It Wasn't the Sub-Primers After All… Who Would Have Thunk It?

Have you ever waited for a day to come? A special day. A day when all would begin to look right in the world once again. My first such day was April 10, 2000… the day the dot-com bubble went pop. The sound was so loud you could hear it from Silicon Valley to Wall Street, and it took quite a while for the country to get the gum out of its collective hair.

It's not that I was gloating, far from it. It's never fun to see your country plunge into a recession during which some $7.3 trillion in consumer wealth would soon disappear. All I'm saying is that on April 10, 2000, I started to understand the world again, and it was a good, safe, calming feeling.

You see, I never went in on the whole "new economy" thing. "There's no such thing as a new economy," I'd said so many times during the years 1997-2000. Someone wanted me to buy furniture.com. I didn't. The company was one of the first to go under. Why? Because, as I suspected, people like to sit a couch before buying it… go figure. I was told to buy Pets.com too, but didn't. Why? Because I suspected that it might be expensive to ship 50 pounds of kibble across the country overnight. Who knew?

During those years I was consulting for companies and I felt like the whole world had gone start raving mad. Companies with no profits were trading for 1,000 X earnings because they were "monetizing eyeballs". Kids, that in my estimation couldn't keep a hotdog stand open over the summer, were now running multi-zillion dollar conglomerates and I couldn't understand how or why. When AOL bought out my client at the time, Time Warner… well, I almost lost the blackened-seared-ahi-on-squaw-bread-with-compote-reduction I'd had for lunch.

So, when the bubble finally popped and it became apparent that the 25 year-old emperor that had been selling the whole monetizing eyeballs story to venture capitalists on napkins, actually was nude… I breathed a sigh of relief, as much as anything else. The madness would finally be over. I'd be considered a smart guy once again.

Well, another one of those days arrived for me today. And again, it felt good, relaxing, like everything in life would soon make sense once again.

Remember back in late 2006 and early 2007? The housing bubble had popped, and that came as no surprise whatsoever to me. The only surprising thing about that bubble popping as far as I was concerned was that it hadn't happened sooner. And by the way, I think that true for most people. Everybody knew that real estate would pull back and take a cyclical dip in the shallow end, perhaps bumping its head and getting a nasty lump as a result. I don't think we saw the total eclipse of the sun coming, as it did, but we knew it was a bubble, and that like all bubbles, it would eventually pop.

What did surprise me was what our politicians and the media started blaming the meltdown on: sub-prime borrowers. Anyone that read me back then knows it well… and if I said it once I said it a thousand times: it's NOT the sub-prime borrowers. At best people were confusing a fuse… with the bomb. Actually, I could easily argue that rising oil prices caused the meltdown as I could sub-prime borrowers. But there was no talking to people… they heard it was sub-prime borrowers and they were not going to be dissuaded by any evidence to the contrary.

Truth be told, it was sub-prime borrowers being blamed that got me writing frequently again, after taking a few years off since writing a book and then traveling around the country picking up speaking fees just to talk about what I had written. When the world started blaming sub-prime borrowers, I knew it was time for me to put pen to paper and start showing others the fallacy in their thinking. My very first article was written immediately following a dinner my wife and I had gone to, at which I had been forced to listen to the sub-prime borrower story of the day. Although it came in many flavors, the story went something like this:

Irresponsible poor people bought houses they couldn't afford using spring loaded loans that adjusted, causing them all to be catapulted out of their homes in foreclosure, and resulting in the meltdown of the financial markets.

Hogwash. Horse Pucky. Total bunkum. It was never sub-prime borrowers that were to blame, it just appeared to be possible and when the banking lobby's PR machine went into gear, people found it easy to accept. I still have a friend who thinks the meltdown's cause had something to do with people irresponsibly buying jet-skis. Some beliefs are hard to let go of, I suppose.

I understand it. I really do. You can see it in my older articles. I was getting a teensy-weensy bit jealous of the "brand-new-home" people towards the end there myself. How could you not? So, when the bubble popped, it seemed easy to accept that some of "those" people were the cause. Not the good responsible ones, mind you, but the ones that never should have been there in the first place… the sub-primers. Come on… let's snub them.

There was even a twinge of racism in the phrase, sub-prime borrower. Almost like it might have been "sub-par human," but someone spruced it up at the last minute to avoid looking too cruel. I hated it, but not only for that reason, I hated it because it was a ridiculous idea. The sub-prime borrowers, in my mind anyway, were less likely to default than others, because sub-prime borrowers really want their houses bad. Sub-prime borrowers pay their bills and lenders usually like them as a result. They pay their bills and they pay high fees and interest rates.

I went to graduate school with a guy who was the president of a large grocery store chain, Food For Less, I believe was its name. And I remember him telling me how his stores were always in low-income areas, but that they had fewer bounced checks than the grocery stores in the wealthier neighborhoods. It seems that poorer people made sure that they lived within their means more carefully than their wealthy neighbors across the tracks.

Even Warren Buffet liked sub-prime borrowers. In fact, Berkshire Hathaway still owns a company that makes largely sub-prime loans on some sort of pre-fabricated housing solution, and that company never did experience the sub-prime meltdown as was being reported by the media.

The main reason it never made sense that sub-prime borrowers were to blame, besides the obvious reason that sub-prime borrowers really want their homes, was the absurd assumption that these lower income people didn't know how much their payments would be a year or two down the road. I simply couldn't believe that could be true in large number. I don't care how poor or uneducated a person is relative to others, they know how much they pay in rent… I mean mortgage payment amount, each month.

Another thing I knew about sub-prime borrowers was that they didn't move into a new home with the idea that they'd lose the house a year or two later and be forced to move. Not knowing the future amount of your monthly mortgage payment, or moving somewhere with the idea of moving a couple of years later sounded more like the way wealthier people might behave than sub-prime borrowers.

Sub-prime borrowers hate moving… especially their refrigerators. They can't afford fancy moving companies who come pack everything up and unpack it at the next homestead. They call friends like me who are stupid enough to always own a truck. The whole experience moving is downright miserable for sub-prime borrowers, so they avoid it whenever possible.

There were lot's of other reason to suspect the sub-prime borrower story, the size of the market relative to the damage being caused, for one. So, anyway… I guess I should get to the point of the article. New evidence has been compiled by Stan Leibowitz, a professor of economics who is the director of the Center for the Analysis of Property Rights and Innovation at the management school at the University of Texas, Dallas.

And as it turns out… can you guess? It wasn't sub-prime borrowers that caused the meltdown, more than their influence, it was zero down financing that created this mess, according to Professor Leibowitz and the actual data. As stated by Leibowitz:

"The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house -- that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected."

Misdirected? Yea! Yahoo! Oh when the Saints… go marching in… oh when the Saints go marching in…

Go on, professor…

"… the focus on sub-primes ignores the widely available industry facts (reported by the Mortgage Bankers Association) that 51% of all foreclosed homes had prime loans, not sub-prime, and that the foreclosure rate for prime loans grew by 488% compared to a growth rate of 200% for sub-prime foreclosures. (These percentages are based on the period since the steep ascent in foreclosures began -- the third quarter of 2006 -- during which more than 4.3 million homes went into foreclosure.)

Sharing the blame in the popular imagination are other loans where lenders were largely at fault -- such as "liar loans," where lenders never attempted to validate a borrower's income or assets.

Wow… did you read that? It wasn't the liar loans either.

The analysis indicates that, by far, the most important factor related to foreclosures is the extent to which the homeowner now has or ever had positive equity in a home.

The difference in policy implications is enormous: A significant reduction in foreclosures will happen when and only when housing prices stop falling and unemployment stops rising.

This guy is wicked smart. He goes on to explain that the administration's Making Home Affordable program is ill-conceived, and he does so on very solid ground and in an inoffensive way. Perhaps the Obama administration will consider Professor Leibowitz's findings and correct the current course.

Here's the article in yesterday's WSJ: http://online.wsj.com/article/SB124657539489189043.html
And please forgive me if I sounded arrogant there at the beginning. I was feeling just a little bit taken with myself for a minute or two… so, sue me. I'm okay now.

Sub-prime borrowers… you are about to be vindicated!

Watch what happens next. Other journalists are going to write about the professor's conclusions. After that, the talking heads will be all over it. Before you know it, our country will start to question what's happened here and who really is responsible. And meanwhile, banker after banker will be seen going into court, for one reason or another. All while the foreclosures spread into white middle and upper-middle class neighborhoods from sea to shining sea.

People will get mad… and then madder. (It helps to read the next paragraph using the voice of James Earl Jones at the end of Field of Dreams. And if you haven't seen it, see it.)

And by the time the 2010 midterms roll around, people will come, Ray. They'll come to Washington D.C. for reasons they can't even fathom. They'll turn onto the Beltway not knowing for sure why they're doing it. They'll arrive at their voting booth as innocent as children, longing for the past. Of course we mind if you look around, politicians will say. It's only $50,000 per person that you all owe. They'll pass over the politicians without even listening to them: for it is America they own and prosperity they lack. And they'll walk out to the mall; sit in shirtsleeves on a perfect afternoon. They'll remember the power they had when they were younger and voted for heroes. And they'll vote for people that will truly represent them and it'll be as if they dipped themselves in magic waters. Their memories will be so thick they'll have to brush them away from their faces. People will come Ray. The one constant through all the years, Ray, has been America. Our nation's banking lobby has rolled through Congress like an army of steamrollers. We need Congress' thinking to be erased like a blackboard, rebuilt and perhaps erased again. But our America will withstand time. This banking lobby's control of this congress and this administration: it's a part of our past, Ray. We'll remember, all of us, what was once good and could be again.

Oh... people will come Ray. People... will most definitely come.

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{"commentId":8041653,"authorDomain":"mandelman"}

Is it my imagination or are colors brighter today? And food seems to taste better, too. It's the strangest thing...

{"commentId":8041653,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

24 votes

#1 - Sun Jul 5, 2009 5:33 PM EDT

{"commentId":8041906,"authorDomain":"sperrys"}

Perhaps the Obama administration will consider Professor Leibowitz's findings and correct the current course.

If they don't correct current course, then one can only wonder...why? Since they haven't already, the hope I was "sold on" is a distant memory, and until this article...I couldn't dream. Thanks mandelman...you are right...everything seems a lot more vivid all the sudden!

{"commentId":8041906,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

18 votes

#1.1 - Sun Jul 5, 2009 5:50 PM EDT

{"commentId":8042791,"authorDomain":"wingod"}

Comment collapsed by the community

{"commentId":8043041,"authorDomain":"lampell"}

Lampell

Also, it is stupid for people to walk away from homes because of negative equity

Here is a scenario for you as an example. You buy a house that at the time you could afford, You plunk down 20pct have a 30 year fixed morthage, and money in the bank. All of a sudden you lose your job and your savings are being depleted. You have spent years accumulating that savings and its almost time to retire. The mortgage payment is high and you notice that you can buy another house that is way cheaper than the one you own even after accounting for the fact that your present house has fallen 30pct in value. You are upside down like many, and want to reduce your payment, modifying the loan on a big house wont cut it. You sell your house and you still owe 100,000 which in this case would have been the deposit on a new house that maybe only costs 250,000 in the first place. What would you do? Take 100,000 out of savings or walk away and use the 100,000 as a deposit. Of course you have to buy the new house first so before your credit rating went down the tubes.

{"commentId":8043041,"threadId":"619935","contentId":"2999459","authorDomain":"lampell"}

17 votes

#1.3 - Sun Jul 5, 2009 7:08 PM EDT

{"commentId":8043164,"authorDomain":"src97531"}

The laws vary from state to state. In some states, the mortgage lender can come after you for whatever they lost in the foreclosure, garnish your wages, sieze other assets to make up the difference. In other states, with "non-recourse" mortgage laws, they can take the house, period. They can't come after your other assets.

If you have a home equity loan (and for people with 80/20 mortgages the 20% is usually a HEL) the laws are different, and they can hound you for every dime.

{"commentId":8043164,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

7 votes

#1.4 - Sun Jul 5, 2009 7:16 PM EDT

{"commentId":8043231,"authorDomain":"mandelman"}

Hey space guy... Not true... the professor has and provided tons of data. You just have to click on the link to his article in the WSJ... I just decided there was no reason to reprint it in my article.

And I don't see the point being what caused the bubble, I'm talking about what caused the meltdown of the financial markets that have left our banks insolvent and our government the only lender. That situation wasn't the fault of sub-prime borrowers defaulting on adjustable rate loans that they didn't know would adjust and shouldn't have gotten into.

That situation was caused by the fraud perpetrated by the bankers and the investment banks, who coincidentally are also the ones that have emerged from the crisis thus far, largely unscathed. (Unscathed is probably a stretch, but let's just say their power has not been diminished and the regulations under which they are allowed to operate have not been meaningfully changed.)

{"commentId":8043231,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

33 votes

#1.5 - Sun Jul 5, 2009 7:21 PM EDT

{"commentId":8043379,"authorDomain":"lampell"}

Lampell

The laws vary from state to state. In some states, the mortgage lender can come after you for whatever they lost in the foreclosure, garnish your wages, sieze other assets to make up the difference. In other states, with "non-recourse" mortgage laws, they can take the house, period. They can't come after your other assets.

Well fortunately or unfortuntatley in California they cant touch anything but the house that you walked away from. IN addition they tried to tax the write off as income but since it aint cash they couldnt get away with that either.

{"commentId":8043379,"threadId":"619935","contentId":"2999459","authorDomain":"lampell"}

11 votes

#1.6 - Sun Jul 5, 2009 7:32 PM EDT

{"commentId":8043386,"authorDomain":"curiousg"}

That situation was caused by the fraud perpetrated by the bankers and the investment banks, who coincidentally are also the ones that have emerged from the crisis thus far, largely unscathed. (Unscathed is probably a stretch, but let's just say their power has not been diminished and the regulations under which they are allowed to operate have not been meaningfully changed.)

And, this is precisely what we should be focused on, not the poor souls who, for the most part, had no idea the risks they were taking. They were told over and over by people they believe, that they could afford these loans.

{"commentId":8043386,"threadId":"619935","contentId":"2999459","authorDomain":"curiousg"}

19 votes

#1.7 - Sun Jul 5, 2009 7:32 PM EDT

{"commentId":8043443,"authorDomain":"mandelman"}

And at this point in the meltdown, where 39% of foreclosures are being caused by unemployment, and 20% by higher payments, I think it's safe to let the people off the hook. No one could have seen The Great Depression Part 2 around the corner.

{"commentId":8043443,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

25 votes

#1.8 - Sun Jul 5, 2009 7:36 PM EDT

{"commentId":8044073,"authorDomain":"curiousg"}

I continue to pray we won't see that, though also wouldn't bet against it.

There are just far too many people trying to figure out a new angle on the current situation, selling short, or over leveraging something else. Unfortunately, there are always some who believe the rules just don't apply to them.

{"commentId":8044073,"threadId":"619935","contentId":"2999459","authorDomain":"curiousg"}

10 votes

#1.9 - Sun Jul 5, 2009 8:16 PM EDT

{"commentId":8044703,"authorDomain":"wingod"}

Comment collapsed by the community

{"commentId":8044838,"authorDomain":"wingod"}

Rather, stronger underwriting standards are needed -- especially a requirement for relatively high down payments. If substantial down payments had been required, the housing price bubble would certainly have been smaller, if it occurred at all, and the incidence of negative equity would have been much smaller even as home prices fell. A further beneficial regulation would be a strengthening, or at least clarifying at a national level, of the recourse that mortgage lenders have if a borrower defaults. Many defaults could be mitigated if homeowners with financial resources know they can't just walk away.

Again, he is falsifying his own thesis. By requiring higher underwriting standards (higher downpayments) is what used to happen before CRA. The liar loans and the zero downpayments are both artifacts of the subprime debacle. It would be interesting if they could separate out the proximate causes, whether it is just people walking away from negative equity, or if the other factors are involved (liar loans, subprime).

{"commentId":8044838,"threadId":"619935","contentId":"2999459","authorDomain":"wingod"}

9 votes

#1.11 - Sun Jul 5, 2009 9:20 PM EDT

{"commentId":8044854,"authorDomain":"barry-rutherford"}

Barry Rutherford

Great article ! great comments !

{"commentId":8044854,"threadId":"619935","contentId":"2999459","authorDomain":"barry-rutherford"}

16 votes

#1.12 - Sun Jul 5, 2009 9:22 PM EDT

{"commentId":8047031,"authorDomain":"mandelman"}

Yep, this is a great crowd!

And space guy, I had the same thought when I was reading his article in the WSJ, but I thought what was more compelling was it wasn't, as opposed to stating conclusively what it was.

{"commentId":8047031,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

9 votes

#1.13 - Mon Jul 6, 2009 12:22 AM EDT

{"commentId":8047580,"authorDomain":"prm-1"}

Your a good man Martin, I mean mandelman. As you know, I am in the trenceous on a daily basis. I deal with human sadness. it is my business. For I am a Realtor. No, I have not always been a Realtor. Mater of fact, I too hated the bastards. But then one day, after hitting my head very hard on a sharp object, I came to the conclusion that I might be able to help my fellow man make an educated, qualified choice.

You see, the turns and curves on the road to home ownership are many.

I will without reservation tell you, that I have never been party to a 0 down loan. I'm old school. Nothing for nothing? not where I come from.

As a self employed professional, I have taken out a few sub prime loans myself. Exclusively.

A stated income loan is sub prime. A loan above prime rate is sub prime. A loan with excessive points and a half a point above prime is sub prime. Most loan written, are sub prime.

Let's face it, and you and I are in complete agreement on this point. The banks propagated the Urban myth of Sub prime loans, toppling our financial sector.

0 down loans.= No personal attachment to the property. These loans are simply a modified lease. The problem is, if 0 down is attached to an arm in a down trending market, this = negative amortization.

These loans were invented by the lending institutions. Why? To create a future market for refinancing.

Why? the average cost of refinancing a $300,000 property is between $9,000- $12,000. The majority of that, less property tax and insurance impounds is profit.

With that said mandalman. What is the point of your article?

Do you truly believe that after 2 years, with 3 million souls dealing with one of the three stages of foreclosure, the people still believe that the financial melt down was caused by Julio and Rosita ?.

I can show you many million $ homes that are on the block. They are owned by Mr. Developer, Business owner, and people like you and I .

This is not an exclusive problem to any group.

Now that you have shared your opinion for the 1001'st time, How do you propose that we deal with the problem as a civilization. And let's take into account the several hundred thousand that did buy over their heads. We also know a few of those.

Thank you Mandelman. Well done. Ray.

{"commentId":8047580,"threadId":"619935","contentId":"2999459","authorDomain":"prm-1"}

9 votes

#1.14 - Mon Jul 6, 2009 1:43 AM EDT

{"commentId":8047598,"authorDomain":"adouglass3"}

Great post, Ray. Please be specific, Martin (I mean mandelman). ;-)

{"commentId":8047598,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

6 votes

#1.15 - Mon Jul 6, 2009 1:47 AM EDT

{"commentId":8047647,"authorDomain":"prm-1"}

Back at you ABD3. Having a little fun.

{"commentId":8047647,"threadId":"619935","contentId":"2999459","authorDomain":"prm-1"}

5 votes

#1.16 - Mon Jul 6, 2009 1:57 AM EDT

{"commentId":8047807,"authorDomain":"barry-rutherford"}

Barry Rutherford

What we all suspect and some insiders will tell you this that the sub-prime mortgages were geared so that the mortgage owners would be able to live in the houses for a few years and then as the conditions of the loans kicked in(payments bacame much higher)...

As a result would default then would be kicked out of the homes and the mortgage company would then make a profit on the capital increase on the property. TRouble was there was too many of these loans therefore the demand and therefore the value of the proprty fell as more and more defaulted..

{"commentId":8047807,"threadId":"619935","contentId":"2999459","authorDomain":"barry-rutherford"}

5 votes

#1.17 - Mon Jul 6, 2009 2:30 AM EDT

{"commentId":8047814,"authorDomain":"neenie1991"}

Wondered when you'd show up.

{"commentId":8047814,"threadId":"619935","contentId":"2999459","authorDomain":"neenie1991"}

3 votes

#1.18 - Mon Jul 6, 2009 2:31 AM EDT

{"commentId":8047870,"authorDomain":"bigboyj"}

bigboyj

All the bubbles have been overseen by the political suckbutts and goldman/sachs.... look to a recent rolling stone publication and the truth just seems to roll out of it !!! follow the money !!!

{"commentId":8047870,"threadId":"619935","contentId":"2999459","authorDomain":"bigboyj"}

1 vote

#1.19 - Mon Jul 6, 2009 2:42 AM EDT

{"commentId":8048831,"authorDomain":"mandelman"}

I just read Matt's article...

"In a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy." Matt Taibbi, Rolling Stone

In his article in the July issue of Rolling Stone, he says only one thing that scares me to death. He says that nothing can be done... that we can't demand change from our elected representatives... that Congress can't help... that banks like Goldman Sachs have simply become too powerful and ubiquitous to be changed by even our government.

If this is true, then all truly is lost.

Mandelman Out.

{"commentId":8048831,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

13 votes

#1.20 - Mon Jul 6, 2009 7:50 AM EDT

{"commentId":8048899,"authorDomain":"adouglass3"}

It's not lost if we can collectively recognize this. That same greed now has us scrambling to retrieve our own individual nest eggs instead of going after the big wad together.

There will be weeping and gnashing of teeth but that's preferable to the alternatives. I read that article yesterday and I have to admit, RS and Matt have been all over this for many months (years?) now and are waaaaay underexposed!

{"commentId":8048899,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

5 votes

#1.21 - Mon Jul 6, 2009 8:00 AM EDT

{"commentId":8049171,"authorDomain":"jimi"}

I can show you many million $ homes that are on the block. They are owned by Mr. Developer, Business owner, and people like you and I .

Sure it sounds like Monday morning quarterbacking, but I too saw the housing bubble coming. My indicator? Shows that promoted flipping houses for profit (not too many of those on TV anymore, are there...), and hearing that a large percentage of new home buyers were second homes, not primary homes. This was back in 2006, and I knew if a people stopped buying houses, a lot of people were going to be stuck holding two mortgages and defaulting on at least one of them.

{"commentId":8049171,"threadId":"619935","contentId":"2999459","authorDomain":"jimi"}

7 votes

#1.22 - Mon Jul 6, 2009 8:36 AM EDT

{"commentId":8049211,"authorDomain":"armstrongdebra21"}

space guy, read Liebowitz's article, there's mountains of evidence and verifiable numbers. It is not "stupid" to walk from an upside down loan, it makes infinite sense. I'm glad to see that someone is finally addressing our collective impulse to blame individuals for what is essentially a systemic problem.

{"commentId":8049211,"threadId":"619935","contentId":"2999459","authorDomain":"armstrongdebra21"}

7 votes

#1.23 - Mon Jul 6, 2009 8:39 AM EDT

{"commentId":8049977,"authorDomain":"dacincykid"}

The problem originated with the lending institutions creating "credit default swaps"

There are several stories out there including PBS's Frontline 60 minutes time magazine etc debunking the they bought too much house BS.

Of course some investors bought too much house because there was no top in sight on housing prices for awhile.

Do some research on how The swaps contributed to the collapse. It was not poor poeple buying hoouses they could not afford. If one thinks about it how could that happen? Banks do not lend money to people who cannot afford to buy a home. I have had 2 houses and I put down 30% on each and had to have pristine credit to get each one of them. Why did we get to the no money down sucker bait? Again CDS's

{"commentId":8049977,"threadId":"619935","contentId":"2999459","authorDomain":"dacincykid"}

3 votes

#1.24 - Mon Jul 6, 2009 9:39 AM EDT

{"commentId":8050693,"authorDomain":"pjwrites"}

pjwrites

I'd like to know why we aren't talking about the ratings agencies and the accountants? Could it possibly be for the same reason we've only had a couple of scapegoats so far, ala Madoff? Who doesn't think he was a patsy?

