picture and can direct that picture with a great deal of discretion. In fact, securitization is a risk-avoiding strategy of co-ordination. That’s the point. The whole system rests on the ability and willingness of lenders to say NO to people who are credit risks. And that no is absolute. You are now trying to say that, somehow, buyers were able to bypass lender disapproval and go directly to credit.
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p>Are you deliberately trying to insult my intelligence?
It’s Reagan, the republicans, evil brokers who pushed the debt, CEOs…they made me do it.
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p>You can either convince yourself that you’re a victim or we can learn accountability for our own business, and financial prudence.
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p>You were the kid in high school with the kick me sign on his back?
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p>Not worth it. I’ll refrain.
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p>If I let him, he’d drink soda and eat candy all day. If I let him. I don’t blame him for those impulses and I’m not cruel enough to let him eat so much he vomits just so he learns a lesson. I’d rather… ahem… regulate his behaviour and teach him right and wrong.
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p>That explains alot… you’re still stuck in high school! Lessee… either you’re a fifteen year old pimple using your dads AOL account to moon the adults or you’re a fifty-two year old former Fonzie wannabe who’s yet to get over the fact that the whole cool spectrum washed over you so so many years ago. Naked aggression is so, well, naked…
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p>Ahem… on this side of the pond, ten year olds are not permitted to sign promissory notes.
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p>We do, however, expect adults to take responsibility for any contracts they enter into.
Petr just did something I hate that just fuels republicans fire…..US citizens are not dumb 10 year olds that need the government to tell them right and wrong….its these types of statements that fuel right wing talk radio do the VERY THING YOU HAVE TO SIGNATURE YOUR POSTS
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p>”Most independent voters hate Republicans but, nevertheless, believe everything they have to say about the Democrats”:
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p>The whole system was to blame…I know a lot of buyers and brokers who cheated and lied on their docs and misstated income…that was not the banks fault. Of course mortgage banks did not care to spend any effort to curb this because they would sell it off in turn to somebody else…..
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p>My boy is 10. He is not dumb. Most 10 year olds aren’t dumb.
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p>I could not care a whit less what ‘fuels republican fire‘ and/or ‘right wing talk radio‘. I avoid their flatulence assiduously and my life is better for it. I suggest you do the same.
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p>If you’re concerned about the paternalism (as opposed to the GOP perception and subsequent over-reaction) inherent in the relationship between mortgage lenders and credit-unworthy applicants then we’re on the same page. Unfortunately, as with my 10 year old boy, some people are driven by what they want regardless of what’s good for them. I’m not advocating government teach them right from wrong, but that government (regulators) shut them down when it’s in the best interests of the economy as a whole to do so. What part of mitigating deleterious behaviour do you not get…? Or do you suggest that cops shouldn’t arrest criminals? That firefighters shouldn’t step on arsonists? Is that paternalism? Is that government “telling them right and wrong”. I suggest it is not. It is government protecting the rest of us… you and I, included.
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I was merely suggesting comparing an adult signing a contract does not eed to be supervised by the government in the same manner that a 10 year old’s meals and food need to be managed by their parent…which is what you analagized.
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p>And that the type of paternalism that you implied is the exact type of paternalism that gives liberals a negative conotation..
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p>This is entirely different than the paternalism you’re are now trying to express as police an d fireman..
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p>you used a bad analogy, thats all…and I called you on it…I’m all for regulation, but lets put it in terms that make sense for everyone
That there was a broken system, and people tried to take advantage of it, and got burned.
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p>Gee, I hope I can refinance in two years, or else I’m screwed is most certainly not “responsible” but is rather the height of folly.
were advised by the Federal Reserve chairman that low adjustable rate mortgages were a better choice for them than fixed rate mortgages.
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p>They were also advised by the President that the housing boom was a fundamental sign of strength in the economy rather than a risky bubble fed by a flood of low-interest loans from abroad and bad judgments made up and down through our financial system.
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p>Most of the borrowers were simply following the American Dream.
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p>If we’re going to backstop the failed debt instruments we might as well support the underlying value of the assets. That’s really the only way to avoid over-paying for the “redemption value” of the mortgages. Let the speculators, and those who loaned to them, bear those costs. But most of the homes, even in last crazy 3 years, were still bought by people who wanted to live in them.
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p>Keeping people in the homes for three years at an inflation rate around 4% ought to go a long way to stabilizing home values. To qualify, the homes would need to have been occupied for say a year prior to the govt extending a three year adjustable rate mortgage subsidy plus a guarantee of a fixed rate at the end of that three years of owner occupation.
Give loans to the “underserved” (so called) or we will come after you! It was called redling by congress. It was called fiduciary responsibility by banks.
Too much Jonah Goldberg and Michael Graham. Two people who have no clue of what they’re talking about.
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p>Bad subprime and alt A loans weren’t made because Congress told anyone to make them. They were made because a lot of people were making a lot of money originating, selling, securitizing, and buying them. Let’s look at the list:
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p>Mortgage broker — made commissions on each loan. Likely made more money for putting someone in a higher interest rate loan, and got an extra commission if they originated two mortgages (piggyback loans).
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p>Closing attorney — made money on all of the closings that happened due to the real estate boom. Generally had relationships with particular brokers or mortgage companies, who were aggressively marketing their loans, so a steady stream of income for the lawyers.
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p>Wholesale lenders — underwrote the loans brought to them by the brokers, but weren’t going to hold onto them, so why be too strict with the qualification criteria.
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p>Wall St. firms — bought the loans from the wholesalers and packaged them into securities. Did little or no due diligence, because they were just going to sell the loans to someone else. Put “buyback” clauses in the securitizations that would force bad loans back to the wholesalers, who didn’t have any capital to buy them back anyway.
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p>Hedge funds — bought the securities. Why? Because the high-risk subprime securities were offering high rates of return and they were considered relatively safe. Who doesn’t want high return with implied low risk?
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p>So, none of this had to do with redlining or CRA or any other government or social program. The subprime crisis had to do with a lot of irresponsible, greedy people working at all levels of the business making a ton of money.
That insurance co’s like AIG insured those securities against failure! (Making money in the short term on the premiums.)
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p>But a nice comprehensive list.
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p>Funny how this talking point (the program to help poorer borrowers into regular loans) has been dragged out, rather unsuccessfully, to hang this on liberals…
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p>Not one person covering economic news thinks for an instant this is anyone’s fault but the ponzi-scheme instituted by greedy banks and investors.
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p>But you still hear the talking point being pathetically brought out anyways. Poor conservatives. They’ve just witnessed the entire collapse of the last 30 years of their economic philosophy. Let’s cut ’em a little slack, give ’em some mourning time.
I forgot to mention all of the credit swaps, bond insurance policies, etc. They also made out like bandits.
