I wonder if this means that I can invite myself over to my 'underwater' neighbor's house for Christmas Dinner ? After all, if this plan goes down, taxpayers like me will be paying more money to his mortgage lender than he is on a monthly basis !





I wonder if this means that I can invite myself over to my 'underwater' neighbor's house for Christmas Dinner ? After all, if this plan goes down, taxpayers like me will be paying more money to his mortgage lender than he is on a monthly basis !
Not everyone with an ARM is subprime. Not every subprime will default. Yes, we'll probably have to bail some homeowners out and it sucks.
If anyone in Texas has an ARM that is about to adjust, you can contact me and I can potentially put you in touch with a great mortgage person that can help you re-fi (its not me, I make no money off of this, FYI.)
"Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
"And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion
Originally Posted by Mia M





^^^ but why bother to refinance if the gov't is going to cut a deal with mortgage lenders to leave 'teaser' rates thus below market monthly mortgage payments in effect for the next 5 years ? The Fed and the industry are on record that an individual case by case review will NOT be practical ... meaning that whatever rules that wind up being laid down will apply to broad categories of homeowners with 'teaser' rate ARMs !
So even if someone could easily afford making a $2000 a month mortgage payment on a readjusted ARM instead of a $1000 a month mortgage payment at the 'teaser' rate, why on earth would they want to 'throw away' $60,000 worth of gov't subsidy money in favor of paying the mortgage lender out of their own personal pocket ?
If the subsidy winds up being income based, the equation changes a little bit. If someone earning say $60k a year or less is eligible, but a person earning say $70k is not - and if the de-facto difference in out of pocket cash will be $1000*12 = $12k per year after taxes or $15k per year before taxes, the person with a $70k job will actually be better off by $5k a year if they quit their $70k job and take a $60k job instead ! If you're a dancer, if you have an ARM and if you have earned $59,000 by Halloween, do you keep working for the rest of the year and lose your ARM subsidy or do you 'take an extended vacation' and keep your ARM subsidy ? This exact same phenomena is already known to cause these sorts of behaviors near the maximum income eligibility thresholds for medicaid / social welfare programs. The mortgage bailout program will merely shift it up the income scale a ways.
Of course there are probably going to be a bunch of irate fixed rate mortgage homeowners and renters who chose not to put themselves crazy into debt to buy a home with zero equity who will be penalized (via higher federal taxes to pay for these new subsidies) for their fiscal REsponsibility ! As I mentioned in another thread, this bailout plan raises the bar of 'moral hazard' to a new record high !!! Just as important, it will send exactly the wrong message to all Americans (in my own opinion at least) ... don't worry about being financially responsible ... because the gov't will make sure that your neighbors will be made to pay for your irresponsibility !
Of course, it's also possible that Paulsen's final bailout plan will shift only 1/2 of the burden to US taxpayers (via tax credits issued to mortgage lenders in exchange for freezing ARM interest rates, by transferring frozen interest rate loans from the lenders to US taxpayer guaranteed Fannie / Freddie etc.), but will also shift 1/2 of the burden onto mortgage lender's wholesale capital sources and/or stockholders ... which will have the additional unintended consequence of causing future capital for new loans to disappear !
