BartSimpson wrote:
About fifteen years back the Democrats went on the warpath against "redlining" which was the result of banks not lending to people who had bad credit and who lived in "blighted" neighborhoods.
While this is true, it's not ALL the Democrats' fault. The real crux of the problem started with CEOs maximizing short-term profit at the cost of long-term viability, primarily because of how their compensation package was structured. In order to achieve this, they worked with middle men who pressured banks to find some way to loan more money, to establish more mortgages. Loan officers were both pressured to deliver the maximum amount of loan and rewarded when they'd done so.
In order to deliver on this, the firms started inventing new types of loans such as low- or no-downpayment, interest-only loans. These loans were made with the idea that since housing had been in such a boom for such a long time, it meant that the value of the home would increase, and that's where all the equity would come from. It would all come due in (usually) 5 years, but hey, the national average time in one home is less than that anyway, and so it just means you sell it in a few years, take the equity as profit, and use it to finance another house purchase. Or just use it to finance into a long-term mortgage on the house you're in, if you can now afford it. Free money, right?
In the mean time, the middle men were buying up these loans by the truckload and turning around to sell them to organizations (and wealthy individuals through organizations) who saw what looked like a sweetheart deal: every penny paid to them over the course of those 5 years would be straight-up interest, nothing but profit. The loan officers were getting meager compensation bonuses, the middle men were getting rich, and the final holders were happy to rake in all this money the would-be homeowners were paying them every month. Heck, people who were well established already in their own homes with normal mortgages started buying up condos and houses as investments under this scheme, and lots of people started thinking they could get rich "flipping" houses using these low-standard, low-payment types of loans. Everything was just peachy. The only thing that could cause any kind of problem was if these people who were buying houses they could never afford normally (not even in theory) didn't manage to sell for a profit after a few years. But that could never happen, right?
Along comes a glut of supply, skyrocketing oil prices, and a general economic slowdown after several years of a quiet boom, and...crap, I can't sell my house, and I'm totally screwed now. The middle men don't care. They made their money already. It's between the homeowners and those holding the loans. Those holding the loans want nothing to do with the unsellable houses themselves, useless inventory that has to be managed and maintained. They just want their money.
But when a handful of people started defaulting, that only added to the glut of empty houses. And banks started having less actual liquid money to loan, so it became harder for people to buy those empty houses and condos. Which meant that more and more people were unable to find buyers for these houses they couldn't afford themselves. Which meant they ended up defaulting on these mortgages. Which added yet further to the glut of empty houses, etc, etc, etc,
ad nauseum.
Now you've got a bunch of people responsible for making payments they can't afford on properties that aren't worth it even if they
could afford it.
And all these massive institutions who have been on a mortgage bender and demanding more, more, more all the time, driving up short-term profits and their own stock ratings, generating more money in compensation for the execs, all these institution are left holding what have suddenly become worthless pieces of paper. All they have to show for it is overvalued real estate that nobody can afford and nobody will loan to those who could, and those who could don't want it at the overvalued price.
Thus the meltdown of all these financial institutions. These bailouts may be a necessary evil to prevent this market correction from becoming a full-blown depression on a massive scale. Hopefully in the end, things will level out, and the Fed will end up making a profit. But Paulson's plan reeks to me, as it is. He is against capping compensation to these high-flying executives who caused this mess in the first place and have made hundreds of millions of dollars over the last few years. He says he wants to "avoid punitive measures." Here's a news flash, jackass: they ran their companies into the ground and sent them to the brink of belly-up. They don't "deserve" and have not earned their massive bonuses.