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p>The whole “CRA is the cause of the market meltdown” is classic Republican blame-shifting. Of course it wasn’t the greedy, stupid Wall Streeters that caused this. It was a bunch of poor people who wanted to own homes. Yeah, right. And I’ve got some AIG stock I’d love to sell you too.
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p>Can’t cut them any slack on this one. The whole thing makes me sick. There are many, many successful loan programs that came about because of laws like CRA that have helped thousands if not millions of people buy homes with sustainable mortgages. Massachusetts has been a leader in this regard — the soft second program, MHFA’s loan programs, etc.
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p>To hear idiots like Goldberg and Graham denigrate these programs just pisses me off. How those guys warrant any column inches in any newspaper in America is beyond me.
I heard a commercial this morning from a mortgage company saying things like, “we have plenty of money”, “we say yes when the others say no”, etc. So while the house of cards is falling down, there are still some who are dealing.
the banks here in Lowell (local ones, we still have a lot of them actually) gave out cautious, fixed-rate, nonrisky loans. They learned from Lowell’s meltdown in the 90s. So far as I can tell, they have not been as affected by this crisis. In fact, I wouldn’t be surprised if they have the liquidity to give out loans were Citimortgage and others cannot.
The tone of the particular commercial I heard was basically “it doesn’t matter if your credit rating is crap, we’ll figure out how to give you the money anyway”. So I agree that there are institutions that were careful and didn’t get themselves into this mess. But I didn’t get the sense that this lender was in that category.
Sometimes there’s no truth in advertising…I suspect that they actually do care about the credit rating. No institution I know of isn’t caring these days. You see, no one is buying mortgage-backed securities anymore, so there’s no passing the buck. You’re stuck with what you lend out. 🙂
Lynne-
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p>The BoAs, Wells Fargos, and Citimortgage are in the same position as your local bank in Lowell. They didn’t relax their underwriting standards over this debacle. The Countrywides, East/West, and “biggest no brainer on earth” and I hate to say Ameriquest mortgage brokers certainly did. At least know who was doing what here.
Every debtor in bankruptcy can restructure a secured loan by making sure that the secured creditor receives payments that are at least equal to the liquidation value of the collateral.
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p>So if Bank makes a loan of $100 to ABC, Inc., and the security for that loan is property that is worth only $10, then the debt is restructured thusly: the debtor must pay $10 plus interest over the repayment period, and the lender gets an unsecured claim of $90, which may or may not get paid by pennies on the dollar. Debtor keeps the collateral.
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p>This makes it important for asset based lenders in the commercial context to make damn sure that there is sufficient collateral to secure their claim.
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p>However, this is strictly forbidden in the context of real property that is the debtor’s residence. Investment property? Cram it down. Vacation home? Cram it down. Primary residence? Nope, no restructuring permitted.
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p>This reduces the incentive for lenders to make sure that the collateral is worth enough to pay off the loan.
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p>A simple amendment to the bankruptcy code would fix this. If the debtor can’t afford the present value of their home, then the home can be foreclosed.
Is in play right now on the bailout bill. It would allow cramdowns on primary residences, but the WH and Congressional GOP are strongly opposing.
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p>Because apparently personal responsibility is a good thing for homeowners but a bad thing for Wall St. execs.
Rather than becoming the biggest handout and power grab in the history of the world, by using “mortgage restructuring” as a premise, this could become a net zero to overall society.
The created government entity could purchase bad mortgages at 30-50% markdowns and then rewrite the loans at realistic terms for realistic durations, sort of structured along the lines of the old FHA programs … did anyone complain? the gov actualy earned interest on its investment as it would here, neighborhoods wouldnt be blighted and the banks could write down their losses for LOSSES they would remain and they would remian with those who did the losing.
Sure there is some moral hazzard , envy issues but on the whole the greater good might outweigh that.
My objections would onyl arrise if by “restructuring” the government screwed with the outstanding balances and not just the terms and durations.
Nothing is perfect and many of the other proposals being floated are MUCH less palatable.
I don’t disagree that many homes were purchased by people not qualified for mortgages. I think many more were bought for “investment” purposes, and that caused multi-family prices to increase beyond the reach of many — I know it did in Springfield. I think that a housing price correction is in order — the inflated prices are not sustainable in our economy, and keeping them artificially high may help some who have already purchased a home, but harms others who haven’t yet.
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p>What if the US Government partners with municipalities over the dispersal of those homes that are foreclosed? Instead of far-away banks sitting on the properties until they get around to getting rid of them, banks who use rigid rules (like put it for sale for 80% of the mortgage. Wait 8 weeks. Lower the price by 10%. Wait 8 weeks. etc.), the properties could be taken over and sold by local governments.
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p>While that might be trading one bureaucracy for another, it would still put the problem under local control, and cities and towns could control their own destinies. Trying to extract the maximum value from their purchased assets will result in greater harm to the communities in which those assets lie. Settling for less will help those communities. That would also be a sly progressive to help the more poor communities, as the federal dollars that offset the loss between the mortgage value and the realized value would be spent in the communities in which the loans were made.
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which is a number of these foreclosed homes being a blight on communities.
but with the added constraint that the Government purchases the mortgage at a discount (some pain to the lender), and then limits the mortgage to the present value of the home, with a low fixed-rate loan to the the original mortgagee. If not the original buyer, then a market-rate fixed price mortgage to the replacement buyer.
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p>Don’t buy into the philosophy some are spouting that we have an oversupply of housing, “supply exceeding demand”. Affordability is a key factor in this equation.
The bankruptcy system already exists and is familiar with the process. It would not require the expenditure of taxpayer funds or the creation of some new program or office for administration.
Whatever new and wonderful governmental body would absorb up to 87% of a home in foreclosure. Isn’t that nice for me—the prudent, frugal, and honest taxpayer.
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p>Governor, with all due respect, it was the “culture of capitol Hill” that there should be a chicken in every pot and every American is entitled to a mortgage that got us where we now enjoy uncertainty of epic proportion.
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p>How about : Americans that save, that are able to put down 15%-20% and pay the closing costs and Americans that are “smart enough” to avoid smarmy lenders and mortgage companies that sell them a bill of goods——get the mortgage. Why do we, as a collective social group, have to give, give, give, to folks that neither respect, appreciate, or protect the benefit that was provided them. Folks bought houses they could ill afford, and many turned around and used the home as a piggy bank, because everyone “new” the bubble would never burst. Every day was a holiday and every meal a feast. There isn’t a sane person alive that realizes that this is not rality. So now we are to reinforce and reward avarice, greed, and imprudence, while my state and local taxes increase.
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p>I would think that a more pressing problem statewide is how we keep this leaking ship of state afloat.