As John Adams said, "Every dollar of a bank bill that is issued beyond the quantity of gold and silver in the vaults represents nothing and is therefore a cheat upon somebody." History tells us that every economic crisis "contains" a criminal dimension. Our worship of money extends to those thieves whose crimes richly reward them - they are rich now, so they can afford injustice.

I feel cheated. I wonder how the Fed feels? Pretty darn good, I'd imagine. As do the investments banks! They should, because they are counterfeiters and we're passing off their goods every day as it were the real thing. A counterfeiter goes to prison for life, but bankers are allowed to continue to carry out this deception along with the helpful legislature that authorizes them. Aren't they just a merry (and wealthy) band of mercenary swindlers? Yay them.

Abolish the Fed.

{"commentId":8050693,"threadId":"619935","contentId":"2999459","authorDomain":"pjwrites"}

4 votes

#1.25 - Mon Jul 6, 2009 10:18 AM EDT

{"commentId":8052155,"authorDomain":"rake245"}

Something new please

I agree with your comments, generally, but you left out one important aspect - the secondary market for sub-prime loans. People who try to blame the crisis on sub-prime, liar loans, and "the irresponsible borrower" seem to forget that all of those things are the result, particularly on the scale that they were done, of a robust secondary market for sub-prime loans. The financial markets ate up the bonds that were backed by these mortgages and thereby flooded the market with a non-stop supply of money. If nobody bought the paper, that they knew was backed by zero-down, liar loans, etc., these loans would not have gotten done.

Even more broadly, this crisis could not have happened back in the days when the bank that issued a loan then held on to that loan for its entire term. In those days, banks didn't lend unless they thought you could pay it back. Because of the secondary market for these products, which consisted mostly of institutional buyers and was based upon the idea that you could diversify away the risk, you ended up with irrational, unsound lending practices. It had little to do with the CRA. If the issuing banks couldn't move the paper along to other parties, these loans would not have gotten done no matter what initiatives Congress mandated.

{"commentId":8052155,"threadId":"619935","contentId":"2999459","authorDomain":"rake245"}

5 votes

#1.26 - Mon Jul 6, 2009 11:34 AM EDT

{"commentId":8056628,"authorDomain":"wingod"}

http://www.moremortgagemeltdown.com/charts/chapter_three.html

It turns out that this article is bunk. I have been doing some research and here is one with the facts.

You have to go through this to the middle of chapter three but here are the stats on the mortgages that are underwater.

Prime ----25%

Alt-A-----45%

Subprime--50%

Option/ARM--73%

Look at ALL of the charts and the story is significantly different than this more shallow analysis here.

{"commentId":8056628,"threadId":"619935","contentId":"2999459","authorDomain":"wingod"}

2 votes

#1.27 - Mon Jul 6, 2009 2:55 PM EDT

{"commentId":8056789,"authorDomain":"sperrys"}

spaceguy-
Looks like this is only through December 08...I would suggest you look for more current data.

{"commentId":8056789,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

6 votes

#1.28 - Mon Jul 6, 2009 3:01 PM EDT

{"commentId":8058613,"authorDomain":"tsevigny423"}

tom sevigny

Take the loans one at a time... Back before the sub-prime loan became a reality in the Clinton Administration, FHA had stringent borrowing terms and a home buyer was to meet debt ratio requirements. If your mortgage payment exceeded 28% of your overall income there would have been an alarm going off. If your mortgage payment was 36% + of your income you probably would be looking at buying a trailer, rather than a 3000+ sf home. People who worked with the FHA felt compelled to marginalize abd circumvent FHA regulations just to compete. Someone lowered the bar considerably and the pungent odor can be traced directly to Congress. You do not have to be a bloodhound to figure it out. These yahoos were writing loans without abiding by any type of debt ratio and even allowing the downpayment to be part of the loan and then loaning up to 25% equity for cars and boats although the morgagee did not have any or very little equity into the property. Utter stupidity anyway it is sliced.

Fannie Mae and Freddie Mac's pressure to write risky loans for bonuses was indeed a big problem. There is nothing racist about basic economics. When Congress tried to rein in these mortgage giants and tried to make them work within the in-place(on paper)regulations, Maxine Waters, Rep. Meeks, Barney Frank, etc. invoked race and claimed that they were being predujiced against the poor. It is basic mathematics. Not racism or bigotry. Race-baiting politicans were complicit in impeding any type of regulation from happening. That is the plain truth.

Rep. Barney Frank, his boyfriend Herbie Moses and Joe Kennedy were pushing to write more loans on multiple unit apartment buildings, despite the fact that they defaulted at a rate 3-5 times more than single family homes depending on the area. These insane business practices indeed played an enormous part in the economic mess and FM and FM were a $300 billion contagion. There is no question.

{"commentId":8058613,"threadId":"619935","contentId":"2999459","authorDomain":"tsevigny423"}

3 votes

#1.29 - Mon Jul 6, 2009 4:23 PM EDT

{"commentId":8058659,"authorDomain":"a-s-n"}

Mandelman,

This ia a good Article, my freind. I agree wholeheartedly with your position, and that of the Professor that the sole persons responsible for this situation are the Bankers, the Treasury and Government. Once people understand how the money supply system actually works, there can be no other p[arties responsible for recessions, commodity price spikes, unemployment, etc.

I would add the following points which I feel are important here. First is that the entire "credit crunch" and subsequent "subprime" / "Toxic Asset" jibberish movement were all carefully contrived, planned and executed by the Banking Industry. Thats why they are unscathed, actually most will have significantly benefited from the entire episode.

What do you mean people will ask - they lost so much money??? Banks went under, share prices were in the toilet?? Never forget that banks are not interested in money. This should be a revelation for most of us, but its true. Banks aren't intered in money because they create money whenever they need it. Does anyone wonder why 6 months after the Banker's sky fell in they are doing great again (especially the guys who bought up the competition at pennies on the dollar)? HOw come banks that were bankrupt, insolvent out of the blue, are in a matter of 2 quarters as happy as a pig in the slop?? Because they control the manufacture and distribution of money in this country.

If you print the money, if you can conjure money into existence with the stroke of a pen, click of a mouse why would you worry about how much or little you have?? This is counter intuitive to us, since we are all under the mistaken assumption that government creates money. So why do this? The same reason we need to have poor people, people with bad credit, the working poor. OUr monetary system uses the poor, the "sub prime" as a natural control on inflation. Banks could constantly expand the money supply so that virtually no one ever missed a payment, and even if they did, it would be no big deal - but they don't. They go to great lengths to punish those who don't meet their obligations. Miss on or two payments and see your credit score drop 150 points. All of a sudden you are a pariah ... doesn't matter that you lost your job, broke your leg, missed two payments you''re done.

This works because they need defaults to slow the money creation system which in turns creates inflation. The big problem with money supply inflation is it inflates the price of collateral not everything else - ie. houses, stocks, commodities, etc .... Sound Familiar?

Now all this is fine except that exponential growth in prices of houses, stocks, commodities will quickly result in a crash. No to mention since the banks creation of money is done at no cost whatsoever, bank profits would grow exponentially too!! So we need defaults to balance the system!! Its also important to vilify these people as sub human because if we all decided not to pay our mortgages en mass tommorrow that would be the end of the banks - they can't forclose on everyone .... we need to make sure that there are consequences.

Whats scary is how conditoned we are to all of this. We expect our houses, stocks to go up all the time - why? stop and think, should a house in clevland be going up in value? Flint? Even California, how much demand is there for houses - enough to create a 200+% rise in price over 6 years?? The same thing for the stock market - 10% returns, 15% returns ..... the fact that the medium of exchange is rising just as fast doesn't seem to register with us!

We are all very quick to blame the sub prime, people with bad credit, the poor, uneducated and stupid too. I had a discussion with someone a few months back whose main contention was that "sub prime" people should never expect to own a home like the rest of us, they should be content to live in squalor presumably .... This is Bank conditioning. Those who are not able to pay their bills need to be punished, live in squalor, starved, prostituted, jailed because they are not worthy of a decent life. Hence, everyone was quick to believe that the local realtor, banker, politician couldn't have caused the problem, it was that low, undeserving poor person who did it.

Lets just take a quick step back here. Banks operate by "creating money" out of thin air using some sort of quasi legal authority transfered from the Federal Reserve to do so. They effectively control the price of housing by approving loans based on incomes, house values, and risk measurements. Let there be no mistake there is one and only on determinant in housing prices and that is the approval of home loans by bankers. All that nonsense realtors talk about is all marginal effects on price - the base price of a house in a certain area is driven by lending decisions made by bankers.

Therefore, since the cause of the crisis was massive house price inflation driven by no risk adjusted lending behavior by Banks, the solution to the problem is clear - allow a deflation of house and stock prices to bring them in line with actual value. The problem with this, as the professor points our, is all the people who will (or already have) negative equity.

The other argument is that deflation would cause all kinds of other undesirable behaviors in consumers like in the 1930s (which is actually untrue, it was complete incompetance of bankers (which was likely contrived) which caused the extended depression - deflation was a result not the cuase. Since these same economist are telling us even today that inflation in non cpi items is not material, then why should deflation in stock prices and housing prices be material.

The point is that the banking interests have a "plan" to fix this. They plan to inflate the economy through flooding the banks with money created by the Fed Reserve to reinflate the economy - they will lend out this money to their "good" customers, and devealue everyones money. (In simple english, the plan is to make more money available as credit to those who need it least, at the expense of everyone else whose assets will decline with no benefit).

Even the professor, range bound by the debt money paradigm concludes that the solution is to reinflate the housing market. The problem is that this manipulation of the economy does not resolve the root problems, does not fix the inequalities, the stupidity of a system which uses money as a tool of control.

{"commentId":8058659,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

5 votes

#1.30 - Mon Jul 6, 2009 4:25 PM EDT

{"commentId":8058944,"authorDomain":"Lean6"}

Thanks for the post. I saw this meltdown coming a long time ago, as I was looking for a spot to jump into the housing market years ago. At the time I was in California, and all print predicted a 12% drop in home values within 1-2 years...this was in 2004-2005. I warned all the homeowners that I could reach to sell instead of taking out the equity loans for auto purchases, and buying up additional homes and condos priced 200-300% percent above value. Little did I know they would actually be looking at +20% decreases.

There was even a twinge of racism in the phrase, sub-prime borrower.

When the bubble finally burst, I quickly noticed the face they were trying to paint on this catastrophe as well. It continues today and is a major staple in right wing conservative rhetoric. The problem is that I've been to many of these hard hit areas and very few of the faces actually resemble the one they've been painting as the primary culprit or the ones they manage to snap up for interviews and photo ops. Just another brick on the elitist GOP pile if you ask me. The message is clear: wink, wink, nod, nod!

{"commentId":8058944,"threadId":"619935","contentId":"2999459","authorDomain":"Lean6"}

8 votes

#1.31 - Mon Jul 6, 2009 4:38 PM EDT

{"commentId":8059550,"authorDomain":"roadlesstraveled"}

roadlesstraveled

Keep up the journalism....this was darn fine reading.

I just wish all pieces were like this........from a human who functions in society.

{"commentId":8059550,"threadId":"619935","contentId":"2999459","authorDomain":"roadlesstraveled"}

3 votes

#1.32 - Mon Jul 6, 2009 5:11 PM EDT

{"commentId":8080489,"authorDomain":"gregziglar"}

Greg-281912

Great article!

Creating the need for future financing isn't really a bad business paradigm, it just didn't work out this time around.

{"commentId":8080489,"threadId":"619935","contentId":"2999459","authorDomain":"gregziglar"}

#1.33 - Tue Jul 7, 2009 3:52 PM EDT

{"commentId":8133369,"authorDomain":"Socrates1"}

Socrates1

I'm with you (and always have been regarding common sense.) If I might point out, the real cruelty was knowing that the dot.com companies couldn't possibly make it...and watch as friends invested in these sorry excuses for companies and made mega-bucks on the stock while I looked on with amazement. Sometimes being right just isn't enough.

{"commentId":8133369,"threadId":"619935","contentId":"2999459","authorDomain":"Socrates1"}

2 votes

#1.34 - Fri Jul 10, 2009 1:22 AM EDT

{"commentId":8134798,"authorDomain":"rickace"}

Just another brick on the elitist GOP pile if you ask me. The message is clear: wink, wink, nod, nod!

Yet another anti-Republican bigot weighs in, as if we need more of them on the Vine.

Your guy Obama is not only an elitist, he's corrupt as well. As a Congressman he sold his votes to the suits at Fannie and Freddie in exchange for $120,000 in contributions to his campaign. The lowest of the low. Same with his chief of staff and SecState. How you can go on yammering about the pubs who are out of power while blissfully ignoring the malfeasance of our president and his cronies is beyond me.

Welcome to my ignore list.

{"commentId":8134798,"threadId":"619935","contentId":"2999459","authorDomain":"rickace"}

3 votes

#1.35 - Fri Jul 10, 2009 7:28 AM EDT

{"commentId":9014641,"authorDomain":"rick-1207403"}

Rickeroo

I bought my house in Dec 99 for $145,000. 3 bedroom, suburbs, Massachusetts. Two years later the wife sent me out for Chinese. They had a Homes magazine. I took a look.

Houses like mine were now going for 250,000, even 300,000. I got angry. My house wasn't worth that much! How could people be qualifying for these houses? This certainly won't last long!

To my horror, those prices stayed right on through to 2008, and are only now beginning to come back down to Earth. A huge portion of the mess we are in has to do with people paying twice as much for a house since 2002.

By what mechanism where these people allowed to buy these houses since 2002? No one should have bought any houses at those prices.

{"commentId":9014641,"threadId":"619935","contentId":"2999459","authorDomain":"rick-1207403"}

#1.36 - Sun Aug 23, 2009 8:16 PM EDT

{"commentId":8042168,"authorDomain":"adouglass3"}

This is good stuff. Don't forget the secondary impact of 0% down and that's 100% (and sometimes more) home equity loans.

Oh, the Deitech commercials alone...

{"commentId":8042168,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

10 votes

#2 - Sun Jul 5, 2009 6:08 PM EDT

{"commentId":8042380,"authorDomain":"src97531"}

I blame Stanley Johnson

{"commentId":8042380,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

6 votes

#2.1 - Sun Jul 5, 2009 6:22 PM EDT

{"commentId":8042642,"authorDomain":"adouglass3"}

From 2005 until mid 2008, I worked for a structural engineering company whose biggest clients were these lenders. DEI and the rest were putting up dozens of branches, many in still developing neighborhoods.

Funny thing about them was they had no vaults...not even a safe. Their sole purpose was to bring re-financing directly into the faces of new homeowners.

Needless to say, there are a LOT of buildings still on the shelf. It is the major reason I joined another company with an industrial-based clientele.

{"commentId":8042642,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

10 votes

#2.2 - Sun Jul 5, 2009 6:41 PM EDT

{"commentId":8043269,"authorDomain":"mandelman"}

First of all... Dave is right about Stanley Johnson! I loved that... click the link above... I bet that guy has grown a beard and moved to a new town. And ABD3... that's particularly telling... and you are of course right... that's exactly what all those branch offices were all about. So, who was it that assumed that housing prices would continue to climb... the people, or the banks?

{"commentId":8043269,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

11 votes

#2.3 - Sun Jul 5, 2009 7:25 PM EDT

{"commentId":8043289,"authorDomain":"src97531"}

So, who was it that assumed that housing prices would continue to climb... the people, or the banks?

Yes.

{"commentId":8043289,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

11 votes

#2.4 - Sun Jul 5, 2009 7:26 PM EDT

{"commentId":8043340,"authorDomain":"adouglass3"}

The credit rating agencies would be my guess.

{"commentId":8043340,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

7 votes

#2.5 - Sun Jul 5, 2009 7:29 PM EDT

{"commentId":8043417,"authorDomain":"mandelman"}

I don't think the people did, although there would certainly be some. I just don't think many people thought that the prices would be cut in half two years later.

{"commentId":8043417,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

9 votes

#2.6 - Sun Jul 5, 2009 7:34 PM EDT

{"commentId":8043587,"authorDomain":"src97531"}

Many were sold exploding time-bombs (AKA "Option ARMs") on the theory that, by the time they were due to reset, the house would have gained enough equity they could refinance on better terms. The whole system required a belief that values would increase 10%/year indefinitely.

{"commentId":8043587,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

10 votes

#2.7 - Sun Jul 5, 2009 7:45 PM EDT

{"commentId":8043888,"authorDomain":"mandelman"}

Well, I agree in some cases, but not in others. The reason is that I actually ended up with an Option ARM, but I haven't complained yet because I do have equity, and because the payments have only gone down with interest rates, so what's to complain about. But at some point it will re-cast, which by the way is not a word, and then I could get mad.

I refinanced a home that I've owned for 20 years in '07 in order to do some remodeling before selling the house. Because of that, I felt a two year rate lock was fine, and I did assume that if rates started to rise, I could always switch it to a fixed rate loan.

Why wouldn't that be a reasonable assumption? It's always been true in the past, and would still be true today had the banks not broken the bond market by packaging bonds, seeing them rated AAA and selling them to investors all over the world... knowing that they contained cash flows likely to default.

My trouble refinancing wasn't based on equity, but rather on a broken secondary market that has made credit tight to the point of being nonexistent. Of course, the government has now stepped in, but the point is still the same.

All I'm saying is that your right in some cases, but not in all...

{"commentId":8043888,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

9 votes

#2.8 - Sun Jul 5, 2009 8:03 PM EDT

{"commentId":8043935,"authorDomain":"src97531"}

I'm going to guess your Option ARM was not for 103% of the home's market value. Those loans were actually made, and we're paying for them now.

{"commentId":8043935,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

10 votes

#2.9 - Sun Jul 5, 2009 8:06 PM EDT

{"commentId":8043987,"authorDomain":"mandelman"}

Yep, 50% LTV, so you're right. The 103% nonsense was destined to be a problem.

{"commentId":8043987,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

9 votes

#2.10 - Sun Jul 5, 2009 8:10 PM EDT

{"commentId":8044735,"authorDomain":"wingod"}

It all goes to lack of education. My wife and I were offered loans of this type and rejected them in favor of continuing to rent. We are not stupid. I can't tell you the people that we knew in LA that did this type of refinancing to buy cars, take trips, and do other crap as they thought that the market would just keep going up by double digit numbers.

Who is to blame for that?

{"commentId":8044735,"threadId":"619935","contentId":"2999459","authorDomain":"wingod"}

8 votes

#2.11 - Sun Jul 5, 2009 9:11 PM EDT

{"commentId":8047093,"authorDomain":"mandelman"}

Well, you are of course right in the percentage that did those things, I just don't think that the group of people that did that is representative of any sort of majority. Is it 20%... Perhaps. But it's not 80%. As I pointed out earlier, latest data shows 39% of foreclosures caused by unemployment. What we're experiencing today is not the same as what we were experiencing six months or a year ago.

At this point, if you bought a California home in 2005, 2006 or 2007, regardless of whether you put 20% down, you are underwater and have a reasonable chance that you and/or your wife will be unemployed for some significant period of time.

I still say that when someone took out an adjustable rate loan, they didn't assume that real estate would drop by 40%+ and that the bond market would be destroyed so no refinancing would be available. Not to mention that fact that the word "recast" is not an adequate disclosure of anything.

{"commentId":8047093,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

6 votes

#2.12 - Mon Jul 6, 2009 12:28 AM EDT

{"commentId":8048738,"authorDomain":"jawill11"}

jawill11

Space Guy:

I know it's easy to blame the people who refinanced for cash in their pocket. However, to place the blame on them is to say that con games are ok. If they can find enough suckers to make it work, more power to them.

I'm all for personal responsibility, but what happened over the last 5 years was a con game, plain and simple. You can blame the victims for not being smart enough to see through it, but at some point you have to do something to protect them and stop the con from trapping more people.

I wonder why there is such a strong urge to blame the people who took these loans without glancing at the people who conned them into it, yet we never blame the old people who are conned into giving out their bank info over the phone or other such classic cons.

{"commentId":8048738,"threadId":"619935","contentId":"2999459","authorDomain":"jawill11"}

7 votes

#2.13 - Mon Jul 6, 2009 7:37 AM EDT

{"commentId":8049263,"authorDomain":"rickace"}

And at this point in the meltdown, where 39% of foreclosures are being caused by unemployment, and 20% by higher payments, I think it's safe to let the people off the hook.

You mean the idiots who couldn't grasp or failed to heed the simple formula PITI <= gross_income * 0.28?

No one could have seen The Great Depression Part 2 around the corner.

Really now? Robert Prechter did in 2002 when he wrote Conquer the Crash. Thanks to his forecasts I'm out of real estate, and in 2008 when millions were losing half the balances of their IRAs I added $30,000 to mine.

{"commentId":8049263,"threadId":"619935","contentId":"2999459","authorDomain":"rickace"}

3 votes

#2.14 - Mon Jul 6, 2009 8:44 AM EDT

{"commentId":8049291,"authorDomain":"armstrongdebra21"}

Mandelman, you are absolutely correct. I bought a home in mid-2006, when its taxable value was assessed at 130K (small house). Its taxable value now is 72K and its saleable value has decreased substantially. However, I'm not underwater because I paid cash for the house, against my friends warnings that I should do an ARM finance instead because I'd make more money. I'm now unemployed, but still pretty happy that I did what I did. No mortgate, no foreclosure. The house will rebound in value, I'm sure, but in the meantime I'm reaping the benefits of a much lower property tax bill.

{"commentId":8049291,"threadId":"619935","contentId":"2999459","authorDomain":"armstrongdebra21"}

5 votes

#2.15 - Mon Jul 6, 2009 8:47 AM EDT

{"commentId":8059268,"authorDomain":"Lean6"}

Mandelman, you are absolutely correct. I bought a home in mid-2006, when its taxable value was assessed at 130K (small house). Its taxable value now is 72K and its saleable value has decreased substantially. However, I'm not underwater because I paid cash for the house, against my friends warnings that I should do an ARM finance instead because I'd make more money. I'm now unemployed, but still pretty happy that I did what I did. No mortgate, no foreclosure. The house will rebound in value, I'm sure, but in the meantime I'm reaping the benefits of a much lower property tax bill.

Debi, I was looking for a home in Southern CA in the price range of $400K back in 2004. When I couldn't find anything worth owning for less than $700K I started talking to people who began telling me about their 80/20 and Interest-Only loans. "Really", I said. Then I hit the books and said, "Are you serious?!" I have the knowledge today, back then it was just instinct and my risk averse nature. Thank God for that.

{"commentId":8059268,"threadId":"619935","contentId":"2999459","authorDomain":"Lean6"}

2 votes

#2.16 - Mon Jul 6, 2009 4:54 PM EDT

{"commentId":8059372,"authorDomain":"Lean6"}

BTW, today I own twice the home (new construction) I was ever considering at half my original shopping price...and in an area that is still tracking 5-9% increase in value per year. The moral being that there is still value in the housing market if you shop in the right areas.

{"commentId":8059372,"threadId":"619935","contentId":"2999459","authorDomain":"Lean6"}

1 vote

#2.17 - Mon Jul 6, 2009 4:59 PM EDT

{"commentId":8060527,"authorDomain":"roadlesstraveled"}

roadlesstraveled

I was an escrow officer (3yrs total) at the time of the houseing burst, I had been with "X" for one month before they went out of business April 15, 2008...they did Countrywide loans....

I would say about 75% of the time when I would call to set up the signing for the loan, the borrowers did not even know they were approved or even out for a loan...they were just inquiring. I was told to tell (aka pressure) the "unknowing" to go ahead and sign and if they didn't want it they could talk to the processor on Monday. Countrywide would threaten my job every other minute if I did not help them sell the loans and get the borrower to sign by the end of the weekend.

