patrick.net

Our definition of the word "poor" is not the same with theirs. :)

Yep. And a lot of the homeowners they are "helping" that are poor would actually be better off walking away and renting.

If the government makes the mortgage payments for someone behind on their mortgage, the ultimate beneficiary is the bank that made the bad loan. They get the money in the end and the poor person still has a high probability of default despite the aid from the government. There is no difference between a program that bails out people who are struggling with their payments and the bailout of AIG. Ultimately, the money ends up in the hands of the big banks. The real loser in the entire equation are the people who rent. The supply of homes available to buy is artificially reduced. The supply of homes to rent also becomes artificially reduced. As a result, home prices are elevated beyond their true market value. Rents are elevated beyond their true market value. And in the end, these programs need to be paid either through inflation or higher taxes. So, basically, the renter has to finance a program that makes his/her cost of living that much higher so people who can't pay their bills get to live in their homes temporarily at a very low cost and big bankers can have their giant bonuses.

My thought was that it hurts the poor because most of the poorest people have already lost their homes.

any government support effort now will benefit people higher up the chain.

toothfairy says

My thought was that it hurts the poor because most of the poorest people have already lost their homes.
any government support effort now will benefit people higher up the chain

It's not a zero sum game. The point of all the help is to get the economy going again which helps everyone--rich or poor.

tatupu70 says

toothfairy says

My thought was that it hurts the poor because most of the poorest people have already lost their homes.

any government support effort now will benefit people higher up the chain

It’s not a zero sum game. The point of all the help is to get the economy going again which helps everyone–rich or poor.

I have yet to see any satisfactory explanation of how 'helping people stay in their homes' is positive for the economy. Oak man is right. The true beneficiaries are banks, or more specifically their executives, stockholders, and bondholders, and depositors that all escape losses, even though that is exactly why they should get. In other words, mostly rich people.

MarkInSF says

I have yet to see any satisfactory explanation of how ‘helping people stay in their homes’ is positive for the economy. Oak man is right. The true beneficiaries are banks, or more specifically their executives, stockholders, and bondholders, and depositors that all escape losses, even though that is exactly why they should get. In other words, mostly rich people.

It's pretty simple, really. When people get foreclosed on, banks lose money. When banks lose lots of money, they go bankrupt. When banks go under, lending grinds to a halt--small businesses can't make payroll, large businesses don't make any capital purchases, and demand goes way down leading to a recession or depression. See end of 2008.

I agree that it sucks that the people who are behind this mess might be profiting from it. But, you have to look at the big picture--what's done is done. The banks were too big to fail and there's nothing you could do right then. The economy must be fixed first.

But, you have to break up the banks now and reinstate the regulation that was missing for the last 5-10 years. So, this can never happen again.

tatupu70 says

It’s pretty simple, really. When people get foreclosed on, banks lose money. When banks lose lots of money, they go bankrupt. When banks go under, lending grinds to a halt–small businesses can’t make payroll, large businesses don’t make any capital purchases, and demand goes way down leading to a recession or depression. See end of 2008.

Yes, you are right that banks lose more in a foreclosure than a write down. There is no reason for taxpayers to pay for the writedowns though "keep people in their homes". If there was political will they could create a resolution authrority to break up the big failing banks into "good" banks (with gov't insured liabilities + good assets) and "bad" banks (with dodgy assets and non gov't insured liabilities). The "good" banks would then be in a great position to lend, and investors would take the losses as they should.

Bailing out investors with tax payer money is far more dangerous to the economy IMO. We just end up with banana republic and set ourselves up for a far worse crash later.

Yes, you are right that banks lose more in a foreclosure than a write down.

"Write off" on actual outstanding loans/AR is automatic after 90 days and is enforced during audits. The PL hit is made months in advance on estimates. Doesnt matter if its banks for any other industry. This will continue

Foreclosures however will dragged down cash reservers where banks are not converting their inventory back into cash as quickly due to gov intervention. There is no good or bad banks, only bad lending practice. You change that practice infavor of conservative practice. Breaking up banks is unnecessary.

tatupu70 says

When people get foreclosed on, banks lose money. When banks lose lots of money, they go bankrupt. When banks go under, lending grinds to a halt–small businesses can’t make payroll, large businesses don’t make any capital purchases, and demand goes way down leading to a recession or depression. See end of 2008.

I can agree that the economy benefits from a liquid debt market. However, using tax money to shore up bank balance sheets is nonsensical. We need banks. We do not need THOSE banks. Let those banks fail. Let the owners, bondholders, employees, and management of those banks take it on the chin. Then use the tax money to finance fresh, well regulated, NEW banks.