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p>I don’t see it that way. I don’t feel entitled to a mortgage and I don’t, in fact, have one right now. I do think that regulators fell down on the job and the sub-prime free-for-all got a lot of people into houses that had balloon payments and other terms they neither understood nor prepared for. In addition, these mortgages were passed up the food chain into unchartered (unregulated) territory by companies that had leveraged themselves well past fiduciary health. Unscrupulous lenders, greedy bankers and lax regulators should not get a pass. Or, put another way (full circle?):
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What I alluded to was the fact that the democratic congressmembers for many years kept poking a gun in the banking industies back to provide loans for folks who should have never been considered. ie case and desist on red lining so called. After a period of time bankers,lending institutions, and mortgage companies gleefully jumped onto the band wagon because “everyone was getting rich”. Then the caution lights began to appear at FNMA when it was discovered that they were cooking the books to hide billions in bad loans. But S 190 never saw the light of day and everyone gleefully foolowed the Pied Piper, evean after Greenspan and others were shouting “danger” from the rooftops. Now this.
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p>Personally, I don’t care if the entire house of cards falls and I lose my entire lifes savings, I’ll go back to work or just raise my own food like I have in the past.
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p>More importantly–what will Russia and China do when it appears that USA is now irrelevant?
I’ve read this a lot in the past few days. But I don’t believe it is true or even based on anything that is true. I have been following the financial news pretty closely for the past 4 years, and I never heard a bank complaining about how they were required to give out mortgages to people they didn’t think would pay them back. I am unaware of any regulation that forced banks to make bad loans. Red-lining hasn’t been much of an issue since the 70’s, so I don’t know why you are bringing it up (your usage suggests that you don’t even know what the term means, unless you really are just a racist scumbag). Greenspan did not start issuing warnings about housing until this year, and was actually encouraging people to get ARMs in 2004, making the problem worse.
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p>The loans were not made because the government forced the banks to make them. The loans were made because the banks collected a fee every time they made a loan. They collected another fee when they sold the loan to an investment bank. The investment bank collected fees when they put the loans into a security and sold all the risk off to investors.
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p>This is not a problem caused by government regulations. This is a problem caused by greed in an under-regulated market.
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p>You are spreading a lie. Please stop.
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p>This is what banks do. The purpose of regulators is to look for this behavior and stop it when it happens.
Because regardless of who that money goes to (banks or people), the cost to the taxpayer is the same and the purpose is the same – to stabilize the market so more businesses don’t fold and more people don’t end up hosed.
… it’s not really a ‘bailout’ in the traditional sense
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p>It is not so much a bailout as ‘after the fact’ bookkeeping. The heart of the problem is that, because of swaps and other securitization, along with the highly leveraged investment banks, we really DON’T know how much bad debt is out there. THat’s why credit (liquidity) is stagnant: nobody knows who’s solvent and who isn’t and so they’re not lending. In essence, the Paulson plan is just offering to buy (up to 700 B) of dodgy securities so they can sort out what’s good and what’s bad, put the good back into the market (hopefully at a profit, or less of aloss…) and deal with the bad ‘by another way…’ If the bad debt can be restructured then the losses are even less. Paulson’s plan is a wink a nod in this direction: that’s what he ‘says’ he’ll do, but there’s nothing that requires him to do so. The Dodd plan is just a more specified, indeed codified version of this plan, where steps are laid out and a plan, with regulations in place, is agreed to ahead of time… at which point, if passed, Paulson (and/or whomever succeeds him) is just the administrator of the plan.
We love it when you post.
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p>I have mixed feelings, too.
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p>1. One thing I have good feelings about is the rapid response – blogosphere in overdrive. Big shift in DC sentiment. On Friday it was: We need to do this or we’re in meltdown. Ten years ago, that wisdom would have carried all weekend. Now, a fair number of credible voices weigh in, eroding the inevitability of the Paulson plan.
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p>Stripped of the sense of inevitability, the proposal was targeted by various newspaper stories on Monday. Whatever we ultimately end up with, the rapid response worked well for a change.
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p>2. I’m not sure I’m impressed with the Democratic/Dodd response, which seems to be gravitating to: If you Republicans are going to take $700 billion for the big guys, you have to throw a $70 billion bone to the little guys.
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p>3. My question:
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p>Let’s assume some version of this goes forward. How is MA State Gov’t affected?
If you consider doing a little more blogging, you want to see what a public official blogging can be like, check out Newark Mayor Cory Booker’s blog. If you’ve spent some time around Cory, you can tell, it’s his authentic voice, not pure fluff p.r.
How about making sure that the people who’s mortages get “fixed” actualy have to be living in those houses and that they are not landlords who bought up 5 or 10 buildings for the sole purpose of milking off the equity while screwing the tenants with shabby conditions and sky high rents. You are aware how many of those “homeowners” are out there whining right now, arent you?
Any debt restructuring, according to what I’ve seen discussed, would apply to primary housing only. No second houses or vaction homes.
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$700 billion is a nice round figure. I’ve spent a lifetime dealing with con men. The racket will go like this. $700 billion now. Our leaders, their families and friends get the best cuts.
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p>Then a new administration takes over. $XXX billion now needed in a little time. “Hey!, ain’t our fault, blame the previous administration. They should have asked for more. We can’t let the previous $700b be wasted. We’ve got to spend more!” On it will go.
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p>Little wonder that the present administration is hot on immediate action. They don’t want anyone thinking this through. They want the Democrats to be their enablers.
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p>What would happen were the bailout rejected? The world will not end. There will be severe problems, as there will be in the bailout. Remember, we don’t have even the $700B to give out now. This is money from the future.
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p>Fortunes lost have always be a problem for the speculator. Now that the speculators have many members that are rich and powerful they can pressure the government to mitigate their risk by putting this yoke on the taxpayers. The bailout only serves to keep alive a rotten system. In the wings is the auto industry looking to get a bailout on their failure to compete. A reward for doing a poor job. When does the robbing of the future for the sake of the past end?
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Is that the watching the “speculator” burn is likely to cause a much more widespread conflagration due to the unavailability of credit.
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p>If your employer has a revolving line of credit, even if used only to keep cash flow smooth (from the busy time of year to the slow) and is unable to renew it, then it will crash during the next slow season, and there will be no busy season to follow.
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p>I agree that giving this administration unfettered discretion over anything would be dumb. But I’m not remotely sure that doing nothing is a viable option, unless the policy goal is economic calamity.
Markets adjust themselves. Life (and business) go on. The bailout proposal institutionalizes failure. We are told by the same people that did nothing to stop the failure that they have the answers. Actually, they are the ones to benefit.
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p>Sounds like another “sucker the taxpayer” job. I’m sure it will pass. Oh, that any politician voting for the bailout is, in turn, voted out of office!
All I have been asking all week is if we can finally put the free market myth to rest. How many times does a deregulatory regime have to fail before we can finally make the conversation about how to regulate business and the market smartly, rather than whether or not we should at all??