Serious reform is required. These "progressive" steps Clinton pushed through to force loans to people who either don't know how or don't care (or both) to properly manage their money and their credit simply due to the color of their skin or which part of town they live in, these steps must be reconsidered and likely repealed. We must find a middle ground between ultra-conservative lending and full-on wild west lending like we've seen before, and set a reasonable floor to keep things from getting so far out of hand. If a company is so big that its failure would cause such a problem that the government must bail it out, then while I'm generally an advocate of hands-off, small government, I feel it's appropriate that reasonable compensation guidelines be established that keep executives from making decisions based on inflating their stock price as high as possible as quickly as possible with no thought to the long-term health of the company and the economy as a whole. In other words, a basic check on short-term greed in favor of long-term greed, which is vastly preferable. Additionally, I would insist that the Fed be continually selling back the ownership in these companies as these bailout loans are repaid, so that in the end the treasury gets our tax-payer money back and the market gets back to owning and running business--something I have little confidence in the government doing over any long term.
dino_bobba_renno wrote:
Even if you are lending to people with good credit when you take into consideration the fact that there are people who are getting mortgages for $400,000 plus over 40 years with 5% or less down you're just asking for trouble.
Not necessarily. It depends on how much they're making and what the housing market does over time. I bought my house for a hair over $165k (USD) a year and a half ago with a 30-year fixed-rate mortgage at 6%, I put 5% down, and at the time I showed an income of only $50k/yr. It wasn't a problem then, and making almost twice that now means it's even less of a problem now. If I were to suddenly suffer a massive decrease in income, I would still likely be able to pay it, though I would have to consider selling one of my vehicles and making changes to how I spend my money and live my life in general. The question is whether it's worth it to me to do so. That's a personal question, one that lately seems to have been answered by too many people in a way that shows a distressing lack of integrity, quality of character, and awareness of not only themselves but all those around them.
Quote:
There are people that I know who have $2500 to $3500 mortgage payments and they only make about $5000 to $6000 per month on a combined income. What happens if one of them gets sick or loses their job?
They sell their boat and take whatever steps they can to cut drastically back on their underlying expenses. In the mean time, they take a job no matter how degrading or demeaning or sub-optimal they may think it is. I don't care if it's flipping burgers for a shift and then screwing heads on dolls in a toy factory for a whole other shift before going home, sleeping, waking up, and doing it all over again. They figure
something out. One massive problem I have with this bail-out and the populist tone of BOTH of the current presidential campaigns is that we seem to have given up on the idea that YOU are YOUR responsibility, not your neighbor's. If you're on an escalator that breaks down, you walk the rest of the way, not call for help.
There's been a distinct downturn in self-sufficiency over the last 20 or 30 years (and more), and it speaks of an illness far more long-lasting and insidious than any temporary market problems. It's like a cancer that weakens a strong bull over time, until it's nothing more than a pathetic, sickly cow standing in a pasture, hanging its head, hoping someone comes to feed and water it. It becomes convinced that it's all it could ever do, that it's incapable of more, that it shouldn't have to be responsible for more, and that it's all someone else's fault. Yes, it may have started with the spread of the untenable concepts of communism and socialism that sound great on the surface (and even deeper to the naive and the blindly optimistic), and it's been pushed hard by the left, the Democrats in this case, as the sense of entitlement and victimhood has grown in the US. But the Republicans seem to have decided that they must embrace this same system of values (or the lack thereof, depending on your perspective) in order to regain power. And now we're stuck with Bush and his incompetent cronies like Paulson. And "The People" are demanding even more of what's been eating our foundation out from under us, abandoning the frying pan for the fire. And thus the problem with democracy: the dumbasses, the short-sighted, the selfish...they all get to vote, too.
Kjorteo wrote:
I make $11,000 a year.
Now here's the part of the story I don't like: As a taxpayer, I have to chip in to bail them out.
No you don't. You don't pay taxes.
Biron wrote:
Half the problem with this whole mess has been some very stupid regulations. Many pension funds are only allowed to hold onto AAA rated securities. If the securities drop in rating, even if they are still 'good securities', the funds are required to sell them. This further depresses the value, requiring more selling. "Buy high, sell low" has been used to describe this.
Idiotic.
CKA Uber 
CKA Uber 