Why did CWide do that and did it help cause this bubble? Did they target prime loans? I wonder

{"commentId":8060527,"threadId":"619935","contentId":"2999459","authorDomain":"roadlesstraveled"}

2 votes

#2.18 - Mon Jul 6, 2009 5:57 PM EDT

{"commentId":8061181,"authorDomain":"a-s-n"}

Pacific Northwest Blogger

I read an excellent peice by an Austrian economist on this. The blame for this mess is directly on the Greenspan Fed. For years they inflated house, stock and other collateral prices all the will claiming there was no inflation cause the CPI was low. Wages stayed the same, and something had to give. When W. saw the end of the dot com bubble obliterating his political future he threw gasoline on the fire, increasing the money supply while getting lower rates - when incomes are the same, and houses are now 3 X the price we need something to make houses affordable .... The best part is all these geniuses claim this caught them off guard .... how does a guy who make 40K buy a 600K house with no money down??? Maybe Greenspan should explain that to us being a genius (and a banker) and all ....

{"commentId":8061181,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

3 votes

#2.19 - Mon Jul 6, 2009 6:22 PM EDT

{"commentId":8063931,"authorDomain":"scottsmith53"}

scottsmith53

Debi - Here in Colorado Governor Bill Ritter fixed taxable property values so they could not go below the 2007 level. That means that here you would still be paying the same taxes as if your house was worth 130K even though it is only worth $72K.

{"commentId":8063931,"threadId":"619935","contentId":"2999459","authorDomain":"scottsmith53"}

#2.20 - Mon Jul 6, 2009 8:10 PM EDT

{"commentId":9014888,"authorDomain":"rick-1207403"}

Rickeroo

I'm with space guy on this one. It's up to the buyer to say no. It's up to the buyer to realize that houses can't double in value every 3 years.

A guy I worked with in 2004 said, "I need to buy now before they go up any more". My reply to him was to wait it out, these prices are going to crash and they are gonna crash hard.

I have hindsight, buying in 1999 and knowing that the price increases since then were 100% imaginary. People felt "forced" to buy, simply because that was the price to pay, the going rate.

Be that as it may, the "going rate" does not effect your income or ability to pay in the slightest.

{"commentId":9014888,"threadId":"619935","contentId":"2999459","authorDomain":"rick-1207403"}

#2.21 - Sun Aug 23, 2009 8:33 PM EDT

{"commentId":8042823,"authorDomain":"mightyblogger"}

So basically TRW, TransUnion, the credit agencies are the root of the problem?

{"commentId":8042823,"threadId":"619935","contentId":"2999459","authorDomain":"mightyblogger"}

14 votes

#3 - Sun Jul 5, 2009 6:53 PM EDT

{"commentId":8042841,"authorDomain":"adouglass3"}

Oh yeah! BIG part of it. Wish I could vote twice!

{"commentId":8042841,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

11 votes

#3.1 - Sun Jul 5, 2009 6:54 PM EDT

{"commentId":8043284,"authorDomain":"mandelman"}

The banks... it's the banks. Although I'm all in favor of hating credit agencies, too.

{"commentId":8043284,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

21 votes

#3.2 - Sun Jul 5, 2009 7:26 PM EDT

{"commentId":8043395,"authorDomain":"adouglass3"}

It's a circle between the tax assessors, appraisers, rating agencies and lenders to suck borrowers for all they could get. The key was in their unity...get them all and Uncle Sam will make good eventually.

They'll do it again.

{"commentId":8043395,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

11 votes

#3.3 - Sun Jul 5, 2009 7:33 PM EDT

{"commentId":8044743,"authorDomain":"wingod"}

The banks... it's the banks. Although I'm all in favor of hating credit agencies, too.

And greedy home owners.

{"commentId":8044743,"threadId":"619935","contentId":"2999459","authorDomain":"wingod"}

6 votes

#3.4 - Sun Jul 5, 2009 9:12 PM EDT

{"commentId":8046548,"authorDomain":"sperrys"}

http://sperrys.newsvine.com/_news/2009/02/22/2465115-listen-up-america-the-neighbor-that-could-be-you

And greedy home owners.

I wrote an article awhile back...space guy, you may be uber wealthy, but if not, read this:

Until we recognize that we could be the next "victim," how will we ever understand the plight of our neighbors? This will not just touch those who we deem were "irresponsible"...it will touch all of us because it was not caused by borrowers...it was the banks...you want to wait to believe that only when it hits you? Or do you want to start understanding it now?

{"commentId":8046548,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

15 votes

#3.5 - Sun Jul 5, 2009 11:35 PM EDT

{"commentId":8046636,"authorDomain":"adouglass3"}

Funny, no one berates Bernie Madoff victims as greedy. They were smart for what they attempted.

I find it to be poor reasoning to assign blame before implementing a solution...it closes so many avenues.

{"commentId":8046636,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

10 votes

#3.6 - Sun Jul 5, 2009 11:44 PM EDT

{"commentId":8046775,"authorDomain":"wingod"}

Until we recognize that we could be the next "victim," how will we ever understand the plight of our neighbors?

I might have more sympathy for this position if I had not seen dozens of programs about "Flip This House", and seen people laugh about getting new loans to pay for their lifestyles just because their house appreciated in value.

Homes are not piggy banks. Repeat.

{"commentId":8046775,"threadId":"619935","contentId":"2999459","authorDomain":"wingod"}

6 votes

#3.7 - Sun Jul 5, 2009 11:56 PM EDT

{"commentId":8047113,"authorDomain":"mandelman"}

I know what you're saying because I knew and saw a lot of the same thing, but are you sure you're not buying into the stuff that makes the news. I mean, the guy who bought three homes in a year and borrowed the equity out of each is really not the norm here. I think LA distorts a lot of things... and this may be one of them.

{"commentId":8047113,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

9 votes

#3.8 - Mon Jul 6, 2009 12:31 AM EDT

{"commentId":8047145,"authorDomain":"hmm"}

Chuck1968

So basically TRW, TransUnion, the credit agencies are the root of the problem?

Moody's and S&P rated these securities AAA. http://www.pbs.org/wgbh/pages/frontline/meltdown/

Moody's Investors Service, Standard & Poor's and Fitch Ratings understate the risks of subprime mortgage bonds, putting funding for the U.S. housing industry at risk, according to a study to be released today.

The ratings companies can't evaluate the probability of losses because home loans that back the debt have constantly changing underwriting standards, according to the study by Joshua Rosner, a managing director of investment research firm Graham Fisher & Co. in New York, and Joseph R. Mason, an associate finance professor at Drexel University in Philadelphia.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aETDs1PMKDG8

{"commentId":8047145,"threadId":"619935","contentId":"2999459","authorDomain":"hmm"}

6 votes

#3.9 - Mon Jul 6, 2009 12:34 AM EDT

{"commentId":8047183,"authorDomain":"wingod"}

In the end, when it comes to assigning blame, I think that "all of the above" is the right box to check. A lot of people got greedy, and now we all are paying the price.

{"commentId":8047183,"threadId":"619935","contentId":"2999459","authorDomain":"wingod"}

9 votes

#3.10 - Mon Jul 6, 2009 12:40 AM EDT

{"commentId":8047191,"authorDomain":"adouglass3"}

All of these"rating" entities have one thing in common...they all want the markets to go up. They rate to increase participation.

Security in numbers (no pun intended).

{"commentId":8047191,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

7 votes

#3.11 - Mon Jul 6, 2009 12:41 AM EDT

{"commentId":8048796,"authorDomain":"jawill11"}

jawill11

Space Guy,

People will always be greedy and stupid. Not much will change that. The focus should be on creating rules and regulations that prevent con artists from capitalizing on that greed and stupidity to the detriment of us all.

{"commentId":8048796,"threadId":"619935","contentId":"2999459","authorDomain":"jawill11"}

7 votes

#3.12 - Mon Jul 6, 2009 7:45 AM EDT

{"commentId":8048866,"authorDomain":"mandelman"}

Well, let me just try this one more thing...

Let's see if we can divide the actions of the various parties into two columns. In one column we'll place the actions that were stupid, greedy, and the like. In the other we'll put the acts that were criminally fraudulent or criminally negligent.

Who ends up on the "should be in jail" side of that exercise? Homeowners? Ratings agencies? Investors? Banks.

Let's say we all got together and started an investment bank. And I was in charge of the division that packaged bonds so they could be sold to investors, referred to as mortgage backed securities. And I took a bunch of mortgages that I knew were going to default in much higher numbers than the investors who would be buying our bonds would be expecting based on the AAA ratings of our bonds. What would everyone call that?

Building bonds that you knew weren't AAA and selling them anyway as AAA bonds. Would you say... oh well... Mandelman is just being greedy? I don't think you would. I think you'd say Mandelman should be in jail.

If it lies like a bank, and it steals like a bank, and it lobbies like a bank... it's a bank.

{"commentId":8048866,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

9 votes

#3.13 - Mon Jul 6, 2009 7:54 AM EDT

{"commentId":8049289,"authorDomain":"jimi"}

Homes are not piggy banks. Repeat.

But that is exactly what banks and mortgage agencies were telling people for years! I was told more than once to invest in my house, because you always make money on your home. More than one friend (real estate appraisers) told me to get a 5 year ARM instead of a 30 year fixed. I didn't listen to them, and they certainly weren't uneducated people.

It's easy to look down on people that are getting screwed, but it's not low-income people only, just as the article's data suggests: it's your neighbors. Please repeat that over and over again.

{"commentId":8049289,"threadId":"619935","contentId":"2999459","authorDomain":"jimi"}

6 votes

#3.14 - Mon Jul 6, 2009 8:46 AM EDT

{"commentId":8049635,"authorDomain":"pchacker"}

But that is exactly what banks and mortgage agencies were telling people for years!

And Jim Jones got a bunch of fools to drink Kool-Aid...and the Heaven's Gate leader got people to eat bowls of poison to meet up w/ "the mother ship". Point being, just because a business who's purpose is to make money tells you to do something doesn't mean it's right. Heck, car commercials still tell me that if I buy a BMW or Mercedes right now I'll have a "much better, more fulfilling life", but I'm quite happy w/ my (paid for) Dodge Ram.

I was told more than once to invest in my house, because you always make money on your home.

In the long term, I would agree with them completely, but the problem is we're no longer envisioning life's most important decisions with a "long-term" vision.

More than one friend (real estate appraisers) told me to get a 5 year ARM instead of a 30 year fixed. I didn't listen to them, and they certainly weren't uneducated people.

You were wise to ignore them. Heck, my sales person approved my wife and I for upwards of a million dollars. I asked one simple question...what's the worst that can happen. It was their answer that re-confirmed my decision to go with a flat 5.25% 30 year fixed, and I'm feeling perfectly fine these days.

We live in a "get it now, now, now" America now we're no one wants to BUILD wealth, but instead to get it now. I remember reading an article some years ago that polled people how they expected to become millionaires. Some percentage said inheritance, a small percentage said work, a larger percentage said lottery and upwards of 80% said "I'll sue someone". What does that mean? That means we have a HUGE segment of the population ready to do whatever necessary (except work hard) to make money and build wealth.

But it's cool - we get articles like this that convince people that overextended themselves without any form of logic to their decision that it wasn't their fault and next thing you know...everyone's is back to the beginning again.

It's plain and simple and there's not an article in the world that will make me believe otherwise - we as a nation went from personal financial responsibility to a level of extension that has never been matched before...remember reading some time ago that the average person was spending 110% of their annual income - how can you expect to drop 10% MORE than what you make and not survive a hiccup? And if you are that behind...and mere hiccup turns into a huge pop - the IT pop...the housing pop...the credit pop (that will be next).

(And unfortunately...when you are that big a drag, you pull down many with you - those innocent people that were financially responsible that are hurting now because so many cared so little to do what was right.)

{"commentId":8049635,"threadId":"619935","contentId":"2999459","authorDomain":"pchacker"}

3 votes

#3.15 - Mon Jul 6, 2009 9:16 AM EDT

{"commentId":8049675,"authorDomain":"jimi"}

And Jim Jones got a bunch of fools to drink Kool-Aid...and the Heaven's Gate leader got people to eat bowls of poison to meet up w/ "the mother ship".

We also don't blame those people, do we? We blame the leaders.

{"commentId":8049675,"threadId":"619935","contentId":"2999459","authorDomain":"jimi"}

6 votes

#3.16 - Mon Jul 6, 2009 9:19 AM EDT

{"commentId":8049837,"authorDomain":"adouglass3"}

Shawn-299392,

I agree with nearly everything you wrote, the exception being your assertion attempts to convince people it's not their fault.

I think (hope) what Martin is addressing is the finger pointing and politicizing of a convoluted systematic problem. There is no simple solution.

Refusing to participate in the stock market is NOT a solution. Many 401k's and pension plans are invested there. There is NO mechanism for this kind of cash. If you switch to bonds, the same speculation would be applied to them.

It's the rules that must be changed, to protect the COMMON good, not the financial sector.

{"commentId":8049837,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

5 votes

#3.17 - Mon Jul 6, 2009 9:30 AM EDT

{"commentId":8049953,"authorDomain":"pchacker"}

your assertion attempts to convince people it's not their fault.

ABD3,

To the contrary, I unlike most put complete responsibility to the consumer. The business person is simply there to bring in business. It's the responsibility of the consumer to make logical and educated decisions on how they will spend their money....

The only ones I do feel bad for are the ones that are dragged down when a mass of people that make irresponsible moves affects someone that actually put logic and reason into their consumer-based decisions...

{"commentId":8049953,"threadId":"619935","contentId":"2999459","authorDomain":"pchacker"}

#3.18 - Mon Jul 6, 2009 9:37 AM EDT

{"commentId":8050028,"authorDomain":"pchacker"}

We also don't blame those people, do we? We blame the leaders.

You only blame the leaders...seriously? I blame each and every one of them for their decision and think each is a complete fool for their actions - they made the final decision and lacked....something...to give hesitation to such an inane act.

{"commentId":8050028,"threadId":"619935","contentId":"2999459","authorDomain":"pchacker"}

2 votes

#3.19 - Mon Jul 6, 2009 9:42 AM EDT

{"commentId":8050167,"authorDomain":"adouglass3"}

Sorry Shawn,

That was supposed to read: "...the exception being your assertion that this article attempts to convince people that it's not their fault.".

Where's that "intent-check" button?

I can't agree with placing complete responsibility on the consumer. There are legions of consumer protection laws on the books aimed at protecting the whole and this area should be no exception. We are protected from false advertising, contractual voodoo, environmental hazards, health hazards, etc.

It should not be necessary for each person to become an MBA in order to select a retirement plan. I'm hardly advocating removing risk from investment, I simply want to remove the ability of profiteers from raiding the henhouse on a whim.

{"commentId":8050167,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

5 votes

#3.20 - Mon Jul 6, 2009 9:50 AM EDT

{"commentId":8050652,"authorDomain":"pchacker"}

Thanks for the clarification...

My response was less to the article directly but more to the masses that are quick to push blame elsewhere because that way they can play the innocent victim - the martyr. "Poor little us...those rich bastards took our money". Really - I don't remember my lender with gun in hand at my closing....

I am so sick of people not taking responsibility for their actions...like I had mentioned, I remember it clearly, consulting for a nuclear power plant up north and reading the articles, people were spending 95% of their income...then next it was 98%...then it was 100%...then it was 110% and the whole time I kept thinking to myself, "I don't know when something bad is going to happen or what it'll look like, but it's going to be bad".

It doesn't take a rocket scientist to understand '100 in the pocket, 110 out of the pocket = bad formula'. It was like...we all pushed for the government to be financially responsible but we weren't doing it ourselves...

I think all the loanstyles where smoke and bull-crap to get people in the door and disagree with their creation, but they were the same as the car ads we've seen every day, "right now, today only Toyota Sierra - zero down and we'll pay off your loan - no credit - no problem, no money, no problem - we'll make the first 3 months payment"...the problem is, since we see those every day, we're used to the fact that they are all garbage and that there's always a catch - with houses, people (I can only presume) figured that the sales pitch was not the same.

We are protected from false advertising, contractual voodoo, environmental hazards, health hazards, etc.

I agree but again final responsibility (and personal responsibility) in those cases falls on the consumer - in the case of cigarettes, they've all but beat people in the head saying, "this WILL kill you", but people still drop money hand over fist (in some cases, in leui of food for their families) for their addiction. The housing (I presume) will be the same..."you can't afford this mansion and won't be able to pay for it a year from now unless you hit the lottery...do you want to buy it?" Marble...silestone...travertine...indoor pool...I'll take it and figure out how to deal with the future when it comes.

Time will tell...

{"commentId":8050652,"threadId":"619935","contentId":"2999459","authorDomain":"pchacker"}

2 votes

#3.21 - Mon Jul 6, 2009 10:16 AM EDT

{"commentId":8051311,"authorDomain":"adouglass3"}

Well put, again we are in agreement. Your comparison to smoking is totally appropriate. They are now unable to advertise in comics, television (even cable...astonishing!), even billboards. We also attempt to protect non-consumers by prohibiting smoking in most public places.

In the 1980's, they told us we needed to save more, warned us of the demise of Social Security and even created 401k's and IRA's as more accessible mechanisms to promote retirement planning. "Dollar cost averaging" became reality for generations to follow.

Sure, there were dreams of early retirement and striking it rich but the key was self-sufficiency. The concept was easy to grasp and emminently logical. All we had to do was "periodic adjustments" to fit changing conditions.

No one mentioned the consolidation of the entire sector into mega banks/investment firms and then shooting craps with wall street traders.

No one mentioned the developers and assessors would join in and introduce an astounding amount of "cash" with the securitized derivitive.

Certainly no one mentioned that the entire game could be insured, at taxpayer expense but that's exactly what AIG did.

What was once an impressive amount of money (not to mention effort) was now peanuts compared to the pot on the table. What sucks is that it was still the only REAL money there.

Not a financial expert but it isn't hard to see the flaws in such an unmonitored environment. It is not responsible to allow such a large part of the population to work until they die...all because they saved.

{"commentId":8051311,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

2 votes

#3.22 - Mon Jul 6, 2009 10:52 AM EDT

{"commentId":8052769,"authorDomain":"jimi"}

You only blame the leaders...seriously? I blame each and every one of them for their decision and think each is a complete fool for their actions

Your average Joe is not a banker, and relies on advice from lenders. If a lender gives them advice, they'll most likely take it, and most lenders were saying get ARMs instead of 30-year fixed and sure 0% down is fine and don't worry you're house only ever appreciates in value.

That's a lot of info to process for first-time home buyers, why should they doubt so-called professionals advising them?

{"commentId":8052769,"threadId":"619935","contentId":"2999459","authorDomain":"jimi"}

5 votes

#3.23 - Mon Jul 6, 2009 12:03 PM EDT

{"commentId":8053463,"authorDomain":"pchacker"}

If a lender gives them advice, they'll most likely take it, and most lenders were saying get ARMs instead of 30-year fixed and sure 0% down is fine and don't worry you're house only ever appreciates in value.

Then we have a bigger problem than ANYONE can imagine if people just blindly accept a salesperson's salespitch without asking a couple questions...the first of which is quite simple, "This sounds too good to be true...what's the worst than can happen"?

If people are going to use the excuse that they will take whatever the salesperson said and hold it to gospel (knowing that a sales person is there to make money, not to befriend the consumer) then hopefully...hopefully this has brought everyone up to the knowledge of my 8 year old, because she already knows that salespeople are there to make money and don't care about you at all.

get ARMs instead of 30-year fixed

Depends on your intent of the house, and as soon as the above question was answered, woud have ended that route...

sure 0% down is fine

Anyone that believes that...I'm sorry...no offense but...you deserved it.

you're house only ever appreciates in value

A 30 second Google search would have probabaly squelch that...

{"commentId":8053463,"threadId":"619935","contentId":"2999459","authorDomain":"pchacker"}

#3.24 - Mon Jul 6, 2009 12:36 PM EDT

{"commentId":8053941,"authorDomain":"sperrys"}

sure 0% down is fine

Anyone that believes that...I'm sorry...no offense but...you deserved it

So, don't most people find themselves in the "no money down" position now? Think about it...say you put 20% down, and now your home value has decreased 20%...while that's not where you started out, it is where you are now, right? All equity is lost in your home...perhaps more than the face value of your loan. Forget that your argument implies that NO ONE should've bought a home because they ALL should've known they would lose their jobs, 401k/stock savings...all should've anticipated these things otherwise they are not as smart as your 8 year old? With 39% of foreclosures due to job losses, would you have anyone getting any loan thinking to themselves "hmmm, I better not ever buy a home because I could lose my job someday?" Just trying to follow your logic on that...

{"commentId":8053941,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

5 votes

#3.25 - Mon Jul 6, 2009 1:00 PM EDT

{"commentId":8054467,"authorDomain":"jimi"}

Then we have a bigger problem than ANYONE can imagine if people just blindly accept a salesperson's salespitch without asking a couple questions...the first of which is quite simple, "This sounds too good to be true...what's the worst than can happen"?

Ok, you're set in your mind, and have decided to thumb your nose at the practices of those handing out the loans. One last parting word on this, the people receiving the loans were not in the position of power, so why are they the ones receiving the blame for getting the loans? I do agree with you that some of these people dug their own hole, just not all of them.

Also, I don't think these people were the primary reason for the implosion of our economy. As others have posted, there was a huge secondary market for sub-prime mortgages. Banks and other financial institutions issued CDO's without having finances to back them up. They over-extended themselves and that is the primary reason for the collapse, not individual borrowers.

A 30 second Google search would have probabaly squelch that...

Not 4-5 years ago it wouldn't have, when most of these loans were being dolled out.

{"commentId":8054467,"threadId":"619935","contentId":"2999459","authorDomain":"jimi"}

3 votes

#3.26 - Mon Jul 6, 2009 1:24 PM EDT

{"commentId":8054741,"authorDomain":"pchacker"}

What I'm saying is that you don't walk up to a house and say, "I don't have a penny to invest, I'd like a house please"...20% has been the "norm" for a loooong time and saves the consumer serious $$ for the insurance part.

As for the rest of your argument, you go from healthy economy to people immediately going to a u6 unemployment rate of 16.5%, not figuring that if more people were responsible with their money, fewer people would have foreclosed, and as businesses would have been moving slower but steadier (instead of stalled), fewer people would have been laid off as more businesses would have been able to grow in a more "straight-line" manner instead of this radical pump-and-dump manner we're going now.

I can follow my logic quite well with it and have been through two company closings so far...but b/c I had invested 20% in my house (instead of walking in with empty pockets) and made sure I had a very healthy nest egg before building my house, we have managed fine.

The problems started when:

a.) people started feeling that everyone "deserved" a house (and many of it's amenities (granite counters, steel appliances, etc.)...as if home ownership is some sort of Constitution right.

b.) people stopped being responsible with their money - you can't sustain an existance when you spend upwards of 110% of your income...it just won't work. That's where we got to as a nation before I stopped reading about it as I knew we were in for hard times.

{"commentId":8054741,"threadId":"619935","contentId":"2999459","authorDomain":"pchacker"}

#3.27 - Mon Jul 6, 2009 1:37 PM EDT

{"commentId":8054891,"authorDomain":"sperrys"}

So what is your argument on Prime loans defaulting at a higher rate than sub-prime loans? What will you say when your neighbors start foreclosing, dragging down the value of your property with them? Should we blame you when that happens that it is your fault for buying a home for more than it was worth because you should've known that all your neighbors were irresponsible?

{"commentId":8054891,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

4 votes

#3.28 - Mon Jul 6, 2009 1:43 PM EDT

{"commentId":8055060,"authorDomain":"jimi"}

So what is your argument on Prime loans defaulting at a higher rate than sub-prime loans?

