patrick.net

Clawback should first and foremost be implemented at the top of the food chain: Bank CEOs, Bank CFOs, managing directors at investment banks, NAR chief economists and the like.

Once we are done with them, we can see how much misdeed has been unearthed about their underlings and act accordingly.

I would not claw back from some Joe Shmoe who sold at the top unless he was at the same time making profit off lending to buyers.

There's no way they can get money back unless the methods used to gain the money were illegal. People who bought low and sold high, bought high and sold higher...they didn't do anything illegal. There's no court in America that would ever rule they owe money.

What a ridiculous question! I've made a lot of money in gold and silver since 2001. Should I forfeit those gains, too? Do I deserve a comeuppance??

CL says

Fair enough, but what if there were malfeasance in the “market” for meat? What if you, as the consumer, were paying $40 for meat because the entire country said there were forces at work making meat more expensive? So, the canard goes, steak that used to cost $16 is now $40. If you want to eat, you’ll need to pay up. Of course, you can always eat hamburger, but it too was affected by the fake run on steak.

But the hamburger - rent, in this case - did not go up as the price of steak went up. The steak kept becoming more expensive, and you intentionally ignored the price of hamburgers because you lusted over an overpriced stake. Now those who switched from steak to hamburgers should reimburse those who doubled down on steak? Market malfeasance or not, I'm still waiting to hear your moral argument for punishing savvy customers to subsidize the profits of reckless customers.

CL says

As far as legalities are concerned, if the consumer were protected by a “lemon law”, would he be moral in seeking protection under the laws of his state? Or should he simply fall on his own sword and shout his praise for Capitalism and all of its wonders? In the dog-eat-dog capitalism many espouse here, you’d say there would be no moral obligation. But I’d bet you that countless citizens do this every day, because their code says that it’s the right thing to do.

Yet if you were to profit wildly from your foolish home purchase, you would be all for this capitalist system. Fact is that a simple amount of due diligence is what separates those who lost from those who "won". You seem to think you were wronged, and that someone profited from you out of their own malicious plot. In reality, they had access to all the information you had access to, and bet against the insanity that so many people were swearing by at the time.

You put practically nothing into a $3/4 million house, yet feel entitled to profit from a horrible investment. For you to decry capitalism yet operate with that sense of greed and self-entitlement is quite amusing.

Reality says

I paid $40 for a steak at a restaurant last night, and it turned into poop in my toilet today. I’m sure the restaurant made a decent profit by buying the raw steak at about $8 (only a 16oz steak) and selling it to me for $40 . . . the labor of meat flipping on the grill for a few minutes couldn’t possibly have been worth $32! Can I have my “lost money” clawed back from the restaurant owner?

You didn't just pay for the steak...you paid for the hostess to seat you, the waiter to serve you, the building to shelter and climate control the room for you, the seats you sat in, the table you ate on, the silverware you used, the napkins you wasted, the menus you read, the manager who trained the employees, the aesthetics you witnessed, the cook to make the steak, the energy needed to cook the steak, the seasonings...shall I go on?

Reality says

Free market means that individuals have the right to participate in the price discovery process . . . so that resources can be directed efficiently through the dynamic competitive bid-and-offer process.

Well said. This isn't just a key tenet of capitalism, but a fundamental core of economics and markets of any kind. Efficiency in and of itself is not always a good thing unless you're a purist, but we're far too often trying to go the route of inefficiency because there are a handful of idiots who need protection - from themselves.

ozamerican says

What a ridiculous question! I’ve made a lot of money in gold and silver since 2001. Should I forfeit those gains, too? Do I deserve a comeuppance??

If you've been painting rocks to meet the demand, the question becomes more reasonable.

I don't see a reasonable way to take back money from people who just jumped on a bandwagon or just coincidentally made money. I have two friends who made great money selling homes in San Francisco by buying them in the early 2000s and selling them around 2005. In their case, they sold for personal reasons. One broke up with a live-in girlfriend and sold a condo, the other's wife finished a PhD and got a job in another city, so he sold and moved.

The only idea to which I'm connected is the idea of going after people who definitely showed intent to make more money by making the system of supply and demand based on something other than that which the buyer was aware.

JAWS says

In 2016, looking back on this huge mess will be a very sad time for humans. The Stupid-Age.

We're going to be stupid for way, way longer than that.

This whole concept stinks of FB's.

For this crazy train of thought to appeal to you....you MUST be an FB Bubble Buyer.

