Early Retirement & Financial Independence Community

Early Retirement & Financial Independence Community (https://www.early-retirement.org/forums/)
-   FIRE and Money (https://www.early-retirement.org/forums/f28/)
-   -   Do you want to pay for the Sub-Prime freeze? (https://www.early-retirement.org/forums/f28/do-you-want-to-pay-for-the-sub-prime-freeze-31601.html)

jimhcom 11-30-2007 12:59 PM

Do you want to pay for the Sub-Prime freeze?
 
The Treasury Department is getting ready to stick the taxpayers with the bill for the Sub-Prime fiasco instead of letting the banks and irresposible borrowers take responsibility for their actions. The deal is to freeze interest rates at their teaser rates and have the goverment pay the banks the difference. This is a corrupt deal and the taxpayers should be outraged. This whole concept is wrong on multiple levels. It's moraly wrong, it adds hundreds of billions to the already back breaking Federal debt, it penalizes the responsible and rewards the irresponsible, and it interferes with the natural buisness cycle which is what caused this mess to begin with. If this angers you as much as it does me please write your Congressman, Senetor and the White House and raise hell. Otherwise the corrupt will just shove another raw deal down our throats.

ziggy29 11-30-2007 01:04 PM

The real problem here is lack of oversight and sufficient regulation BEFORE this mess started.

The Fed and the government are between a rock and a hard place here. If you let the irresponsible lenders and borrowers off the hook and bail out Wall Street, you not only reward unacceptable risk-taking with a taxpayer bailout, but also stoke inflation AND continue to let the dollar go down the toilet.

If you stand firm and tell them to lie in the bed they made, you likely trigger a horrible recession which will take the jobs (and retirement income) of millions of innocent people down with them.

Both options suck. The real problem was lack of oversight and regulation BEFORE all these stupid, risky loans were made.

brewer12345 11-30-2007 01:08 PM

Ummm, do you actually have any clue what you are talking about? Doesn't seem to be the case.

twaddle 11-30-2007 01:13 PM

Clue us in, brew. Looks like the banks will agree to be the bag holders. Not clear to me this will be a win for the banks.

And will this stop underwater home owners from sending the banks some jingle mail? It might slow down the default rate and stretch it out a bit more.

Which is better, a long slow death spiral, or a quick painful death? :)

aaronc879 11-30-2007 01:24 PM

I've never believed that bankruptcy should be an option. If you borrow too much money and sign a contract then you and you alone should be responsible for fullfilling that contract. If you default on your mortgage you should lose your house. The average taxpayer shouldn't half to pay for others peoples mistakes. It's not the banks fault. I can offer you a loan for 15%. That doesn't make me a criminal or an immoral person. It makes me a good business person if I can find people to sell that rate to.

If you owe money, pay it back based on the contract you signed or face the consequences which in this case should be forclousre. Don't expect other people to bail you out because you made a bad decision.

I recenly made a bad decision to co-sign on a friends apartment. My "friend" won't pay so now i'm contractually obligated to pay rent thru next may. It sucks, but I signed a contract. I'm not looking for other people to bail me out. It was my mistake.

brewer12345 11-30-2007 01:31 PM

Quote:

Originally Posted by aaronc879 (Post 583284)
I've never believed that bankruptcy should be an option.

Ummm, you do know that US laws were originally written in part to allow defaulting debtors to have other options than debtors' prison, right? What would you like to do with those who default? 40 lashes and a year of hard time?

twaddle 11-30-2007 01:32 PM

Put yourself into the home owner's shoes.

If you saw houses appreciating at 10-20% each year, and somebody offered you 100% financing with a low teaser rate, what would you do? Is it hard to imagine some people taking that deal? Unlimited upside and no downside from the borrower's perspective.