He doesn't want to hear it.

{"commentId":8055060,"threadId":"619935","contentId":"2999459","authorDomain":"jimi"}

4 votes

#3.29 - Mon Jul 6, 2009 1:50 PM EDT

{"commentId":8055644,"authorDomain":"pchacker"}

So what is your argument on Prime loans defaulting at a higher rate than sub-prime loans?

Firstly, if a house goes into foreclosure because someone can no longer afford it, the price will go down and someone else will get it. It's happened on our community a couple times and amazingly...we're all living just fine. Does it affect the short term value of my house? Sure, but when we bought it was 225k, it was appraised before the "crash" at over 600k, (which was INSANELY overpriced) and now it has leveled down to a more reasonable 300k.

It's when government steps in to "solve the problem" by putting a glass floor down to stop supply/demand that we start crumbling. Heck, looks what's happening as of recent, people that weren't able to buy houses before...are now able - and with the knee jerk that happened, people are getting responsible with money again. It's almost as if people needed (for some reason) to be shocked back into reality again, almost like when a child goes to far and you pop them on the butt...suddenly they chill out again. The children have begun to chill out and are re-learning responsibility.

I bought well below what I could afford and as such, am perfectly fine with conditions as they are...just recently laid wood floors down and in December, paid cash for a 1-yr old truck (reason I say cash is b/c I had been saving for it, hit the 16k mark and was able to buy it - since I don't take loans for vehicles, as mentioned previously).

Should we blame you when that happens that it is your fault for buying a home for more than it was worth because you should've known that all your neighbors were irresponsible?

Markets go up and down and the way this was going up, anyone that bought at it's peak honestly seen the writting on the wall, much the same as those (myself included) that bought stocks high and sold low - I blame myself there for stupid purchasing and timing...not the companies.

Look you all want to blame "big bad business" all you want, that's fine...but it's rather ironic that it's that same business that people applauded as their salaries went up, their bonuses were fat, and they were able to afford $7/day coffee and new iJunk at a whim.

He doesn't want to hear it.

Not at all...been on phone with doctor, thank you though.

Regardless what the type of mortgage is that people are foreclosing on, the fact is that housing prices went up way to fast and now they're coming back to reality. If you bought before the madness, then you're really not too worried now, and if you carried reason and logic to the table instead of ego, you're really not too affected by what's going on right now.

Now that said...I won't be able to reply to the wealth of comments that are going to be against me, and so as not to give any confusion why I'm not immediately responding (since that seems to be a question), heading to hospital to get my blood clot checked out.

Thanks all...

{"commentId":8055644,"threadId":"619935","contentId":"2999459","authorDomain":"pchacker"}

#3.30 - Mon Jul 6, 2009 2:15 PM EDT

{"commentId":8055715,"authorDomain":"jimi"}

He doesn't want to hear it.

Not at all...been on phone with doctor, thank you though.

I wasn't talking about your delay in replying, I was talking about your overall attitude towards the situation.

{"commentId":8055715,"threadId":"619935","contentId":"2999459","authorDomain":"jimi"}

5 votes

#3.31 - Mon Jul 6, 2009 2:18 PM EDT

{"commentId":8055719,"authorDomain":"src97531"}

20% has been the "norm" for a loooong time and saves the consumer serious $$ for the insurance part.

Don't think so. Vast majority of people I know started with 3-5% down on their first home, either through VA or FHA.

{"commentId":8055719,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

4 votes

#3.32 - Mon Jul 6, 2009 2:18 PM EDT

{"commentId":8056012,"authorDomain":"sperrys"}

If you bought before the madness, then you're really not too worried now, and if you carried reason and logic to the table instead of ego, you're really not too affected by what's going on right now.

Well, Shawn...since you were so absolutely perfect in bringing logic and reasoning to the table instead of your ego (and a little bit of luck in buying before the madnesss) then congratulations...you are one of the increasingly few people who have not been touched one little itty bit by this....for now anyway. If you think there are a lot of people out there who are just like you, and everything will just be hunky dory, then your circle of vision is a very small, very narrow one...your situation is not reflective of the vast majority....300,000 foreclosures per month, 600,000 job losses per month....double digit unemployment and no signs of it turning around...and you sit here all smug in your righteousness. Good luck with that...hope that works out for ya...

{"commentId":8056012,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

5 votes

#3.33 - Mon Jul 6, 2009 2:30 PM EDT

{"commentId":8056158,"authorDomain":"lindaluke"}

Linda Luke

He reminds me of Biden and Obama, just a bit out of touch with what is really happening

{"commentId":8056158,"threadId":"619935","contentId":"2999459","authorDomain":"lindaluke"}

1 vote

#3.34 - Mon Jul 6, 2009 2:36 PM EDT

{"commentId":8056232,"authorDomain":"sperrys"}

A couple of months from now, he'll come out and say he "misread the economy!"

{"commentId":8056232,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

1 vote

#3.35 - Mon Jul 6, 2009 2:39 PM EDT

{"commentId":8056929,"authorDomain":"jimi"}

A couple of months from now, he'll come out and say he "misread the economy!"

If they are wrong, I do hope they do this. Better than staying the course right into a dead end.

{"commentId":8056929,"threadId":"619935","contentId":"2999459","authorDomain":"jimi"}

1 vote

#3.36 - Mon Jul 6, 2009 3:06 PM EDT

{"commentId":8057095,"authorDomain":"sperrys"}

Point taken jimi, but how on earth did they misread what so many were seeing not just then, but years ago? Kind of strains the imagination a bit...

{"commentId":8057095,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

3 votes

#3.37 - Mon Jul 6, 2009 3:13 PM EDT

{"commentId":8059093,"authorDomain":"neenie1991"}

but how on earth did they misread what so many were seeing not just then, but years ago?

If so many were seeing it then and years ago, why didn't they speak up and do something about it? That also strains the imagination.

{"commentId":8059093,"threadId":"619935","contentId":"2999459","authorDomain":"neenie1991"}

1 vote

#3.38 - Mon Jul 6, 2009 4:45 PM EDT

{"commentId":8059217,"authorDomain":"sperrys"}

Paulsen did in Mar 08...proposed a TARP plan then...was told to come back when the crisis was at the door...

{"commentId":8059217,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

1 vote

#3.39 - Mon Jul 6, 2009 4:52 PM EDT

{"commentId":8059321,"authorDomain":"src97531"}

By March 08 the system was already well on its way to fullscale meltdown. To actually address the issues, someone would need to have identified them years earlier. Nobody did, or at least nobody that anyone listened to.

{"commentId":8059321,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

2 votes

#3.40 - Mon Jul 6, 2009 4:57 PM EDT

{"commentId":8059391,"authorDomain":"sperrys"}

Yep...it was that no one was listening. Paulsen finally tried...he got shut down. Volker tried to do something in February about the banks...strip them of the supermarket business model....he was disinvited from the Geithner table

{"commentId":8059391,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

2 votes

#3.41 - Mon Jul 6, 2009 5:01 PM EDT

{"commentId":8059519,"authorDomain":"src97531"}

By 2008 the whole system was already collapsing. All that could be done was to try to mitigate the damage. If TARP had been initiated in March instead of September it might have helped a little, but I suspect overall it wouldn't have mattered that much.

{"commentId":8059519,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

2 votes

#3.42 - Mon Jul 6, 2009 5:09 PM EDT

{"commentId":8059740,"authorDomain":"sperrys"}

Yes...it was already too late, but they have known it's been coming far longer than that. It was just not politically correct to do anything about it...then, and now...we are owned by the banks, and those lobbyists that Obama said would not play a part in his administration? Yeah...they're still there, and just as strong as ever.

{"commentId":8059740,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

2 votes

#3.43 - Mon Jul 6, 2009 5:21 PM EDT

{"commentId":8059824,"authorDomain":"hmm"}

Chuck1968

To the contrary, I unlike most put complete responsibility to the consumer. The business person is simply there to bring in business. It's the responsibility of the consumer to make logical and educated decisions on how they will spend their money....

are you saying it's okay for business to screw consumers with bs information so they can make a sale ? That's a load. Businesses and those working for them have a responsibility far beyond making profits.

So, following your logic, anyone who gets the wrong prescription and dies should have analyzed the pills in the bottle -screw the fact that this person decided to trust the pharmacist.

Anyone getting bad medical advice shouldn't be allowed to sue should you follow it and die, you brought it on yourself by not diagnosing yourself on the internet first.

Anyone receiving bad legal advice and loses everything shouldn't sue the lawyer for bad representation. After all they should have looked up the law themselves on the internet.

Markets go up and down and the way this was going up, anyone that bought at it's peak honestly seen the writting on the wall, much the same as those (myself included) that bought stocks high and sold low - I blame myself there for stupid purchasing and timing...not the companies.

And so you aren't going to take any of your losses off on your taxes , correct ?

I think all the loanstyles where smoke and bull-crap to get people in the door and disagree with their creation, but they were the same as the car ads we've seen every day, "right now, today only Toyota Sierra - zero down and we'll pay off your loan - no credit - no problem, no money, no problem - we'll make the first 3 months payment"

...the problem is, since we see those every day, we're used to the fact that they are all garbage and that there's always a catch

and yet somehow you come to the conclusion that this is the consumers fault. Interesting.

{"commentId":8059824,"threadId":"619935","contentId":"2999459","authorDomain":"hmm"}

6 votes

#3.44 - Mon Jul 6, 2009 5:26 PM EDT

{"commentId":8059872,"authorDomain":"src97531"}

Yes...it was already too late, but they have known it's been coming far longer than that.

You know, I don't think so. Oh, maybe a few people spotted it. but overwhelmingly I think the entire financial industry was genuinely clueless. If they had spotted it coming, you would have seen a mass exodus from the market before it imploded, and there was none. They were blindsided. Then you add in the perfect storm of companies like AIG putting billions into bizarre financial instruments that nobody understood (WTF is a "credit default swap"? Did even they know?) and the whole house of cards came tumbling down all over everyone.

{"commentId":8059872,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

1 vote

#3.45 - Mon Jul 6, 2009 5:29 PM EDT

{"commentId":8059906,"authorDomain":"celiaarm"}

CCArm

ABD3

In the 1980's, they told us we needed to save more, warned us of the demise of Social Security and even created 401k's and IRA's as more accessible mechanisms to promote retirement planning

The 401K's were also the demise of corporate retirement benefits and the cause of many being terminated from those companies in order to rid themselves of the costly retirement packages. This, IMO, was another scheme to line the pockets of Wall Street. 401K's are another example of how the average person has to depend on the "expert" leading them to do the right thing.

{"commentId":8059906,"threadId":"619935","contentId":"2999459","authorDomain":"celiaarm"}

3 votes

#3.46 - Mon Jul 6, 2009 5:31 PM EDT

{"commentId":8060158,"authorDomain":"sperrys"}

http://www.rgemonitor.com/blog/roubini/160927/revisiting_my_julyaugust_2006_prediction_of_a_us_recession_in_2007

Dave- It's not hard to find people talking about a recession back in 05 and 06...just put in some relevant keywords, and the pages and pages of articles should be enough for you. I just grabbed this one:

Oh, and mandelman has been following it for years too..

{"commentId":8060158,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

1 vote

#3.47 - Mon Jul 6, 2009 5:44 PM EDT

{"commentId":8060330,"authorDomain":"src97531"}

Predicting a recession is not at all the same as predicting what actually happened. If it had just been a normal recession, we would probably already be well past turnaround and on our way back up. There were serious structural failures all over our whole financial system, and addressing those issues has made and will continue to make the recovery much slower.

{"commentId":8060330,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

2 votes

#3.48 - Mon Jul 6, 2009 5:51 PM EDT

{"commentId":8060563,"authorDomain":"adouglass3"}

I have to agree with Dave.

This problem is systemic, it's not just a matter of policy. The very mechanisms of commerce have been twisted and strained into a grotesque mass that only serves those pulling strings.

To be able to access vast wealth through mechinations puts retirements, homes businesses in EVERY sector at risk. This problem has to be surgically repaired and it will take time. There will definitely be a scar.

{"commentId":8060563,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

3 votes

#3.49 - Mon Jul 6, 2009 5:58 PM EDT

{"commentId":8060626,"authorDomain":"sperrys"}

Oh, I think with deregulation, the lowering of standards ie stated income vs verified income, etc, the packaging of AAA loans with cash flow to make them A paper...any banker could see what was coming then...they knew what they were doing, and any economist keeping an eye on things would've seen it wasn't just going to be another recession...it had to burst. My question is now that they know, why is it not Obama's first order of business to put regulations in that will put a halt to any further abuse? Why has he not nationalized the banks until they are cleaned up? Why does he continue to give our money to insolvent banks, and then say things like "there is a glimmer of hope" that we are coming out of this? And finally...why are they saying they misread the economic situation when by January, come on...any economist worth a salt knew by then, right?

{"commentId":8060626,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

3 votes

#3.50 - Mon Jul 6, 2009 6:01 PM EDT

{"commentId":8061827,"authorDomain":"a-s-n"}

PNWB

Credit ratings agencies are defacto databases for the banks. You cannot seperate them from the Credit collections industry. What is really sick is the recent development of them selling you acess to your own information .... provided by their scumbag members which is usually wrong - good luck correcting it though.

The bond rating agencies are another crew of degenerates who clearly purpotrated a massive fraud with the bankers on the MBS stuff. Rating any of that crap as AAA was nonsense. To put this in perspective, an AAA rating is reserved for those who have credit like the USA government (who can borrow at will from the FED), not a bunch of guys with negative equity on 800 sq foot bungalows in Orange County .... That is a BB at best .....

{"commentId":8061827,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

5 votes

#3.51 - Mon Jul 6, 2009 6:48 PM EDT

{"commentId":8043000,"authorDomain":"curiousg"}

Oh, man, I wish I could find all those articles and comments from folks who's only understanding of this mess was based on 'sub-primes'.

{"commentId":8043000,"threadId":"619935","contentId":"2999459","authorDomain":"curiousg"}

12 votes

#4 - Sun Jul 5, 2009 7:05 PM EDT

{"commentId":8043021,"authorDomain":"src97531"}

... or all those who claim the meltdown was caused by CRA loans.

{"commentId":8043021,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

9 votes

#4.1 - Sun Jul 5, 2009 7:07 PM EDT

{"commentId":8043309,"authorDomain":"mandelman"}

That's my point exactly! If you look at the data the professor supplied in his article, it tells a very different story than the one we were told by the banking lobby's and the government's pr efforts. And that makes me feel better, for some reason. It never made a tremendous amount of sense to me.

By the way, if you get a chance to watch the special "Two Trillion - How We Bought Wall Street," or something close to that, you'll see Henry Paulson say something similar. He says towards the beginning of that documentary that he saw the problem as being a sub-prime problem and because the sub-prime market was only something like 2.4%, he didn't see that it could spread the way it did.

{"commentId":8043309,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

13 votes

#4.2 - Sun Jul 5, 2009 7:27 PM EDT

{"commentId":8043497,"authorDomain":"curiousg"}

Yep, this mess was totally caused by the greed, avarice, and deception of the banks, their insurers, and rating agencies, who believed they could reduce their risk by reselling their 'diversified' crap under fancy names.

{"commentId":8043497,"threadId":"619935","contentId":"2999459","authorDomain":"curiousg"}

20 votes

#4.3 - Sun Jul 5, 2009 7:39 PM EDT

{"commentId":8043896,"authorDomain":"mandelman"}

Ladies and gentlemen... we have a BINGO!

{"commentId":8043896,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

14 votes

#4.4 - Sun Jul 5, 2009 8:04 PM EDT

{"commentId":8044019,"authorDomain":"curiousg"}

Oh, and I forgot to mention, they then bought each others loans to increase the 'assets' on their books. Remember in banking a loan to a customer is recorded as an asset on their books, deposits are liabilities.

Oh for the days of 3-6-3 banking. Borrow money for 3%, loan it for 6%, and on the golf course by 3pm. But, nooo...they had to go and get fancy on us.

{"commentId":8044019,"threadId":"619935","contentId":"2999459","authorDomain":"curiousg"}

14 votes

#4.5 - Sun Jul 5, 2009 8:12 PM EDT

{"commentId":8047126,"authorDomain":"mandelman"}

What about the three martini lunches?

{"commentId":8047126,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

5 votes

#4.6 - Mon Jul 6, 2009 12:32 AM EDT

{"commentId":8047366,"authorDomain":"sperrys"}

Those were renamed to "boutique martini loan-ches" I believe...

{"commentId":8047366,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

6 votes

#4.7 - Mon Jul 6, 2009 1:05 AM EDT

{"commentId":8049853,"authorDomain":"pchacker"}

Yep, this mess was totally caused by the greed, avarice, and deception of the banks, their insurers, and rating agencies, who believed they could reduce their risk by reselling their 'diversified' crap under fancy names.

So let me get this right...

The business is in business to make money. They make their offers as good as they possibly can so as to get people to buy their product, and then it's up to the consumer to decide what is right and wrong, valid and invalid, reasonable and illogical. If no one takes the offer, they have to alter their business plan or go out of business...

And with all the advertisements we see on TV every single day that tell us our lives have no meaning, no real value, and that we'll all be so much happier...if we just had their product, we aren't conditioned enough as individuals to get through the bull-crap and to read reality? I don't buy it!

It's the bankers fault...the insurer's fault...the rating agencies...the...

The single mother of 3 (or 4, I can't remember) that was making 35k in California that bought a $500,000 house...she has zero responsibility in something like that???

The ninja loan where it allowed you to simply state whatever you wanted as your income and they would believe you...it's not the person's responsibility to be honest?

Interesting...

If I have a business, it's my job to sell you something, and if consumer is not going to have at least a modicum of logic in their decision to spend their hard earned cash...it's not my fault. And the reselling of loans to each other does not effect the money coming out of my wallet.

But as we're already in a nation of personal financial irresponsibility, it wouldn't surprise me if we would like to take it to the next level and just not take ANY personal accountability or responsibility - that makes life easier - "damn corporations"...yeah, that is much easier.

{"commentId":8049853,"threadId":"619935","contentId":"2999459","authorDomain":"pchacker"}

2 votes

#4.8 - Mon Jul 6, 2009 9:31 AM EDT

{"commentId":8050037,"authorDomain":"src97531"}

The business is in business to make money. They make their offers as good as they possibly can so as to get people to buy their product, and then it's up to the consumer to decide what is right and wrong, valid and invalid, reasonable and illogical. If no one takes the offer, they have to alter their business plan or go out of business...

If you offer loans with terms that, sooner or later, the borrower will be unable to meet, then you have failed to properly run your business. Yes, the bankers sold off the bad loans to others, but at the same time they were buying up toxic loans from other lenders, which sounds like a giant circle jerk. No, borrowers and lenders share the blame for this mess. The lending as well as the borrowing was grossly irresponsible.

{"commentId":8050037,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

5 votes

#4.9 - Mon Jul 6, 2009 9:42 AM EDT

{"commentId":8050119,"authorDomain":"dacincykid"}

Who do you think was spreading that BS? Why it was the very people who caused the problems in the first place. Mis direction while they covered their behinds. Just like every financial crisis I have ever seen. The money guys blame the little guy walk away with all the loot laughing at us for being so stupid.

{"commentId":8050119,"threadId":"619935","contentId":"2999459","authorDomain":"dacincykid"}

4 votes

#4.10 - Mon Jul 6, 2009 9:47 AM EDT

{"commentId":8050304,"authorDomain":"pchacker"}

If you offer loans with terms that, sooner or later, the borrower will be unable to meet, then you have failed to properly run your business.

But in that statement is my exact point (why I bold-ed you quote). The point of sale is to say that right this second you accept these payments and right this second you can make the payment - that's the end of the seller's part. They can't say, in three years will you be able to pay 2x this? That's up to the buyer to determine if they willing to accept that term.

Think about when you buy a car - the sales agent doesn't ask, "so will you be able to pay for this 5 years from now"...they simply ask, based on the payment schedule before you, do you want to sign on the dotted line.

As to them selling bad loans to each other, that was to defer and minimize the negative impact sure...but if people would have simply all been responsible when signing their name on a contract - there wouldn't have been any toxic loan.

My father told me from the day I graduated, "3 months salary in the bank minimum". So from day one in the work force I scrapped and sacrificed to get that "3 months". Once it was there...THEN i started doing stuff like replacing my McDonald's plastic cups with glass ones...replacing my used furniture with newer things, etc.

I could go out today and buy a couple dozen cars or another home just because a sales person says it's the right thing to do...but I prefer to keep the money I've earned and saved and the security it provides me during such a tumultuous time.

If we blame the sales person for selling the house then we have to blame every single sales person in business today...from the houses down to the McDonald's cashier, because they too are allowing you to buy something that you may later default on (if you buy with credit).

{"commentId":8050304,"threadId":"619935","contentId":"2999459","authorDomain":"pchacker"}

2 votes

#4.11 - Mon Jul 6, 2009 9:58 AM EDT

{"commentId":8050426,"authorDomain":"src97531"}

But in that statement is my exact point (why I bold-ed you quote). The point of sale is to say that right this second you accept these payments and right this second you can make the payment - that's the end of the seller's part. They can't say, in three years will you be able to pay 2x this? That's up to the buyer to determine if they willing to accept that term.

It is also up to the lender. If I'm a stockholder in the bank (and my 401K investments did include banks) I have a right to expect the banks to exercise diligence in investing their (my) money. Part of that diligence is not to make loans that can't be repaid in full. A lender who says that making 36 payments (out of 360) is enough is grossly irresponsible.

As to them selling bad loans to each other, that was to defer and minimize the negative impact sure...but if people would have simply all been responsible when signing their name on a contract - there wouldn't have been any toxic loan.

If lenders had only lent money to people able to repay the loans, over the full life of the loans - there wouldn't have been any toxic loan.

Sorry. Guilt on both sides.

{"commentId":8050426,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

4 votes

#4.12 - Mon Jul 6, 2009 10:04 AM EDT

{"commentId":8050940,"authorDomain":"pchacker"}

If lenders had only lent money to people able to repay the loans, over the full life of the loans - there wouldn't have been any toxic loan.

k, let's pose a scenario...

It's Monday and I have 100,000 in my bank account. I walk into a car dealership and say, I'd like to buy the new <fill in car> for 75k. I pull out my account register...yup can afford, but want to finance because it's 0.0% financing (and that's actually a logical move).

So I drive away in my car that I have money for...

On the way home I go to..Best Buy and want to pick up a complete entertainment package...the works...total price - 50k. I pull out my account register...100,000 in the bank, will finance it - 0 money down. Out the door...

So I drive my big expensive equipment home...and have 100k still in the bank.

And since I just got my new iPhone I call the local pool company and say I want a pool added to my house...I let the builder know I have a bank account with 100k in it so a 40k pool's no problem. He calls the bank, "yup 100k here", sounds great, 0% down, payment in 12 months...

I just dropped 190k in an afternoon and haven't "spent" a dime - not to mention, according to each business, they each made a move that, independantly made logical sense. It was the consumer that was the fool and spent above and beyond their means, and it was the consumer that is at fault.

Also...I still have 100k so I can go shopping the next day too, as long as I have enough to fool the businesses into believing. I could take it all out and give it to charity on Tuesday...then I wouldn't have a penny so when they try to collect payment..."sorry, all broke now".

My point being, if you get an ARM, there is an "worst case scenario" and it's up to the consumer to determine if they can shoulder that worst case scenario responsibility (hence the reason I live in the house I'm in instead of the 1.x million dollar home I was approved for at the time).

And if you went in with a liar loan or a ninja loan and weren't honest with the agent because you were blinded at the notion of making 30k and living in a mansion...then you lied (and lied to yourself, which is actually worse) and it's your fault as well.

