patrick.net

Anyway, nice article, I hate what they're planning to do - its really unfair! But bailouts are not socialism.

The main problem with socialism today is that guys like you have no real idea what it is/was and tag anything related to redistribution of wealth...

here's a website you might find interesting, I do:

http://www.capitalismwithoutfailure.com/

Capitalism Without Failure
Let's recap our recent financial crisis: 1. Rampant fraud, 2. Bailouts of the worst actors in the financial system, 3. Overwhelming debt and liability imposed on taxpayers, 4. Money printing on a scale that is destroying our currency, 5. Promotion of business leaders and policy makers who are seriously compromised, 6. Conglomeration of corrupt TBTF banks into a more empowered menace. Problem not solved. This time-bomb is still ticking. What is your plan?

Troy says

But unlike a hedge fund, this is intended to work on a mostly non-profit nature, to return stability to people’s lives by letting them out of the bad financial decision they made to buy more house than they could afford.

No, what this will do is encourage every single person who is upside down and planning on paying their mortgage to immediately stop their payments. This is a cash giveaway, and will create more deadbeats and defaulters as a result, costing far more in every aspect including worsening the problem they're trying to "solve".

ChrisLA says

Vicente says

As opposed to banks getting money by the truckload? Or looking the other way on Wall Street corruption? Or corporate subsidies? Oh right, it’s only an unfair bailout when it involves regular people.

What kind of logic is this? Who said I support bank bailouts?

It doesn't matter. If you oppose govt giving billions in taxpayer dollars to the most irresponsible and least-deserving consumers, somebody will rub it in your face that banks got a bailout, insinuating that you support it, tell you they were "given the money" (rather than a loan), and hence is an excuse for any reckless and irresponsible program which helps tank our economy and reward those who helped contribute.

Get used to it. It's what the sycophants use as a defense because there is no actual defense to use. Just lies and baseless projections.

ChrisLA says

Vicente says

What kind of logic is this? Who said I support bank bailouts?

Haven't seen you doing any postings entitled BANKER BAILOUT OUTRAGE!

Just reminds me remarkably of Rick Santelli, who reserved his outrage for his neighbors alone. At best he might *snort* very slightly at all the inequities and imbalances of finance and corporate misdeeds, but I haven't seen him ranting at length about them.

I'm against all assistance programs which don't force the banks to take a haircut in the process, by real principal reduction. I have nothing against assistance as long as it doesn't become simply another avenue for banker bailout. Pain should be equally spread.

Look at it this way, most of the people who get real assistance, are themselves sacrificing a real second shot at life. They will continue paying too much, for too much house, and living underwater as prices erode further. They could instead simply stop paying, live rent-free until eviction, then walk away and start afresh. That's what I would do, because I don't get stupidly sentimental about a house.

Conservatives and liberatrains only oppose bailouts when it goes to regular people. Plain and simple. I am sick of hearing lectures in fiscal responsibility from the same people who turned a projected $5.6 trillion surplus into a $1.6 trillion deficit.

HousingWatcher says

Conservatives and liberatrains only oppose bailouts when it goes to regular people.

I disagree with this somewhat. The original Tea Party organization came about to oppose the bank bailouts.

There is a principled argument to be made for government to not intervene in big finance.

This didn't work so well in the 19th century but it can be intellectually consistent.

Troy says

I disagree with this somewhat. The original Tea Party organization came about to oppose the bank bailouts.

Eh? If you refer to the Tea Party inspired by Rick Santelli, his major rant laid the blame at the feet of fellow loanowners:

SANTELLI: No they’re not, Joe. They’re not like putty in our hands. This is America! How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills? Raise their hand.

(Booing)

President Obama, are you listening?

I don't remember seeing any Tea Party protests in the street in the fall of 2008 during the bail outs.

^, no, the original Tea Party was partially motivated from the "Fed Up" protests that Karl Denninger got going in 2008.

http://maxkeiser.com/2010/10/21/denninger-tea-party-my-ass/

The Republicans coopted this in 2009.

I don’t remember seeing any Tea Party protests in the street in the fall of 2008 during the bail outs.

