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"Allocating the bail-out money directly to American homeowners would be a politically superior strategy than buying up banks or let hedge funds and private equity investors buy the toxic waste..."
In the start of the collapse that was just what I was saying, bailout the homeowner if you are going to bailout anyone and they will pay the banks and keep both from going under, but that ship sailed in 2008 so why do people now want to cry over spilled milk? They gave a cash gift to banksters in the trillions while citizens still lost homes, many still are damaged by bad credit, cumulatively they have lost 8-9 trillion in equity wealth, and not even half the fallout from the bubble blowing is yet to be seen. Not just politically superior but financially. There really should have been no bailing out of any entity, but once they went down that road you must see it is a one way street, there is no coming back. And the goddamned banksters did not even use the trillions in gifts, loans, and backstops to stabilize the housing situation, instead they immediately went into commodity and stock speculation driving up goods prices for everyone and imposing an inflation tax on an already battered people. Not to mention blowing what amounts to new sovereign debt and stock equity bubbles that also have to collapse as sure as the sun will rise in about 20 minutes.
I'm not underwater but I would take this deal. Why? I get to hedge my exposure to my house. There is also much better places to put liquid cash than the real estate market right now, so I'd put that money to work, essentially rebalancing my portfolio.
Is this a bad plan? Not necessarily ... but I reject the contention that this would help determine who has the (in)ability to pay off their mortgage.
They'll figure it out eventually.
Just go back to 12 year accelerated depreciation as they did in '81. Goodbye Fannie/Freddie hello 30% down payment and LIBOR plus 3 for the interest payments
And the market will stabilize down maybe 30%, And go up from there.
Ha ha ha. I have a simpler idea. Do nothing. That's the "capitalistic" way, and that's the "democratic" way.
If a family can afford a house which costs 2.5* its annual income, and if there are, say, 60 million American families whose annual income is, say, $60,000 a year, then there are, inescapably, 60 million American houses worth $150,000. Now, developers, homebuilders, realtors, bankers, and property appraisers might get too greedy, and therefore build, for those families, houses whose price tags are much higher, but sooner or later those price tags WILL get written down to $150,000. There really is NO PROBLEM.
For an analogy, consider a car company CEO who knows his customers scan only afford $15,000 cars, but who, hypnotizing himself with visions of huge margins on higher-cost cars, goes ahead and builds $25,000 cars. Sooner or later, those cars WILL get marked down to $15,000. There really is NO PROBLEM.
There really is no problem in an academic vacuum... The real world tends to overshoot on the "revaluation" and the process doesn't go swimmingly either.
Alot easier if you use my plan I put out there in early 2009. I say FUCK the banks.
Clawback all mortgage payments made between 2000 and (now 2010). Immediately re-apply all mortgage payments directly to PRINCIPAL. Yeah it fucks the investors in the MBS and the banks themselves, but so does all the irregularities and LYING that was purpetrated against the home buyers. This would immediately put a floor in housing prices, and maybe even bring them up. This would immediately put an abrupt halt to JINGLE MAIL, as people all of a sudden have equity in their homes and a reason to stay there AND TO CONTINUE making paymments. Effective January 1, 2011, all those readjusted mortgages become either 10, 15 or 30 years mortgages with 4.85% interest payments. Anyone accepting the terms of this agreement forgoes the mortgage interest tax benefit...NO OTHER TAX CONSEQUENCES are implemented. Owner of home must remain owner of home for an additional 2 years, otherwise thye must pay a penalty for the modification.
"In the Spring of 2009, US Treasury Secretary Geithner unveiled his plan to save the economy and the banking system. However, the plan still fails to fully acknowledge the negative dynamics of the still deteriorating housing market "
Because the bankers already had houses?
Luc - Sell...and stop wasting your time writing bad fiction.
I proposed a solution for this last year.
A Irish Sweepstakes, sell a block of ticket for each house @ 1$ for each dollar owed on the existing morgage on the house.
So even the poor would have a chance to win.
assuming a reasonable 6% annual nominal appreciation
Appreciation? Reality check Luc: the market has an OVERSUPPLY of vacant housing now, so assume 6%+ annual DEPRECIATION.
This clown has mush for brains. What is hard to understand about government mules?