Nomograph says

The housing bubble, subsequent crash, and socialization of the losses are the fallout of many years of modern Conservatism and it’s deregulation of the banking industry. History shows again and again that certain aspects of free markets always fail.

It was not the lack of regulation, but the intervention of goverment into housing/banking industry. True conservative lending, as we had before, would have required rigid requirement, 20% down and fixed rate lending. It was Gov policies to get people into homes at what ever costs, and implicit guarantee of the Gov on the loans which caused this mess.

Barney Frank in 2005: What Housing Bubble?
http://www.youtube.com/watch?v=iW5qKYfqALE

Have fun with this one...
http://www.youtube.com/watch?v=_MGT_cSi7Rs&feature=related

thomas.wong1986 says

It was not the lack of regulation, but the intervention of goverment into housing/banking industry. True conservative lending, as we had before, would have required rigid requirement, 20% down and fixed rate lending. It was Gov policies to get people into homes at what ever costs, and implicit guarantee of the Gov on the loans which caused this mess.

This is such a tired argument. There were no government policies requiring lending institutions to make liar loans, zero down loans, or neg. amortization loans. I don't understand how someone who has been at Patnet for awhile and has read all the posts here can still believe this.

tatupu70 says

This is such a tired argument.

It is also an accurate argument.

CBOEtrader says

I can agree that the economy benefits from a liquid debt market. However, using tax money to shore up bank balance sheets is nonsensical. We need banks. We do not need THOSE banks. Let those banks fail. Let the owners, bondholders, employees, and management of those banks take it on the chin. Then use the tax money to finance fresh, well regulated, NEW banks.

I agree. I'm not close enough to judge if the banks were really "too large to fail" or not. I'm assuming that they were--maybe that's a poor assumption. But, banks are failing each week--usually they are announced Friday night, so it's not like the government has a policy to not let any banks fail.

In any event, like I said in the previous post, we must now break up the largest banks so that next time we can let any bank fail without endangering our economy. It is a moral hazard right now.

Wait a minute, was Congress going around BEGGING for Glass-Steagall repeal against the will of the bankers? Were they slapping them on the wrists for not accepting radical increases in leverage limits?

No, it was quite the opposite. Guys like Phil Gramm gave into to the will of their smooth-talking banksters and gave them what they wanted, which was deregulation, and now we have a big mess. It's clear the responsibility lies with the "Smartest Guys in the Room". If a con-man fools a 'tard out of his money, I'd jail the con-man.

Re original poster, it only hurts the poor in the sense that their ranks are swelling with unemployment and there is less left over at this point. This is true not just in "the dole" but in charities where some systems are stressed by the numbers.

Vicente says

Wait a minute, was Congress going around BEGGING for Glass-Steagall repeal against the will of the bankers? Were they slapping them on the wrists for not accepting radical increases in leverage limits?

This argument typically boils down to semantics.

Do you feel the results of corporate lobbying for their special interests is a free-market problem? I consider this a government issue.

Vicente says

gave into to the will of their smooth-talking banksters and gave them what they wanted, which was deregulation, and now we have a big mess.

What they did is selectively deregulate. The actual amount of regulation is always increasing. Trust me, my regulatory obligation for running a B/D goes up every single year. So, again, this is more about semantics. I consider it a government failure, when they pile on a mountain of oversight regulation, creating enormous barriers to entry for competitors, while selectively deregulating for those that can afford lobbyists.

Vicente says

It’s clear the responsibility lies with the “Smartest Guys in the Room”. If a con-man fools a ‘tard out of his money, I’d jail the con-man.

Individuals act out of self interest regardless of the economic "ism". Greed, private capital, and private profits do not imply a free market.

Russia is a good example. The Russian oligarchs each made their money via raping and pilliaging the assets of the former soviet union as they privatized their state-owned corporations. It was THROUGH THE GOVERNMENT that these private citizenz were able to become the billionaire oligarchs.

Our system is not really that different. The government is the best business partner available. The government will only work with the richest and most well-connected. The fact that these uber-rich book private profits at the average tax-payer's expense is a failure of our government rather than a failure of "free-markets."

Vicente says

No, it was quite the opposite. Guys like Phil Gramm gave into to the will of their smooth-talking banksters and gave them what they wanted, which was deregulation, and now we have a big mess.

Very interesting. You failed to even give William Jefferson Clinton a mere mention, yet he was the president that signed the repeal of Glass/Steagall into law. It seems President Clinton “felt the pain” of the banksters and was just acting as a humanitarian. I would have thought an honest poster like you would have mentioned that enormous fact. LOL

tatupu70 says

This is such a tired argument. There were no government policies requiring lending institutions to make liar loans, zero down loans, or neg. amortization loans.