"The Great American Walk for Freedom will be ending at or around 11 AM at the Federal Reserve Bank in Minneapolis. If you are going to be in town, please join us in making a presence there. Let's chant "End the Fed! Gold is Money!"

http://tickerforum.org/akcs-www?singlepost=645910

This was from August 2008.

When are there going to be Tea Party protests demanding cuts in defense spending and an end to oil and farm subsidies? The funny thing is that the one main thing the Tea Party is against, the bank bail outs, technically did not cost the govt. any money since the money was re-paid with interest, resulting in a $20 billion profit.

Troy says

“End the Fed! Gold is Money!”

I don't feel like I'm nitpicking here, I can legitimately point out End the Fed is a separate group not named "Tea Party" anything. It may have intersection with some people in the Tea Party, but that is not the same thing.

The "Tea Party" I remember before that was Ron Paul inspired. Denninger did not have the platform, he could maybe get a dozen up to 100 people to show up at ANYTHING, I've seen some video of his bunch outside the Federal Reserve picketing and they were very few. I didn't find photos showing any Glenn Beck size mobs this was more typical:

Vicente says

Denninger did not have the platform to inspire more than a dozen people to show up at ANYTHING, I’ve seen some video of his bunch outside the Federal Reserve picketing and they were very few.

This is true but this group is what I was referring to here:

"I disagree with this somewhat. The original Tea Party organization came about to oppose the bank bailouts."

The Denninger movement was highly conservative and had more than a few Ruby Ridge-type whackjobs, but I considered them largely principled in their opposition to what was going down in 2008, well before Obama took the election.

I was actually a paid board member at KD's site during 2008 since I found his regular market update videos to be very educational.

Vicente says

I’m against all assistance programs which don’t force the banks to take a haircut in the process, by real principal reduction.

Why would you support principal reduction? You think that every selfish, bubble-buying, zero-down idiot deserves a de facto six-figure bonus check in their mail box?

Vicente says

They will continue paying too much, for too much house, and living underwater as prices erode further. They could instead simply stop paying, live rent-free until eviction, then walk away and start afresh. That’s what I would do, because I don’t get stupidly sentimental about a house.

So you don't believe in paying back loans made for purchases that you opted to make? You sound like an upstanding individual with integrity aplenty.

HousingWatcher says

Conservatives and liberatrains only oppose bailouts when it goes to regular people.

Regular people didn't buy a $600k house on a $80k income with a liar loan. Regular people don't expect taxpayers to give them large sums of money to pay down their principal balance and add to their bottom line profit when they sell. These people are the minority. It's not a libertarian tenet that irresponsible retards ought NOT receive six-figure rewards for their bad decisions. It's basic common sense.

HousingWatcher says

I am sick of hearing lectures in fiscal responsibility from the same people who turned a projected $5.6 trillion surplus into a $1.6 trillion deficit.

I am sick of people who make this a partisan issue. People who have no actual argument to make, so they'll throw George Bush into the argument and pretend they've made their point.

This isn't just about fiscal responsibility, it's about rewarding those who overspend at the expense of those who pay off their debts. There's a massive moral issue here, and a glaring moral hazard which will encourage people to stop paying their mortgage and fuel the number of foreclosures. Just as a practical matter, whether you agree with the plan or not, you have to admit it is entirely self-defeating.

Just as a practical matter, whether you agree with the plan or not, you have to admit it is entirely self-defeating.

The core problem here is that we as a nation borrowed $4T we can't repay:

http://research.stlouisfed.org/fred2/graph/?g=Ay

we can argue how much crash needs to happen, but it needs to be understood that this $4T is not going to come out of the wrong-doer's pockets.

That money is already gone. The $4T debt overload when liquidated is going to come out everyone's savings -- pension funds, insurance assets, everything.

We can play musical chairs with the 30% of homedebtors that are underwater -- booting them out, having specuvestors buy the place for pennies on the dollar, and then finding some former homedebtor to rent the place from the specuvestor -- or we can try to find some non-collapse solution that is overall more wealth-preserving than all that jazz.

No matter what we do, things are going to be bad.

thunderlips11 says

When businesses cancel contracts, including ones they took out loans to make, it’s called a smart business decision and is evaluated amorally. When members of the public do this with personal assets, all of a sudden morality comes into play.