(snip)" Making the credit crunch crunchier
Remember, the only reason those teaser-rate loans were made in the first place was because lenders (and thus the investors buying the mortgages from the lenders) could count on a much larger, contractually guaranteed payoff in the future, when those interest rates were due to reset. Take away that payoff, and you take away any incentive to loan to borrowers of marginal credit quality. Usher in an era when government and banks reset loan rates at their whim, and you can be sure that investors will never again buy securities based on adjustable-rate mortgages.
If you think credit is tight now, just wait until you yank away potential returns from the people putting up the capital for all those loans.
And let's not forget that Paulson's plan introduces an incredible moral hazard. By rescuing greedy and naive borrowers from their mistakes, our government encourages others to take big, stupid, bankruptcy-inducing risks, secure in the knowledge that the government will bail them out when times get rough. That means trillions of dollars in capital will be ill-invested yet again, something that's much less likely to happen when speculators are made to suffer the consequences of their behavior. "(snip)
(snip)" No free lunches
Here's another problem. Someone is going to have to foot the bill for this. Banks and associated entities that will, over the short term, finance this homeowner bailout are not going to do it out of the goodness of their hearts. Reported Hope Now Alliance honchos such as Countrywide and Citigroup (NYSE: C) are, I'm certain, only doing this because they hope it will be cheaper than having to pay up for their lending sins all at once. Moreover, it gives them a chance to look like good guys who care about the commoners -- never mind that they were quite happy to fleece borrowers with gawd-awful mortgage "affordability products" for years.
Still, this will sting some of these banks and mortgage servicers, so you can bet they're going to pass along the costs. They're going to do it by firing employees. (Countrywide and Citigroup are already doing that.) They're going to do it by moving offices to offshore tax havens, outsourcing, closing branches, lowering deposit rates, hiking fees, and whatever else it takes. (Golden parachutes for Wall Street failures are pricey.)
Worst of all, they're going to do it by soaking future borrowers -- people like the majority of us, who didn't do something stupid -- with higher rates than we would have otherwise paid for mortgage loans, credit cards, and commercial loans. They'll have to. They've got their own lenders to pay, and those lenders aren't going to simply hand over-stretched Americans a pile of money. "(snip)
~
Last edited by Melonie; 12-03-2007 at 01:32 PM.
^ I'm sure they'll have some kind of "protection" that the only people who qualify for the rates are the ones who have already proven financial difficulties and can prove the hardship in paying the increase.
I'm sure that they're not going to give EVERYONE that break.
Corruption on a massive scale.
Perhaps we should let the gamblers lose their money properly.
But the country has grown so corrupt, those with the power to take will continue to take.
This is no bail out for the poor mortgage holder who was to fiscally ignorant to make a good decision.
This is a bail out to the wealthy who know the dice are loaded.