1 There would be an adverse sort, only the worst property/situations would be "sold" to the Feds
2 The admin costs would be humongous. They always are with the gubment.
3 Even a decent plan is often swamped by unintended cosequences. Ditto for stupid plans.
Paying too much for a house is no different than paying too much for a stock or a used car. Suck it up, Dude.
"Paying too much for a house is no different than paying too much for a stock or a used car. Suck it up, Dude."
Except that in many cases a bank loaned far too much on the property and should be forced to take losses on it as well.
Exactly, if you grossly overpay for a stock that is at it's peak and it shortly goes into a tailspin and crashes, then you find out you were lied to about the fundamentals, the EPS, the book value, and the accounting behind it turns out to be a total fraud, that you were sold this stock by pump and dump con artists that not only operated with the approval of the SEC in violation of all our laws, but then is handed a blank check afterwards to shield THEM from any losses at your own taxpayer expense, well do not tell me to suck it up, YOU suck this up asshole, you are going to the gallows without trial or appeal.
That is the message we need to be sending to those that did this to us including their coconspirators in government, their enablers in the Fed, and the Teabagging pukes who tell us that the fact that we were swindled is our own fault.
It would be one thing if we COULD suck it up, but this swindle has broken the camels back of finance and economics, I say Americans just stop paying any and all mortgage debt negative equity or not till those that did this are stone dead at the end of a rope, and the banks that did this are dissolved, and rules regarding what can and can't be done in lending and accounting be restored to a simple uniform balance sheet, then properly enforced. Better yet, pay nothing on any debt till this is done, and till work is rewarded with a living wage, and till the proceeds of the frauds are wiped from the books. Economic justice or death, take your pick.
This plan is madder than a March hare if you ask me. So many assumptions. Why don't we consider my mortgage situation. I got a 100% guaranteed USDA Rural Development mortgage for 130k on a house that was valued at 132k in May 2008. This was after housing crashed by almost 50% already because some of the neighbors had paid over 200k for identical units. Over the course of the next year my house dropped by almost half again and when I saw there simply was not going to be a way out and that I would not be able to live long enough to ever see positive equity I realized my best course was to strategically default in July 2009, and let Chase foreclose. Since then it has dropped another almost 20,000, an identical unit just sold for 63,000 for a one owner three story 3 bed house built in 2006.
This plan would do nothing for me or millions like me because my mortgage was more than 50% underwater. Some of my neighbors were 70% plus up side down and prices are STILL falling. We could opt to take this deal and still have negative equity.
The key to your plan is the realization of a capital gain upon future sale that assumes both appreciation and the borrowers ability to continue to pay in the meanwhile. It is in effect a second mortgage to a person who now has damaged credit that wipes out in some part previous negative equity in return for a promise to pay if and when the house goes up in value and is sold. But it forces people to remain in the house until the house can be sold at a profit, and then forces them to sell when it can if ever be sold at a profit because of the new indebtedness to the government. I had a student loan once upon a time and you can count on this, I will never again owe a cent to the USA, it was a fucking nightmare for over a decade.
You cannot devise a plan that saves either the homeowners with such negative equity nor the banks who lent to them, one way or the other that gap between what was borrowed and what the homes are now worth is lost. Some of you, and indeed many in government have got degrees in finance like me but you seem to have forgotten a very important lesson, a sunk cost is one that must be written off, no but but but... no sweaty palm arguments of why it should not be, no hare brained ideas how to rescue it, it must be written off even if the result is bankruptcy.
We see now that not only is the negative equity a sunk cost that has got to be written off but now so are all the rescue efforts to date. None of the schemes to rescue banks or householders has worked and indeed they have only dragged sovereign credit into the mess as well, all in the name of keeping half a dozen corrupt TBTF gambling banks from going under, trillions in tax dollars have in effect been made gifts to private parties who were so greedy they would happily destroy the nation for a few extra bucks, that also is gone.