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p>I too wonder why we taxpayers should take on all this “bad” debt…why not make this bad debt not so bad? How hard would it be? Surely not as hard as the storm we face if we do not restructure the debt for people in trouble.
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p>And I hate all this “personal responsibility” garbage. Conservatives want to assign all the blame to whiny greedy Americans and none to the corporations who gave out loans like candy. News flash: it is the responsibility of the loan underwriter to take a hard look at the risk posed by any particular borrower, not the borrower’s responsibility. Then you couple in shysters who sold loans to people who could not afford them (who in turn were not ultimately accountable for those risky loans as they were sold elsewhere to other, richer saps) by upselling them (and anyone who has dealt with salespeople knows they are good at what they do) and the large percentage of people who could afford loans at fixed rates and were given variable rate ones and told they could easily refinance in a couple years before the rates changed, and you have a completely stacked system against the borrower. I should know. We just got ourselves a loan for a house last year. The information is dizzying. Lucky for us, we worked in the mortgage industry and my husband knew what he was looking at, or else we would have been lost. Being so educated, we knew that we would not accept any loan without a fixed rate but I could easily see how someone might not know all there is to know.
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p>Even the big investors and banks who took on these mortgage-backed securities were unfairly snookered. Although they should have looked FAR more carefully at the details, these securities were given these stellar AAA ratings by these credit agencies. If the consumer can’t trust the information from the lender, and the investor can’t trust the information on the risk from the credit agencies, something is seriously broken, and it isn’t whiny Americans who took on loans they couldn’t afford. (In many cases, they actually could, until job loss or other factors kicked in.)
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p>I have so much more to say on this subject but it’s time for Left Ahead and I am needed for ranting about Question 1 and Question 3, something else I can talk about at length…
to say that it is the underwriter’s fault and not the borrower’s fault.
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p>If you’re a borrower and you sign up for a mortgage that, at a fixed rate, costs 75% of your income, you deserve to be foreclosed on and lose that home and whatever payments and down payments you made. It’s your fault you lost your home.
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p>If you’re a borrower and you sign up for an ARM without understanding the terms fully, you deserve to be foreclosed on and lose all the money and payments and down payments you made. It’s your fault you lost your home.
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p>Republicans would stop there. But while the above statements are undeniably true, the blame goes on.
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p>If you’re a bank that underwrites a loan without paperwork, it’s your fault when you lose money. If you buy securities based on ridiculous mortgages, it’s your fault when you lose money. If you secure those mortgages, it’s your fault when you lose money. I could go through a whole list of every type of company that made a stupid decision and lost and deserved to lose money, but you get the point.
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p>But there’s even more to this. People make stupid decisions. So do businesses. And it is their own fault. An intelligent regulatory framework takes into account that people, and sometimes corporations, make stupid microeconomic decisions. I’ve read some great stuff about “Obamanomics” that deals with these decisions.
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p>So to add, politicians who deregulate and base policies on lobbying clout rather than sound and rational decision making deserve to lose their elections. And it’s their fault when they do.
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p>And finally, it’s the fault of the American taxpayers who vote for people based on who they’d like to have a beer with, or based on other irrational factors, when they have to cough up $700 billion. It’s their fault they have to deal with more debt.
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p>Everyone involved is at fault. And all those people will face losses, in one way or another. It makes little sense to say that people who take mortgages they can’t afford didn’t screw up and make a stupid move.
address the lack of regulation in the industry?
It’s likely to be mostly short term and not long term fixing. No way there’s enough time before the end of the week to fix the underlying structural problems. What’s more, I do not want them to! That (regulatory) fix requires some serious thought and good legislation, which we can’t get on this short a turnaround.
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p>We should view this bailout (I hope it’s much more than that, thanks Barney!) as the short term bandaid; the real fix should be, in my opinion, under the next administration (100% hoping that will be Obama).
here:
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p>http://tcsdaily.com/article.as…
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p>Think the unfortunate thing is that this is all taking place right smack dab in the middle of an election, with all sorts of hay being made, w/o considering what happens if we don’t do anything. Markets aren’t going to wait until January 20, 2009 for us to make a decision.
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p>One thing though is think the bloom is off of the rose of Wall Street recruiting all of the MIT astrophysicists to work in derivates departments to say the least. Shades of LTCM back in ’98…
I love this analogy:
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p>
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p>But what if we could toss the idiot navigators over the side, parachute some smarter ones in from helicopters, and save the sinking ship all at the same time? Seems like that could work much better. Accountability and fixing this crisis don’t have to be diametrically opposed…
but the fact is the world markets aren’t going to wait, unless you want Obama/McCain to enter their new term in the ever enviable position of Herbert Hoover Mark II.
by not giving Paulson a blank check, but one with strings (ie, a new tax on rich people to pay for their own bailout; your corporation has to give up big bonus and compensation pay for high level parachuting execs; and the ability to restructure the debt for individual Americans who qualify with certain restrictions, such as being the primary residence, and whose income can match the restructured payment arrangement).
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p>Next year, we must tackle the deregulation which caused this mess. But even now, we can take steps to make sure the pain is not held merely by the American taxpayer, but spreads more evenly. And jettison the idiots who blithely want us to bail them out after they partied like it was 1999 and now have a hangover.
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p>And no offense, but the shareholders should be screwed over too. Investing in the market is a risk. If there’s no risk, but we bail them out of losing some money, there will be no reason for reasonable caution the next go-round.
but he did state that he thought that the actual losses would be nowhere near $700b (in point of fact, stated that we end probably end up breaking even on the deal with an orderly sale in the future). So let’s not operate under the premise that this is going to cost $700b; we’re getting stuff at fire sale prices, to say the least (and I don’t think the security holders are in any position to dicker).
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p>I certainly don’t have a problem w/ the urge to “punish” execs; however you do have to be careful here, as anyone who has ever been involved in dealing with bankruptcy situations knows. How do you distinguish between those who caused the problems and those who are called in to fix them in these companies?
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p>Don’t think anyone cares about the shareholders; ya takes yer chances gambling on stocks shortly to enter bankruptcy (FNMA, Freddie Mac). Shareholders are always last in line.
Mr. Paulson has, thus far, given no indication that he considers the government to be the one with the leverage, rather than the one that must complete the transaction under any terms offered by the other side, no matter what. This does not give one confidence in the ability of Mr. Paulson to watch out for the government/taxpayer’s interests in this transaction.
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p>People would be correct to hear an echo of oil revenues paying for the war in promises that the government will turn a profit down the road.
Warren Buffett just got a big chunk of Goldman Sachs for $5 billion. Just shows one how much $700 billion might buy. Unless what Mr. P. really has in mind is a big fat taxpayer subsidy to the banks — in which case one could spend an infinite amount.