this plan certainly won't give everyone a break. However, it could wind up giving everyone with an ARM a break ... or everyone with an ARM whose earnings fall below some arbitrarily established threshold a break. Paulsen and some big investment banks are already on record as stating that an individual case by case review of the ARM mortgage holder's personal financial situation will NOT be conducted, thus whatever bailout policies that will be enacted will be categorical.
Of course there is still some discussion that taxpayer money will not be directly involved in the bailout. However, shifting the 'losses' solely onto mortgage investors will have unintended consequences as well ...
(snip)"The idea is that the current interest rates on various ARM loans would be frozen for 3-7 years until the buyer is ready to re-finance into a fixed rate mortgage. The plan is in response to the escalating wave of foreclosures sweeping the U.S.; additionally it hopes to shore up confidence in both the housing markets and the financial sector. However, not only will the plan have rather limited efficacy, but it will create some additional problems.
Reasons for Limited Efficacy
1. The program doesn’t address the core issue causing people to default on their mortgages/go into foreclosure: they purchased a home they couldn’t afford and complicated the matter with an unsustainable mortgage.
2. In many cases the banks don’t own the mortgages that would be “frozen” investors do, investors that won’t sit idly by whilst the Government attempts to place a cap on their earnings. Banks agreeing to freeze ARMs for a period of time, is a relatively meaningless gesture in many cases.
3. If you study the marketing speak surrounding most ARM mortgages, they’re touted as a way for home buyers to qualify for a larger loan then they would with a fixed rate mortgage. In other words, many lenders were originating loans that the buyer could only afford at the initial teaser rate anyway. Nothing short of leaving the loan at the teaser rate indefinitely, a sharp increase in the buyer’s income or a 3rd party reducing the principle on the loan is going to help many holders of ARM loans. Pushing out the ARM reset for several years is nothing more than a delay tactic.
4. In all likelihood a significant percentage of ARM mortgage holders with good credit/the financial wherewithal/good sense have already refinanced their ARMs into fixed rate mortgages. The credit crunch undoubtedly slowed this trend a bit, but generally speaking your prime buyers have either refinanced their ARMs or will do so very shortly.
5. Like most plans this one will likely be limited to home owners that are current on their mortgages, which does little to stem the tide of foreclosures and/or prevent bank losses as it’s not targeting the homeowners that are actually in trouble.
6. Many of the ARM mortgage holders that can’t refinance right now (even if they’re current on their loans), are largely living on the edge. The weight of their current mortgages is preventing them from improving their credit and shoring up their finances. Extending the time period for 5-7 years only delays the inevitable in many cases.
When we consider points 1-5, what do we come up with? A program that means nothing to prime borrowers who can already refinance their ARMs, can’t help those who can only afford the teaser rate and can’t really be implemented on mortgages that were sold to investors. Furthermore the program encourages your solid, prime-credit buyers to put off refinancing their mortgages, and just delays the inevitable for many of the shaky buyers.
The Unintended Consequences
1. Mortgage backed debt securities are valued based on the income investors can expect to receive from them. Freezing interest rates reduces the value of these securities, which will lead to another round of massive write-downs from the financial sector. More importantly, debt securities will be even less attractive to investors than they are now, which will only make the credit crunch worse.
2. Without the liquidity provided by mortgage debt investors, a smaller number of people are able to purchase homes. On one hand, the housing boom was caused by credit-worthy people being given too much money and many unworthy people being given mortgages in general. However, the Paulson plan could chase investors away from the mortgage market and could result in a smaller number of creditworthy buyers being able to buy homes at all. As a result, a situation could develop where the housing market is deflated past the correction point it’s currently heading towards.
3. Following on point #1, making the credit crunch even worse will reduce the amount of liquidity available to potential home buyers, restrict M & A activity and reduce commercial loan liquidity for everyone from regional companies to publicly traded ones. After the events of the last 3-4 months, why would anyone want to make the credit crunch worse?!
4. The moral hazard of bailing people out of their own decisions, whether it’s a homeowner or your local lender, comes with a whole host of negative consequences. From the homeowner’s perspective, we’re sending the message that the Government will always step-in and save people from their bad decisions AND we’re going to encourage more of the bad behavior from the housing boom. What’s wrong with using your home as an ATM machine if the Government will bail you out? Lenders should be afraid of having lending standards that are so low they help cause a housing crisis, as opposed to being sent the message that they don’t need to consider the macroeconomic impact of their actions because the Government will bail them out.
In short, the bailout plan is likely to eviscerate the mortgage securities market (and it’s in sorry shape to begin with), deepen the credit crisis, weaken housing markets further and encourage bad behavior on the part of both home owners and lenders."(snip)
agreed more or less. This plan will only postpone an eventual day of reckoning for people who bought houses that they couldn't afford. Unless these people have a major increase in income (not), or unless the mortgage debt is reduced by a third party (i.e. forced losses on wholesale mortgage investors and/or taxpayer funded subsidies), these people still can't afford the houses that they will be allowed to continue living in. This either means that the frozen interest rates becomes a permanent new 'entitlement' program, or that these homeowners will still face bankruptcy the minute the interest rates are unfrozen.This is a bail out to the wealthy who know the dice are loaded.
On the other hand, since the big banks actually 'own' very few ARM's thus they themselves won't have to take large direct losses, agreeing to freeze interest rates is worth a great deal to big banks by postponing the downrating of the mortgage backed securities and CDO's that they ARE holding ! The same problem exists however re postponing the inevitable ... unless of course the frozen interest rates become a permanent new 'entitlement' program.
Last edited by Melonie; 12-03-2007 at 09:36 PM.