And the banks thought they could shed the risk to investors. In part, they did, and investors were fools. But now the fed is saying "hey, banks -- let's keep the teaser rates you offered to those folks who shouldn't have been given a loan in the first place!"

brewer12345 11-30-2007 01:37 PM

Quote:

Originally Posted by twaddle (Post 583276)
Clue us in, brew. Looks like the banks will agree to be the bag holders. Not clear to me this will be a win for the banks.

And will this stop underwater home owners from sending the banks some jingle mail? It might slow down the default rate and stretch it out a bit more.

Which is better, a long slow death spiral, or a quick painful death? :)

Nobody really seems to know the details of what is being discussed. I suspect that the treasury is trying to broker a deal between the banks, the servicers of securitized loans, investors in securitizations, and other interested parties so that everyone comes to an agreement about how modifications will be done.

There are plenty of borrowers for whom modifications will not make any difference. These folks are headed for the sheriff's auction. But there are plenty of others who planned to refi before their hybrid ARM reset and cannot do so since the mortgage market is shut down for all but the cleanest borrowers. So a modification that simply extends the existing fixed rate for 3 to 5 years will allow these borrowers to keep up with their payments long enough to pay down the mortgage, sell the house in a non-stressed market, or refinance when the mortgage market unfreezes. Who does this hurt? Not the gummint or taxpayers, since they have nothing to do with it. Those taking the hit will be securitization investors who see prepay speeds grind to a halt and banks who see prepay speeds drop and possibly lower spreads. But they get an offsetting gain by not wrecking the housing market even more badly.

The gummint isn't going to "make up" the interest payments that are foregone. I fnd that to be a bizarre statement.

lets-retire 11-30-2007 01:44 PM

I don't think (I know many of you will stop reading right there and say, "Yup he got that right.;D") the banks should be bailed out. With that said I think it will happen. What I think should be done, if they are going to do anything, is instead of freezing the interest rates allow for a small increases, say less than 1 or 2%. By doing this it allows the government to not be completely on the hook for foolish buyers and allows the buyer's to feel some of the pain without fully holding them responsible.

tryan 11-30-2007 01:45 PM

Is there a better link than this:

Banks, U.S. near deal on mortgages - Mortgage mess - MSNBC.com

Nothing in there about bank-welfare ... seems to me that would be impossible to implement since the notes have been packaged and resold a handful of times ... bonds should have been discounted by now. Horse is out of the barn ... it seems.

Also, imagine the class action suit by all those who have already been plowed under. The second mouse gets the cheese!

Freezing the rates would only prolong the inevitable ... I'll take the quick death; where's there's chaos there is opportunity!! But wait, a slow death would give me more time to position ... hmmmm.

twaddle 11-30-2007 01:46 PM

As brew explained, nobody is talking about a government bailout. That won't happen unless we see banks and the GSEs closer to failure. Well, it may have already happened for Countrywide, but that's different. :)

brewer12345 11-30-2007 01:49 PM

Quote:

Originally Posted by tryan (Post 583293)
Is there a better link than this:

Banks, U.S. near deal on mortgages - Mortgage mess - MSNBC.com

Nothing in there about bank-welfare ... seems to me that would be impossible to implement since the notes have been packaged and resold a handful of times ... bonds should have been discounted by now. Horse is out of the barn ... it seems.

Freezing the rates would only prolong the inevitable ... I'll take the quick death; where's there's choas there is opportunity!! But wait, a slow death would give me more time to position ... hmmmm.

The bonds are definately discounted, and then some. But that's not the point of modifications. Its to keep more loans from going bad and keep the housing downturn from becoming even more severe.

I think that the housing market will be messy enough that there will be bargains aplenty for all interested parties. I'd prefer that there actually be enough solvent banks left to lend me money against all those low priced properties when it comes time to buy.

ziggy29 11-30-2007 01:54 PM

Quote:

Originally Posted by twaddle (Post 583294)
As brew explained, nobody is talking about a government bailout. That won't happen unless we see banks and the GSEs closer to failure. Well, it may have already happened for Countrywide, but that's different. :)

Not as such, but why would the government need to "broker" something with the banks unless they were giving the banks something in exchange for "holding the bag?"