But we can’t know it for certain…after all, that is the crux of “taking on risk.” I prefer to presume it as a worst case scenario. That way we are not shocked if it happens.
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p>The big problem for shareholders and for investment vehicles in general is that they invested on those faulty credit ratings, often giving out AAA’s like they were candy. I do feel that that system should be the first to get tightened and “go down” – ie be punished. Though, those investment types should have had red flags going up left right and center with regards to the credit agencies. sigh So much blame to go around! All leading back to deregulation.
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p>Transparency must be the first thing that gets accomplished! We have to know what we hold, and what the risks really are. It’s possible that the meltdown is no where near as devastating as it appears – it’s the sheer uncertainty of what these mortgage-backed securities are actually holding that is driving a lot of the volatility.
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p>Officers and directors of subprime lenders by definition idiots? Wall Street VPs? This is sounding a little Inquisitionish.
Is is too friggin much to ask that execs don’t get to escape the market with millions of OUR tax dollars in bonuses? Any bank that takes advantage of our largess as taxpayers to take on the bad side of their balance sheet (which they got themselves into) should have to give up such bonuses.
I’m coming around to the view that the proposed bailout is a bad idea.
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p>These obligations to executives to which you refer should be treated as insider loans. That is, recharacterized as equity, and accordingly wiped out.
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p>If the bailout is necessary, then the firms will play by these rules. If these rules chase them away, one suspects that the bailout is unnecessary,
…actually, and I also agree – no bailout (or just a bill which restructures debt of those homeowners who qualify as having one and only residence, and who can manage the payments if restructured fairly to fixed rate) is best.
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p>Given that the common wisdom is that a bailout is happening no matter what, though, we may have to deal with mitigating the worst abuses that could happen…unfortunately.
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p>I’d love to see Congress turn around and scrap this whole thing on the revelation that JohnD posts about down below.
I meant JohnT001. LOL
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p>Too many Johns on here!
Source: Paulson Debt Plan May Benefit Mostly Goldman, Morgan
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p>
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p>And…
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p>Source: White House Dispatches Team to Push Economic Bill
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p>I’d say there’s no reason at all to hastily pass any bailout measure. The package appears to be aimed at rescuing Goldman Sachs and Morgan Stanley in particular, and the White House has spent months putting this together, but we only find out about it now, 6 weeks from election day? Color me skeptical!
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p>If these investment banks need an infusion of taxpayer cash to stay afloat, they can issue preferred stock and we’ll buy it at par value. That way they get the cash they need right now – when they turn their business around and make a profit again, the taxpayers reap the benefit of having placed our funds at risk by investing. Nothing else makes any sense to me, and the bailout plan makes the least sense of all…
Yeah, I’ve been hearing things to that effect for the last two days…the concept that this isn’t as urgent as we think, and this is a ploy to a) give out a last gasp of free money to friends in high places and b) affect the elections. If this bailout was so damned “urgent” then why isn’t Paulson fine with any strings that Congress attaches? So long as the money is there?? And quickly? Why are they being obstructionist about what Congress is willing to do?
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p>Then hearing about this being planned all alone (while publicly Paulson and Bush were saying our economy was sound??) and comes out now is so very suspect. I read that earlier today and was livid.
I’ve called both of my senators and my rep, yesterday and today, and I called Chris Dodd’s office on Saturday and again today. No bailout – if they need cash, they can issue us preferred stock at par value, and I’d also like a seat on the board of directors so we can limit executive pay.
It’s Sec Paulson with a gun in his hand, holding a gun up the US economy (represented by..I dunno…a map of the US or something). Behind him is Bernanke looking pleased, and Bush lurking out from a curtain. The taxpayer, his back to the camera, is holding a checkbook. Paulson is saying, “Give us that blank check, or this economy is gonna get it!”
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p>Too bad my cartooning skills are not yet up to par. I’m working on that. That’s the next project…
~sigh~ OK my brain is toast from all this economic crap. Please, can we talk about lipstick on farm animals or something??
I’ve had the chilling recollection of Bush/Rice/Cheney/et al. on twin wars. Oh, yes, and also on surrendering our long-established constitutional rights to Homeland Security and the spook agencies.
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p>They presented it as Bernanke and Paulson are doing with the bailout. Things are terrible. You have no choice. Plus, you have to act immediately or all is lost.
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p>Both sets of panic mongers were short on proof. Saying something many times at increasing volume doesn’t make you right. It makes you loud and repetitive.
Giving Goldman and Morgan a dime is a joke. All of the money should be going directly to the Mortgages not these Package deals that Wall Street created to hedge the bets. I am totally against a single Dime passing through these commercial banks. The entities who need rescue from bad mortgages are the people who ultimately hold the mortgage Bear, Lehman, Goldman, Morgan and Merrill have got these bundles so twisted they are likely to be selling the same loan over and over again to the government and when the money runs out and the problem is not solve what then.
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p>Damn it this is wrong and Paulson and Benanke and King George or either stupider then they look or we are for taking it.
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p>I would suggest that they do a couple of things if and I repeat IF this is a result of 15% of all mortgages failing then lets do something about that 15% then lets look at the 85% and make sure that none of those are on the verge of failing. Lets do away with all ARMS make them fixed rates some where between 5.15 and 5.75% with the balance of principle and time remaining the same if you have 20 years left on 30 you still have 20 left on 30 if you have 10 left on 15 you have 10 left. Renegotiate any mortgage holder who can not afford these rates into a new 30 year with a principle they can afford and allow the investor to take the full write off of the anticipated value of the original note.
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p>As I read more and more and watch CNN MSNBC and the two stooges testify today I am becoming more skeptical then ever that there is something else they are not saying. I no longer believe that bad mortgages are the only reason for the bail out I think there is more and I for one want to know just what that is.
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p>Deval is correct not a single penny should go to Wall street every dime should go to Main Street to support our retail banking save our homes and bring Liquidity back to Home town USA so small and medium size businesses have assess to capital once again.
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I have a question about these ARMs that are causing so much trouble, and it’s probably a naive question, at that. First of all, it was foolish to enter into these loans because at the time that so many of them were written, interest rates were at historic lows for our generation, meaning that when adjustment dates arrived, it was almost a sure bet that up was the direction they would be going in, costing home buyers major, sometimes defaulting dollars. Next, for my question – when an ARM is increased, is it because the cost for the lender to manage that loan has gone up, or because their cost to write other loans has gone up because interest rates have gone up, or is it just greed – ‘we took a chance on you, and now were going to rake it in’?
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p>It’s actually an excellent question. There are several explanations offered, all of which make sense to me as disparate parts of the ugly whole:
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p>– unscrupulous lenders preying on the credit-unworthy (who are, almost by definition, uneducated in credit basics, never mind the more complicated ARM) who would immediately turn around and sell the mortgages upstream. A quick profit and the added benefit of not having to answer the irate phone calls when the balloon payment came due. These are also, most likely, the type of ‘fly by night’ operation that would probably do the least diligence and the shoddiest paperwork, adding administrative stovepiping to the list of exacerbating issues.