Right now you can walk into most car dealerships and walk away without making a payment for at least 3 months...if that's the case, why isn't every single person getting a "free" car - because we've been conditioned to understand that the sales pitch by car dealerships is crap - people (for some reason) believed the sales pitch by a lender was any different....who knows why, they're both sales people just trying to add $$ to their bottom line.

{"commentId":8050940,"threadId":"619935","contentId":"2999459","authorDomain":"pchacker"}

2 votes

#4.13 - Mon Jul 6, 2009 10:30 AM EDT

{"commentId":8051111,"authorDomain":"src97531"}

Sorry, but your parallel scenario doesn't work. Not the same situation at all. You're talking about someone taking out a loan he can repay, and then failing to do so.

Actual situation was: Borrower has income that allows him to make a monthly payment of $1500. Lender says sure, no problem, buy this $400,000 house. You only have to pay $1500/month for the first three (or five) years. There are varying scenarios on what, if anything, was said about month 37 (or 61).

The lender knew on day 1 that the borrower could not repay the whole loan. So did the borrower. Both are guilty.

{"commentId":8051111,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

6 votes

#4.14 - Mon Jul 6, 2009 10:41 AM EDT

{"commentId":8051596,"authorDomain":"pchacker"}

The lender knew on day 1 that the borrower could not repay the whole loan. So did the borrower. Both are guilty.

Sorry but that's complete crap.

I sell you something and tell you:

today it will cost you 100
in 2.5 years that 100 may go to 10k/month.

Would you like this loan?

You have NO WAY of knowing (and neither does the consumer mind you) what will happen in 2.5 years or if they'll be able to pay it....they may be about to inherit riches, they may be about to lose their job, they may be about to win a lawsuit, they may about to have to start paying cash for chemo treatments - neither party has a CLUE what they will be able to pay in 2.5 years...all either party can go on is, "this will be the monthly bill in 2.5 years...do you want the loan"?

But if you tell someone, "in 2.5 years the bill will be 10k/month, do you agree to these terms..." and they say, 'yes' why is that the lender's fault?

Whether the consumer chose to lie about their income or fool themselves into believing that they "should" have something they would never be able to afford, offers are made every single day to buy things and each person has to be in control of their own pursestrings...I don't need mommy and daddy telling me how I can spend my money - I'm an adult.

{"commentId":8051596,"threadId":"619935","contentId":"2999459","authorDomain":"pchacker"}

2 votes

#4.15 - Mon Jul 6, 2009 11:05 AM EDT

{"commentId":8051773,"authorDomain":"src97531"}

But if you tell someone, "in 2.5 years the bill will be 10k/month, do you agree to these terms..." and they say, 'yes' why is that the lender's fault?

Because the lender knows (or should know) what the borrower's income is. It's called loan qualification. The borrower should be borrowing based on that; the lender should be lending based on that (and please don't grasp at silly fantasies about "may be about to inherit riches").

Once upon a time, when I bought my first house, that's what lenders did. They looked at your income and would only lend you an amount you could repay. Repay all of it, not just some.

{"commentId":8051773,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

5 votes

#4.16 - Mon Jul 6, 2009 11:14 AM EDT

{"commentId":8052079,"authorDomain":"pchacker"}

Look, I understand I'm the minority in this ideology of personal responsibility and accountability as a consumer and I'm cool with that. That said though, I'm married with two kids and my wife left her job as a manager to stay home to take care of the kids because we agreed it was the right thing to do..."Leave it to Beaver" to say the least as she contributes her time as the school, at the church, and is there when the kids get home to work with them on homework, etc. - and we're living without issue still.

We have zero debt (save the fixed mortgage) and only buy what we can afford (which includes paying cash for vehicles once we've saved enough). We are by no means "rich" but having a responsibility for your finances and not blaming others for "deceitful selling practices" is not what allows such behavior.

I expect nothing from the government but the assurance that we as a nation are safe and that they will stay out of my business as the Constitution affords me.

As to the masses that want a new '"governmental mommy and daddy" to take care of every facet of their life while they live as adults, to make sure that they are sheltered from any type of "bad" that exists in the world, and that wants some sort of guarentee that "everything will be ok"...God help them all - they will need it.

{"commentId":8052079,"threadId":"619935","contentId":"2999459","authorDomain":"pchacker"}

#4.17 - Mon Jul 6, 2009 11:30 AM EDT

{"commentId":8052167,"authorDomain":"src97531"}

I have not once suggested that the borrowers are not responsible, so please refrain from making that aspersion. I am just saying that the lenders were also irresponsible in issuing loans that could not be repaid. Had they been responsible with their investors' money (a fiduciary duty they ignored), this collapse could have been avoided.

{"commentId":8052167,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

3 votes

#4.18 - Mon Jul 6, 2009 11:35 AM EDT

{"commentId":8052544,"authorDomain":"pchacker"}

I have not once suggested that the borrowers are not responsible

I'm not saying YOU did...but look at the vine (and the countless others) that are ready to burn alive the "evil businesses" without once looking in the mirror.

This nation and it's individuals have more and more failed to own up to the concept of responsibility and accountability and we see it every single day.

That doesn't change my mind that there is good and bad in the world of sales out there and the idea that I needed a parental figure to oversee my purchases (so don't get "dooped") ended when I was about 15.

Unless a lender held a gun to a borrowers head and forced them (with Godfather-like tactics) to put their proverbial John Hancock on the paper, by ink or by blood, than it has to be, ultimately, the consumers responsibility to manage their own finances.

But again, it's obvious to see I'm in a distant minority, living in a world where you monitor and manage your own finances, regardless how "sweet" the deal sounds...

{"commentId":8052544,"threadId":"619935","contentId":"2999459","authorDomain":"pchacker"}

#4.19 - Mon Jul 6, 2009 11:53 AM EDT

{"commentId":8052701,"authorDomain":"src97531"}

This nation and it's individuals have more and more failed to own up to the concept of responsibility and accountability and we see it every single day.

And yet you wish to absolve the bankers of any. They lent money to people who could not repay the loans, coming close to resulting in the collapse of our banking system, and you feel they should be held blameless, while at the same time preaching the values of responsibility and accountability. Curious. I'm sorry, I fail to understand how you get there.

{"commentId":8052701,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

5 votes

#4.20 - Mon Jul 6, 2009 12:00 PM EDT

{"commentId":8053394,"authorDomain":"kbeacham1"}

Shawn and Dave:

Both of you guys are right on, but you've gotta factor in how many mortgage lenders told people "In 3 years call me and you can refi" As an insurance agent i was privy to the brokers and the consumers.

Most of these people were not house flippers. They were the first time buyers who were not in over their heads payment-wise when the loans started. When policies started to cancel because of foreclosure (most times because of increasing payments), the consumers could not get refinanced for whatever reason.

So both parties have direct culpability. My info on this is purely on what I see in my 4 years of dealing with this.

{"commentId":8053394,"threadId":"619935","contentId":"2999459","authorDomain":"kbeacham1"}

4 votes

#4.21 - Mon Jul 6, 2009 12:33 PM EDT

{"commentId":8053647,"authorDomain":"neenie1991"}

When the lenders (loan officers) were selling (pushing) the loans they weren't selling a worst case - they were telling borrowers "Don't worry about the ARM or balloon, or even a 30-year fixed rate, you are going to be building equity so fast and the rates are going down so you'll be able to refinance, no problem!" This was on A paper on down. There was no bubble. They were making money hand over fist, culpability was not in their vocabulary.

There were more mortgage companies than conveniences stores - how well trained and responsible was every loan officer? There were very savvy borrowers out there who didn't see it coming. There were obviously economists, bankers, the Fed, myriad others who didn't see it coming.

{"commentId":8053647,"threadId":"619935","contentId":"2999459","authorDomain":"neenie1991"}

4 votes

#4.22 - Mon Jul 6, 2009 12:47 PM EDT

{"commentId":8053714,"authorDomain":"src97531"}

When the lenders (loan officers) were selling (pushing) the loans they weren't selling a worst case - they were telling borrowers "Don't worry about the ARM or balloon, or even a 30-year fixed rate, you are going to be building equity so fast and the rates are going down so you'll be able to refinance, no problem!"

The problem was that a lot of the lenders believed it, too. Worst thing a con man can do is to believe his own con.

{"commentId":8053714,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

5 votes

#4.23 - Mon Jul 6, 2009 12:50 PM EDT

{"commentId":8053881,"authorDomain":"pchacker"}

kb,

I understand the refi promise as well...

I guess I expect more of consumers, figuring that I have a basic public school education and was intelligent enough to ask one single question that ended my ability to get a million dollar home: "what's the worst that can happen".

The answer was provided, and that was all I needed.

I expect more of a consumer...as I expect much less from someone simply trying to get business (i.e. get my money). People seem to expect salespeople to be honest and forthright...when did that ever exist?

Like I said above, even my two kids (8 & 6) have already learned, "when the images on the toy box look 'REALLY awesome', or the commerical seems TOO cool", it means it really isn't that great and the sales people want your money.

Thanks.

{"commentId":8053881,"threadId":"619935","contentId":"2999459","authorDomain":"pchacker"}

#4.24 - Mon Jul 6, 2009 12:58 PM EDT

{"commentId":8053994,"authorDomain":"src97531"}

People seem to expect salespeople to be honest and forthright...when did that ever exist?

No, I don't think that's the issue. People expect business people to competently manage their business. If the nation is dependent on banks, and employees of those banks take actions that damage, or in some cases destroy, those banks, then those employees should, at the very minimum, be finding new lines of work. Yet I don't see that accountability happening.

{"commentId":8053994,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

6 votes

#4.25 - Mon Jul 6, 2009 1:02 PM EDT

{"commentId":8054064,"authorDomain":"kbeacham1"}

Shawn I agree:

In the school of hard knocks experience is your tuition

{"commentId":8054064,"threadId":"619935","contentId":"2999459","authorDomain":"kbeacham1"}

1 vote

#4.26 - Mon Jul 6, 2009 1:06 PM EDT

{"commentId":8054919,"authorDomain":"pchacker"}

In the school of hard knocks experience is your tuition

kb,

Learned more quite literally "on the streets" about business and finance than I ever in college...amazing (or tragic) how that works.

{"commentId":8054919,"threadId":"619935","contentId":"2999459","authorDomain":"pchacker"}

2 votes

#4.27 - Mon Jul 6, 2009 1:44 PM EDT

{"commentId":8055178,"authorDomain":"pchacker"}

People expect business people to competently manage their business.

Guess therein lies the problem...I expect that business wants my money and nothing more and accordingly, they will run their business in whatever they way can to get it.

{"commentId":8055178,"threadId":"619935","contentId":"2999459","authorDomain":"pchacker"}

2 votes

#4.28 - Mon Jul 6, 2009 1:55 PM EDT

{"commentId":8055786,"authorDomain":"src97531"}

I expect that business wants my money and nothing more and accordingly, they will run their business in whatever they way can to get it.

And yet these bankers wrote loans with no reasonable way of actually getting the money. I expect businesses to run for a profit. I do not expect bankers to behave in a manner that bankrupts the bank.

{"commentId":8055786,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

5 votes

#4.29 - Mon Jul 6, 2009 2:21 PM EDT

{"commentId":8057482,"authorDomain":"sunrisegolf"}

Pete520

Three Words - Gramm Leach Bliley

In 1989, I had $3000 to put down on a $10,000 car, and my income was in excess of $30k...and I had absolutely no debt.

Because I was 23 years old and considered a "risk" to repay, I was declined; and my father co-signed the loan (which I paid in full and on time).

I would guess that, with the same vitals, I would have qualified for a mortgage in the year 2000 (post Gramm Leach Bliley) because the banks would have lobbed the loan over the wall to their brokerage wing to bundle it into a cdo to sell to their investors. It was a no-lose, no-risk (well, a short-term no-lose, no-risk) situation because the risk was sold to investors.

While I agree with Shawn that people should spend within their means, I also agree with Dave in that banks stopped doing their due diligence after Gramm Leach Bliley...which was a bill put forth by repubs and signed by Clinton, so both parties share culpability.

As Shakespeare wrote, "neither a lender or borrower be"...guilt on both sides, folks.

{"commentId":8057482,"threadId":"619935","contentId":"2999459","authorDomain":"sunrisegolf"}

5 votes

#4.30 - Mon Jul 6, 2009 3:31 PM EDT

{"commentId":8057733,"authorDomain":"jimi"}

Pete520++

Here's how I view it: Banks got over extended, and started losing their ass, partially because of people living well beyond their means (second mortgages, etc) and many others because of things like medical expenses.

This in turn started the economic down turn, with companies like Merril Lynch folding. This economic down turn caused a ripple effect, meaning people started getting laid off from jobs.

So yeah, you can point to some people as being problems, but many others are just casualties along the way, and did not neccessarily do anything wrong on their parts. Banks over extended themselves, and could not cover their losses because they were not required to.

{"commentId":8057733,"threadId":"619935","contentId":"2999459","authorDomain":"jimi"}

1 vote

#4.31 - Mon Jul 6, 2009 3:43 PM EDT

{"commentId":8058784,"authorDomain":"payingattention"}

Paying Attention

Shawn has made a great case for the need of more consumer responsibility and by doing so has also shown the reasons why it is needed. Consumer knowledge is vital, especially in this day and age when most of the TV ads I see appear to be for con artists rather than legitimate businesses.

I first saw hint of what was to come in the mid ‘70s when companies avoided ‘truth in advertising’ by utilizing PR firms, otherwise known as ‘Dream Merchants’. Pushing unprovable perceptions (rather than provable claims) nudged society into an increasing state of gullibility. Circumvention and riddance of regulations and laws have allowed ‘Buyer Beware’ to increasingly become the accepted norm of free enterprise.

Dream Merchants have also taught us how to lay the blame on others. Concern for long-term consequences has predictably fallen prey to instant gratification and power.

{"commentId":8058784,"threadId":"619935","contentId":"2999459","authorDomain":"payingattention"}

3 votes

#4.32 - Mon Jul 6, 2009 4:31 PM EDT

{"commentId":8065715,"authorDomain":"a-s-n"}

I expect that business wants my money and nothing more and accordingly, they will run their business in whatever they way can to get it.

"And yet these bankers wrote loans with no reasonable way of actually getting the money. I expect businesses to run for a profit. I do not expect bankers to behave in a manner that bankrupts the bank."

The first problem with this statement is that you believe tha a bank is a business - it is not a business in a traditional sense. Banks are closer to an Agency than a business. They distribute money on behalf of the Federal Reserve. The fee charged to do this (beyond all the other fees) is interest. Every dollare in circulation today has attached to it an annual interest payment. Once the debt is repaid the money ceases to exist.

Therefore, banks then flow through the fees to their shareholders virtually directly. This is why for all the talk about being Too big to fail, most banks have virtually zero equity. They don't own the money they lend out, their "reserves" are deposits held in trust for customers. The main assets of most banks are equipment, property, goodwill and a cash float (traditionally tied up in investments). They don't produce anything, they don't add any value to the economy, they charge each and every one of us to use our own money (as authorized by Congress on our behalf).

Now who do you want to blame now?

{"commentId":8065715,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

4 votes

#4.33 - Mon Jul 6, 2009 9:28 PM EDT

{"commentId":8301235,"authorDomain":"mandelman"}

Well, fair enough, but I still want to blame the guys that fraudulently and knowingly built bonds with impaired cash flows, engineered them to pass the ratings models, sold them around the world knowing the outcome would be massive harm to the bond market if housing prices fell, and at the same time reduced their reserves for future losses in order to pay themselves massive bonuses on illusory profits. Oh yeah, and then showed up in Congress claiming to have had no role in the financial meltdown, choosing instead to place the blame on borrowers and brokers.

And since you brought them up... okay, I'll blame the government too, for their complicity only being rivaled by their incompetence.

One more thing I'd like to add... the banks should certainly be held to a higher standard than any borrower. They are experts, borrowers are not. They are to be "trusted," not perceived as might be used car salespeople, to use a cliche. They proved that our trust was misplaced, they are much closer to used car salespeople after all, and I apologize profusely to used car salespeople everywhere. Additionally, they are federally chartered and have a responsibility far beyond what any homeowner ever would.

Econ, however, you are absolutely correct about the government's role and guilt... it's just that the bankers got all the money... based on profits that weren't there.

{"commentId":8301235,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

3 votes

#4.34 - Mon Jul 20, 2009 8:43 AM EDT

{"commentId":8367746,"authorDomain":"Socrates1"}

Socrates1

It's perfectly reasonable to blame the banks.

1. They wrote the rule, new rules, for their own benefit and got to greedy.

2. They manufactor their product with little or no cost.

3. They pick their customers.

4. They have government protection

5. They have a limitless supply of money.

6. Apparently nothing they do is outside the law.

7. Give me that job, unlimited upside, no downside, compensation beyond my wildest dreams, and, again, protection if I, having all that going for me, screw it up.

These people are not only crooks, but stupid as well. They had the keys to the vault and still couldn't make a profit.

{"commentId":8367746,"threadId":"619935","contentId":"2999459","authorDomain":"Socrates1"}

1 vote

#4.35 - Thu Jul 23, 2009 12:34 AM EDT

{"commentId":8043267,"authorDomain":"kaicrrll"}

Kc77

GOD BLESS YOU.. I WOULD HUG YOU FROM HERE IF I COULD. THANK YOU!!!! Jesus someone gets it. FINALLY.

Macro-economically what we are experiencing is the byproduct of a global cram-down brought on by deregulation, and the private banking's accessibility to the tax payer's coffers. Sub Prime borrowers were merely the result of a fundamental change within our economy. Their loans were then used to "feed the beast" by diversifying them, which hid their value which then allowed the bank to make more loans and free up additional credit. It was an explosion of available credit to deal with an explosion of price hikes which were a result of a deregulated market.

It wasn't just homes that were riding an economic bubble. We saw it in gas prices too and just about any commodity out there. So what do you do when you have downward pressure on wages? Easy! Put it on credit. Take out a loan. Zero down please.

This wasn't the fault of the middle class. What were they supposed to do? Not eat? Not drive to work? They put it on credit because that's all they could do. The price of gas alone in 8 years saw a 400% increase. Groceries doubled in price. Prices of homes rose 25% - 50%. Now add in some healthcare love, and downward pressure on wages due to globalization and you've got your answer.

People have asked "what's the difference between a ponzi scheme and what we experienced last year?" That's easy. Nothing.

{"commentId":8043267,"threadId":"619935","contentId":"2999459","authorDomain":"kaicrrll"}

19 votes

#5 - Sun Jul 5, 2009 7:25 PM EDT

{"commentId":8043380,"authorDomain":"mandelman"}

I know exactly how you feel. It's a good day today. And the more people that come over to the truth, the better chance we have of moving in the right direction. Watch what happens in the next two months as the conventional wisdom starts to change... people will come Ray, oh yes people will most definitely come.

{"commentId":8043380,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

16 votes

#5.1 - Sun Jul 5, 2009 7:32 PM EDT

{"commentId":8049414,"authorDomain":"armstrongdebra21"}

Kc77, I'm very glad that you brought in the effect of downward pressures on wages and the impact of underemployment. Too few people realize that wages for the middle class have been essentially stagnant, for the past 20 years at least. This most recent meltdown was exacerbated by that, I think, because people also believed that their incomes would continue to rise along with the value of their homes. Policymakers ignored wages and pandered to businesses (trickle down voodoo) instead of moving to protect the vast middle class of consumers.

{"commentId":8049414,"threadId":"619935","contentId":"2999459","authorDomain":"armstrongdebra21"}

4 votes

#5.2 - Mon Jul 6, 2009 8:56 AM EDT

{"commentId":8050212,"authorDomain":"dacincykid"}

The assult on the middle class was the catalyist that lit the fuse to the meltdown. All started with the Iraq war and the huge tax cut. Made us strat borrowing monet to pay for the war. Oil price is based on the dollar. Dollar got weaker because we were borrowing. Oil price went up. Speculators pushed it way up. Businesses had more expenses and started laying off people. ETc Etc etc No job cant pay the mortgage.....

Tragic but real.

{"commentId":8050212,"threadId":"619935","contentId":"2999459","authorDomain":"dacincykid"}

2 votes

#5.3 - Mon Jul 6, 2009 9:53 AM EDT

{"commentId":8114013,"authorDomain":"kaicrrll"}

Kc77

Kc77, I'm very glad that you brought in the effect of downward pressures on wages and the impact of underemployment. Too few people realize that wages for the middle class have been essentially stagnant, for the past 20 years at least. This most recent meltdown was exacerbated by that, I think, because people also believed that their incomes would continue to rise along with the value of their homes. Policymakers ignored wages and pandered to businesses (trickle down voodoo) instead of moving to protect the vast middle class of consumers.

Thank Deb for commenting . Took me a while to get back to you but I'm glad I stopped by. I'm glad I'm not the only one who also understands the plight of the middle class.

{"commentId":8114013,"threadId":"619935","contentId":"2999459","authorDomain":"kaicrrll"}

1 vote

#5.4 - Thu Jul 9, 2009 3:15 AM EDT

{"commentId":8121182,"authorDomain":"a-s-n"}

KC -

Real Wages were stagnant for 30 years compared to CPI, the measure of inflation often used by economists - however, since collateral asset prices are not considered at all in CPI the real cost of housing, transportation, interest and stock prices was not included. These items rose at about 10 - 12% since 2001.

This is why we see a big disparity in incomes and net worth of the wealthy and the Average over this period. Wealthy people have seen massive appreciation in their assets over the last 30 years while incomes have stagnated.

The bigger problem is that the government has decided to prop up these assets at the expense of wages even further. We are seeing a real/nominal decline in both wages and employment while the vast majority of "stimulus" is aimed at reviving the stock market and housing markets. This combination will create eve a bigger gap between rich and poor.

The right solution was to adopt a true "new deal" stimulus whichi would have spent most of the stimulus on actual job creation, retraining and education. The Adjustment in asset prices was necessary and the "stimulus" is not beneficial for the long run, since even the reduced "price" of these assets cannot be sustained if real wages decline .... so another band aid solution to keep the existing feudal economic hierarchy in place .....

{"commentId":8121182,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

1 vote

#5.5 - Thu Jul 9, 2009 1:33 PM EDT

{"commentId":8044004,"authorDomain":"lindaluke"}

Linda Luke

Ok Mandelman, whew, love it when you write but I'm not buying no down payments caused the mess. I was one who bought a house without a down payment. By year two, my house had doubled in value. Who needed a down payment equity at the time. Yes I bought well before the crash, in 2003. Yes the impact could have been a lot different at 2005-2006 when the crash was just about to take place. We all know now how this mess happened, on the upper end of the financing that got pulled apart and mess around with and sold off as something it wasn't. It wasn't homeowners at all, not those with down payments and not those without down payments. It's so easy to blame the average people for everything. MY goodness they are blaming us for the recovery not happening quick enough. They would rather have people turn against each other than turn against them. Now I'm going off topic here because it's important and relates. We just had a thingy majig, purposely stated (credit reform) go through to protect the public from corporations gone mad (insane) and probably passed because those corporations and there are many of them that have gone mad and the consumer needs protection. It isn't only credit cards that we need protected from, it's all those corporations that abuse the consumer. Take cable TV. Do they tell you in advance that their rates are going up? NO. The bill you and you have to pay it. This goes on and on from one corporations to another. Heck it goes into our fabric, take your typical dentist. They can't tell you how much anything it going to cost you. If you have insurance you will always get a bill even if you pay what they tell you, you will owe after the procedure. They do these procedures over and over but can't get the billing right for anyone to know what anything is going to cost. Want to talk more, insurance companies, do they ever know that you are a lifelong customer when those rates increase? Heck no, they could give a flip. This fabric that I talk about is our society and what we have allowed to happen. NOW FOR THE WORST, an article on Newsvine just informed me that Washington DC misread how bad our economy and jobs really was? NOW can you imagine that??? They misread our economy and how bad it was. There were 757 comment when I made mine. I was outraged. Oh we have the fabric of our own government too, its out of touch with what is happening. Go back into the past Mandelman, as you do so well, things were not the way they are today. Yesterday was much better and companies were much better, not it's all about how they can abuse.

