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Welcome to the Democratic party..! You people who were determined to elect a used cars salesman got what you deserved.
Unfortunately, the rest of us are stuck with him too...!
LOL, 'cause the last 8 years have been sooo good, eh?
Location: central, between Pepe's Tacos and Roberto's
2,086 posts, read 6,848,852 times
Reputation: 958
What very few people understand is what will happen to future lending should this proposed legislation be enacted. Imagine you are an investor. You put $100,000 into some bonds earning 5% or so. Out of nowhere some bankruptcy judge decides that your $100,000 in bonds is now worth $50,000. Do you think you would ever invest in those bonds ever again? Do you think that you would have put your $100,000 into these bonds knowing that a bankruptcy judge could just decide that your bonds were worth half what you paid for them? Of course investing has risks, but the risks that investors use to model their strategies are based on market fundamentals, not curveballs like mandatory writedowns enforced by BK judges. How would you even model the risk on that? So let's say that pretty much all real money investors get out of the mortgage bond market. Who does that leave to buy up those FNMA, FHLMC, and GNMA bonds? Your ever vigilant federal government, that's who. Printing money out of thin air to purchase these bonds. The problem with that is that they have already spent over 20% of the $500 billion they've allotted to the quantative easing program. That money will likely be spent by year's end. Then what?
The answer is this. If noone buys mortgage bonds lenders cannot clear their books. You think the liquidity "crisis" was bad before? We would have a true liquidity crisis on our hands. You think lending is tight now? It would be non-existant. Funding lines of credit are finite, and many lenders are flirting with their limits as it is, which is why along with a personnel shortage they are tempering their rates at spreads of 150 bps between mortgage bonds and mortgage rates. This legislation will do nothing to help these people as many modification programs have shown (50%+ re-default rate per the OP, I have not verified that number but it is likely).
EDIT: I'm pretty sure there is a political forum. There is no need for a Dems vs. Reps argument here. Let's stick to the issue at hand here.
What very few people understand is what will happen to future lending should this proposed legislation be enacted. Imagine you are an investor. You put $100,000 into some bonds earning 5% or so. Out of nowhere some bankruptcy judge decides that your $100,000 in bonds is now worth $50,000. Do you think you would ever invest in those bonds ever again? Do you think that you would have put your $100,000 into these bonds knowing that a bankruptcy judge could just decide that your bonds were worth half what you paid for them? Of course investing has risks, but the risks that investors use to model their strategies are based on market fundamentals, not curveballs like mandatory writedowns enforced by BK judges. How would you even model the risk on that? So let's say that pretty much all real money investors get out of the mortgage bond market. Who does that leave to buy up those FNMA, FHLMC, and GNMA bonds? Your ever vigilant federal government, that's who. Printing money out of thin air to purchase these bonds. The problem with that is that they have already spent over 20% of the $500 billion they've allotted to the quantative easing program. That money will likely be spent by year's end. Then what?
The answer is this. If noone buys mortgage bonds lenders cannot clear their books. You think the liquidity "crisis" was bad before? We would have a true liquidity crisis on our hands. You think lending is tight now? It would be non-existant. Funding lines of credit are finite, and many lenders are flirting with their limits as it is, which is why along with a personnel shortage they are tempering their rates at spreads of 150 bps between mortgage bonds and mortgage rates. This legislation will do nothing to help these people as many modification programs have shown (50%+ re-default rate per the OP, I have not verified that number but it is likely).
EDIT: I'm pretty sure there is a political forum. There is no need for a Dems vs. Reps argument here. Let's stick to the issue at hand here.
That's exactly my point (although you write it more eloquently than me).
I just think we have a confidence problem with the mortgage back securities. 85% of people are paying their mortgages on time, never missing a payment (give or take last time I looked at that stats). But everyone is running scared. No one knows how to value these mortgage securities assets. I got what I think was a stated income mortgage loan a few years ago and I put down 20%. My yearly income is in the mid six figures range. Someone else might have gotten the same loan as me but lied and did not make the same money I did. Say BOA owns both of our loans. There's no way to determine who is the riskier borrower (obviously not me but the one who lied on their application). But BOA (or their investors) has no way to determine risks of the stated income mortgage assets. My mortgage would be valued at 100% since there is very little chance I would ever default. The other person that lied on their stated income and did zero down could have a very high chance of default.