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p>– Speculators who would buy the house with the intent to ‘flip’ it. Typically they only make two, sometimes three mortgage payments, while upgrading the house in order to sell it at a profit and payoff the loan… although I sometimes wonder if they leveraged the loan by selling to the next person with an even scarier ARM… just a thought. I think there was a cottage industry developing around ‘flipping’ and the administration of mortgages… I dunno for sure though.
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p>– Earnest wanna-be homeowner who understood the risks and thought they could work their way out of it, either with a second job, or as rental property. They probably just couldn’t keep up. As the economy shed jobs, this is harder and harder to sustain. Cue the unscrupulous moneylenders noted above.
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p>– Homeowners who thought that such low low rates afforded them the opportunity to upgrade from the two bedroom bungalow that they could afford to a 15 room McMansion. Cost of living increases were, most likely, bigger than they at first anticipated. Likewise, the aforementioned slimeballs giving out the mortgages never clued these people into the pain ahead.
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p>As noted, whatever the reasons people had to get into subprime loans, the biggest problem was A) uscrupulous lenders willing to sell sunshine and a balloon payment and 2) regulators who didn’t stop these slimeballs.
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First many of these loans if you read the terms closely would have required borrowers income to increase by 50% or more by the increase that may have occurred at the first reset. Lenders Certainly knew this fact yet in order to qualify borrows with lower income they were betting on one of two outcomes.
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p>First the long shot that income would rise rapidly as new and better jobs were being offered by a red-hot US economy.
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p>or
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p>Two that the borrower would make his payments for 3-5 years at 4-5% the lender would earn a bit on their money then if the borrower could not absorb the reset which the lender fully intended to move up quickly( why do you think they were betting on the investment making them rich) they borrower would be forced to sell in a red hot market and the lender got all his money back quickly and the broker made his profit up front and could make a profit on the loan on the sale to the new owner and then to the original borrower trading down or if the borrower walk away giving they would turn over to the lender a property whose value had increased over the 3-5 years and a huge profit could be made quickly. .
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p>Please look at this crisis; the dots are clearly connected, what is the underlying basis for the collapse the COOLING off of house prices. Yes this was indirectly a consequence of the Default rate but here again look at the numbers the default rate is still only 10% of all loans that’s maybe 2.5% of the total housing market not a flood in supply. So if you are a strict supply and demand, which I am not, but if you are the numbers do not suggest a collapse of the market to the extent that it has occurred what does explain it is the drying up of new money to make new loans. With out this money Liquidity as I have referred to it in my past posts has fueled the cooling off of the economy and then the perceived wealth or Paper wealth in our homes began to tumble because we could not convince outside lenders to listen hey it’s worth X they were not saying no it’s worth Y they just said no I want to wait and see.
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p>If you dig deep into the financial news (my boring life LOL) you will see that they went into commodities in a big way because like the housing market of 10 years ago they have a perception that oil will sell for more and more and more if you keep throwing billions into the pot and bidding like crazy which is occurring Oil will be $200 a barrel which Goldman Sachs has predicted for 9 Months.
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p>Do your self a favor Economics 101 take a bill out of your wallet (if you still have one) and read it our money is backed by “The full Faith and Credit…” interesting statement looking at what has happened this year don’t you think.
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p>As Usual just my Opinion But I am mad as hell with the bail out thus far.
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p>Best to All
why would they not accomodate a reasonable fixed price conversion?
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p>who is ‘they’? Please clarify. Thanks.
The “they” I mean are the ones holding the mortgages that are defaulting. If escalating interest rates lead to defaults, and then bankruptcy of the lender charging those rates, why not limit the interest rate to the 30-yr fixed rate. Not as much instant profit, but better in the long run for everyone.
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p>That’s the idea. First, however, we have to decide who owns the loans. They were ‘bundled’ into securities and then ‘swapped’ into derivatives and sold up the food chain. Lehman probably had a bunch as did Bear Stearns. AIG was instrumental in backing the swaps. Freddie and Fannie have a bunch. Goldman and Merril have some. Others might be… anywhere. And there’s not way to determine, either by looking at ownership, or at the swaps, which debt is good and which debt is bad. There has to be some process of unwinding and un-bundling the debt. That’s a transaction cost that’s going to be large.
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p>That’s why, as I’ve said elsewhere in the forum that this isn’t a ‘bailout’ in the traditional sense: it’s bookkeeping ‘after-the-fact’. Paulson and Bernanke are betting on the overreaction to the markets: their hope is that the panic is out of proportion to the problem. They, no more than you or I really, can’t say for certain… Bu, if so, they can buy it all up, sort it out and get the good stuff back out there at a good price and re-structure the bad. If they are correct, and they administer the program correctly, we actually could turn a profit. I’m not so sanguine. While it is practically axiomatic that panic is most often an over-reaction, I think there’s enough of a bad debt out there, and the transaction costs of figuring it all out and setting it straight are large such that they’ll see no profit. The best I’m hoping for is less of a loss… I also think that the problem is less widespread than is thought, though I will concede that since Krugman is scared, I perhaps ought to be as well…
This is why he’s a one term Governor.
I should actually say, what conservatives?
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p>You mean, the ones that can’t muster up a handful of candidates for this election? They are so many in number, that they can’t even get a candidate for the Registrar of Probate…
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p>Not paying homage to conservative sites being an indicator of being a one term governor. My oh my that’s amusing. There’s a lot of things that might indicate one would be a one-term wonder, but this…this just ain’t it.
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p>If I were the Guv, I wouldn’t near Red Mass group with a 10 foot pole. Who wants to wade into the muck to have unfair abuse heaped on you? I sure as heck wouldn’t.
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p>(And yes, I know I am feeding the troll. Again. ~sigh~)
Actually I wouldn’t be proud at all that my political system has degenerated into a ONE party system. Wasn’t that the cry of Adolph Hitler? The ONE party system? Or Joeseph Stalin, for that matter where any dissension was met with either execution or a one way ticket to a gulag and never to be heard from again? Is that your goal Lynne? Is that what your “professors” have taught you? Do you rejoice that virtually all of the “candidates” on the ticket in The Peoples Republik of Massholechusetts are of the same party and almost totally unchallenged? While you may have been brainwashed to think that this is “correct” , there are still a few Americans left here that don’t believe in “One party totalitarianism ” . They post on RMG and I would think deserve a post from their “Governor” ..don’t you agree?
…feeding…attention-starved troll…
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p>(Don’t get water on it…or feed it after midnight…)
I must finally come out and really say it…yes, I am a Nazi. I have been outed! (NSW)
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p>Always good to revive the classics…heh.