{"commentId":8044004,"threadId":"619935","contentId":"2999459","authorDomain":"lindaluke"}

4 votes

#6 - Sun Jul 5, 2009 8:11 PM EDT

{"commentId":8047228,"authorDomain":"mandelman"}

First things first... I don't think the professor was saying what it was, as much as he was showing what it wasn't. In other words, I don't think his post important point was zero down payment, as much as it wasn't the sub-primers.

And it shouldn't be much of a surprise that our government misread our economy... they've consistently misread our economy. Did you happen to catch my article of last week Bringing Up the Rear with Ben Bernanke? That's got some great data on our government misreading things.

Our government has mishandled this economic build up and meltdown consistently and thoroughly and now the banking lobby is driving our legislature. Bankruptcy reform was necessary... gone. Credit card reform was watered down so far it's not even worth talking about. Until we tell our representatives that they will not be reelected until they stand up to the bankers, we will see no recovery. Period.

And just for fun, here's a paragraph taken directly from the CEO of the American Banking Association's testimony to Congress this past Friday on Obama's new proposed federal Consumer Protection Agency. Are you sitting down EVERYONE?

“It is now widely understood that the current economic situation originated primarily in the largely unregulated non-bank sector. Banks watched as mortgage brokers and others made loans to consumers that a good banker just would not make and they now face the prospect of another burdensome layer of regulation aimed primarily at their less-regulated or unregulated competitors. It is simply unfair to inflict another burden on these banks that had nothing to do with the problems that were created.”

And that, my housing crisis conscious friends, does in fact... say it all...

A-ba-dee, A-ba-dee, A-ba-dee... That's All Folks!

{"commentId":8047228,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

11 votes

#6.1 - Mon Jul 6, 2009 12:46 AM EDT

{"commentId":8047319,"authorDomain":"neenie1991"}

I smell a stinking pile of...

{"commentId":8047319,"threadId":"619935","contentId":"2999459","authorDomain":"neenie1991"}

3 votes

#6.2 - Mon Jul 6, 2009 12:59 AM EDT

{"commentId":8048917,"authorDomain":"mandelman"}

The banks... the CEO of the ABA says to Congress... weren't responsible for anything that's happened... they were just victims on the sidelines. Well, in my humble opinion... a shot should ring out...

{"commentId":8048917,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

5 votes

#6.3 - Mon Jul 6, 2009 8:02 AM EDT

{"commentId":8050257,"authorDomain":"dacincykid"}

If he were Pinocchio his nose would have stabbed the chairman of the committee in the heart

{"commentId":8050257,"threadId":"619935","contentId":"2999459","authorDomain":"dacincykid"}

4 votes

#6.4 - Mon Jul 6, 2009 9:55 AM EDT

{"commentId":8065943,"authorDomain":"a-s-n"}

Linda,

I agree with you that it is not a simple as was it the "prime" customer or the "subprime". The Bank low lifes @ the ABA (the same ones who caused the great Depressions of 1890s and 1930s) are busy trying to blame someone, anyone other than their members. What Mandelmen and the professor are saying is that if the people with bad credit were defaulting at even lower rates than those with good credit that the entire "credit" system didn't work. Therefore, it came down to those who had some equity (and presumably a reason to make it work) or those for whom more payments was like burning money on their lawns. Anyone with 50% equity in their house today isn't likely to walk away no matter how bad it is .... but if you owe 500k and its worth 300k???

At the end of the day, the problem is with the managment of monetary policy since the 1990s, the gross misrepresentation of inflation and interest rate decisions by the Treasury and Fed in two administrations, and the short sightedness of politicians in dealing with the economy.

Banks, especially the big ones, have the best economic research available. I can tell you there were lots of people screaming about inflation, about stock and house valuations, about using houses as ATMs all through 2004, 2005, 2006 - but no one was listening. 18 months ago I had lunch with a banker who told me that you could never lose with real estate - that it wasn't like the stock market which was kinda like going to Vegas ....

{"commentId":8065943,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

3 votes

#6.5 - Mon Jul 6, 2009 9:39 PM EDT

{"commentId":8044048,"authorDomain":"maureen-5"}

maybeblu

I still don't think the primary blame goes to the borrowers. The problem really began when it was discovered that the securitized bonds were leveraged at 10 - 15 times their value. Many of the CDO's weren't even tied to mortgages. This was the biggest Ponzi scheme of all time. The earnings from the original sale of the mortgages weren't great enough to pay a return when the obligations started to reach maturity. When the first signs of distress and panic showed up on Wall Street it was when the first of the big trading houses, Bear Stearns, collapsed. They did not have the liquidity to make the payments on their securitized debt instruments. For some time prior to the collapse there was talk that the housing bubble would burst. The stated income loans and the 80.20's didn't disappear until late 2008 and early 2009. If those loan programs hadn't dried up many people would have been able to refi and get into a fixed rate product. Additionally, the banks started freezing access to HELOC's and that created even more financial stress on homeowners who had taken out lines of credit to tide them over when industry began laying off. It was a perfect storm. Prime and sub prime borrowers have some bearing and responsibility for the meltdown, but the bigger share of blame must go to the banks that created the loans and the brokerage houses who sold the debt without accurately assessing and disclosing the risk to those who bought the debt. Until the brokerage houses and the lending institutions are nailed to the wall and pinned there with the blame there will be no relief for the people who have lost their homes. Of course it is much easier to put families out of t heir homes than it is to put rich and powerful people in jail.

{"commentId":8044048,"threadId":"619935","contentId":"2999459","authorDomain":"maureen-5"}

12 votes

#7 - Sun Jul 5, 2009 8:14 PM EDT

{"commentId":8044797,"authorDomain":"kaicrrll"}

Kc77

Of course it is much easier to put families out of t heir homes than it is to put rich and powerful people in jail.

Yup.

{"commentId":8044797,"threadId":"619935","contentId":"2999459","authorDomain":"kaicrrll"}

9 votes

#7.1 - Sun Jul 5, 2009 9:18 PM EDT

{"commentId":8047232,"authorDomain":"mdnorcuss"}

Which raises another side issue. Where did all that money go that the banks abd the investors were making hand over fist? Why were the banks suddenly broke? Was that a scam too?

Look at the current credit markets. I. like a lot of other people in California, had their equity lines of credit frozen with the crash, a freexe based on a computer program that estimated that I was at best even or up-side-down on my primary loan. Then, despite the feds pouring billions of dollars in to the credit markets, many people, such as my self, saw interest raes double for no reason whatsoever, an inability to obtain new credit at better rates, and, worst of all, freezes on "inactive" accounts. [My wife paid off her Chase dredit card, and then didn't use it for a few months. When she went to use it, the transaction was declined. Took an hour on the phoen getting the credit card reinstated.] Seems to me that the big banks are trying to shrink credit at the same time the government is urging them to expand credit markets. Whaat gives? Yet Bank of America says that it wants to pay off all the government money it borrowed to float the debt of a major acquisition that was "forced" on it by the government (yeah, right). If it needed money so badly, where did it suddenly come up with billions of dollars to pay off the debt?

{"commentId":8047232,"threadId":"619935","contentId":"2999459","authorDomain":"mdnorcuss"}

4 votes

#7.2 - Mon Jul 6, 2009 12:47 AM EDT

{"commentId":8047355,"authorDomain":"wingod"}

Which raises another side issue. Where did all that money go that the banks abd the investors were making hand over fist? Why were the banks suddenly broke? Was that a scam too?

Several trillion dollars in wealth evaporated in the stock market. Several trillion more evaporated in the home real estate market. There is another shoe falling now in the commercial real estate market, more trillions lost.

Pretty soon that adds up to some serious money.

On top of this, i just seeded an article about $3.7 trillion dollars that is setting on the side right now from investors that are waiting to see how all of the new government crap, taxes, and other folderal shakes out. This money is not expected to re-enter the market for at least a year or two.

{"commentId":8047355,"threadId":"619935","contentId":"2999459","authorDomain":"wingod"}

6 votes

#7.3 - Mon Jul 6, 2009 1:04 AM EDT

{"commentId":8050373,"authorDomain":"dacincykid"}

Where did all that money go that the banks abd the investors were making hand over fist?

A lot of people got filthy rich. Take for instance AIG. In their heyday of selling Credit default swaps their payroll was running close to 50% of sales.

The CEO of Lehman brother who defaulted on 350 billion dollars of Credit default swaps then filed for bankruptcy walked away with a 50-60 million dollar package. He was just one of many like that here and abroad. Remember this was world wide.

{"commentId":8050373,"threadId":"619935","contentId":"2999459","authorDomain":"dacincykid"}

3 votes

#7.4 - Mon Jul 6, 2009 10:01 AM EDT

{"commentId":8066449,"authorDomain":"a-s-n"}

I will make this brief, but to understand the answer to the question - where did all the money go?, you first need to understand where the money came from in the first place. I will warn you now, if you think you are POed about this and that this was a scam before hand, this is not going to make you feel better ....

There are two kinds of money: specie and fiat currency. Specie refers to money that has inherent value, such as a gold coin that is worth $100 because it has $100 worth of gold in it. Fiat currency is money which has representative value. In fiate currency there are again two types: Current money, and potential money.

Current money would be currency that is directly reprsentative of its value. For example in Aztec Mexico rare feathers were rare and exchanged directly to facilitate trade .... they were currency. Potential currency is something different, it represents money for something that has not been realized. For example, money issued against a shipment of grain, against a house, against a stock. The interesting thing you will note about potential money is that it is a loan, and interest is due against it.

Our economy today has only one type of money - potential money. Every dollar in circulation (with the exception of collectors) is based on a debt. MOney is issued only when someone borrows it. Every dollar has been borrowed by someone from a bank.

So now we understand how money comes into existence, what happens to it? Well this gets complicated. for example, when I invest in the stock market, I buy a liquid security. I can basically exchange it at any time for cash, so therefore it is in effect "money". The same for a bearer bond, savings bond, even receivables at a business, etc ... How about illiquid security like a house or a car, well they can be monetized as well - loans, mortgages, etc....

So now we have a very complicated mess. We have stocks, money, bonds, receivables, checks, houses, cars, businesses, art, antiques, copyrights, even baseball cards - all have a value. What is their value, well who knows ..... A very wise Greek said: "everything is worth exactly what a purchaser will pay for it."

This doesn't help us with monetizing something since we are not actually selling it, we are just guesstimating what it might sell for ..... Fair Market Value. If you are looking for what money is worth it is the value of all the collateralized/securtized items in this country divided by number of dollars issued.

As you can see, the problem is what happens when we are wrong? This is the good part. The money that was created by the banks based on the debtors promise to repay them plus interest came from where? Did the bank take it from a loan account? No the bank created it when they credited the debtors account. Before that the banks did not have the money, they just created it.

When the debtor repays the loan what happens to the money. Well the interest goes to the bank shareholders as profit, but the principal that they created from nothing? It goes back to nothing.

So since banks can apparently create and erase money at will, where do you think the money went? How did they get the money to buy the other banks, pay back the loans? Who even keeps track of how much money they create?

The only rule currently regulating how banks create and uncreate money is something called leverage rates. Banks are required to maintain a "reserve" of between 0 and 7% of the money they lend out in deposits. Now lets be clear, this is not the banks money, it is money held in "trust" for depositors ..... this arrangement certainly makes me feel safer.

The real problem as you can see from above is this whole money creation scheme. If we are going to leave bankers in charge of creating the nations money supply we better make sure we know what they are doing - even better, why doesn't the government actually create their own money instead of borrowing it AT INTEREST from these guys??

Money as you think of it doesn't exist. It is of no real value, and is only a tool of the banks to extort interest from working Amaericans through income taxes and interest payments. Banks offer no security, no service, no benefit to Americans and operate as a huge cost to the economy.

{"commentId":8066449,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

3 votes

#7.5 - Mon Jul 6, 2009 10:05 PM EDT

{"commentId":8044949,"authorDomain":"parrtway"}

Sub-Prime was never the issue with the economy going kaput. What was the cause and affect, was deregulation (ad-nausea), greed, rules that made no sense at all, but most of all, there would not have been Prime, nor Sub-Prime, without the banks making it so. They made their bed, so they should go bankrupt and be broken up. The Administration, the Congress, and the rest, lobbies included, have no real intention of fixing it. What I see is that Obama is taking advantage of this to flaunt his new world vision on us, and the rest of the world. That may be not a bad thing, not a good thing, but the timing of this is too coincidental. There's no going back. We deal with this, one way or another, and move on. Biden has mentioned today about some of the effects of the economic package coming in September today (we hope). We'll see what they have in store for us. No one is listening anymore in Washington. The moderates are not being heard. The crazies on both the right and left are making so much noise, they are drowning out common sense. So where does that leave us? You also have now thirty seven States that claim sovereignty. One more, and they could call, each, and together, a Constitutional Convention with which 38 States, could make it pass on to the the Federal government, a possible add to the Constitution if they so chose. Washington would not be able to stop them, but could only harass States Representatives if they do, to stop it. If they do, we'll also see what intentions the real Federal government has for all of us. Do they really mean well and are trying to represent us on any, and all matters? Or do they not? I know some of this is a little off topic, but it does apply. With the new rules, budget, etc., are they just trying to appease us and have us lay off, or do they mean business, not business as usual. One can only hope that we don't have to go as far as to force the Feds to adhere to the nation's will, not that of the rich and powerful. Does this make any sense?

{"commentId":8044949,"threadId":"619935","contentId":"2999459","authorDomain":"parrtway"}

1 vote

#8 - Sun Jul 5, 2009 9:29 PM EDT

{"commentId":8045771,"authorDomain":"sperrys"}

People will get mad… and then madder. (It helps to read the next paragraph using the voice of James Earl Jones at the end of Field of Dreams. And if you haven't seen it, see it.)

Oh... people will come Ray. People... will most definitely come.

Okay...I've read this entire thread...no one has said squat about this paragraph...this was pure poetry, so I'm thinking if people actually read an entire article, they might then actually get the point of it...agree or disagree...have we all read the entire article here?!

{"commentId":8045771,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

5 votes

#8.1 - Sun Jul 5, 2009 10:32 PM EDT

{"commentId":8045905,"authorDomain":"src97531"}

no one has said squat about this paragraph...

Because it's cute, but nonsense. The GOP is gambling that the economy is going to collapse totally by next year, going "all in" as they say on the poker shows. The usual course that recessions tend to run suggests that by mid-2010 we should see recovery, regardless of what the government does.

If the economy has not collapsed by the 2010 elections, after the Republicans have been screaming that it will, if people feel they are better off than they were in 2008, then the Dems will increase their control of Congress, not lose.

{"commentId":8045905,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

3 votes

#8.2 - Sun Jul 5, 2009 10:43 PM EDT

{"commentId":8046442,"authorDomain":"adouglass3"}

no one has said squat about this paragraph

Thought long and hard about that one Lisa. While I agree the issue deserves to be a key campaign one, I have little faith for encouraging more lip service, especially as large contributions pass unseen.

This is a policy matter, not an ideological one. It should be addressed regardless of who is currently in office. You wouldn't happen to have a Statue of Liberty-sized megaphone, would you?

{"commentId":8046442,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

2 votes

#8.3 - Sun Jul 5, 2009 11:26 PM EDT

{"commentId":8046445,"authorDomain":"sperrys"}

Sorry Dave, but if we keep going the direction we are now, we will blame both the dems for not doing what they promised, and repubs for not bringing the goods in alternative plans...both sides will lose. So who do we vote for in midterms? Anyone but the asshats we have in there now..no matter party affililiation.

{"commentId":8046445,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

4 votes

#8.4 - Sun Jul 5, 2009 11:26 PM EDT

{"commentId":8046560,"authorDomain":"wingod"}

repubs for not bringing the goods in alternative plans.

The repubs did have a plan. Massive drilling for oil, nuclear power, fusion power research and development, and energy independence. Pretty good plan.

{"commentId":8046560,"threadId":"619935","contentId":"2999459","authorDomain":"wingod"}

6 votes

#8.5 - Sun Jul 5, 2009 11:36 PM EDT

{"commentId":8046665,"authorDomain":"curiousg"}

Pretty good plan.

Nah, just more of the same. They had 8 years to do something about energy independence and all they managed to do was watch hopelessly as oil prices went through the roof.

{"commentId":8046665,"threadId":"619935","contentId":"2999459","authorDomain":"curiousg"}

8 votes

#8.6 - Sun Jul 5, 2009 11:47 PM EDT

{"commentId":8046711,"authorDomain":"sperrys"}

In a four page summary with no dollars attached? Even up against a 1500 page piece of crap, a four page half assed attempt will not have credibility. They had an opportunity to address the massive tax that will be put on every american on that bill...a massive opportunity, and their response was a four page "overview"...we need them to start participating....all of us do...agree?

{"commentId":8046711,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

7 votes

#8.7 - Sun Jul 5, 2009 11:51 PM EDT

{"commentId":8046794,"authorDomain":"wingod"}

Nah, just more of the same. They had 8 years to do something about energy independence and all they managed to do was watch hopelessly as oil prices went through the roof.

Actually no. It was only in late 2008 during the presidential campaign and desperation that allowed Bush to go forward with allowing drilling in federal lands offshore. As soon as Obama got in he reversed it. Bush and co tried for years to get this through all the while the dems blocked it in the Senate.

We have 15 billion barrels just in ANWR and at current prices that is worth almost $100 billion dollars. That is a lot of jobs and a lot of tax revenue and a lot of money that does not go to the middle east.

A good plan does not have to have 1200 pages plus 300 pages of changes dropped off at 3:09 am the day of the vote.

Even the state of CA is looking at offshore drilling, though only in one spot, and this spot is going to generate $100 million per year in revenue for the state. It will also create jobs.

{"commentId":8046794,"threadId":"619935","contentId":"2999459","authorDomain":"wingod"}

6 votes

#8.8 - Sun Jul 5, 2009 11:58 PM EDT

{"commentId":8046900,"authorDomain":"sperrys"}

A good plan does not have to have 1200 pages plus 300 pages of changes dropped off at 3:09 am the day of the vote.

Exactly...I watched Boehner read the "finer points" of this 300 pages...they were the most important pages, but yet...all pretty much voted without having read or digested them...believe me, I'm with you on that, but then why did 8 republicans change their vote AFTER hearing those horrible 300 pages read by Boehner, and make it so that horrible bill passed House? It was the republican vote that put it through...so what...Repubs "good plan" is to help pass dems "bad Plan?"

{"commentId":8046900,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

5 votes

#8.9 - Mon Jul 6, 2009 12:10 AM EDT

{"commentId":8046972,"authorDomain":"wingod"}

It was the republican vote that put it through...so what...Repubs "good plan" is to help pass dems "bad Plan?"

They were bought off, that simple. Fortunately I think that there were either 37 or 47 democrats that voted no. There is hope.

{"commentId":8046972,"threadId":"619935","contentId":"2999459","authorDomain":"wingod"}

9 votes

#8.10 - Mon Jul 6, 2009 12:16 AM EDT

{"commentId":8047035,"authorDomain":"curiousg"}

We have 15 billion barrels just in ANWR

And, at a current burn rate of over 20 million barrels/day that would last us under 3 years. Not what I'd call energy independence.

My point isn't the value of any one option, it was that the Republicans did nothing to address our long term energy issues. And, they still aren't offering anything other than drilling for more oil, that wouldn't be in any tank for at least 10 years.

{"commentId":8047035,"threadId":"619935","contentId":"2999459","authorDomain":"curiousg"}

6 votes

#8.11 - Mon Jul 6, 2009 12:22 AM EDT

{"commentId":8047198,"authorDomain":"wingod"}

And, at a current burn rate of over 20 million barrels/day that would last us under 3 years. Not what I'd call energy independence.

Far better than buying that oil from the middle east. And, oil does not come out of the ground that way. At about 1 million barrels per day that is a 30 year supply, and it goes through the existing Alaska pipeline. I did not say that this oil alone would do that, but it would help pay for the transition and the money stays in the good old USA and provides fodder for more Ice Road Trucker episodes!

{"commentId":8047198,"threadId":"619935","contentId":"2999459","authorDomain":"wingod"}

8 votes

#8.12 - Mon Jul 6, 2009 12:42 AM EDT

{"commentId":8047222,"authorDomain":"parrtway"}

Lisa, I didn't mention the paragraph as it spoke for itself on a metaphoric level. The real problem has been policy, or lack thereof, and integrity. The other thing about blaming both parties is also correct. They implemented policy, and they are in a big part, to blame too. They were lobbied intensely and caved into financial and banking, you name it, lobbies years ago. Though it may not be the same people in office now, there are the same parties representing us, doing the same things over and over with no clue what they are doing. Who do we vote for? Good question, but for me, to show my displeasure, I'm voting against incumbents. I've written them and told them I would too. Heh. When they don't write you back, you know they're not happy about it. Anything supportive of them or neutral, I've got answers, so go figure.

{"commentId":8047222,"threadId":"619935","contentId":"2999459","authorDomain":"parrtway"}

3 votes

#8.13 - Mon Jul 6, 2009 12:45 AM EDT

{"commentId":8047447,"authorDomain":"sperrys"}

That last paragraph to me said we better all show up to the game...not only now in standing up to what is so inherently wrong, but in sending the message in 2010, 2012...we can sit on our arsses thinkin' someone else will be our voice, someone else will do the work, someone else will do the betchin'...or we can all roll up our shirtsleeves and do something now instead of waiting for midterms to vote the bastids out...our collective voices can be at home plate ready to call em out...they still think they are going to slide in safe...let's ump this game in a way we can be proud!

{"commentId":8047447,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

4 votes

#8.14 - Mon Jul 6, 2009 1:18 AM EDT

{"commentId":8047510,"authorDomain":"adouglass3"}

Lisa,

I know you've been away in the mountains but while you were gone, Mrs. Palin kind of put the sour on sports metaphors. Rest of message received.

{"commentId":8047510,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

3 votes

#8.15 - Mon Jul 6, 2009 1:31 AM EDT

{"commentId":8047531,"authorDomain":"parrtway"}

Very true. And in this thread: a>a few days ago, I mentioned that to do so, we'd have to vote 2010, 2012, 2014, at the minimum. Then vote for what we want, or the best candidate in 2016. Does anyone think this is possible? Or just a dream.

{"commentId":8047531,"threadId":"619935","contentId":"2999459","authorDomain":"parrtway"}

1 vote

#8.16 - Mon Jul 6, 2009 1:35 AM EDT

{"commentId":8047536,"authorDomain":"sperrys"}

Okay ABD...point taken...must still be feelin that rocky mountain high!!

{"commentId":8047536,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

3 votes

#8.17 - Mon Jul 6, 2009 1:36 AM EDT

{"commentId":8047568,"authorDomain":"parrtway"}

Sorry, in this link, I hit the post before I was ready. My bad.

{"commentId":8047568,"threadId":"619935","contentId":"2999459","authorDomain":"parrtway"}

1 vote

#8.18 - Mon Jul 6, 2009 1:41 AM EDT

{"commentId":8048937,"authorDomain":"mandelman"}

Of course it's possible. Look who's the President now... anything is possible. If the Junior Senator from Illinois can appear to be the savior of the world, I think anything can happen.

{"commentId":8048937,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

3 votes

#8.19 - Mon Jul 6, 2009 8:05 AM EDT

{"commentId":8049445,"authorDomain":"rickace"}

Of course it's possible. Look who's the President now... anything is possible.

