patrick.net

Churchill was just as "socialist" in the 1940s and 1950s as you claim the Democrats are now.

He was not socialist in the actual sense -- he was against collective ownership of productive enterprise -- but he was a far cry from Thatcherism.

Socialism -- the economic element of communism -- died 100 years ago with the Bismarck social reforms that later became the basis for the Progressive Era.

Are you really too stupid not to understand this?

This plan is actually very conservative, trying to mitigate the damage of past policy mistakes, mistakes actually allowed to happen by the laissez faire ideologies of regulators and overseers in the 1995-2006 period.

If $100M can keep 3000 people in their homes we should do it.

Of course, this shouldn't be a give-away but some sort of lien on the property.

The massive policy mistakes were already made, 2002-2006. What we have now is just damage control, and wealth preservation. So far, we've done a really half-assed job trying to stabilize the massive overinvestment we collectively made in housing, 2004-2006.

http://research.stlouisfed.org/fred2/series/CMDEBT

Troy says

If $100M can keep 3000 people in their homes we should do it

Thats not a good reason to force others to pay for the mistakes of the few. Capitalism works if you let those who make horrible mistakes fail, that does includes corporations and individuals alike.

It isn't the job of those who make prudent decisions to pay for stupid mistakes by a few. They can't afford their housing gambles than they can always go rent, it isn't unreasonable. What is unreasonable is to expect the taxpayers to pay for them.

ChrisLA says

What is unreasonable is to expect the taxpayers to pay for them.

In theory all you say makes sense. Unfortunately, in practice this results in immense disruption to the economy and also loss of wealth due to the wear and tear and expense of unnecessarily moving families out of the homes they can no longer afford.

This plan theoretically doesn't actually cost the taxpayer any money. They are using government money to buy discounted mortgages just like any hedge fund would.

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.

Now, I'm a renter and I don't see the state sending any money my way to help me out, but I understand that the system itself got colossally fucked in the previous decade.

What we have left now is just simply damage mitigation.

There are moral hazard issues to deal with (and perhaps eat), but this attitude:

They can’t afford their housing gambles than they can always go rent

is the crux of the problem, for you are advocating turning this nation from an ownership society to one of dependence and dispossession.

The rich were profiting on the housing bubble on the way up, and now they're going to profit on the housing crash as it continues to liquidate millions of American households.

Capitalism works

you have a near-theological reverence for the laissez faire state of nature.

It is not as wealth-creating and preserving as you seem to believe.

Yes, Troy I think this one we'll disagree simply because I don't believe in social engineering by government picking winners and losers through bail outs.

I really do not see it being right for taxpayers to pay someone to stay in the house that they can't afford.

Troy says

This plan theoretically doesn’t actually cost the taxpayer any money. They are using government money to buy discounted mortgages just like any hedge fund would.

It isn't free as you claim, it will cost 100 million today. Using same logic that it is "theoretically free" why not have government pay everyone elses mortgage/rent since it will turn out to not cost us anything at the end just like all the other government programs out there that are not bankrupting our system.

ChrisLA says

I don’t believe in social engineering by government picking winners and losers through bail outs.

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.

ChrisLA says

it will cost 100 million today.

Right. But the plan is to hold the discounted loan until the mortgage payer recovers his personal finances.

The example given was a $180,000 principal loan being written off at $90,000 by the bank, giving the bank a $60,000 haircut as to what they could have gotten at the courthouse steps to a private specuvestor or flipper (market value is assumed to be $150,000). The principal balance is reduced to $135,000, allowing the borrower to make payments at this reduced level of indebtedness.

Then, assumedly as the economy recovers down the road, the fund will sell off the note at $135,000, making whole the taxpayer.

The general difference here is the non-profit nature of the transactions.