It may not be a direct bailout, but it could be something as "simple" as promises in steering monetary policy in a way that makes it less painful.

twaddle 11-30-2007 01:59 PM

Basically, the banks aren't staffed to handle a mess of this scope. Without coordination between all of the players, it would play out in a very ugly manner. The government is doing what they should be doing: coordinating everybody for a smooth unwinding. In the worst case, we may still see some bailouts, but this is probably a step in the right direction.

jimhcom 11-30-2007 01:59 PM

If your argument is that to make the banks and bad borrowers sleep in the bed they made will cause recession then you have to ask yourself what is wrong with recession? Recessions are a natural part of the buisness cycle, they are called corrections because things need correcting. In good times people tend to take on more debt than they can pay, assets are over appreciated, and lenders get sloppy, recessions bring everyone back to reality. The more you interfere with the natural cycle the more problems you cause. The current problems were caused by the Feds intervention in the 2001 recession. Trying to fix this recession will have negitive results down the road.

brewer12345 11-30-2007 01:59 PM

Quote:

Originally Posted by ziggy29 (Post 583296)
Not as such, but why would the government need to "broker" something with the banks unless they were giving the banks something in exchange for "holding the bag?"

It may not be a direct bailout, but it could be something as "simple" as promises in steering monetary policy in a way that makes it less painful.

Might want to loosen your tinfoil helmet.

First, it is the treasury secretary who is doing the brokering, while the wholly independent Federal Reserve OMC that sets the fed funds rates. So the Sec Treas does not have the ability to make any interest rate promises.

Second, a deal would need to be brokered because all of the affected parties have their own interests to protect and these interests are often in conflict. Left to their own devices, probably nothing would get agreed to on the securitized loans (where most of the particlarly troublesome ones are).

Third, banks are not being forced to "hold the bag." Banks do loan work-outs all the time because they are well aware that a less profitable but still performing loan is a lot more attractive than a bankruptcy/foreclosure process.

brewer12345 11-30-2007 02:00 PM

Quote:

Originally Posted by jimhcom (Post 583301)
If your argument is that to make the banks and bad borrowers sleep in the bed they made will cause recession then you have to ask yourself what is wrong with recession? Recessions are a natural part of the buisness cycle, they are called corrections because things need correcting. In good times people tend to take on more debt than they can pay, assets are over appreciated, and lenders get sloppy, recessions bring everyone back to reality. The more you interfere with the natural cycle the more problems you cause. The current problems were caused by the Feds intervention in the 2001 recession. Trying to fix this recession will have negitive results down the road.

Let me guess: you have a Ron Paul in '08 bumper sticker on your car?

ziggy29 11-30-2007 02:07 PM

Quote:

Originally Posted by brewer12345
Might want to loosen your tinfoil helmet.

....

Let me guess: you have a Ron Paul in '08 bumper sticker on your car?

I see you've been making good progress on that Dale Carnegie course again. :2funny:

twaddle 11-30-2007 02:10 PM

Quote:

Originally Posted by brewer12345 (Post 583302)
Banks do loan work-outs all the time because they are well aware that a less profitable but still performing loan is a lot more attractive than a bankruptcy/foreclosure process.

I don't think they've ever had to do this many work-outs. :)

Talk about a growth industry! I want a piece of the large-scale algorithmic home loan work-out business!

ziggy29 11-30-2007 02:12 PM

Quote:

Originally Posted by twaddle (Post 583305)
Talk about a growth industry! I want a piece of the large-scale algorithmic home loan work-out business!

Not only that, but these "suspended interest rate resets" are only postponing the inevitable, not removing it. And all that will do is prolong market uncertainty.


All times are GMT -6. The time now is 01:02 AM.

Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.