And why wouldn't they want to tax everything under the sun to pay for their 2% loan mod, principal reduced at taypayer expense extend and pretend sqattervilles?

Its the bailout mentality gone one step futher and thats "how to pay for bailouts" (other than print 12 trillion USD).

Reality says

There were plenty good advice against buying at the peak, if you cared to find them. Patrick has been running this site since 2004.

The difficulty here is that you'd have to teach everyone investment/money fundamentals and get them to change their behavior based on that understanding instead of the dominant mode of influence/power which is our silly little social systems.

Plus there's still the flaw in thinking others are acting based on fundamentals. Who knew mortgages were being approved on a massively fraudulent scale? Yes, it seemed like it to me too, because I couldn't figure out how everyone else was affording a house when I made two to three times their income and still wouldn't afford one. But I didn't know. The fundamentals just suggested something was amiss.

uni6jon2 says

The only idea to which I’m connected is the idea of going after people who definitely showed intent to make more money by making the system of supply and demand based on something other than that which the buyer was aware.

I don't like my statement being based on buyer awareness. As already covered here, you can't be expected to cover all levels of understanding and awareness.

So words that work better for me are "based on actions or ideas purposefullly made unknown to the buyer to the benefit of the seller."

Maybe that doesn't quite work either. What's the legal definition of fraud? If people in power massively screw a bunch of other people, I get the idea of wanting money returned. If you were buying and flipping houses and feigning ignorance about the validity of the paper work, then I think you've stolen money. I want to live in a country where people connect with their conscience and I think America has an underlying(even if it's way underlying at this point) intent to be such a place.

Wow that is the dumbest idea I've ever read on Patrick.net. This guy used his brain and you want to punish him by taking his money?!
Silver is at $50.00 dollars today. How about confiscating all the profits of those who bought in 2009 for $10.00?
Your idiocy is truly breathtaking. I'm not hiding behind my keyboard either - I would love the opportunity to say this to your face.

Illogical. There have been bubbles (in any asset class) throughout human history. There were no clawbacks then, or now in general. Some get lucky, most don't. The human race simply trudges along.

m1ckey6 says

Silver is at $50.00 dollars today. How about confiscating all the profits of those who bought in 2009 for $10.00?

What if someone convinced you that you were buying silver when actually you were just giving them money they were using in another way to make money? Then when you wanted to sell, the value was far below what you'd paid.

Would you just say,"Oh well, the person who convinced me is just smarter than me?"

The term Clawbacks by definition applies only to illegal and otherwise ill-gotten gains (breach of contract, breach of fiduciary duty, etc)

The term is being misused frequently in this thread.

Hey justme - do you have a source for this stricter definition?

Investopedia provides a more generalized one:

http://www.investopedia.com/terms/c/clawback.asp

1. Money or benefits that are distributed and then taken back as a result of special circumstances.
2. A retraction of stock prices or of the market in general.

justme says

The term is being misused frequently in this thread.

Thank you. I recognized the inconsistencies in the arguments, but had no background in the terms to say it was a matter of definition.

If people on this thread think the idea is that profits should always be regulated below a certain level of increase, that's not the idea.

terri,

Clawback is contract lingo, it has been given multiple meanings.

From Wiktionary:

3. (US, business) Any recovery of a performance-related payment based on discovery that the performance was not genuine. The airline got a clawback provision in the event of failure of the engines to meet fuel-consumption targets.

Clearly, clawback can mean whatever people want it to mean, but in the context of bubble gains I think my interpretation is reasonable.

With reference to this thread, I guess what I'm saying is that in the context of bubbles, "pump and dump" profits (as in investment banks bundling up and selling bad mortgage securities, and then betting against them) is ill-gotten gains and qualify for a clawback, whereas "Joe Schmoe sold at the top" is just "dump" and does not generally qualify.

Thanks for the clarification justme.

Tenouncetrout says

Are you from the future?

This is hilarious, by the way. :) Pithy!

Okay, now (as I've said many times), please don't assume that I, personally, want anything. I absolutely do not. Don't care in the slightest about me. This is about bubble-profiteers.

Some of course had no idea what they were doing and thus profited accidentally, as much as some lost through indifference or ignorance.

Some, through volition "got out" and "just in time" by "reading the writing on the wall", etc. (Nice quotes!).