It would now appear that the rate freeze deal will also include some fairly important fine print. For example, one of the concessions under discussion is an official federal endorsement of tighter creditworthiness standards for future borrowers. Translation - the return of 'red-lining' and/or wholesale denial of future mortgage credit to low income or 'shaky' borrowers, without fear of gov't retribution / discrimination lawsuits etc. against the mortgage lenders.
If you are an independent contractor dancer, this means that there is a very high probability that if this bailout deal comes to pass that you can forget about getting approved for a new mortgage for the next 5 years ... unless of course you have other assets / investments which have equal value to the house you propose to buy, unless you have 20% plus closing costs to put down in cash etc. Mortgage lenders will very probably consider 'strippers' to be insecure 'workers' in an unstable politically vulnerable industry, and as such a 'high risk' borrower who they may now turn down flat without fear of negative side effects.



If you don't have 20% downpayment, it is only safe for yourself to not own a home. Home Ownership is overrated anyway as renting is much cheaper.
Eg: If you own a $400,000 home, your after-tax cost of financing and after-tax property taxes may be around $27000 - $32000; Much more expensive than renting a similar home for around $1800-$2000. I'm not even adding the additional maintanence cost that you incur.




The one thing we are not looking at on this thread is what would happen if this plan wasn't implemented. If the current rate of foreclosures was maintained in the coming year the effect would be catastrophic.
Investors would get even less of a return, banks would be taking on many more losses, these home owners would be out of their home, and the housing market in alot of areas would go to hell.
I think of all the solutions that have been talked about this is the best possible choice. It gives troubled homeowners breathing room, even though investors return may be less ( it is hard to tell if the foreclosure rate went up what their return would be) this insures that they will get a level of return, and it gives the housing market time to level off.
There may be unintended consequences. But if you compare it to the alternative of doing nothing it looks alot better.
This is NOT a permanent "entitlement" program. This a temporary fix for a problem created by the greed of investors and banks.
Nature knows no indecencies; man invents them. ~ Mark Twain





we'll see 5 years down the road when the 'freeze' is scheduled to end, when the same people who can't afford to pay a 'reasonable' interest rate / monthly payment today still can't afford to pay one then.This is NOT a permanent "entitlement" program
au contraire. You might want to check your history on HUD and fannie mae / freddie mac policy directives handed down late in the Clinton administration - as well as banking regulations requiring X percent of 'community lending' - as well as regulatory bars against 'red-lining' and other lending risk controls. While these mandates were politically correct, and ostensibly enacted by politicians with good intentions, the unintended consequences were far from trivial.This a temporary fix for a problem created by the greed of investors and banks
It is entirely arguable that mortgage lenders were directed by gov't / regulators to make 'shaky' loans that they would not have otherwise approved as a result of these policies. It is further arguable that the mechanisms developed to 'transfer loan risk' from the lender to a third party were the consequence of lenders being officially coerced into making loans that , if left to their own decision-making process, would have been denied on the basis of excess risk.
Yes banks and investors are greedy ... they have always been greedy and they will always be greedy. However they are not suicidal.
Perhaps so at this particular moment in time. However, the view from 5 years down the road may be quite different. If no bailout was implemented a lot of homes would be foreclosed on ... a lot of bankruptcies would be filed ... a lot of banks and their investors will lose a lot of money ... real estate prices will fall significantly. However, once this bad debt is flushed out of the system the economy can begin to recover on a solid basis.But if you compare it to the alternative of doing nothing it looks alot better.
But if this bailout is implemented, in terms of direct effects it will forestall foreclosures and bankruptcies for 'some' Americans - at the expense of other Americans. A lot of sick mortgages and sick banks will continue to limp along ... arguably now totally dependent on the continuance of the bailout. Investors will lose less money initially, but will choose to protect themselves from future losses by refusing to front capital for additional lending in a market / political climate where the 'rules can be changed after the game has started'. This is very likely to result in a credit crunch which will be just as bad for the economy in general - and much longer lasting - than a deep but quick 'crash' and subsequent recovery.
Getting out from under this credit crunch is only going to happen in 2 ways. Either Americans are going to be forced to save money, or capital will have to be attracted by selling off yet more American assets. In the first scenario the American standard of living drops a la Japan of the last 10 years. In the second scenario America becomes a financial 'colony' for foreign owners / capital investors a la India.
Last edited by Melonie; 12-05-2007 at 06:45 PM.
Not to mention it is a complete war against the fiscally responsible and savers.