You are too funny.
So I need some sort of explanation of your sig line. I know about the Great Vowel Shift of course, as I was a Brit Lit buff. Am I just being obtuse and you’re just making a simple joke? Or is there more context? LOL
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p>I need something to think about other than economic policy. Heh.
Thanks and congratulations for showing good taste.
Say if your really feeling this much distress about the Massachusetts way then maybe you should move to New Hampshire (oops no that went blue too) How about Alaska you can go hunt moose and race snow mobiles Wow hot time tonight ah Jack
is getting her ass kicked in the polls by the Repub . Don’t count NH out just yet. There are still plenty of Americans left up there to fend off the Masshole Bolshevik invasion.
More bad news, it is going to go for Mccain too.
Socialism just doesn’t cut it in NH…at least not yet
When was the last time you voted in a primary with multiple republicans to choose from on a ballot? Bottom line, the MA GOP gives you no choice, they give you their candidate and tell you to vote for that person. Wouldn’t it be nice to actually hear a few Republicans debate issues and you could actually choose someone during a primary?
It’s hard to get one, let alone two to try and run against the entrenched corruption and career politicians that have run up over a one BILLION dollar deficit here in The People’s Republik, commrade.
For many years, the voters were at least wise enough to have a Republican in the corner office to let the people know “Hey, the career solons on Beacon Hill are getting ready to screw you again!” At least we had a “whistle blower”
It was like having someone reliable say “get out of the street, there’s a T bus coming ( with probably a stoned hack that’s related to a pol driving it) and you’re about to get killed.” Now you don’t even see it coming thanks to Teresse , Sal and Deval
Wow this one party State is a friggin disaster. One party system works great, doesn’t it?
Godwin’s Law. 15-yard penalty. First down.
under the handles of Tom’s Opinion and Asa Bearce has the proud distinction of being welcomed at neither Red Mass Group nor Blue Mass Group.
Here is the link to the audio:
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p>http://audio.wrko.com/m/audio/…
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p>If the “bailout” becomes the Federal Mortgage Resstructuring Commission [FMRC] potentially, the “bailout” could lead to a recapture or return.
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p>I especially appreciated that:
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p>1. No golden parachutes.
2. If a mortgage restructure was at a lower size mortgage and the home was sold for more than assessed by “FMRC”, then the federal government is entitled to a claw back.
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p>If you did not catch this interview with Barney Frank, I strongly suggest listening to it – I have twice so far in addition to catching it live this morning before heading out to a residential school in Walpole for a Ward of the Court’s IEP meeting
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p>Off Topic aside – [We GALs go everywhere and NO we don’t get reimbursed for travel or paid for travel time – please! Public service is supposed to be as comfortable for the public servant as a hair shirt. Isn’t that the New England Way?]
that this catastrophe was imminent? Like he didn’t know that there was enough “bad paper” being held by Fannie and Freddie to sink the banking system??
…That Fannie and Freddie were awash in bad debt for YEARS?
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p>He should be censured for negligence and removed as the Chair of the House Finance Committee . If anyone was in a position to see this coming it’s Barney Frank…..yet he said NOTHING.
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p>Let’s get someone in there that knows what they’re doing
In 2002 and several times thereafter Dr. Paul of Texas warned of coming economic disaster in the mortgage market policies. He was ignored. Do a google search for the speeches.
The corporate chieftons don’t tell the government what to do when the governement is bailing these idiots out.
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p>Bailout equals regulation. Don’t tell the taxpayer how you will spend our money. You people screwed our retirement savings up royally. NO GOLDEN PARACHUTES FOR YOU!
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p>You corporate robber barons are lucky there is a system of justice. The people you’ve screwed over wouldn’t have much sympathy for you!
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p>Thank You Governor Patrick for being objective. That is why you are a leader!
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p>If these corporate robber barons can be prosecuted criminally and put behind bars, I say go for it!
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p>
You helped cause this problem while on the Board of Ameriquest. You profited from subprime loans that people could not afford. You have a mansion in Western Mass that you were able to purchase because of the money you made from Ameriquest.
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p>You caused the problem now you want government to bail your mess out. Doesn’t exactly sound like non-ordinary leadership to me.
That he was hired there precisely for his reputation of cleaning up these sorts of messes.
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p>Just keep ignoring facts, it makes you look real smart.
You’re just making yourself look ridiculous. This is a reality-based blog, not a place for Howie Carr talking points. If you want to be taken seriously, rather than just laughed at, provide facts, links, and a sensible argument.
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p>It is sort of fun to have you around though. Just to remind everyone why the Republican Party in Massachusetts is in the dire state it is.
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p>By the way, what number comes after 9,918?
Yes. It was all Governor Patrick’s fault, lol. He single handedly brought economic ruin to the US economy.
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p>Please get a clue and act like you’ve received an education. Or at least buy some originality instead of posting the same comment 3 times in one thread.
I mean, look at this thread. Over 80 comments, most trying to grapple with difficult and unfamiliar issues, and trying to think constructively about a solution. And here comes EaBo saying that it’s Deval’s fault. Utterly pathetic.
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p>It’s really no wonder that the Massachusetts GOP has been relegated to third-party status.
Just sayin’.
Whereas the taxpayer effectively puts up the money and pays the difference between the debt purchase and liquidation, it might be good to define which taxpayers foot the bill.
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p>My vote is for the Capital Gain taxes. But do it in such a way that is fair, yet retains incentives for investment. One way to accomplish that would be to define the tax rate for Capital Gains to be 10% less than the tax rate paid on total income, including the capital gain. The result will be that every investor gets a 10% break on Capital Gains, unlike the break that is so weighted toward the high income taxpayer today.
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p>A simple way to accomplish this would be:
1) Calculate tax based on total income, including long term capital gains.
2) Calculate the percentage of total income from long term capital gains.
3) Calculate the amount of total tax attributed to capital gains
4) Provide a tax credit of 10% of the amount of tax otherwise due to capital gains.
http://www.cumber.com/commenta…
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p>I know both sides want to throw blame pie around here until the cows come home, but just get this done. Consequences are too great folks.
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p>BTW, anyone pick up on the Lehman Bros. angle and disfunctional Fed decisions? Might want to consider why we only have 5 sitting on a 7 person Fed Board of Governors (where significant matters require a 5 out of 7 vote, and thanks to Chris Dodd blocking even bringing to a vote any nominations for the last year has created a UN Security Council style veto scenario with the Fed). Afraid economic history won’t treat Dodd so favorably in the future.
Rushing into this decision with out safeguards and as Senator Dodd stated there is no second plan this is it would then be just as foolish as the last 8 years have been that brought us to this point.