That's because some people believe that individuals ought not mimic the behavior of those unsavory corporations that people are always complaining about for shitting on every person they touch. The more we act like them, the quicker this country is going to look like the land of Mad Max.

This shouldn't even need to be explained were it not for the plethora of zero-integrity individuals who believe "deadbeat" is the way to personal success.

thunderlips11 says

Yes, math autistics presented the idea to bank management, who loved the idea when they saw the potential bottom line and said “Let’s run with this! Offer no-interest loans to anyone who can fog a mirror.”

Your average, every day person didn't fall for this shit. Only the morons and those who were selfish enough to feed the frenzy did. Normal people pay their bills when they can, and end up paying the price for these assholes' behavior. To say that they deserve taxpayer money for their irresponsibility is absolutely ludicrous.

thunderlips11 says

I think that every dumb bank shouldn’t be allowed to hide behind mark-to-fantasy, and should be recording their loan assets relative to current market price.

+1

Failing to require principal reduction, is nothing more than another conduit to prop up banks. It also acts as a DRAG on real deflation in home prices. Banks still get to carry houses on their books as $400K or whatever fantasy bubble price they were in 2005.

Troy says

we can argue how much crash needs to happen, but it needs to be understood that this $4T is not going to come out of the wrong-doer’s pockets.

That money is already gone. The $4T debt overload when liquidated is going to come out everyone’s savings — pension funds, insurance assets, everything.

We can play musical chairs with the 30% of homedebtors that are underwater — booting them out, having specuvestors buy the place for pennies on the dollar, and then finding some former homedebtor to rent the place from the specuvestor — or we can try to find some non-collapse solution that is overall more wealth-preserving than all that jazz.

No matter what we do, things are going to be bad.

That money never existed to begin with. Arguably most of the housing correction has occurred (and, according to some, is "over"), and we're all still here. The bubble money came and went, and life goes on. So I wholly reject the notion that because there's a $4T wealth hole that we ought to throw gobs of money at bubble-buyers. They can either pay their mortgage like responsible people, or walk away. If we start offering cash to them, it's going to encourage way more people to default.

This is about populism. Give money to the deadbeats, hope that those who are paying (other taxpayers) don't resent it, and pray that it stops foreclosures. This will do the opposite. People of all colors and incomes will be furious, and foreclosures will skyrocket.

Vicente says

Failing to require principal reduction, is nothing more than another conduit to prop up banks.

You fail at logical reasoning and basic understanding of moral hazards. PR is an absolutely horrible idea. I can't believe that five years into this mess anybody is dumb enough to believe that's a correct approach.

klarek says

The more we act like them, the quicker this country is going to look like the land of Mad Max.

The LESS we act like them....

The LONGER we let them act like THAT.....

The quicker this country is going to look like Chile.

Applying "honor" if you will, unequally when it comes to money, only encourages the transfer of wealth to the groups on whom no social constraints are applied.

"What's good for the goose, is good for the gander".

klarek says

PR is an absolutely horrible idea. I can’t believe that five years into this mess anybody is dumb enough to believe that’s a correct approach.

principal converted to appurtenant liens is a good idea, I think.

It's not a giveaway, it's just a recapitalization of the loan.

This particular approach doesn't quite do this I guess, but if I were running things I'd look into how to get this done.

We could also just create some 2% financing vehicles with a trillion of new Fed-created money to help with affordability.

The money the borrowers borrowed is already gone now, the question is who becomes the bagholder.

The current default process just results in a lot of economic losses and also prime bottomfeeding opportunities for rent-seekers.

It is entirely broken, 5 years in.

Vicente says

The LESS we act like them….

The LONGER we let them act like THAT…..

Don't beat them, join them? Be a piece of shit banker? Maybe we should all be realtors too.

People like you implore other people to behave like savage deadbeats to justify your own behavior and deranged sense of how social justice will prevail. It's a sad statement for any individual who believes they have to be a low-lying sack of shit if they want to get by in this world. This is a lifestyle you are endorsing.

In the end, your fantasy would result in us living in a world where nobody can be trusted. Rather than being kind enough to lend a neighbor your hammer, he's going to realize the only way to use it is to break into your house, steal it, then crack you in your skull with it if you get in his way.