This thread is a pretty bad misrepresentation of the "bail out" to the limited extent that I understand it. In fact, it is not a "bail out" by taxpayers at all in any normal/literal sense. The govt will not be paying anyone's mortgage payments for them or guaranteeing anyone's mortgage etc.
Rather the lenders are voluntarily extending much more favorable loan terms to subprime ARM borrowers (in order to avoid even more financially unfavorable outcomes for themselves). Unless I have missed something, the government has simply facilitated the negotiation of a uniform loan restructuring by all of the major lenders rather than having each offer its customers different deals. Why is this so objectionable and in what sense is it a "bail out" by the government?
Is it possible that it is good news, given the situation? Or is good economic news an oxymoron in the Dollar Den?
-Ww
"At this moment what more need we seek?
As the Truth eternally reveals itself,
This very place is the Lotus Land of Purity,
This very body is the Body of the Buddha."
- Zazen Wasan



I'm also pretty sure, the difference in interest rates get accumulated on the account itself.
Say, you borrow $100,000 and the Rates reset to 6%. or $6000 p.a
By making the teaser rates stay at 1% or 2%, the difference of $4000-5000 goes back to the borrowers account. So, by next year the borrower owes $104,000.
This is no different than many student loans. By extending this teaser rates, you have given a better buffer for
a) The Housing market to stabilize and return to normal gains of 3-5% / Year
b) Allowed the Homeowner to stay in the home
c) Given a better chance for the lenders to recover the money.





ahem ... part of the deal is a transfer of some of the 'riskiest' loans to Fannie Mae and Freddie Mac ... meaning that the US taxpayer will eat their losses. Another part of the deal is tax credits for banks that 'volunteer' to freeze their interest rates ... meaning that the shortfall in tax receipts will have to be made up by higher taxes on other US taxpayers and businesses. Granted neither of these involves a direct handover of cash from the US treasury to the banks, but they will involve a s#@tload of additional taxpayer dollars nonetheless.
Also, this bailout plan is going to cost US residents more money in other ways. By 'screwing' mortgage investors out of their contracted rate of return on mortgage backed bonds etc., those investors will respond with reduced willingness to lend thus higher interest rates being charged on all sorts of future loans which must be financed with investor capital. Unless you see the US average savings rate suddenly going from negative six percent to plus six percent, it will either be investor capitalized loans at (premium level) high interest rates or no loans to be had !
If the shortfall in interest payments does get tacked onto the outstanding principal on a monthly basis for the duration of the interest rate freeze, it is virtually GUARANTEED that this bailout will become a new permanent 'entitlement' program. The reason of course is that if interest rates were to be unfrozen 5 years down the road, and the outstanding mortgage principal has grown by 30-40% ( i.e. an interest rate differential of 5-8% per year piling up for five years), those homeowners will merely be in 30-40% DEEPER financial trouble than they are right now ! And from a loan risk standpoint, the interest rate freeze will effectively convert a mortgage loan that is currently 10-20% 'underwater' versus the value of the collateral into a loan that is 40-60% 'underwater' 5 years down the road versus the future value of the collateral.
Again we circle back to the basics ... expected after tax income of the borrower, versus market prices for real estate, versus interest rates. With absolutely no reason to expect any huge productivity increases from US workers that would exceed their increasing tax burden, after tax income is unlikely to improve over the next 5 years. With the foreign currency 'carry trade' being killed by the falling US dollar it will also kill off the availability of cheap Yen loans, thus there is no reason to expect the return of <2% Fed Funds rates for the next 5 years. And the tightening creditworthiness standards that are already taking effect will reduce the pool of 'qualified borrowers' thus also reducing demand for what is already a record breaking oversupply of housing.
The proverbial 'tin foil hat' crowd would tell you that there is only one door open which would actually allow this bailout plan to achieve it's supposed objective of allowing troubled homeowners to afford their houses in the future. That door involves running US dollar inflation rates that are significantly higher than the 5-8% interest rate differential that was discussed earlier. By inflating the US dollar price of everything on earth EXCEPT pre-existing mortgage debt by say 10% per year, over the 5 year freeze period the US dollar denominated paychecks of US workers would go up, the US dollar denominated market prices of housing (thus dollar value of collateral) would go up, but outstanding mortgage debts would NOT go up ... meaning that at some point the troubled homeowner will be able to afford his unfrozen interest rate monthly payments. Of course some other side effects of a 10%+ inflation rate will be tax bracket creep, $6-7+ per gallon gasoline prices, 14% interest rates for future fixed rate mortgages, 20% interest rates on Platinum credit cards etc. So in effect existing troubled homeowners will be allowed to 'keep' their houses by ensuring that most would-be future homeowners can't ever afford to become homeowners !
~
Last edited by Melonie; 12-06-2007 at 11:12 AM.