I am also sick to death of Teabaggers and neocons blaming the average American for the mess, for one thing the average homeowner has lost upwards of 8 trillion in equity that nobody in government or banking gives the first rats ass about even though it holds enormous future economic trouble for the nation. No matter how these sunk costs occurred or what has been tried and failed to date the losses are still there and simply getting worse. There will have to be a write down of the losses, we all know that but the argument has been over who gets to take the hit, hold the hot potato. I say it cannot be homeowners, they have already lost too many trillions in equity and as individuals just do not have the ability to pay the sums involved for the negative equity of their houses, and it cannot be government because handing it the losses is handing all of us the losses, and anyway it is plain that government can't absorb such losses without monetizing them, for one thing government accounting is cash basis while banking is accrual, they don't mix well, which is why all of you who cry about potential future unfunded liability to government for ongoing programs are wrong, the unfunded liability we hear so much about is accrual accounting and you cannot match up annual cash budgets with things like 75 year accounting horizons, it is not allowed in accounting.
We will not solve this issue until the mortgage losses are written off in real terms by the banks, and if losses mount to the point of wiping out any given bank then so be it, that is normal business life, they got greedy and shat in their nests. Other better run banks will replace them.
The proposal is just another kick the can government program to avoid the pain that has to be gone through before we can rekindle real growth. The real bottom line is that till real price discovery comes the people are going to be impoverished slaves to bankers, but when any real price discovery is realized it amounts to death for the banks that fucked us all, and for the status quo in government which has become so dependent upon borrowing from the bankers/fed (same thing). This all reminds me of a female who is lusty and without sexual restraint getting knocked up and then simply refusing to go through the pain of childbirth. Eventually that kid has to come out of there and when it does it is going to hurt. Then there will be a very long period of support which will require adult sober hard work, foregoing luxuries and holidays, and it is life and death stuff, either the USA survives in fairness and rational justice, or we all go down together, it is as if the we are all aboard the Titanic which has no lifeboats, either we fix the desperate situation in the hold below decks, even if that means stuffing the holes with bodies, or we all go down with the ship.
Excellent analysis of the situation. Unfortunately, what should be done (have the banks take their losses) won't be done. You can be sure of one thing, that TPTB will scare the public with threats of Armageddon if the public doesn't take on all of the banks' bad debts one way or the other.
Agree almost completely.
"I am also sick to death of Teabaggers and neocons blaming the average American for the mess," The Tea Party is blaming the Washington establishment.
It has taken a long time to get in this mess and it will take a long time to get out. There are no simple fixes. But I can offer a simple mantra: "Jobs, jobs, jobs!"
Another the-government-is-the-solution Plan.
Government should help distressed citizens, not distressed banks. This plan does that. Alternative - a new wave of foreclosures and a new wave of homeless.
The sad irony of the US - streets full of empty housing with millions of homeless or those living in shelters.
[Government should help distressed citizens, not distressed banks.]---Pay Day Today
Consider, citizens should help distressed citizens. If the government was to do that job, well, we'd end up with the mess we're in.
Banks? The irresponsible ones can burn to the ground.
Now. Onto a more alarming matter. The matter of your moniker picture. Maybe it's just me, but that young woman appears to be a minor, compromisingly exposed. If you know her to be a minor, please voluntarily select an appropriate pic. You appear to be an intelligent person. Surely, you can do better.
So, who do you propose fills the vacant houses? You're saying that allowing the market to clear would cause massive increases in the homeless population, but are you also suggesting that the owners of said houses would allow them to stay vacant? Just to spite the homeless or for some other sinister purpose?
Point being, you might be surprised how affordable housing will become when the market is allowed to clear. If home ownership isn't in the cards, then the rental prices will still follow the home prices down. Further, I strongly suspect many commercial properties will have to be converted to residential to get any hope of a tenant.
Further, the problem with this plan is that it does not apply to all distressed citizens (whatever the fuck that is)... only those dumb enough to saddle themselves with mortgages greater than their ability to repay. If you really want to have government involvement, then just cut to the chase and issue checks to everyone making below X amount, phased out to X... anything else is academic dishonesty and chcanery. YOU SHOULD NOT TRY TO PICK THE WINNERS AND LOSERS...
This plan would help the distressed citizen only if property values go up. Otherwise, it is another road to debt serfdom very similar to student loans, because they would be stuck with a recourse loan to the government.
System Reset - the only solution.
"(assuming a reasonable 6% annual nominal appreciation)"
Surely, you jest...
"(assuming a reasonable 6% annual nominal appreciation)"
Surely, you jest...