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p>I would ask you if this fails and the rest of the world the Chinese and Saudi’s feel they still do not want to lend to the US because lets say interest rates are to low or they feel we are still to big of a risk because we are all in THEN WHAT??? We are talking about a total restructuring of our Finacial economy the heart of our capitalism and you want to take a Jack the Ripper approach. Look yes the markets could drop to 10,000 we have rebounded from bigger holes in the past investers may be cool in lending to us they will return. This is likely any way but, a well crafted well thought out plan that we can sell long term is more likely to win more friends and thus future investors then trying to make every current investor and Wall Street executive whole. They created and participated in this problem just as much as Main Street did why then would you support giving them everything and giving the average Joe whats stuck to the heel of your shoe. It is time to take a deep breath and get it correct.
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p>Just my opinion
not exactly enthralled here either with this bailout. However, given the alternatives (and I agree that we need to extract a pound of flesh) we don’t have a choice but to proceed quickly. 10-15% unemployment ain’t going to help anyone out.
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p>On one hand, a perceived crisis with the ultimate downside risk being a virtual cessation of credit, a resulting major recession with asset deflation, unemployment, equivalent, some say, to the Great Depression, taking years to recuperate.
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p>On the other hand problems such as homelessness, education, health care, job training and foreclosures, all at near or superior to historic normals, and you seriously can’t make peace why one requires quick, one week action, and bold action and the other, not?
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p>You “cannot make [your] peace with that? Is that serious or rhetorical?
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p>It’s entirely serious. It’s all too human (dare I say compassionate?) to marvel at the alacrity with which Henry Paulson rushes to the defense and credit of Goldman Sachs et al, while simultaneously decrying the slow crawl towards social justice for people living on the streets. Or did you think the Governor was being manichean? That’s your gig, baby…
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p>There’s no choice here. There doesn’t need to be, is the Govs point. I’m all for finding money at a moments notice… without condition and without regard to the plight of the needy. If John McCain were to approach me on the street asking for spare change… I’d give it to him.
For using Manichean in a blog post!
That his posts happen to coincide exactly with the Bush administration talking points is pure coincidence. Really.
I’m very sure that my posts really don’t coincide with the Bush administration talking points., so I have to ask what you mean.
Not only are you one of the few people I know of who’s bought the Paulson/Bush strategy hook line and sinker, you’re attacking Barney Frank for questioning it.
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p>At some point you have to stop being only a Republican and start acting like a human being. Blaming the crisis on the people who took out the loans is typical, but ultimately ends up being just a variation on “let them eat cake.”
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p>Again, you’ve confused me with someone else. And I’m criticizing Barney Franke FOR accepting it, and then going a step further to hang Christmas tree lights on it.
is the perhaps deliberate blindness to the fact (and yes, it’s a fact) that homelessness, education, health care, you name it, (1) could all be taken care of with a lot less than $700 billion, and (2) are also significant economic issues that affect American prosperity across the board. You really think health care isn’t a serious economic issue? What rock do you live under, anyway?
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p>I mean, don’t you find it the least bit surprising that no one seems at all worried about where we’re going to find $700 billion — the debate is all over what do with it? And yet, whenever anyone talks about doing something about the other issues you mention, it’s always, oh God, where are we going to find the money, tax and spend, the sky is falling.
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p>Disgraceful is a word that springs to mind. Patrick is quite right to be troubled by what’s going on.
The Brinks heist was nothing compared to this. Bloomberg framed it well yesterday. Little wonder Goldman wanted to be part of the heist. The people in Washington, who were supposed to be our elected representatives, are no more than accessories. Seems as though 56 votes will be guaranteed.
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p>You want something from the government? You don’t think that $700b is really the bottom line, do you? When does the government give you the real cost? I’ve seen some estimates at $5T. An inflation/tax yoke upon the people of the United States for generations. Just forget all those “costly” social programs, we got billionaires to bail out.
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p>Welcome to serfdom.
Are they going to vote for it? Do they have alternative plans?
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p>My polling of people on the street (soccer fields..) is people don’t seem to care that much about it. I can’t believe it but it appears to be true. They sort of know about it and have some vague idea of what’s going on but they are basically “tuning it out”.
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p>Why? Maybe it’s too complicated. Maybe it’s too depressing. Maybe it hasn’t hit them yet. I don;t know but there is not the attention being paid to it which it deserves by common folks.
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p>David, regarding your comment about this $700B could fix all those social issues… I agree. People don’t think “logically” about numbers and issues like this. As I said above, this issue is out there but not dominating the public “chatter” like Sarah Palin’s daughter or other “less significant” issues.
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p>And I don’t know why.
The other perspective is that you have an asteroid aledgedly heading toward earth. The government steps up, and in one week says, here’s $700B to stop it. A lone governor steps forward and says
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p>”What bothers me most is that we rarely see this sense of urgency when it comes to the suffering of ordinary people. It took less than 24 hours to find $85 billion to
shore up AIG and the investment markets.Andonly a few days to come up with a broad-based plan for$700 billionto shore up the financial markets.to stop the asteroid. Yet when it comes to homelessness, education, health care, job training, foreclosures, or anything else having to do with helping ordinary strivers, the response is always “how are we going to pay for it?” I cannot make my peace with that.”<
p>Perspective. It’s like a guy at a raging fire lamenting the lack of a remedy to climate change.
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p>If the crisis is so great, and if the crisis isn’t averted, then who do you figure will take the bigger shaft, the rich or the ordinary people. A hint: not the rich.
I’m really starting to wonder whether the crisis is so bad. I mean, here we are several days after AIG. There’s no bailout yet, and no clear indication that we’ll get one anytime soon, yet no one else has failed. Goldman and Morgan are all set — they’re bank holding companies now, and Buffett is investing. Lots of other big outfits like Citi are doing OK. The stock market seems basically stable. Yeah, there are issues to work out. But this ain’t no freakin’ asteroid heading for earth. That’s the kind of alarmism that leads to dreadful policy. Thank goodness Congress (at least so far) is not going along with it.
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p>The very essence of my posts.
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p>Which is there reason I analogized it to an alleged asteroid. Read, man.
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p>However, if you have any interest at all in my opinion: Administration will push this through and Congress will rollover, with Congress getting some irrelevant add-ons. BECAUSE, i) if Congress votes no and the economy crashes, Congress killed the Aministration’s economy saving idea ii) if they vote yes and the economy soars, they saved the day iii) if they vote yes and the economy crashes they did their best. They’ll ultimately vote YES (IMHO) because there’s less political downside.
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p>And of course the YES vote, they’ll justify with some Christmas lights: CEO pay limits, maybe some equity, maybe some foreclosure relief: tiny bells and whistles.
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p>P.S. On the downside, there’s are some bad inside info brewing. A couple of recent bond issues haven’t failed, but are issuing at a much greater discount (i.e. higher rate) than we expected.
Too many comments in too many threads. Can’t read ’em all.