That's what's frightening. Obama has great governmental authority yet no clue when it comes to fiscal matters. His "stimulus" is a reckless and tragically flawed attempt to control what he cannot control. Never in my 54 years as an American have I witnessed the feds run amok as they began doing last September. Before he'd served his first month in office, Obama demonstrated he was Bush on steroids. Oh and have you heard of NSDP21 and HSDP20? Bush armed Obama with them.

Hitler took power through completely legal means. Laws were previously established in plain view of the German people before he made his dictatorial power grab. We appear are witnessing the very same thing happening today some seventy years later. Apparently no one on Capitol Hill has learned a thing from history as it repeats itself. They also have clearly forgotten Bush’s words in December 1999 – “This job would be a heck of a lot easier if this were a dictatorship…just so long as I’m the dictator”. He meant what he said, he’s acting exactly like one and it’s happening right now.

When the @!$%# really hits the fan and the riots and violence begin, how do you imagine our young and inexperienced president will respond?

If the Junior Senator from Illinois can appear to be the savior of the world, I think anything can happen.

Anyone stupid enough to perceive him as a savior of anything let alone the world deserves what they get.

{"commentId":8049445,"threadId":"619935","contentId":"2999459","authorDomain":"rickace"}

4 votes

#8.20 - Mon Jul 6, 2009 9:00 AM EDT

{"commentId":8049584,"authorDomain":"src97531"}

The repubs did have a plan. Massive drilling for oil, nuclear power, fusion power research and development, and energy independence. Pretty good plan.

Do the repubs have a plan for anything that would have any effect at all in less than a decade? I can't see how any of the things you mention would.

{"commentId":8049584,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

3 votes

#8.21 - Mon Jul 6, 2009 9:11 AM EDT

{"commentId":8066511,"authorDomain":"a-s-n"}

The repubs did have a plan. Massive drilling for oil, nuclear power, fusion power research and development, and energy independence. Pretty good plan.

Sorry, I would say the W/Cheney plan was more along the lines of: Invade several countries, piss off the rest of the world and then retire to a nice life paid for by defense contractors and Haliburton. You also forgot about ethanol 85 which is working out great .....

{"commentId":8066511,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

3 votes

#8.22 - Mon Jul 6, 2009 10:08 PM EDT

{"commentId":8092774,"authorDomain":"rickace"}

An amusing screen name. Do you understand the reasons why our economy is collapsing? Any idea at all?

Sorry, I would say the W/Cheney plan was more along the lines of: Invade several countries, piss off the rest of the world and then retire to a nice life paid for by defense contractors and Haliburton.

Sorry? Didn't you get the memo? Bush/Cheney are out. There's a new sheriff in town and a new deputy. Biden's merely a fool with a big mouth, nothing to worry about. Obama though is potent and toxic. Have a look at #8.20 above.

Be afraid. Be very afraid.

{"commentId":8092774,"threadId":"619935","contentId":"2999459","authorDomain":"rickace"}

2 votes

#8.23 - Wed Jul 8, 2009 7:57 AM EDT

{"commentId":8096653,"authorDomain":"a-s-n"}

Rickrace:

Why do you think the Economy is collapsing?

Ive been pretty clear in my explanation - A misuse of credit markets and interest rates which created a massive disparity between CPI and asset inflation. All of this is in the context of a debt based money system controlled by an unholy private/public alliance operating a feudal soceity under the false banner of "Capitalism".

I see very little differance between the GOP or the DEMs on this - they are both owned wholly by the banking elite, Obama included. However, given the choice between two evils (McCain/Palin and Obama/Biden) I would choose the lesser ..... Obama.

I would agree with you that the so called "war on terror" is not a partisan effort, but the result of the banking/defense lobby's need to continue to maintain the global control of the money supply through war. As such, war, and the requisite defense spending, will continue unabatted under the DEMs for the forseeable future.

That is a pretty clear position .... since I sense that you don't agree with it, please feel free to provide your "version" for discussion.

{"commentId":8096653,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

5 votes

#8.24 - Wed Jul 8, 2009 12:11 PM EDT

{"commentId":8107172,"authorDomain":"rickace"}

Why do you think the Economy is collapsing?

The root cause is a collective shift in societal (and that includes the government) mood from a positive one to a negative one. As far as I know Keynsian theory does not take this into account and therefore will explain things sometimes but fail to do so other times. Remember the economy isn't a machine that can be "fixed" or "jumpstarted". It's an organism, and it's autonomous which explains why the stimulus is doomed to fail. The most reliable gauge of that mood is the stock market, which is a leading indicator of economic conditions and a source of data the feds can't cook.

A misuse of credit markets and interest rates which created a massive disparity between CPI and asset inflation. All of this is in the context of a debt based money system controlled by an unholy private/public alliance operating a feudal soceity under the false banner of "Capitalism".

One doesn't need an education in ecocomics to understand how the economy works. When the players behave themselves, capitalism works best. The 1950s were an example of that. When greed and sloth creep into the picture (in both government and the private sector) we have problems like those of today. When corruption and greed move into the White House, we get the bad government we're having now. When financiers brew up dangerous new instruments like credit default swaps, we get what happened at AIG. True capitalists would have let AIG alone to take its lumps. Instead the fools in Congress showered them with an $85 billion dollar bonus for putting their company in danger of collapse. The feds are competing with captains of industry for the title of Most Inept.

I see very little differance between the GOP or the DEMs on this - they are both owned wholly by the banking elite, Obama included.

Agreed. Both parties are in very bad shape. And although I don't have the facts to prove it, I suspect many of our legislators put serving lobbyists and PACs before serving the people in their constituencies.

However, given the choice between two evils (McCain/Palin and Obama/Biden) I would choose the lesser ..... Obama.

I wasn't fond of McCain, but it's hard to imagine he'd be as foolish and reckless as Obama has been. As for the war, we should never have gone there in the first place, but Bush exploited the Chicken Little mentality that had gripped the nation after 9/11 and got Congress to fund it.

I'm 54 years old and I've never seen the nation in as much trouble as it is today. Excesses built over decades must be worked off before true recovery can occur, and Obama and the CBO are woefully mistaken if they think that's going happen by the end of 2010.

{"commentId":8107172,"threadId":"619935","contentId":"2999459","authorDomain":"rickace"}

4 votes

#8.25 - Wed Jul 8, 2009 6:40 PM EDT

{"commentId":8121888,"authorDomain":"a-s-n"}

Rickrace:

There is a very simple problem with our economy, and the global economy as well: We have a Global MOnetary system operated by Private Banks using a fractional Reserve Banking system. If you are not acquainted with FRBS and the International Clearing system as set up in 1944 at Bretton Woods you should be.

FRBS is based on the concept of creating money based on a debt. The origins of the modern system are in the Renaissance where verys similar contracts were used to your CDS, CBOs and other derivatives to facilitate trade. It was the often disasterous and fraudulent use of these "banknotes" that lead bankers to make an arrangement with Government.

Government would authorize private banks to issue money through a quasi private central bank and thropugh FRBS to lend out at interest. The key change was the backing of the currency by the Government in return for unlimited loans from the banks to the Governement at interest of course.

At the time, Governments were forced to us private banks for financing since government currency required an exchange into specie whichi was in short supply. The next move was to forever end the relationship between specie and money. This was the real purpose behind the Great Depression, since it allowed the Federal Reserve and the banks to end the gold standard and sell off the US Governments' gold stockpiles (in sympathy with other central banks who did the same).

So by 1950 we have a currency based on absolutely nothing other than the promises of the US government that they can tax us (as per the 16th Amendment which was partnered with the Federal Reserve Act in 1913). This lead to a couple of things in the 50s and 60s - a massive trend to home ownership and mortgage debt. Stcok market capitalization of businesses to fund future growth through debt/equity financing, and massive growth in Government debt.

Where this takes us is into the 1970s where all this nonsense with the fabricated money and debt leading to "Stagflation" - high unemployment, high debt, no gorwth. This phenomenon is a direct result of good times in the 50's and 60s which were financed by the new Fed / bank endless money machine.

All of a sudden we had high taxes, we couldn't compete with other countries because everything was so expensive that wages were artificially high, the economy was in turmoil. This takes us into the 90s where after 20 years of recessions, government debt and taxes, poor investment growth we have a savior.

Greenspan comes in and figures out that inflaiton in assets need not affect CPI. That the growth of the M2 money supply, fueled by massive appreciation of "assets" will provide economic growth without cpi inflaiton or wage growth! This works great for about 15 years, despite a bump with the dot com bubble bursting.

The problem is that in 2008 we have had double digit inflaiton in housing prices, stock prices, executive/professional wages for years with no corresponding increase in Average wages. Literally, we have accomodated zero wage growth with low interest rates so that 99% of American are supplementing their wages with debt to make ends meet!!

Sooner or later the assets stop inflating, the ability to borrow against the assets to subsidize their lifestyle is gone, and we have a disaster. The problem is that instead of reversing Greenspans course, Bush and Obama have actually made it worse by trying to stimulate the value of assets again.

The real solution is to grow real wages, and reduce the cost/income from assets to levels that existed in 1900 or so, before the great debt game began. The problme is that with the exception of Ron Paul there is no one who even sees a problem....

{"commentId":8121888,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

2 votes

#8.26 - Thu Jul 9, 2009 2:05 PM EDT

{"commentId":8124254,"authorDomain":"rickace"}

Interesting that you raised the subject of fractional reserve banking because I became familiar with it when I read Bob Prechter's Conquer the Crash. Here's an excerpt from that book you might find interesting.

The real solution is to grow real wages, and reduce the cost/income from assets to levels that existed in 1900 or so, before the great debt game began.

My analysis is that both the federal government and the private sector have been building excesses for decades and Mother Nature won't tolerate them anymore. The pendulum swings the other way today and the excesses are being undone, but we're nowhere near the end of that process, and I expect it to become more violent (market crash, depression) as time goes on. Given the pattern of boom, bust, war we saw in the previous two centuries, another war may very well follow the current bust. And I don't mean a "war" like the military occupation of Iraq, I mean a war like WWII.

The problme is that with the exception of Ron Paul there is no one who even sees a problem....

It's worse than that. The feds have everyone thinking they can manage the economy. They can't. The economy is autonomous. What we need in Washington are politicians who can keep their noses out of the private sector. The bailouts, the stimulus, the billions for Detroit, and the annexation of GM were all missteps by the feds.

I don't know enough about economics to comment on the remainder of your post, but what I do understand of it makes sense. Thanks for the explanation.

{"commentId":8124254,"threadId":"619935","contentId":"2999459","authorDomain":"rickace"}

2 votes

#8.27 - Thu Jul 9, 2009 3:53 PM EDT

{"commentId":8133672,"authorDomain":"a-s-n"}

Interesting comments - but I would suggest that they have it wrong. The actual way that fractional reserve banking works has nothing to do with the deposits. The banks cannot lend out the deposits at all, these funds are held in trust and guarenteed by the FDIC. What they actually do is alot worse than that.

A Bank lends out money based on the level of deposits on hand. The common misconception is that they "use" the depositors money to make the loans - this is not true, if you read the actual Federal Reserve policy manual, when a bank makes a loan the funds advanced are "created by accounting entry as a credit to the borrowers account". In plain english, the banks create the money by crediting the account. They don't take it from the deposits, or from the assets of the bank, or from anywhere - they just create it from "thin air".

It gets even better than that, as a result of the multiplier effect, and the new zero reserve requirements, the leverage ratio (actual money held in trust as reserves + bank assets to loans) for most major banks was 2 - 5% in 2008. What that meant was that the banks had created Trillions of dollars in M2 money with basically no collateral, no reserves, not even any deposits .....

Finally, if one considers that all the money in circulation was created as either M1 or M2 money (M1 money is created when the government borrows money from the Fed, M2 is when someone borrows from the commercial banks), and that once the debt which caused the money to be issued is paid the money ceases to exist again, we see the truly diabolical nature of this system. Every dollar in circulation is based on a debt, and has an annual fee or interest payment associated with it, mainly payabale to a bank. In effect, we are charged an annual fee on every dollar we use by the banks solely for issuing money on behalf of the Government!!

The Problem is that there is no good reason for anyone to pay anything to use money. We really don't need the Fed, the banks to issue money - the government should issue its own money as it did before the Revolution .... The result of that would be: No national debt, no personal wage taxes, massive reduction in personal and corporate debt, higher productivity, lower cost of living, etc ....

This leads to another problem: Government involvement in the private sector, or the economy as a whole. These two issues are highly intertwined. If private banks control 95% of the money supply how can the government control the economy?? How can businesses outside of financial services compete with other countries, or even the financial services sector itself?

The collarary of this FRBS is that money and investment asset price is controlled by a cartel, and as such, the prices of these goods are artificially inflated. By doing so the entire economy is out of equilibrium.

Capitalism is based on markets which self regulate by seeking price equillibrium. Supply and demand cause the natural equiillibrium price to be eventually prevail and regulate markets leading to maximum efficiency in the economy.

The problem which was identified by the first Capitalist, Adama Smith, is when factors affect price and distort these equillibrium prices. The first problem with our modern economy is that since the money supply and price (interest) is controlled by the banking cartel, the units by which price itself is measured is distorted completely!

For example, consider how we go in this mess. People went to buy a house 50 years ago and suslaly put 30 - 50% down and paid the house off within 10 years. The price of a house was about 3 x annual family income. Today houses are 10 - 30 x family incomes. People are no longer concerned with the price of the house, but the "monthly payment" and the "mortgage approval" by their banks. Therefore, a drop in interest rates directly affects price, not supply / demand, the cost of productions, any relative scarcity of the item - this is a classic breakdown in capitalism caused by a cartel - or as Smith put it "a conspiracy against the public".

The second problem is that there are virtually no examples of price determination in our economy today. prices are fixed, discounted, and managed by centralized systems, CEOs and marketing. Branding, niche marketing, media all collude to completely distort any Capitalism left .... I recently read an excellent book about a T shirt and free markets. The Author followed the Tshirt from design in the USA to manufacture in Asia, through the malls and TV ads, through to its final destination back in the 3rd world as surplus sold to the poor. The author concludes that the only free market encountered through the entire journey is that in the markets of the third world as surplus.

Its not enough to tell government not to get involved - they are the economy. People need to understand that government, banks, large corporations, are not seperate entities. These groups control so much of each others roles ion the economy that suggesting that removal of one will solve the problem will get you no where.

True Capitalism requires that government is involved only to ensure the effective functioning of free markets. Our government has done an atrocious job on that one. That is not to say that banks and corporations should be left alone, if the gov't failed in their role as the cops for capitalism, then corporations and particalarly banks who have taken advantage of the "corruption" are like the mob ....

If we are to implement effective capitalism we need a money system which is free of debt, has transparency and stability, and benefits all citizens not just the rich. We need to move away from branding and conspicuous consumption towards productivity and quality in what we produce. We need a focus on improving real wages, real productivity and GDP through actually producing goods and services, not through Wall st manipulations and chicanery.

{"commentId":8133672,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

3 votes

#8.28 - Fri Jul 10, 2009 2:04 AM EDT

{"commentId":8044972,"authorDomain":"adklugherz"}

UnAmericanLiberal

51% of all foreclosed homes had prime loans, not sub-prime, and that the foreclosure rate for prime loans grew by 488% compared to a growth rate of 200% for sub-prime foreclosures. (These percentages are based on the period since the steep ascent in foreclosures began -- the third quarter of 2006

And the truth shall set you free.

{"commentId":8044972,"threadId":"619935","contentId":"2999459","authorDomain":"adklugherz"}

8 votes

#9 - Sun Jul 5, 2009 9:30 PM EDT

{"commentId":8047241,"authorDomain":"mandelman"}

It sure will, won't it?

{"commentId":8047241,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

3 votes

#9.1 - Mon Jul 6, 2009 12:48 AM EDT

{"commentId":8092806,"authorDomain":"rickace"}

Here's some truth: when our president was a congressman he sold his votes to the suits at Fannie and Freddie. Have you been set free?

{"commentId":8092806,"threadId":"619935","contentId":"2999459","authorDomain":"rickace"}

5 votes

#9.2 - Wed Jul 8, 2009 8:02 AM EDT

{"commentId":8107096,"authorDomain":"lindaluke"}

Linda Luke

Haha, yup Obama is right up there with Dodd, it's that something?

{"commentId":8107096,"threadId":"619935","contentId":"2999459","authorDomain":"lindaluke"}

3 votes

#9.3 - Wed Jul 8, 2009 6:37 PM EDT

{"commentId":8045941,"authorDomain":"dkbales"}

Doug-375144

I agree it was all those Johnson's , and the Banks lent to them

{"commentId":8045941,"threadId":"619935","contentId":"2999459","authorDomain":"dkbales"}

2 votes

#10 - Sun Jul 5, 2009 10:45 PM EDT

{"commentId":8047454,"authorDomain":"billy-witchdoctor-com"}

billy-witchdoctor-com

Wasnt it about the standards and practices that allowed lenders to make loans to people who otherwise were not loan eligible(see Community Reinvestment Act)?

{"commentId":8047454,"threadId":"619935","contentId":"2999459","authorDomain":"billy-witchdoctor-com"}

1 vote

#11 - Mon Jul 6, 2009 1:19 AM EDT

{"commentId":8047530,"authorDomain":"adouglass3"}

In a word...no. If you look at the numbers, first time buyers are a small percentage, even minuscule when compared to the bailout. Security leveraging, ratings and other factors were all in collusion on this one.

{"commentId":8047530,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

6 votes

#11.1 - Mon Jul 6, 2009 1:35 AM EDT

{"commentId":8047471,"authorDomain":"Carol-1960"}

Carol-1960

Thanks for this article. If you really stop and think, it just does not make sense that loans for sub-prime borrowers would have a significant effect on the economy. Maybeblu also makes a good point that the “brokerage houses who sold the debt without accurately assessing and disclosing the risk to those who bought the debt” may even have a bigger share of the blame than the borrowers. I am just glad that someone is pointing out that we can not hold poor people responsible for the meltdown.

{"commentId":8047471,"threadId":"619935","contentId":"2999459","authorDomain":"Carol-1960"}

5 votes

#12 - Mon Jul 6, 2009 1:23 AM EDT

{"commentId":8047850,"authorDomain":"neenie1991"}

“brokerage houses who sold the debt without accurately assessing and disclosing the risk to those who bought the debt”

The buyers of the paper knew full well what they were getting. They took a gamble. Caveat Emptor.

{"commentId":8047850,"threadId":"619935","contentId":"2999459","authorDomain":"neenie1991"}

2 votes

#12.1 - Mon Jul 6, 2009 2:38 AM EDT

{"commentId":8048958,"authorDomain":"mandelman"}

I don't know neenie... bonds are sold based on their ratings. It's the only way the bond market can function. For example, let's say the City of Atlanta is offering a bond. How would anyone be able to assess the city's ability to repay? Without ratings bonds can't sell. Bonds are debt... debt requires a rating.

I'm not so sure the Teachers Pension Plan knew they were buying junk rated AAA.

{"commentId":8048958,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

5 votes

#12.2 - Mon Jul 6, 2009 8:08 AM EDT

{"commentId":8053795,"authorDomain":"neenie1991"}

They're packaged and churned, I think the banks ( and one of the reasons they can't 'value' the toxic assets) are not above re-rating (or mixing bundles) the paper based on changes in the market. What with all the regulations and that. Is there anything preventing them from it?

{"commentId":8053795,"threadId":"619935","contentId":"2999459","authorDomain":"neenie1991"}

1 vote

#12.3 - Mon Jul 6, 2009 12:54 PM EDT

{"commentId":8066706,"authorDomain":"a-s-n"}

The scam was a pretty simple ponzi scheme. The bankers lent out money to anyone with a pulse. The loans were pulled together into an Offering. The underwriters went to an insurer like AIG who insured the bundle. Since the insurer had an AAA rating, so did the guarentee. They sold these things as AAA credit notes with better yields than Government paper - so people who needed AAA paper bought them.

The scam is that the insurer wasn't doing the due diligence or charging enough premium for the risk, the Credit agency was not watching the huge risk taken by the insurer which was "material" to thier bottom line, and should have affected their credit rating, and thus the credit rating of the entire pile of #$%^ they were selling.

Finally, since the guarentee is now worthless, the "toxic assets" are currently unrated. Since they are made up of a bunch of residential mortgages it is virtually impossible to assess the credit of the group, without assessing each mortgage and conglomerating them into a rating. that rating would be lucky to be a C or C-.

As anyone who own GMAC paper will tell you being cut from investment grade (BBB - AAA) to junk (E - BB) will cut the value of the bond from close to par to 50, 60, 70 .... so far the banks are holding on that these notes are worth close to par. The problem comes that when they are doing their balance sheet they must come up with a market value for these notes as marketable securities. Unlime mortgages which they can fudge, marketable securities must be valueed at market price = unknown = $0 .... big problem.

The push is on for them to mark these to par, or some sort of fixed rate close to par to fix their balance sheets ... the problme is everyone else has to do it this way - so what can they do??

{"commentId":8066706,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

3 votes

#12.4 - Mon Jul 6, 2009 10:20 PM EDT

{"commentId":8047555,"authorDomain":"mdnorcuss"}

Does anyone have an answer to this poser? As I undersand it, most of the "bad debt" isn't really bad debt at all, but estimated future loan failures that the holders do not have the liquidity to cover. Is it true or false that we are really talking about numbers, not dollars? I alsways felt that the banks were merely trying to slough of projected bad debt on the american public while crying wolf, and then walking away fancy free and richer than ever.

{"commentId":8047555,"threadId":"619935","contentId":"2999459","authorDomain":"mdnorcuss"}

3 votes

#13 - Mon Jul 6, 2009 1:39 AM EDT

{"commentId":8047610,"authorDomain":"prm-1"}

mdnorcuss. Good question. All paper is not traded at 100% of value. And when we take future income stream on an investment into account, it depends on how that vehicle is packaged and sold. mandelman? Poser, be more specific.

{"commentId":8047610,"threadId":"619935","contentId":"2999459","authorDomain":"prm-1"}

1 vote

#13.1 - Mon Jul 6, 2009 1:50 AM EDT

{"commentId":8047639,"authorDomain":"parrtway"}

My take is it's in the numbers, not dollars. What they thought it would be in the future as far as value from what it was when say, the loans are taken, houses are bought. Money isn't real anymore anyway, we got rid of the gold standard, and now it's whatever we make out the dollar to be of value compared to coconuts, for example. (My opinion only, but may be shared by someone else if they want to)

I alsways felt that the banks were merely trying to slough of projected bad debt on the american public while crying wolf, and then walking away fancy free and richer than ever.

And this is what they also tried to do when they were told they had to pay the loans back on TARP. They objected to having to pay more than what they owed, after they made a contract and agreement. Interest.

{"commentId":8047639,"threadId":"619935","contentId":"2999459","authorDomain":"parrtway"}

3 votes

#13.2 - Mon Jul 6, 2009 1:55 AM EDT

{"commentId":8047776,"authorDomain":"mdnorcuss"}

More specific, hmmm. Ok, as I read the situation, the banks and investment houses were booking as losses subprime loans that had not gone into default, based apparently on some secret statistical model that predicted how many were likely to go into default in the (unspecified) future. So it really isn't actual losses, it is projected future losses in the billions of dollars. Well, who decided that all those loans are going to default?

Yes there is the significant issue of resales of loans. I have no expertise in these volatile and for the amateur largley impenetrable deals of packaging a bunch of loans into an investment, but often with a buy back guarantee for those that go bad. The idea is that Bank A loans out all of its money, then sells the loans to generate more capital to expend on more loans. Although the bank does not receive the payout over the (thirty) years of the loan (which as we all know is at least double the amount borrowed), it does sell the loan for more than the original loan amount, and get more financing fees for every transaction on new loans, and thus generates profits. This isn't a problem until a large number of loans go into default..that's when the proverbial sh.t hits the fan.