Great plan but, thw homeoners should have the option of paying the goverment off if homes do appreciate which I dont expect they will. I'm game.
"assuming a reasonable 6% annual nominal appreciation"
This is priceless. Isn't a big part of our current problems caused by the tinkerers' "plans" based on assumptions such as this?
"By selling the property for $300,000 in 7 years (assuming a reasonable 6% annual nominal appreciation), the homeowner's share of the house would then be $225,000; $35,000 above the $180,000 modified mortgage. Not bad for a $10,000 initial investment, largely under water today!"
Good luck with that one. This sounds a lot like the current budget projections from the government. Also, assuming that they really could sell it for 300k in 7 years, what will 300k equal in todays dollars? Maybe 200k?
Long term, the value of real estate is tied to household income. A country can artificially try to inflate the value of real estate by lowering interest rates or creating subsidies, but this never works long-term. Look at Japan...
Does the fact that the government does not have the money to buy the equity out in the first place have anything to do with it?
Doesn't anybody understand how dysfuntional it is to not be able to look at ANY aspect of their personal or business life without having to consider or account to the government?
If we do not displace the government from our lives, the govenment will displace our lives from us.
It may already be too late.
So, the banks and the government own the house between them? What could possibly be worse. Epic fail!
Does the USA have anything equivalent to the UK's housing societies, whereby tenants can buy a portion of their home that can increase as and wehen their circumstances improve? That's a slightly less diect way of acheiving something similar to the above and those people who take it up quite often find themselves in over their heads, even with maybe a 33% equity share and cheap rent for the 67% remainder. Housing is simply too expensive for a large portion of society - FACT.
33% still leaves half of Florida underwater. Up it to 66% and people will stay in their homes until they die.
Give me some forewarning though, because I'll need to lever up and get the biggest fucking monstrosity I can find... I like 2/3 discounts. Does the government's cut come out first or equally?
Was reading this plan up to the point where it says "selling to the government". Sir! The plan is disgusting! Like many others, it is just another fancy scheme to take my money and give it to the reckless homebuyers and stupid/fraudulent mortgage holders to compensate for their losses. Why should i pay for their losses and to make them better off and myself worse off? To improve general economy and well-being?
We have excellent mechanisms for solving such problem. They are called foreclosure and chapter 11. Let them work!!!
I paid off my mortgage and now free and clear and now you want me to finance someone elses problem with my taxes ? This is what bailouts have led to--more bailouts. The entire financial system is corrupt. Let it collapse and rebuild America from the ground up.
Duplicate - sorry.
Creative plan. But f-all, it will be no different than the bank bailouts. "If" the housing market recovers, there will be a big push by many (especially if the pool is large enough) to rescind the governments equity stake as it was too "onerous".
Yet again, loosers and intransigents win.
No more bailouts, period. Stop rewarding irresponsible behavior already. Default and let asset values crash until they find a real bottom. Bailouts only benefit paper-pushing fucknuts and hurt people who bring real value to the economy. Time to turn the tables and return compensation and power to those that add real value. Enough with the destruction of productive capital and real wealth.
Go long bulldozers and forget this commie solution. It's interesting that walking dead BAC is donating housing in the rust belt for tax credits (based on ORIGINAL LOAN) that are probably more valuable than a sale, especially as these homes have been sitting for ovr 2 years and are thoroughly trashed. The taxpayer giveaway to the criminals goes on and on and on.
Isn't this just a bailout of the bank?
Yes, Luc, like Leo, is a paper-pusher. Let the system crash and let compensation return to those that actually create good and services of real value. Fuck the "financial products" that detory productive capital and real wealth.
Better to tear down the real crap out there (which they are doing in several urban areas), sell the homes in good condition at market value and donate the fixer uppers to Habitat for Humanity or stick some Section 8 renters in there in some sort of sweat equity deal. The real problem is the inventory will explode with the next dip during this depression. 2010 was a record year for foreclosures and 2011 may beat it. The death spiral in housing lives on.
Hasten the Collapse, OBAMA 2012
Sorry, if your "bailout" necessitates assisting zombies with continued existence it is a complete fail.
As for "losing perspective on what brought us here"..check yourself. Throwing money at someone who could only put down 4% on a home they couldn't afford then and can't afford now while assuming 6% growth (that was a joke...right?!) is not a solution. Your "solutions" make about as much sense as trying to don a condom after you've penetrated and ejaculated without pulling out.