here it comes ...





and not meaning to say 'I told you so'... but
(snip)"`If the government goes in and changes contracts it will definitely have a chilling effect on the securitization of mortgages,'' said Milton Ezrati, senior economist and market strategist at Lord Abbett & Co. in Jersey City, New Jersey, which oversees $120 billion in assets. ``When the government comes in and says you have contracted to have this arrangement and you can no longer have it, I think it opens the door for lawsuits.''
Bush and Treasury Secretary Henry Paulson yesterday announced an agreement with lenders that will fix rates on some loans for five years. The deal will help borrowers who will fall behind once rates reset to higher levels through July 2010. The plan may force investors in the $6.3 trillion market for home- loan bonds, created by pooling loans and funneling interest payments to bondholders, to revalue their holdings.
``It could end up there's less confidence in the viability in the bond markets and the mortgage markets going forward and it could lead to higher interest rates and higher mortgage rates for everybody,'' said Kenneth Hackel, managing director of fixed- income strategy at RBS Greenwich Capital Markets. "(snip)
(snip)" Subprime `Winners'
The government's plan makes investors in low-rated and unrated bonds backed by pools of subprime mortgages ``winners'' while bondholders of higher-rated securities will have their risks increase, said Andrew Chow, who manages $7 billion in asset-backed bonds at SCM Advisors LLC in San Francisco.
Owners of ``residuals,'' the unrated pieces of deals, are the first to have their interest end when homeowners can't meet their mortgage payments.
The plan may end up increasing losses for senior debtholders if home prices continue to decline and the borrowers end up defaulting, Chow said. Without the plan, those holders may have faced only ``modest'' losses, he said.
``I've never seen anything such as they're suggesting here in my career,'' said Lord Abbett's Ezrati, who has worked in finance for 36 years. ``It would be the equivalent of telling you the coupon on a bond is being changed.'' "(snip)
Yea, this is gonna be entertaining.
Thank you!! What is it about Americans' obsession to owning a house? And I think we may be the only culture that will put our lives in financial jeopardy for the sake of owning. Look at the Germans, for example. They usually don't purchase their first house until later on in their lives (I can't tell you how many of my 24 year old friends have a damn house right now that they can't afford), and they only buy one house!!





If you dig into this, I think you'll find that it's a legacy from the 1950's ... that home ownership is necessary to prove that you are 'middle class' or something. The 1990's HUD directives to Fannie / Freddie and bank 'community service' regulations, which essentially required that a certain number of mortgage loans be approved for 'poor' people who really couldn't afford to own houses, sort of put an end to home ownership as a symbol.
Of course there was a time that deducting mortgage interest from your income tax liabilities was really worth something. However, thanks to the Alternative Minimum Tax, the value of that deduction is being reduced for more and more taxpayers every year.
And there was also a time when the market prices of homes was 'guaranteed' to go up faster than inflation, which made borrowing up to your eyeballs in order to purchase the most expensive house that you possibly could would provide the greatest return on your investment. However, heavily leveraged investments work the same way on the downside as they do on the upside ... multiplying your losses !