I knew plenty of people who miraculously were offered weird jobs in cheaper parts of the country at the bubble's peak. Even at the time, I suspected that their motivation was to cash out and buy a house for cash elsewhere. Legal, sure. Suspect? I think so.

And I'm fully aware there are no practical ways to implement such a clawback, so let's pretend it is the honor system and that everyone has honor. Does anyone agree that those who "earned" this appreciation deliberately deserved their lucre? If they did not deserve it, would you agree (in principle) that such people should have to pay something back?

Flippers suck. Does our system reward these opportunistic leeches?

And houses ARE different than gold, or at least they once were. Housing was not supposed to be speculative (and I did NOT speculate, so please don't assume and apply ad hominem attacks)

justme says

The term Clawbacks by definition applies only to illegal and otherwise ill-gotten gains (breach of contract, breach of fiduciary duty, etc)

Welcome to the world of the bubble home-purchaser.

"What, no instant equity? No 20% year-over-year increases in the value of my house? I can't cash it out and live beyond my means???? Fuck you, I've being robbed!"

CL says

Does anyone agree that those who “earned” this appreciation deliberately deserved their lucre?

Have you read the thread? Nobody agrees with you. Explain how somebody making the right decision with the same information as bubble-buyers had owes them money. Are the renters who abstained from the bubble responsible as well? If they had participated, you could have made a considerable profit for a period of time. Is there an argument that because they were smart, they owe the losers money too?

CL says

I knew plenty of people who miraculously were offered weird jobs in cheaper parts of the country at the bubble’s peak. Even at the time, I suspected that their motivation was to cash out and buy a house for cash elsewhere. Legal, sure. Suspect? I think so.

Suspect of what exactly? Seeking better employment? Realizing that the people buying into the frenzy were greedy morons? That THEY, the people speculatively buying, were the ones helping to drive up prices by rushing into the market without giving it a minute's worth of thought?

Maybe that was one of many signs you ignored when you had a chance to get out..

CL says

And houses ARE different than gold, or at least they once were. Housing was not supposed to be speculative (and I did NOT speculate, so please don’t assume and apply ad hominem attacks)

Yes you did. You put practically nothing down and you're walking away because you're underwater.

FunTime says

m1ckey6 says

Silver is at $50.00 dollars today. How about confiscating all the profits of those who bought in 2009 for $10.00?

What if someone convinced you that you were buying silver when actually you were just giving them money they were using in another way to make money? Then when you wanted to sell, the value was far below what you’d paid.
Would you just say,”Oh well, the person who convinced me is just smarter than me?”

Asset values fluctuate. It is the buyers responsibility to buy at a rational price. The person selling you an asset at an inflated price would definitely be the smart one.
The victim mentality in this whole line of thought is disturbing.
The OP also assumes that a lot of flippers actually kept the money. There is probably 1 in 10,000 who actually kept anything. I personally know people that have lost eight figure amounts and now have virtually nothing.

This is by far one of the dumbest threads I have ever seen on patrick.net. Did a realtor start this thread in order to embarass and discredit the website?

m1ckey6 says

The victim mentality in this whole line of thought is disturbing.

Sometimes there are victims, though, right?

If it is the buyer's responsibility to buy at a rational price, does the seller have any responsibilities? What are they, if any?

I think what you're writing is definitely in line with a lot of perople's thoughts, but I question where that gets us. I end up thinking we're just collectively violent and primitive.

this IS the dumbest thread ever.

Its dumb like saying 'Should we bring back debtor prisons but only for foreclosed FB's"????
(haha the opposite of clawback!)

FunTime says

Sometimes there are victims, though, right?

Yes, but for the most part nobody is a victim when it comes to buyers and sellers. Pretty straightforward. Calling the buyers "victims" is just plain absurd.

If it is the buyer’s responsibility to buy at a rational price, does the seller have any responsibilities? What are they, if any?

I think what you’re writing is definitely in line with a lot of perople’s thoughts, but I question where that gets us. I end up thinking we’re just collectively violent and primitive.

Violent? Somebody that lost a bet wants to find a moral justification for taking money from the one who won the bet. It's just expressive selfishness and an abdication of one's own responsibility. How is pointing this out primitive or violent?

And no, the seller has no responsibility beyond legal requirements and allowing the sale to commence. Just as the buyer is an idiot for paying too much, the seller could arguably be an idiot for selling for too little.