No doubt these "Mercy" people are taking a healthy cut as management overhead, but in principle the idea of working out mortgages is superior than just letting the entire ownership position collapse into millions of have-nots renting from a few haves that have swooped in to capture a monopoly position of ownership of this nation's housing stock.

like all the other government programs out there that are not bankrupting our system.

government is not bankrupting us, we did that all on our own.

http://research.stlouisfed.org/fred2/series/CMDEBT

Cutting taxes $300B/yr while launching a $200B/yr war was highly unwise, as was doubling the defense budget to $700B/yr without raising taxes to match. Everything else government is wasting money on pales in comparison (except for the defined-benefit pension liability -- but that is a another discussion).

I don’t believe in social engineering by government picking winners and losers through bail outs.

"social engineering" is another mindless thought-terminating cliche, ie propagandistic bullshit. Gingrich tried to use that last week in describing the GOP medicare cuts, and got slapped silly for the effort.

as is the "picking winners and losers". This is just more mindless cliche-spinning.

The efficacy of any government spending has to be judged on it actual merits. In this case it is the banks taking a big hit that makes the intervention financially possible.

The banks are probably getting a back-door bailout so they can eat the $60,000 they're leaving on the table.

But at the end of the day not forcing millions of families to move out of their place and become renters is, at the first analysis, a solid policy outcome with actual real-world wealth-preservation benefits.

The actual details of this could be a rip-off or unnecessarily a give-away, either to the borrower or to the people putting the deal together with taxpayer money, but in the broad outline I'm not opposed to this sort of intervention.

We should be able to agree that the bad financial mistakes were done made 2002-2006. What we have now is just damage control.

People like you were saying we should let the system collapse back in late 2008. Let GM and the auto mfg sector collapse in 2009.

The same spiel Treasury Secretary Mellon was telling Hoover in 1930 --

"Hoover passes a stern judgment on Secretary of the Treasury Andrew Mellon, whose only formula, says Hoover, was: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." Hoover says that he rejected Mellon's advice, acted promptly after the crash, and was the first President ever to make full use of his powers to cushion a national economic shock."

http://www.time.com/time/magazine/article/0,9171,935714,00.html

Liquidation is satisfying in the black & white world of the ideologue -- and the wealthy waiting with bated breath to pick up the pieces after everything is smoking rubble -- but in the real world it is accompanied with its own follow-on wealth-destruction and unnecessary economic distortions, plus a further enratchening of the wealth divide between haves and have nots as those with means pick through the economy and acquire everything worthwhile at firesale prices.

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?

ChrisLA says

Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery. - Winston Churchill

Socialism meant something quite different in that period than it does now. Back then it was a violent revolutionary change that was desired, a complete disavowal of ownership. Not many people are seriously talking about that kind of socialism anymore. Our culture has generally managed to take what is most beneficial in the socialist philosophy and work it into our system. We have a capitalist system with numerous socialist underpinnings...

Besides, Churchill was a rich landowning aristocrat with factories and business under his ownership. To say he had a vested interest in the outcome of socialist takeovers of business is to put it mildly.

The trouble with you guys who bitch about "socialism" is that you either don't have an idea of how deeply it already is a part of your lives, or you just simply want to have all the goodness and not let anyone else in on it.

Troy says

The example given was a $180,000 principal loan being written off at $90,000 by the bank, giving the bank a $60,000 haircut as to what they could have gotten at the courthouse steps to a private specuvestor or flipper (market value is assumed to be $150,000). The principal balance is reduced to $135,000, allowing the borrower to make payments at this reduced level of indebtedness.

Troy this will be just like all the other bail outs, pretentious help for those who made stupid financial decisions while using them as a proxy to send tax payer dollars to a few private hands who will be skimming millions from these transactions and profiting there. This is just extension of our crony capitalism.

An equivalent to first time home-buyer credit, but more creative way of handing out millions of dollars to special interests.

Troy says

thought-terminating cliche

No it is not a cliche in this case. It is a term describing the event or action attempted by the few cronies that have certain privileges and powers in government lobbying.

Troy says

If $100M can keep 3000 people in their homes we should do it.

If $100M could keep idiots that support this foolishness from opening their mouths, it would be worth it.

This is just plain dumb, and immoral.

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.