Right, and it has been true for close to 3 generations now that the best long term investment the average American makes during his/her lifetime is buying a home as a residence. Moreover, it is a good bet that this statement will still be valid when the current situation of the real estate market has faded into a vague memory.
-Ww
"At this moment what more need we seek?
As the Truth eternally reveals itself,
This very place is the Lotus Land of Purity,
This very body is the Body of the Buddha."
- Zazen Wasan




In other words, it is not a "bail out" according to the conventional usage of the term, which was my point.
But leaving aside semantics, let me ask a couple of more basic questions of you, Mel, and others who see the current situation as prelude to economic catastrophe and the plan (whether you call it a "bail out" or something else) as financial folly: What action, if any, would you advocate for the govt, the Fed, the large lending institutions in question and so forth in the current situation? What do you think they should do instead? And, on a related but slightly different tack, what *plausible* economic development over, say, the next 6 months would you consider to be good news? Can you imagine, even as a hypothetical, good economic news? With all due respect, reading DD on an occasional basis over the past few years, I get the impression that the consensus view here is *always* that the economy is in a mess and about to crash down on our heads; is this a misperception on my part?
-Ww
"At this moment what more need we seek?
As the Truth eternally reveals itself,
This very place is the Lotus Land of Purity,
This very body is the Body of the Buddha."
- Zazen Wasan
In the last few years we've had one of the best bull markets in the history of the market!
"Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
"And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion
Originally Posted by Mia M





As to the government, they have a constitutional responsibility to defend private property rights i.e. the validity of contracts. As to the mortgage lenders, they have an obligation to be trustworthy. This mortgage bailout plan violates both obligations ...What action, if any, would you advocate for the govt, the Fed, the large lending institutions in question and so forth in the current situation?
(snip)" ``Simply freezing interest rates on some U.S. first-lien subprime mortgage loans would have a negative impact'' on ratings of some residential mortgage-backed securities, analysts at New York-based S&P wrote in a report today. S&P said modifications to the loans will mean reduced payments available to investors from creditworthy borrowers.
I am happy that I am not the only person who is against this rescue plan. Goldman Sachs, the deceitful seller of these bonds, is sweating bullets that they may be in legal trouble due to this. So they and the other five big financial houses are anxious to paper over their messes. But on the other side of this ledger is the huge derivative triangle we saw above: the $500 trillion in shadow wealth. This system is losing money rapidly and by freezing rates, it actually makes things worse which is paradoxical. The foolish home owners who played cynical interest rate games with mortgage brokers who were playing with bond sellers at the 5 big banking/investment houses, created this mess. They sold all this to investors, many of whom are hell hounds living on Queen Elizabeth's pirate coves [reference to anonymous uber-rich American 'Private Banking' / Hedge Fund investors, many of whom operate out of the Cayman Islands to escape US taxation - sic]. They are glaring with deadly eyes at all this and might let the system collapse, or rather, cannot stop it from collapsing. For it needs carcasses and dead meat!"
Death. It needs to feed off of the bankrupts! Far from fearing bankruptcy, they need it! Letting people borrow money for less return is death to these investors. They need greater, not lesser, returns. This is a paradox and of course, life is one long paradox!(snip)
(snip)" The government's intervention to streamline the mortgage industry's process for evaluating struggling borrowers was a necessary step, Treasury Secretary Hank Paulson said in the Wall Street Journal on Friday
*snip*
"This framework will not prevent all foreclosures, nor should it. Some borrowers, particularly those who received loans under the most lax underwriting standards and who haven't even been able to make their initial payments, likely will become renters again."
Note how Paulson must pet the three headed hell hounds. But they want bones. On top of all this, the relaxation of lending rules troubles them. And it troubles me. Why bother with contracts? The Californian attitude of 'tomorrow is another day,' is pure Scarlett O'Hara. The desire for iron-bound bonds to suddenly become 'whatever' is strong. If only we can change terms within a few months of signing contracts! Heh. Fun, no? Indeed, the people signing these things were hoping for PROFITS. They thought the market would go up and up and their gamble would pay off in less than two years. When it didn't, they defaulted, fast. The only way to fix this is to speed up defaults as much as possible, drop the prices to pre-balloon prices and then deal with the collapse of the shadow economy of derivatives by passing draconian banking laws re-establishing the old banking rules that were increasingly suspended or toyed with ever since the US currency collapse of 1974."(snip)
from
... so my answer to your question is very simple - 'caveat emptor' !
Let the 'shaky ' home mortgage holders go bankrupt ! Let the housing values drop ! Let the investors in 'risky' bottom tranche 'mortgage' paper take a one shot loss ! Let the banks clear out the bad mortgage debt via writing it off ... and if this causes a few banks to fail so be it ! In this way, and ONLY in this way, will the pain of the housing collapse fall on those that profited the most when it was rising. In this way, and ONLY in this way, will the proper lessons be learned the hard way, such that the past mistakes which allowed the real estate bubble to grow to the ridiculous won't be repeated in the future.
~
Last edited by Melonie; 12-08-2007 at 04:21 AM.