The loser is not the buyer or the seller. The loser is the person who was not in on a game that was eventually underwritten by the public till.
Clawbacks from sellers is a stupid idea, though.

klarek says

Violent? Somebody that lost a bet wants to find a moral justification for taking money from the one who won the bet. It’s just expressive selfishness and an abdication of one’s own responsibility. How is pointing this out primitive or violent?

I don't understand calling someone buying a house a "bet." I'm thinking some families and individuals thought and planned and did as much research as they knew how to do and then bought a house. In the process they listened to people who they trusted to know more about the process of buying a house. Maybe they did this because they were already struggling through life and didn't find the energy to muster up another twenty hours a week of research into just what was going on in the housing market. Would they have ever figured out that what was really needed to understand the situation was to go knock on some investment bank/company doors and learn eventually that the reason housing prices had recently gone up was because housing mortages were being sold as investments?

So they took a loan of a large amount of money thinking they qualified. But they didn't qualify for anything. The loan was given to them so it could be immediately sold. For that reason, they paid more money than the house would be worth in a matter of months/a few years.

I don't understand the thinking or state of mind that says that's "losing a bet" or "stupid." The seller knew what was going on. They might not have figured out how much effect it would have, but some knew people who make $40k/year have never before qualified for half million dollar and more mortgages.

Isn't that how crime is defined? It's easy to think about as one buyer/seller transaction, but when there are third, fourth, fifith and more parties influencing, and even determining, the price isn't it more complicated?

YesYNot says

The loser is not the buyer or the seller. The loser is the person who was not in on a game that was eventually underwritten by the public till.

This makes sense to me if you're willing to unquestioningly participate in games. That can lead to pretty dire outcomes.

klarek says

Violent? Somebody that lost a bet wants to find a moral justification for taking money from the one who won the bet. It’s just expressive selfishness and an abdication of one’s own responsibility. How is pointing this out primitive or violent?

I think that it is consciously done. It's not just that the price was high, it's that the seller knows the price is high for a reason that is not being discussed with the buyer because it involves the overlap with a market that has nothing to do with when the house was built and whether the house has termites.

Although one way to think of what you said in language often used here is that it takes both stupid buyers and stupid sellers to allow for this type of market that mostly benefits a completely separate group of, if not smarter, more powerful buyers and sellers. So why hold accountable any of the stupid people participants?

FunTime says

think that it is consciously done. It’s not just that the price was high, it’s that the seller knows the price is high for a reason that is not being discussed with the buyer because it involves the overlap with a market that has nothing to do with when the house was built and whether the house has termites.

Interesting. How do you think the millions of sellers managed to conspire against the millions of willful buyers? Where's the asymmetric information? What did the seller know that the buyer did not?

FunTime says

Although one way to think of what you said in language often used here is that it takes both stupid buyers and stupid sellers to allow for this type of market that mostly benefits a completely separate group of, if not smarter, more powerful buyers and sellers. So why hold accountable any of the stupid people participants?

I don't know if that's a question, but if you're insinuating that someone was stupid for selling during the housing bubble (and presumably not buying another house), then that's not only in retrospect wrong, but also the same thing that us sellers had to hear non-stop from the bubble-buying tards during that period from people drunk on prospective equity profits.

Congratulations on the investing Robert. I've seen people boast for years on this site that they are astute investors - it's nice to see someone put up real numbers that actually proves they are!
Where I'm from we call people like the OP "crabs". When you put a lot of crabs in a bucket and one crab decides to make a break for it the other crabs pull him back in.
The OP's suggestion that those that sold out of pricey areas and moved to cheaper ones did something nefarious is ludicrous. You have to wonder if the entire thread is a troll.

klarek says

What did the seller know that the buyer did not?

The seller knew that the criteria for evaluating the buyer had changed drastically. I don't think all sellers acted with fraudulent intent, but all sellers benefited from the fraudulent supply of mortgages resulting from forged, faked, whatever you want to call it mortgage applications.

Is it okay to lie to buyers to get the sale? I'm not talking about clever wording sales, I'm talking about, "my income is XXXX when it is actually YYYYY."

I don't think this was a conspiracy, although maybe the eventual and current actions of the government suggest a complacency that makes that level of power/authority part of the problem, but the housing boom was not a housing boom. People thought they were buying houses, but they were just fodder for a bigger money machine and people knew many of those buying houses couldn't possibly make payments.

klarek says

I don’t know if that’s a question, but if you’re insinuating that someone was stupid for selling during the housing bubble (and presumably not buying another house), then that’s not only in retrospect wrong, but also the same thing that us sellers had to hear non-stop from the bubble-buying tards during that period from people drunk on prospective equity profits.