Then you can explain to me why Freddie and Fannie had $90 Billion in losses ? Losses which then managment tried to hide from regulators and the public. Where did these losses come from ?
How exactly do you "ease credit" on mortgage if buyer would not otherwise qualify?

Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30, 1999

http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

CBOEtrader says

Vicente says
This argument typically boils down to semantics.
Do you feel the results of corporate lobbying for their special interests is a free-market problem? I consider this a government issue.

Semantics? It seems quite the opposite here, specific imposed limits to prevent Too Big To Fail were stripped away because we need to spiral stocks higher and to hell with the real economy and long-term effects. We had Glass-Steagall and sane & sensible banking since the 1930's. The primary argument of "free market" corporate lobbyists is always that government should get the hell out of the way and let them do whatever they want. Alan Greenspan said once fraud prosecution is unneccessary because the market will inherently punish bad actors. Then in 1999 the "Smartest Guys in the Room" convinced weak-minded stooges that regulation is a relic of the Steam Age we needed to jettison to maximize market efficiency. It was only a government issue, on the day that banksters convinced them the government intervention was an IRRELEVANT AND UNDESIRABLE element. They were completely wrong about this and should be punished. Oh wait, Phil Gramm is already retired and many of the banksters involved are fabulously wealthy. Oh well, let's move on!

thomas.wong1986 says

Then you can explain to me why Freddie and Fannie had $90 Billion in losses ?

I don't think tax-payers being on the hook for their losses is defensible.

The thing is, that's small potatoes compared to losses generated by securities and other loans created by non-GSEs. Those that want to blame the government for everything consistently overlook that.

thomas.wong1986 says

“Write off” on actual outstanding loans/AR is automatic after 90 days and is enforced during audits.

Sorry, meant to say "principal reduction" is better for a bank than a foreclosure.

CBOEtrader says

Our system is not really that different. The government is the best business partner available. The government will only work with the richest and most well-connected. The fact that these uber-rich book private profits at the average tax-payer’s expense is a failure of our government rather than a failure of “free-markets.”

I certainly couldnt say the same when our SV tech industries were booming in the 70-80s. We certainly were ignored by gov and local business leaders had no interest, and lots of distrust of government.
There were plenty of times Clinton came to SV in the '90s to muster support and contributions leaving empty handed. HA! However, we certainly see that today, but that would be the first time you see this in regards to this SV. The whole "Green Thing" is wrapped with politics and Washington hand outs.

CBOEtrader says

This argument typically boils down to semantics.

Do you feel the results of corporate lobbying for their special interests is a free-market problem? I consider this a government issue.

This is completely nonsensical. If bankers had their way their would be no regulatory requirements. Are you seriously suggesting that would prevent bubbles and crashes?

Yes, the government is to blame for caving in to corporate interests, but those interest were lobbying for deregulation. How can you then turn around and say that government regulation was the problem?

MarkInSF says

Sorry, meant to say “principal reduction” is better for a bank than a foreclosure.

Substance over form! accounting treatment is no different. Principle reduction will be taken to the PL having negative impact on earnings.

CBOEtrader says

What they did is selectively deregulate.

Please elaborate. Where were special favors granted to particular corporations?

thomas.wong1986 says

MarkInSF says

Sorry, meant to say “principal reduction” is better for a bank than a foreclosure.

Substance over form! accounting treatment is no different. Principle reduction will be taken to the PL having negative impact on earnings.

Costs are incurred in a foreclosure that are not incurred in a principal reduction.

MarkinSF says
Please elaborate. Where were special favors granted to particular corporations?

Oooh ooh! Mr. Kotter!

Lifting the capital reserve requirements from the 1975 limit of 12:1 to 40:1 was applied to the largest investment banks, not "across the board". I believe there was even a Congressmen who requested to see the regulatory memos that allowed this change and was told "I'll have to get back to you with that if the participants allow it.". Ya know, gotta phone into Government Sachs first.

The "Consolidated Supervised Entity Program" was the name of the program at SEC and it was a special club for the 5 largest investment banks, 3 of which no longer exist. So they closed it down in 2008.

CBOEtrader says

Do you feel the results of corporate lobbying for their special interests is a free-market problem? I consider this a government issue.

The point is that free markets led to this problem--not government interference. Deregulation led to the free market which led to the whole debacle, but it was a free market problem.

thomas.wong1986 says

Then you can explain to me why Freddie and Fannie had $90 Billion in losses ? Losses which then managment tried to hide from regulators and the public. Where did these losses come from ?
How exactly do you “ease credit” on mortgage if buyer would not otherwise qualify?