I suppose this depends on which parts of the economy you're looking at. Obviously the S&P 500 is only one measure of our economy, as is real estate. Other aspects of our economy sometimes discussed in Dollar Den are actually doing very well i.e. the oil industry, precious metals, upscale retailers etc.I get the impression that the consensus view here is *always* that the economy is in a mess and about to crash down on our heads; is this a misperception on my part?
Don't take this wrong, but it's possible that you may be viewing 'our economy' through politically correct glasses.
I would also point out that where the S&P is concerned, my own Dollar Den posts have tried to be very clear that there is a lot of volatility involved ... thus there are times when one can profit by betting on the S&P going up (like from the day that the mortgage bailout plan was announced, or the day that the 7,5 billion 'gift from Allah' was announced), but there are times when one can profit by betting on the S&P going down (like when the big investment banks are forced to report more subprime losses / writeoffs at their end of quarter). Thus from a short term 'trader's' standpoint, one really doesn't need to worry whether the long term trend is up or down, but only about betting on the correct side of the latest short term whipsaw. But from a long term 'investor's' standpoint, I wouldn't touch the S&P with your 10 foot pole right now due to the volatility. Of course these latest 'Deus ex Machina' interventions by governments and/or sovereign wealth funds directed by governments (ours, the UAE, China, Japan, Saudi) only make the volatility worse !
I'll also grant you that Dollar Den discussions often place disproporationate focus on elements of the economy that affect the 'middle class' as opposed to the uber-rich or the 'poor'. The reason for this of course is that this is a dancer's BBS, that 'middle class' customers provide the vast majority of the earnings potential for the vast majority of dancers, whereas (with very few exceptions i.e. super upscale big city clubs) the uber-rich do not, and with no exceptions the 'poor' do not. Since economic issues affecting our 'best customers' naturally affect us very quickly as well, IMHO they are worthy of greater attention !
Ultimately, concern for the future financial health of our 'best customers' is what drives my aversion to this mortgage bailout plan, rather than some lofty free market idealism or economic principles. As all of these news articles about the mortgage bailout plan point out, the de-facto effect will be to raise the cost of borrowing for our 'best customers', to extract more tax money from our 'best customers' (by indirect means it would appear), and to devalue the savings / investments of our 'best customers'. From the standpoint of a dancer, I would far prefer that 10% of my 'regulars' ceased coming to the club because of bankruptcy while 90% continued to spend money as usual, rather than having 100% of my 'regulars' still coming to the club but ALL of them reducing their spending by 30-50-70% !!!
Case in point ... if you check the threads in other forums about club activity, you'll find first hand evidence of this point. Right now the super upscale Manhattan clubs are starting to fill up with brokers / bankers / corporate execs who are spending money like water because they know that a 6 or 7 figure christmas bonus check is only a few weeks away. On the other hand, the vast majority of reports from girls working in 'regular' clubs whose customers are primarily 'middle class' guys are that the clubs and dancers now appear to be struggling. The bottom line is that 'the economy' that really matters to dancers at Scores or PEC ( who should be rejoicing from this mortgage bailout) is not the same 'economy' that matters to dancers working in the vast majority of other clubs ( who will be hurt by this mortgage bailout) .
!
Last edited by Melonie; 12-08-2007 at 05:12 AM.




Thanks for the nice clear and simple answer to a clear and simple question, but 1) do you really consider this a plausible development and 2) haven't you repeated explained how such a collapse would spread through out the world (or at least national) economy and bring ruin to many who have no direct and close connection to the real estate market?
-Ww
"At this moment what more need we seek?
As the Truth eternally reveals itself,
This very place is the Lotus Land of Purity,
This very body is the Body of the Buddha."
- Zazen Wasan
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