Give it up. The banks need to go poof for their transgressions. Period.
The basic problem is that there is too much supply of housing and not enough demand. I say reduce the supply by giving the banks a choice: either they sell the homes within 6 months at the best offer that the banks receive to a "qualified buyer" or they have to tear the structures down and keep the land until its buildable again (and so the banks do not have a fit, they can pretend that its still worth the same amount under the mark to model accounting scam).
In order to assist the banks in selling the homes, the government should institute an investor loan program where "qualified buyers", who puts down 25% and can show that they can rent the property at a rate to cover the mortgage, real estate taxes, insurance, get nonrecourse mortgages at 0% for 3 years, 3% thereafter, interest only for 10 years to purchase the property. If they have to put down a bigger deposit to cover the carrying costs, then thats the amount. Any property acquired must be held for 5 years or else the buyer pays a penalty to the government upon sale.
You are STILL entangling the government in the process.
Pray tell, what is your FREE MARKET solution? If there is not one then say so.
One cannot solve a problem utilizing the same tools/people that created the problem. Sound familiar?
Having government/Fed involved is NOT a solution since they created the problem.
"Government" is not a variable in all these "solutions" equations, it is a constant.
FCK! Why are you people so DUMB? Communists never gave out money to their citizens, or handed out freebies. I grew up in the Soviet Union, and gosh you people AIN'T GOT A FCKIN CLUE! Stop being such brainless morons, do yourselves a favor and at least Google before you say dumb shyte like this. Communists TOOK EVERYONE'S PROPERTY while ADVOCATING A PIPE DREAM - i.e. common communal ownership of everything. The very goal of Communism (on paper) was to get rid of money as means of value. Everyone was supposed to be valued by their "common contribution" - notice this also meant that not everyone was going to be "equal". In reality, Communists expropriated all property and used terror as means of governing.
So now for those of you who processed all of the aforementioned, handing out money is not COMMUNISM, STOP SAYING THAT. Handing out money to everyone is just plain stupid, it's JESUS GONE WILD, it has nothing to do with communism. Btw I hate both Communism and the Fascist Feudalism which is currently under construction here in America. Peace out.
Yes, people who know nothing about communism certainly like to talk about it a lot. I spent two weeks in St. Petersburg in 1996 while trying to establish a partner for some of our operations in Russia. At that time, we were unsucccessful because "the state" had not completely let go of the reigns. We were succesful later, but the contrast between those who understood ownership and performing a service of real value and those who felt entitled to simply take what they wanted was astonding. So long as we are talking about Russia, can any FX traders comment on the future of the ruble relative to the dollar in the short term. I realize all fiats will die eventually.
I am a well heeled Russian and I would not advocate for any business with the Russian Federation. It's one giant prizon camp where inmates run the big house. As to the "Rubble", who can predict which house of cards falls first? Or second? Does it even matter?
Fair enough, the Russians I deal with are good people. I do my homework and know all my employees very well. This is what is means to take real ownership of a company, I wish more directors understood this.
You are on the right track. But to get protection from a government initiated "raid" one is required to acquire "krysha" - aka a well placed bureaucrat or state police general - thus becoming part of the system and an eventual statistic...
Bullshit. As someone who has run a successful business and paid off several mortgages, BULLSHIT. FAILURE should not be rewarded, PERIOD. How about if we let ALL irresponsible parties and people FAIL for a change.
Trust me, many of us with capital (in many forms) are simply waiting for the government and idiots like you to sit down, shut up, and take your medicine so that the power can be transferred to responsible people who won't bullshit our employees or the populace about how everyone will be saved without working hard and how your health and future will be fine.
Bullshit, the laws of physics and Nature make no promises regarding whether you will be here tomorrow or not, even if you work hard.
Moving forward, EVERYONE must bring REAL VALUE to the table, period. Pushing paper does not create any real value.
As a serial entrepreneur myself, I can only agree with you. Another government thumb on the scales cannot be good. Where do the bailouts stop? As was pointed out above, student loans, car loans, etc., can only be the next in line for "saving markets" by the government. Stop now. I was going to say before it's too late -- but it's already too late. This is a case of stop digging.
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