Vicente says

Haven’t seen you doing any postings entitled BANKER BAILOUT OUTRAGE!

You have not seen my emails and letters to Senators and Representatives. Patrick.net is not the only place I share thoughts on policies adopted by Congress.

Troy says

principal converted to appurtenant liens is a good idea, I think.

It’s not a giveaway, it’s just a recapitalization of the loan.

Principal deferment? Not very popular. Been tried, but pretty much rejected by strategic defaulters because it's not a direct line into their future profits. However, I have no problem with this concept in principle if it keeps somebody in a house they want and isn't a large burden on taxpayers.

Troy says

The current default process just results in a lot of economic losses and also prime bottomfeeding opportunities for rent-seekers.

It is entirely broken, 5 years in.

These things will just keep cycling through. If strategic default were the end of the world, or the losses unbearable, the govt could take extreme actions to deter people from walking away from a house payment they can afford. This could effectively end now were the correct punitive measures put into place.

klarek says

Vicente says

The LESS we act like them….
The LONGER we let them act like THAT…..

Don’t beat them, join them? Be a piece of shit banker? Maybe we should all be realtors too.
People like you implore other people to behave like savage deadbeats to justify your own behavior and deranged sense of how social justice will prevail. It’s a sad statement for any individual who believes they have to be a low-lying sack of shit if they want to get by in this world. This is a lifestyle you are endorsing.
In the end, your fantasy would result in us living in a world where nobody can be trusted. Rather than being kind enough to lend a neighbor your hammer, he’s going to realize the only way to use it is to break into your house, steal it, then crack you in your skull with it if you get in his way.

Reduction ad absurdum.

Has people defaulting on their houses NOW led to them bashing your skull in? No? Did the barbed wire and mines keep them out of your compound?

Most people can see the distinction here.

Vicente says

Has people defaulting on their houses NOW led to them bashing your skull in? No? Did the barbed wire and mines keep them out of your compound?

Most people can see the distinction here.

I'm talking about what you're advocating. You said that if we DON'T all do this, we're going to end up like Chile. How can you say that what I'm saying would result from your idealized solution wouldn't happen because it hasn't already, when your solution is nothing but a dream of yours, for people to start behaving like savage cannibals? There's a fundamental flaw in your logic right there.

Did I miss something? How does principal reduction result in people acting like savage canibals?

HousingWatcher says

How does principal reduction result in people acting like savage canibals?

Trace back upthread and realize we weren't talking about principal reduction. It started with my response to this comment:

"When businesses cancel contracts, including ones they took out loans to make, it’s called a smart business decision and is evaluated amorally. When members of the public do this with personal assets, all of a sudden morality comes into play."

klarek says

You said that if we DON’T all do this, we’re going to end up like Chile.

Chile is not Mad Max. Perhaps you have mistakenly jumped to the conclusion I meant that.

Chile is however #1 on the Income Inequality list. We are at #4. We seem to be doing everything we can to move up on that list.

HousingWatcher says

Did I miss something? How does principal reduction result in people acting like savage canibals?

Government can't simply pick a group of people and give them principal reduction at the cost to everyone else. They have to reduce everyone else principal/rents, otherwise it's a lashback of a lot more than moral hazard.

ChrisLA says

Government can’t simply pick a group of people and give them principal reduction at the cost to everyone else. They have to reduce everyone else principal/rents, otherwise it’s a lashback of a lot more than moral hazard.

Americans are adept at convoluted systems of gimmes and subsidies already. As HousingWatcher says, you haven't made any kind of case for principal reduction leading to cannibal anarchy.

ChrisLA says

Government can’t simply pick a group of people and give them principal reduction at the cost to everyone else. They have to reduce everyone else principal/rents, otherwise it’s a lashback of a lot more than moral hazard.

I don't know---is there a lashback against credit card abusers? Once their past due balance gets to the collection agency, they usually settle for pennies on the dollar. How is this any different? Why isn't there moral outrage against the collection agencies??

Vicente says

Americans are adept at convoluted systems of gimmes and subsidies already. As HousingWatcher says, you haven’t made any kind of case for principal reduction leading to cannibal anarchy.