Freddie and Fannie were not strictly a government entity at that point. So, not having insider knowldge of the situation, I would guess that they did what every other mortgage company did--take the easy money without understanding the long term risks. They were caught up in the same fervor as everyone else...

How do you ease credit? It's pretty simple--it just takes a loan officer signing on the dotted line.

MarkInSF says

Costs are incurred in a foreclosure that are not incurred in a principal reduction.

Nickles and dimes, when you are comparing 20-30% "write down" off the principle which is taken to the Profit and Loss immediately. These write downs dont simply vanish off the books they are offset is to earnings. Banks foreclosing on homes ASAP is far far better.

thomas.wong1986 says

Nickles and dimes, when you are comparing 20-30% “write down” off the principle which is taken to the Profit and Loss immediately. These write downs dont simply vanish off the books they are offset is to earnings. Banks foreclosing on homes ASAP is far far better.

I don't think it's nickels and dimes. Others can probably comment better than I, but I've seen estimates of ~$75K per home. I know houses are more expensive in CA, but that's got to be more than a nickel out there.

MarkInSF says

This is completely nonsensical. If bankers had their way their would be no regulatory requirements. Are you seriously suggesting that would prevent bubbles and crashes?

I have no idea where you get this from. Please do not put idiotic words into my mouth.

Any bubble requires the stars aligning just right. The government decreased the cost of money, while simultaneously supporting the ideal of a house owning society, while also ignoring proper oversight of leverage, while also selectively deregulating. The government played a key role in every step of the bubble blowing process. The government set em up, while the banks knocked them down. This partnership between large corporations and government is far from a "free market". Calling it such is misdirecting blame. The banks would never have been able to make (or lose) as much money as they did without the help of the government at every level. It would be most accurate to say that this was a failure of fascist capitalism, rather than free-market capitalism--the key difference being the MASSIVE government partnership with the largest banks.

MarkInSF says

Please elaborate. Where were special favors granted to particular corporations?

Again, please do not say stupid shit while attempting to paraphrase me. You clearly missed my point.

The point is that the "free-market" lobbyists used the "free-market" war cry as a way to get what their large corporate masters wanted. They wanted specific regulations reversed, which they achieved. Other financial regulations were simultaneously enacted, which drown many smaller companies in unproductive overhead, such as the patriot act. There wasn't a lack of regulation, there was a lack of proper regulation.

If home "owners" get hundreds of thousands in write downs then why do home buyers only
get a measly 8,000 tax credit which is about to be taken away soon anyway?
Shouldn't everybody get the same amount if home "ownership" is going to be an entitlement?
It seems that government is only interested in betting on "citizens" least able to sustain
themselves economically.
I have no problem with socialism as long as everybody is given exactly the same deal
with regard to benefits and subsidies.
But this Obamaism just divides everybody into unequal groups arbitrarily.

pinnacle says

If home “owners” get hundreds of thousands in write downs then why do home buyers only

Why did George Bush Jr. sign MediCare Part D into law? Because he's a politician! Keeping the slaves down on the plantation and not rioting in the streets is one definition of good governance. There isn't anything in this entire mess that could be considered "justice" for anyone, so get over it! The Debt-Owners get to keep running on the hamster wheel and everybody gets to keep pretending everything is fine. Preserving some overall sense of status quo is the only playbook any politician would follow I think doesn't matter if it's Obama or Zombie Reagan.

Slowly but surely the government is getting back its money:

http://news.bbc.co.uk/2/hi/business/8593343.stm

$8B in profit likely seen from selling back it's Citi shares.

tatupu70 says

MarkInSF says

I have yet to see any satisfactory explanation of how ‘helping people stay in their homes’ is positive for the economy. Oak man is right. The true beneficiaries are banks, or more specifically their executives, stockholders, and bondholders, and depositors that all escape losses, even though that is exactly why they should get. In other words, mostly rich people.

It’s pretty simple, really. When people get foreclosed on, banks lose money. When banks lose lots of money, they go bankrupt. When banks go under, lending grinds to a halt–small businesses can’t make payroll, large businesses don’t make any capital purchases, and demand goes way down leading to a recession or depression. See end of 2008.
I agree that it sucks that the people who are behind this mess might be profiting from it. But, you have to look at the big picture–what’s done is done. The banks were too big to fail and there’s nothing you could do right then. The economy must be fixed first.
But, you have to break up the banks now and reinstate the regulation that was missing for the last 5-10 years. So, this can never happen again.

So basically, you are saying, the taxpayers had to bail out the big banks so that the big banks could loan us back our own money. Seriously, we could have just loaned money to small businesses via the treasury and circumvented the big banks. Btw, the big banks never started lending again. They just took the money and started speculating with it.