I'm saying the buyers and the sellers in this case have a similar level of intellect. Bubble-buying tards are similar to the bubble-selling tards. Maybe that's the beauty of of this type of transaction. All the tards get to do something that they think is meaningful, like make money. Or lose money, depending on what kind of tard you are.

I wouldn't normally use your "tard" language, but does that help you understand my point? I just think a seller that fools a buyer does something disconnected from their own conscience and suffers similarly to, or more than, the buyer.

FunTime says

The seller knew that the criteria for evaluating the buyer had changed drastically.

How would a seller be disproportionally aware of this? What information would he be privy to here that the buyer was not?

But it wasn't beanie-babies, now was it? It was (considered by nearly every entity in the fucking world) the safest investment one could make. Home prices appreciate, modestly, for countless decades without this unregulated, creative, destructive "financial instruments".

Bubble buyers trusted lots of people and entities--The US Government, the Wall Street goons, the Financial Institutions (who were all supposed to be so self motivated that they certainly would avoid over-leveraging), the realtors, the brokers, the appraisers, their friends, their families, the news, the financial shows, the "experts", the tax code itself incentivizes citizens to get a mortgage! ...the list goes on and on. Only a few, gathered here, were singularly prescient to get out while the gettin' was good. I applaud you. Bravo. Well done.

My point is not a legal one....flippers and similar crooks will always find a way to make money without effort. There is no way for me to know if you were a legitimate accidental profiteer or a willful one. That's for your conscience to reckon with. I'm not talking about every person who made any transaction as being morally culpable--am I?

What if "they" had fucked with other basic essentials of life....food? Since it was shelter this time, then it's caveat emptor?

CL says

But it wasn’t beanie-babies, now was it? It was (considered by nearly every entity in the fucking world) the safest investment one could make. Home prices appreciate, modestly, for countless decades without this unregulated, creative, destructive “financial instruments”.

They appreciate at the rate of inflation. When they started appreciating at four times that rate, hardly modest, that was the ominous sign that they were going to fall. A LOT.

CL says

Only a few, gathered here, were singularly prescient to get out while the gettin’ was good. I applaud you. Bravo. Well done.

Many millions also opted to not jump into the market. The people that got out are a small number, but those who abstained are aplenty.

CL says

What if “they” had fucked with other basic essentials of life….food? Since it was shelter this time, then it’s caveat emptor?

You had an option for shelter: renting. Low-risk, cheaper, etc. Do you really think there's a moral argument for clawback, or that you're completely abdicated from having chosen the more expensive, riskier shelter option?

klarek says

You had an option for shelter: renting. Low-risk, cheaper, etc. Do you really think there’s a moral argument for clawback, or that you’re completely abdicated from having chosen the more expensive, riskier shelter option?

Again, you're making this about me, but it's not about me. I understand the risks I took, and I believe I understand my rights and choices under the law (in no small part, thanks to you and the others here).

You are right that many did not get into the market. Although you continue to ascribe intentions and motivations to my choice, I can assure you that those assertions are not true. As I've stated, I moved out of my perfectly happy hills house because said landlord wanted to sell the house. I was sick of moving under the whims of the landed gentry. And I should not have trusted anyone, like most of you don't. Whatever. C'est la vie--just some dirty green paper in the end.

However--------many millions more did what I did. many trillions of dollars were allocated based on the faith and integrity of the system. If the masters of the universe, with their trillions at stake, acted in much the same manner as me, it seemed pretty straightforward.

I think we know that that's not the case.

But, for the record, I did read this site even before I made that fateful decision to buy. I just honestly cant picture myself telling anyone that a decision like that was made because a bunch of smart curmudgeons on a forum told me it was dumb. Water under the bridge now.

So partly my forced displacement, and largely the tax code (which seemed to penalize a high-earning guy with no dependents, a few side gigs and charitable donations that were difficult to get too far above the standard) made me trust the geniuses. Never again.

My point is that "winners" in this case are no better than losers. They all played three-card monte, even if some didn't know they were playing.

And, that an endorsement of this philosophy is an endorsement of casino capitalism, whether you "won" or "lost". And if you believe that the losers gambled and lost, then the winners gambled and won---is that a recipe for a healthy economic system?