You haven't made any case as to how this will improve the situation. It's at the very least going to piss off the vast majority of people who aren't underwater.

klarek says

You haven’t made any case as to how this will improve the situation. It’s at the very least going to piss off the vast majority of people who aren’t underwater.

You assume most Americans can be bothered to look up from American Idol and notice. There are thousands of things they theoretically ought to be outraged by, which apparently they are not. For example as a renter I find the mortgage interest deduction offensive, and yet it does not lead me to knifing my landlord(s) and neighbors. I expect a handful of Teabaggers would stand on a street corner with signs, and the rest would simply accept it. "Hey the Johnsons aren't being evicted after all, Fred are you listening to me? Fred, turn off the damn football game".

Vicente says

You assume most Americans can be bothered to look up from American Idol and notice.

Somebody who has slaved for 30 years to pay down an amount equal to what the beneficiaries of SD are getting as a gift for their irresponsible behavior will most certainly notice, with a vengeance, no matter how much his fatass is glued to the couch.

Vicente says

There are thousands of things they theoretically ought to be outraged by, which apparently they are not.

There are those things which passively occur beyond one's scope of awareness. Principal Reduction isn't passive at all, it's a direct transfer of money from those who save and pay their bills to those who live beyond their means. Just the mention of it is enough to outrage people.

Vicente says

For example as a renter I find the mortgage interest deduction offensive, and yet it does not lead me to knifing my landlord(s) and neighbors.

I think the MID is unfair too, but its unfairness is relatively passive. It has existed since before we were born, and most people don't really give it more thought other than "cool, a bribe from the govt for owning a home". When lawmakers are forced to lay it out there to the people for what it actually is, sentiment will in all likelihood shift in favor of its demise.

Vicente says

I expect a handful of Teabaggers would stand on a street corner with signs, and the rest would simply accept it. “Hey the Johnsons aren’t being evicted after all, Fred are you listening to me? Fred, turn off the damn football game”.

Fred isn't watching the game; he's staring beyond the TV, thinking about how the asshole Johnsons just got a $100k gift from taxpayers to keep their house, in an instant getting what it took Fred over a decade to pay off on his own mortgage. His eyes are directed at the TV, but he is lost in a murderous trance as a bunch of corrupt politicians decided that it was time to dole out massive amounts of dollars to the public, but choosing only those who have lived selfishly and irresponsibly to receive the reward. Fred finally hears his wife's words again and looks out the window. He sees the Johnsons, who have been living a life of luxury since they made their last house payment three years ago, and he is only thinking one thing. Hint: it's not the ball game.

Vicente says

You assume most Americans can be bothered to look up from American Idol and notice.

First of all lets not generalize all of us Americans. Secondly, I'm your average American, and I'm not even remotely aware of what happens on American idol. That show is for younger crowd which probably does not vote anyway. Crony hand outs and bail outs upset me to no end.

And you do what about it? Write posts on the misc housing forum?

I'm sorry but there's little evidence of any organized and active populace ready to LET SLIP THE DOGS OF WAR over various policy changes.

Your best shot at seeing citizen outrage turn into action was during the original 700 billion dollar TARP handouts, and that clearly fizzled and amount to nothing more than a few people marching. At this point it seems pretty much everyone has gotten used to things, and Quantitative Easing 3.0 or HAMP 3.5 as the OUTRAGE OF THE WEEK may merit mention on fringe blogs. Yes people will get into their Outrage Echo Chamber and work themselves up over it, but is not registering at all with Jane Q. Public.

The original justification for TARP 1.0 as I recall was Hank Paulson roughly telling people if he didn't get his 700 billion dollars RIGHT NOW with no strings attached it would be cannibal anarchy by next week.

I didn't believe him then (although Congress did), and I don't believe your dire predictions either.

Write to politicians and vote.

I don't have dire predictions, you are confusing me with someone else here. I'm saying it isn't right for government to pick winners and losers and make anyone pay for frivolous mistakes of others.

Vicente says

And you do what about it?

Any politician who backs principal reduction will get killed at the polls. Obama has a very good chance at winning a second term. You think if he spent over a trillion dollars to subsidize bubble-buyers' profits he'd have any chance of winning? You think he's dumb enough to back that sort of plan? I don't, I don't think any sensible politician would touch it, least of all because it won't do anything to help our economy.