The government cannot keep on doing patchwork bailouts. Pretty soon, all the private investors will leave the mortgage securities market if they realize the government can just dictate to them what their assets are truly worth instead of a free market. And guess what, the government becomes the dumping ground for all mortgages (FHA made up more than 35% of all loans in 2008 compared to 3% in 2005).
Either they bail out every homeowner or just let the whole system itself get rid of all the toxic assets. We can't let SOME homeowners write off their primary home's principal mortgage balance while ignoring others. I know they let BK judges let people reduce principal balance on 2nd homes but not primary homes. All the investors will leave the mortgage securities industry. My best guess is that it will take until 2011 or 2012 until the banks can truly determine what true value of their "toxic assets" Some toxics are worth 10%, some are worth 50%. I suspect the majority of the "toxic assets" are still worth close to 100% of their value but right now, the banks have no way to assess those values.
Location: central, between Pepe's Tacos and Roberto's
2,086 posts, read 6,848,852 times
Reputation: 958
Quote:
Originally Posted by aneftp
That's exactly my point (although you write it more eloquently than me).
I just think we have a confidence problem with the mortgage back securities. 85% of people are paying their mortgages on time, never missing a payment (give or take last time I looked at that stats). But everyone is running scared. No one knows how to value these mortgage securities assets. I got what I think was a stated income mortgage loan a few years ago and I put down 20%. My yearly income is in the mid six figures range. Someone else might have gotten the same loan as me but lied and did not make the same money I did. Say BOA owns both of our loans. There's no way to determine who is the riskier borrower (obviously not me but the one who lied on their application). But BOA (or their investors) has no way to determine risks of the stated income mortgage assets. My mortgage would be valued at 100% since there is very little chance I would ever default. The other person that lied on their stated income and did zero down could have a very high chance of default.
The government cannot keep on doing patchwork bailouts. Pretty soon, all the private investors will leave the mortgage securities market if they realize the government can just dictate to them what their assets are truly worth instead of a free market. And guess what, the government becomes the dumping ground for all mortgages (FHA made up more than 35% of all loans in 2008 compared to 3% in 2005).
Either they bail out every homeowner or just let the whole system itself get rid of all the toxic assets. We can't let SOME homeowners write off their primary home's principal mortgage balance while ignoring others. I know they let BK judges let people reduce principal balance on 2nd homes but not primary homes. All the investors will leave the mortgage securities industry. My best guess is that it will take until 2011 or 2012 until the banks can truly determine what true value of their "toxic assets" Some toxics are worth 10%, some are worth 50%. I suspect the majority of the "toxic assets" are still worth close to 100% of their value but right now, the banks have no way to assess those values.
Actually that number is much closer to 94%. The national delinquency rate as of this month I believe was around 6.4% or so.
In all fairness, the reason the FHA numbers were so low during the boom is because lenders have to actually underwrite FHA loans. We must document that the borrower has the ability to pay the loan back. Subprime loans had no such requirements, so the borrower that should have used FHA and bought a $125,000 home used a stated income subprime loan and bought a $250,000 home instead. In the mid to late '90s the percentage of FHA loans originated vs. others was at least in the teens if not closer to 20%. It may have been higher in the '80s, but the further back I look the harder the info is to find.
What riles most people up is the injustice of positively reinforcing poor decisions by modifying the loans of homeowners who made foolish choices and now expect others to bankroll their lifestyle.
How about the idiot bankers who made such loans? Why is it ok to protect investors by bailing out these massive banks, but not ok to help people in bad mortgages?
Of course, we can let them all drown - and where does that put us? The next great depression.
Personally, I'm tired of hearing the Republicans whine - they had 8 years to mold policy and we see how great lack of regulation turned out. I don't know if the Democrat's strategy will work or not, but at least its an attempt to do something. The Republican party nowadays is the party of "no" and "nothing".
The cost of the war in Iraq alone has reached about 600 billion. Republicans have no standing to whine about spending.
Seems like someone wants someone else to pay their mortgage... its not okay to protect investors and its not okay to bail out people with bad mortgages... and here is the biggest kicker.. TWO wrongs don't make it right... something you think it does... of course its not just your money you are asking to be used to bail out irresponsible people...
Seems like someone wants someone else to pay their mortgage... its not okay to protect investors and its not okay to bail out people with bad mortgages... and here is the biggest kicker.. TWO wrongs don't make it right... something you think it does... of course its not just your money you are asking to be used to bail out irresponsible people...
So, you prefer the long term depression option? You realize the cost is higher in terms of lost productivity in the long run as it will be quite some time before the market corrects on its own... read: years. We've already seen a dramatic contraction of private consumption lead to mass layoffs, and it doesn't stop until SOMEONE restores demand (which can't happen until people are put back to work)... high unemployment would be the norm for the next several years. It is a downward spiral. The snowball is already rolling.
This recession isn't of the post-WW2 variety that can be stimulated by lowering the prime rate (which works on the same basic premis as deficit spending - increasing the money supply). This is more like the recessions/depressions of the pre-WW2 variety. Even besides the Great Depression, large depressions back then tended to linger for several years. Ironically, part of the reason post-WW2 recessions DONT last as long as pre-WW2 recessions, is the Keynesian philosophy that government ought to take up the slack in private consumption by spending - even if it results in severe deficit. There is a net gain overall as otherwise unproductive resources are put to some good use. An unemployed person has zero value to the economy. That same person employed in virutally any fashion by the government (in deficit) stimulates demand through his spending for living necessities... necessities served by private enterprise. ONLY in the presence of that demand will private enterprise initiate hiring, and the economy turn around. Anything the formerly unemployed worker actually does in his stimulus job is just icing. The point is simply to put people to work and get them spending on private goods again, so the private sector can start hiring again.... and soon evaporate the need for the stimulus jobs (thus why they are short term jobs).
PS - I don't need anyone to pay my mortgage. My household income is well over 100k and I chose to rent because homes were over valued. Do I want to help out those who made dumb decisions (buyers and lenders)? Certainly not... however, their stupidity has now endangered everyone elses livelihood. If government stimulus (the exact nature of which can be debated) serves as a the best tool available to ensure that the mess does not continue to snow ball... I'm all for it... and it is a net gain for the economy as a whole.
Prudent policy blunts both the highs and the lows... this is WHY one of Clinton's priorities was to eliminate the deficit and pay down the national debt during the 90's boom rather than hand out tax cuts as Republicans demanded (which would have led to an even larger .com bubble crash - you DONT expand money supply in good times)! Government spending to take up slack during the lows, and contraction of the money supply during the highs in order to prevent asset bubbles. Unfortunately, the Bush administration was asleep at the wheel. I personally read economists who were forewarning of a bubble in real estate as early as 2004. Alan Greenspan even commented on it. But no, Bush's "ownership society" (remember that push?) and typical conservative laissez faire regulation failed to put on the brakes when it would have mattered.
You ought not hate on Democrats for battling recession by expanding the money supply, when it is Republican failure to contract money supply in times of plenty that is the root cause of the recession. ALL bubbles eventually burst. Low taxes and low government spending is the best LONG term solution to promote economic growth given a relatively stable economy. However, those same philospohies will see you mired in long depression cycles if the money supply is not wisely controlled to prevent asset bubbles - and are downright counter productive (or inefficient at best) should such a bubble occur and burst.
Apparently Republicans forgot about Econ 101 while they were out trying to get their free lunch. The only entity capable of restoring normal demand right now is government. In all honesty, the stimulus bill is too small, and mark my words... next year we will hear talk of a second stimulus.
Last edited by DvlsAdvc8; 02-17-2009 at 11:05 AM..
They were fine for me. I live within my means. I don't by a 40 thousand dollar car when I can only afford a 15 thousand car.
I wonder if you were against the 600 or so billion dollars we wasted in Iraq as much as you are against the 700 or so billion dollars we're investing at home via the stimulus.
The bank and auto bailouts were loans ;not grants as I recall.I am fine with loans for those that can afford to pay them off but not cherry picking who among all homeowners gets to have the difference in value between then and now gets grants to reduce their losses. That is just what this would do. Instead of other buyers buying at the current market values it would reward those that committed even fraud by overstating their income to get loans they shouldn't have.Its like the government giving the money to the banks and big three as grants.
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