{"commentId":8047776,"threadId":"619935","contentId":"2999459","authorDomain":"mdnorcuss"}

1 vote

#13.3 - Mon Jul 6, 2009 2:24 AM EDT

{"commentId":8047905,"authorDomain":"prm-1"}

Interesting. In private finance the opposite is true. Even though the note sold does generate a future return, when the note is sold to a secondary market, it is discounted to create a higher return. Get it? If I sell a note that pays 7.5 % per year for ten years, and the value of the note is $300 K. I would have to discount the note to 250K, to buy up the yield.

{"commentId":8047905,"threadId":"619935","contentId":"2999459","authorDomain":"prm-1"}

1 vote

#13.4 - Mon Jul 6, 2009 2:50 AM EDT

{"commentId":8066864,"authorDomain":"a-s-n"}

MDnorcross:

there are several answers to your queries.

First, banks are required to report any potential liabilities or estimate them as soon as they become aware of them under various securities regulatiosn/laws. Therefore, write downs for impaired loans are required by law, and should be disclosed to markets to assess the viability of the enterprise.

Secondly, if you read my comment above, there is no differance between future loan payments / defaults and money. Its easy to say maybe they wont default, but when all of our money is made up of laons to various people comapnaies and government, the current value of future payments is the integrity of our monetary system.

If they can turn it around and get all these loans paid, fine. However, if you miss a couple of payments on your car loan the next time you apply for credit you are going to have a problem. Credit operates on forseeing future losses.

Money itself is not important, our dollars have no exchange value beyond the perceived value of the US government guarentee. The cannot be exchanged for gold, oild, food without that guarentee. The banks can produce as much as they need to supply, but maintianing the intwegrity of the system is vital to maintaining the exchange value of our dollar.

{"commentId":8066864,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

3 votes

#13.5 - Mon Jul 6, 2009 10:28 PM EDT

{"commentId":8133607,"authorDomain":"mdnorcuss"}

I still do not see how current values of assets are reduced by future projected losses. CAn I reduce my taxes for this year by writing off now losses I anticipate will be incurred over the next thirty years? I don' think so. The only reason banks believe they are insolvent is because they cannot sell the loans they've sold in the secondary marke, right? I mean, there is always a risk of loss on any credit instrument, but that doesn't mean that in the future the company will become illiquid. The bank still has the down payment and the points, any interest on the loan prior to default, and at least some security in the real property, plus the value of all of the loans that do not go into default. The way I see it, and I could easily be wrong as this outside of my expertise, is that these banks are not bankrupt now, they just thnk they might become bankrupt in the future.

And all that this finagling accomplishes is that the taxpayers get stuck with the bill for the bank's gross mismanagement.

{"commentId":8133607,"threadId":"619935","contentId":"2999459","authorDomain":"mdnorcuss"}

#13.6 - Fri Jul 10, 2009 1:55 AM EDT

{"commentId":8133776,"authorDomain":"a-s-n"}

Lets assume that we can ignore the Sox complaince and mark to market rules that bind the banks for a second - If I understand what you are saying, it is that the bank's should not be required to write off a bad debt loss since there is some possibility that these assets will recover value at some point.

The issue of downpayment is irrelevent to this discussion since it is relevent only to the security for the loan (and presumably the speed at which it was written off) or the past payments whichi have already been absorbed by the bank and used.

The problem faced by the banks is of their own making. If they held onto their mortgages they would be able to mark the assets at par until they were seriously deliquent - 90 days + overdue - and then the security for the loan would be the value.

However, since the geniuses at the banks deided to sell the mortgages as cash flow "notes" they have a valuation problem. First of all, the insurer defaulted so the notes are notes are no longer AAA whichi significantly reduces their value. Secondly, as notes they have a market value - the actual mortgages are not liquid generally, as noted above, but when the bank is holding a liquid assets it must disclose this asset at market value in the balance sheet - this is basic GAAP. This is why we saw the AIG failure destroy so many banks - just the removal of the AAA rating on all this garbage that they held on their balance sheets destroyed them.

Now these notes are a big problem. they have market values, must be disclosed, cannot be unwound, or unwrapped. What the baks are asking is for the government to suspend GAAP for them, cause they ran a scam. Lets not forget the entire game of selling AAA Mortgage notes was very lucrative for them - but was basically fraud.

These notes were never AAA credit, should never have been sold at massive profits as AAA credits, nor should any exemption to GAAP be allowed. If they did so for the banks you would have no idea what any company was ever worth and leave the stock markets open to massive fraud.

In case your interested what has happened since is that the Federal Reserve has bought much of this crap at par from the banks anyway as "off balance sheet transactions" .... These Toxic Assets were bought up on favorable terms anyway.

{"commentId":8133776,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

2 votes

#13.7 - Fri Jul 10, 2009 2:23 AM EDT

{"commentId":8047630,"authorDomain":"prm-1"}

Congratulations mandelman. HSBC is advertising next to your article. The largest Bank in North America. Remember buddy ? Their the ones that are granting a million dollars at a time to non profit's to block your efforts to promote private sector mortgage adjustment. Un @!$%#ing believable. You kill me Mandelman. R. Max

{"commentId":8047630,"threadId":"619935","contentId":"2999459","authorDomain":"prm-1"}

2 votes

#14 - Mon Jul 6, 2009 1:54 AM EDT

{"commentId":8057814,"authorDomain":"sperrys"}

Hi Ray...what are you implying here? All viners know that you have no control over the ads that get placed on anyone's article, so can you clarify for me?

{"commentId":8057814,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

2 votes

#14.1 - Mon Jul 6, 2009 3:47 PM EDT

{"commentId":8060272,"authorDomain":"prm-1"}

Not to worry, we are fundamentally on the same side. I simply find it ironic that mandelman will receive revenue from the same company that is blocking private sector loan modification. Have a nice afternoon. Of course it is not intention.

I am however amazed at the response given to this re-hatched article. I'm also pleased to acknowledge those that are not willing to dismiss the sub zeros for their part in the crash. The situation is evolving. mandelman , as well as others warned that the Third wave would take in those that had conforming loans.

No kidding. Out of work, under employed folks having a tough time justifying a house payment on a loan that out strips the value of the home that it is attached to? Imagine that Lisa.

{"commentId":8060272,"threadId":"619935","contentId":"2999459","authorDomain":"prm-1"}

1 vote

#14.2 - Mon Jul 6, 2009 5:48 PM EDT

{"commentId":8060789,"authorDomain":"sperrys"}

Yeah Ray...no kidding. And can you believe there are people out there still blaming the borrowers for the entire mess? Can you imagine there are still people who think the banks are not responsible in any way? That there are some that think this will not effect them personally? As long as I imagine that, I'm with anybody who wants to keep beating that drum...as long as it takes.

{"commentId":8060789,"threadId":"619935","contentId":"2999459","authorDomain":"sperrys"}

2 votes

#14.3 - Mon Jul 6, 2009 6:07 PM EDT

{"commentId":8061633,"authorDomain":"prm-1"}

Fair enough Lisa. Best to you. Ray

{"commentId":8061633,"threadId":"619935","contentId":"2999459","authorDomain":"prm-1"}

1 vote

#14.4 - Mon Jul 6, 2009 6:40 PM EDT

{"commentId":8048110,"authorDomain":"payingattention"}

Paying Attention

Sometimes my imagination works overtime and I have been thinking about a plot for a movie.

Fall of 2008, a crisis is in the making. Deregulation and creative investment has made everyone greedy and border line criminal, including lenders, borrowers, real estate agents, appraisers, and credit reporting houses. ALL OF US.

This is an election year; enter the incumbent and the challenging candidates. Politically, both know they have to use the crisis to their advantage. The incumbents decide they will escalate, and through exposure, show they have the ability to thwart the problem. They force bankers to accept unneeded assistance in order to stage the extent of the problem and their ability to control. The incumbent candidate does not feel comfortable with this ruse and spends time privately trying to waylay this scheme, but alas, he has already lost control of his own campaign and has to remain silent. The ruse fails and the challenger wins the election. The winners will not expose the ruse, because it can be used to their advantage in implementing programs they deem necessary for long-term corrections and benefits. The losing incumbents cannot admit to the ruse, so they feel free to denigrate any corrective policies for an exaggerated situation.

The problem and main plot is that the crisis in the making has fallen victim to the domino effect. The former incumbents now are overwhelmed and scrambling in attempts to put together their own coherent corrective policies. The current incumbents did not underestimate the crisis since they were aware of the ruse; instead, they underestimated the results of the domino effect.

Meanwhile, the greedy that successfully acquired the ‘lost investments’ are waiting to pounce again to further amass fortunes without regard to the well being of the nation and constitution they claim to support. The final act will depend on if the victims think for themselves, come together, and realize the common denominators required for their own survival.

Production by PHONEY IDEALIOLGIES INC.

{"commentId":8048110,"threadId":"619935","contentId":"2999459","authorDomain":"payingattention"}

5 votes

#15 - Mon Jul 6, 2009 3:58 AM EDT

{"commentId":8048203,"authorDomain":"payingattention"}

Paying Attention

Correction: Production by IDEOLOGIES MISLED, INC.

{"commentId":8048203,"threadId":"619935","contentId":"2999459","authorDomain":"payingattention"}

3 votes

#15.1 - Mon Jul 6, 2009 4:36 AM EDT

{"commentId":8048373,"authorDomain":"bobneve1"}

Wizeguy

Two years ago I said to a buddy "the economy is in the toilet". He jumped all over me saying are you crazy the stock market is rocking hitting new highs everyday. I said yea but it's a house of cards no real money no real manufacturing going on just people trading imaginary money. Sure my 401K was coming back post 9/11 but the interest was all on paper. Had I taken it out and put in my mattress then it would have been real. I'm no fortune teller and I didn't expect this but maybe I should have thought about that mattress. Instead I'm wondering how I'm going to make it through retirement.

{"commentId":8048373,"threadId":"619935","contentId":"2999459","authorDomain":"bobneve1"}

3 votes

#16 - Mon Jul 6, 2009 5:43 AM EDT

{"commentId":8048813,"authorDomain":"adouglass3"}

You and millions of others that did what they were supposed to do. Instead, we were duped into sponsoring a back alley game of three card monte.

Homeowners, as serious as their situations are, still have an option of "taking the loss" and moving on. Those within 10-15 years of retirement are completely devestated!

This will have to compensated for. An entire generation just became dependent on Social Security through NO fault of their own. Sickening!

{"commentId":8048813,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

5 votes

#16.1 - Mon Jul 6, 2009 7:48 AM EDT

{"commentId":8049519,"authorDomain":"rickace"}

I'd known for decades that the stock market is a casino. At age 25 when I began pre-tax payroll deductions to save for retirement, I put them in a bond fund. That money has grown steadily ever since. Why people would invest their retirement savings in stocks is beyond me.

{"commentId":8049519,"threadId":"619935","contentId":"2999459","authorDomain":"rickace"}

5 votes

#16.2 - Mon Jul 6, 2009 9:06 AM EDT

{"commentId":8064201,"authorDomain":"adouglass3"}

Most people DON'T invest in stocks. They invest in reputations and principles. They have gotten more sophisticated but most 401k's used to come with 4 or 5 choices graded from conservative (bonds) to aggressive (large/small caps). Investors were asked to select a risk "mood".

This simplistic approach worked fine until mutual and hedge fund managers began leveraging these monies and playing their own back room games with the market.

The ability to siphon off future profits today is a scheme, not a tool.

{"commentId":8064201,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

2 votes

#16.3 - Mon Jul 6, 2009 8:22 PM EDT

{"commentId":8048836,"authorDomain":"seward"}

Sandie Seward

Similar to what is happening in Britain. What a great article, thank you.

{"commentId":8048836,"threadId":"619935","contentId":"2999459","authorDomain":"seward"}

3 votes

#17 - Mon Jul 6, 2009 7:50 AM EDT

{"commentId":8048980,"authorDomain":"mandelman"}

Hey Sandie... How's tricks?

{"commentId":8048980,"threadId":"619935","contentId":"2999459","authorDomain":"mandelman"}

2 votes

#17.1 - Mon Jul 6, 2009 8:12 AM EDT

{"commentId":8049275,"authorDomain":"pdeuth"}

PDeuth

Over the last decade I watched the news, politics, and our economy and wondered: how much can you take out before the whole things falls apart? There was a grand national cashing-in over the last 20 years, on many fronts, culminating in a feeding frenzy by the rich and powerful under George W. Bush. People took, took, took from our economy and nation until the bottom fell out. I participated in that, too, more as a victim than as a beneficiary/plunderer.

The mantra was Increase Stockholder Value, Increase Stockholder Value. The promise was, to Corporate leadership, that if you increase stockholder value, you'll get filthy rich, because: you own a lot of stock, much of which is part of your compensation package; and you'll get a big fat bonus if you take good care of the rest of us in your class. Our Government said, "Go get 'em, boys!" Jobs and manufacturing capacity were shipped overseas to boost profits without making investments - that, by its nature, amounts to cashing-in on/of our national economy. Treaties and policies not only permitting this cashing-in, but encouraging it, were put in place.

Soon enough, we became a nation seeking to sustain an economy on finance and service. Finance that does not amount to investment amounts to a sort of Ponzi scheme. Finance and financial schemes that do not grow the economy in which those systems operate simply create houses of cards, built upon foundations of sand. The end is predictable and inevitable. Was the financial system geared toward investment and future economic strength, or was it an end in itself, more of a Ponzi scheme?

In the case of mortgages, it came to pass where debt was treated as an asset, rather than a liability. Granted, paper has, or represents, some value, when what it represents has value. A loan for 103% of value has negative value, of course, and isn't even close to being an asset. Those small assets, on loans with some value, were leveraged tens of times - 300% to 700%. Insurance on that worthless paper was sold, with nothing really to back it up. An entire house of cards was constructed so that those in management could get very rich, very quickly. And our Government said, "Go get 'em, boys!" All the while, there wasn't real investment to compensate for this plunder for when things, inevitably, got bad. It was bad, bad Karma.

A false economy arose based upon credit. Our Government reassured us that our Consumer Economy was strong, and that our Financial Sector, and Service Sector, were more than adequate to sustain a strong economy. There was nothing that told us that our Financial Sector was constructing a Ponzi sheme; there was nothing that cautioned that we were in hock on our national balance of payments, having become an importer and a buyer, as opposed to being an exporter and a producer. There was no hint that we had become, in real terms, a colony of Asia, as we exported raw materials to the Mother Economy, where value was added, via manufacturing, to those raw materials, the products in turn being shipped back to us to consume. There was no sign of concern that the touted Service Sector could not carry the economy, as a service sector actually cannot. Service amounts to, in the end, the same money changing hands, with each participant taking a bit for himself. No long-term value is added to an economy via a service sector - who knew? Well, I did, for one, but I'm a lowly Quality Management Professional, not a well-connected member of our "elite."

Did anybody in our Government know? Don't they have better-trained and more intelligent economists than I? Didn't anybody in our Banking Industry know? Don't they have smart people on their staffs? I, the lowly and lonely Quality Management Professional, could not have been the only one to notice all this cashing-in, all this debt, all these Ponzi-like schemes. I must have been, because the Banks and our Government acted as if things were rosy, and loaded more debt upon debt, and created new financial schemes upon old financial schemes. (See Ponzi scheme above.)

Cashing-in generated quick money; stock prices got a boost; managers in Corporate and in Government got their positive feed-back in the form of big fat checks; debt was assumed by Corporate and Banks based upon Stock Prices; Government said, "Go get 'em, boys!"; more cashing in occurred, via deregulation; more quick earnings; and so on, and so on, until the WHOLE DAMN THING CAME TUMBLING DOWN. People seemed to have forgotten that debt is a liability, not an asset, and that money or cash derived from borrowing and cashing-in is not earnings, rather plunder.

I lost my job and regular income three weeks ago in a mass lay-off. Business slowed, of course, and in order to keep profits high, or losses low, a policy of mass lay-offs and plant closings was instituted. This was at a very large company, an industry leader. That company was already large, but got larger by buying other companies, It paid $2.8 Billion for one five years ago; it bought another for $2.1 Billion three years ago. It had, last year, a loss of $405.3 Million, and for the last quarter, earnings were down 95%. Interest payments, alone, are $225 Million for the year. Their response was to seek more credit, in order to buy another large firm. The firm they wanted to buy said, "No, we're not for sale, go away." More debt at this time would have been foolish, but more borrowing was needed to patch things up. Whence the layoffs and the plant closings, to keep the stock prices from tumbling again - they had been at 60, then down to 5, now back up near 10. At the plant where I worked there was no will to invest in new methods and training, to actually improve our processes. I got push-back from those seeking maximum earnings without investments. I became a nuisance by suggesting that cashing-in on standards and processes is short-sighted and will end up costing even in the short run. There was a missing system-view, as HQ wanted money NOW. Quotas had to be met, by any and all means. There was a house of cards to prop up.

I lost the job I held before that one when 25% of our manufacturing capacity went to China. Our capital machinery, literally, was pulled up from our floor, put on ships, and moved to China, in search for a quick profit without investment or good management. That particular plant once employed 130. Now it's down to 35. The loss of 100's of jobs from these two facilities alone has hurt our economy in both the short term, and in the long term. Stock holders might have reaped some temporary plunder, and managers the same, but it was all just cashing-in, and non-sustainable, by definition.

I saw this years ago. Had I been a "casher" rather than a "cashee" would I have blinded myself? Perhaps. That's academic now. In a best-case scenario, perhaps we have learned that debt is not an asset and that plunder is not earnings. Perhaps we won't, as a national economy, get back on that joy-ride down the tubes, but I wonder. In the end, without manufacturing an economy cannot sustain itself. All the rest is fluff, and worth about as much, no matter how you leverage it.

{"commentId":8049275,"threadId":"619935","contentId":"2999459","authorDomain":"pdeuth"}

8 votes

#18 - Mon Jul 6, 2009 8:45 AM EDT

{"commentId":8049367,"authorDomain":"adouglass3"}

Heartbroken to hear about your employment situations. Wonderfully written post!

{"commentId":8049367,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

3 votes

#18.1 - Mon Jul 6, 2009 8:52 AM EDT

{"commentId":8049831,"authorDomain":"armstrongdebra21"}

Your insight and ability to convey the situation for wage earners are wonderfully precise. I wish you only the very best in your employment future.

{"commentId":8049831,"threadId":"619935","contentId":"2999459","authorDomain":"armstrongdebra21"}

3 votes

#18.2 - Mon Jul 6, 2009 9:29 AM EDT

{"commentId":8053189,"authorDomain":"maureen-5"}

maybeblu

Your post and Martin's original post are the reason I stay with the Vine. What I don't understand is why analysis on the news shows aren't as wise and cogent as what I read here. The American people aren't stupid, the two of you are proof that there are people available who can communicate effectively and yet the airwaves are devoid of meaningful content. Pick an issue and the reason that the American people are not debating it or discussing a solution is because those in charge of the public airwaves aren't providing truthful analysis or modeling effective debate format. It's all half truths, sniping and potshots.

I am not optimistic about our ability to weather this crisis over the next couple years. I wish you well and hope employment comes to you soon.
.

{"commentId":8053189,"threadId":"619935","contentId":"2999459","authorDomain":"maureen-5"}

3 votes

#18.3 - Mon Jul 6, 2009 12:23 PM EDT

{"commentId":8053258,"authorDomain":"eric-rinderknecht"}

Eric + Cheney

I was at a function this weekend where a speaker gave a very thought provoking message. The message centered around being a creator of economy rather than a partaking in an economy or worse being a taker of economy. Partakers seek employment and have jobs. Takers of economy can be those that are chronicly unemployed or a government that gorges itself on taxes.

Being a creator of economy is about being a small business owner, employing others and generating wealth. We need to have a mindset of economy creation if this nation is going to comeback. Higher taxes and more entitlements seem to be the direction this country is headed, economy takers. So, I'm sorry; economic growth is just not going to happen.

{"commentId":8053258,"threadId":"619935","contentId":"2999459","authorDomain":"eric-rinderknecht"}

2 votes

#18.4 - Mon Jul 6, 2009 12:27 PM EDT

{"commentId":8053635,"authorDomain":"kbeacham1"}

Maybeblu:

I think the reason is that intelligent analysis doesn't bump ratings, but what drugs Michael Jackson had in his system does. Every show makes money or pays its hosts based on those great ratings. This isn't even calculating in network bias. You already know the saying 'if it bleeds it leads.' Unfortunately the people who really want good informative analysis are left to PBS or BBC America

{"commentId":8053635,"threadId":"619935","contentId":"2999459","authorDomain":"kbeacham1"}

2 votes

#18.5 - Mon Jul 6, 2009 12:46 PM EDT

{"commentId":8055345,"authorDomain":"jackmarc6"}

mark-348631

pdeuth,your comment is essentially the most accurate assesment of what has happened to america.an economy with no manufacturing cannot sustain itself.the govt. encouraged the selling off of our factories to china,so their buddies on wall street could get richer.instead of investing on american companies,they invest on overseas markets.and all the while saying this economy is fine.the u.s. has turned into a welfare state with an investment company as its govt.and lets not forget about the military-industrial complex that cant be paid for.

{"commentId":8055345,"threadId":"619935","contentId":"2999459","authorDomain":"jackmarc6"}

#18.6 - Mon Jul 6, 2009 2:02 PM EDT

{"commentId":8051462,"authorDomain":"lar-jan"}

Bighorn

If you lose your job get a job. Most folks were looking for a job when they were employed. Unless all you can do is to sit in your cubicle and look at a computer screen and appear to be busy or to pull green tomatoes off of the conveyor belt chances are you will stay unemployed for a long time.

Its a bad time for slackers to lose their job.

{"commentId":8051462,"threadId":"619935","contentId":"2999459","authorDomain":"lar-jan"}

#19 - Mon Jul 6, 2009 11:00 AM EDT

{"commentId":8051802,"authorDomain":"rayjs"}

garyray-501488

Just who are you calling a "slacker"? Are you inferring that PDeuth is a "slacker"?

{"commentId":8051802,"threadId":"619935","contentId":"2999459","authorDomain":"rayjs"}

1 vote

#19.1 - Mon Jul 6, 2009 11:16 AM EDT

{"commentId":8053865,"authorDomain":"neenie1991"}

Where are you living? Good grief.

{"commentId":8053865,"threadId":"619935","contentId":"2999459","authorDomain":"neenie1991"}

1 vote

#19.2 - Mon Jul 6, 2009 12:57 PM EDT

{"commentId":8055386,"authorDomain":"jackmarc6"}

mark-348631

its a bad time for value destroyers on wall street too,you slacker.

{"commentId":8055386,"threadId":"619935","contentId":"2999459","authorDomain":"jackmarc6"}

#19.3 - Mon Jul 6, 2009 2:04 PM EDT

{"commentId":8051926,"authorDomain":"bondibox"}

bondibox

I agree with the article, and probably ought to agree with the higher down payment requirements except I'm trying to buy a first home this year ;-)

But I also am one who wrote my Senators a few years back to complain after I received a real, endorsable check in the mail, unsolicited, and the fine print revealed that by signing it I'd be accepting a loan for 38%. That kind of predatory crap can't go on in my vision of a civilized society.

{"commentId":8051926,"threadId":"619935","contentId":"2999459","authorDomain":"bondibox"}

2 votes

#20 - Mon Jul 6, 2009 11:23 AM EDT

{"commentId":8052026,"authorDomain":"src97531"}

I agree with the article, and probably ought to agree with the higher down payment requirements except I'm trying to buy a first home this year ;-)

Just about everyone I know bought their first house on a VA or FHA loan: 3% down, and you have to pay PMI premiums until you can get your equity up to 20%. Many of the problem loans were over 100% financed, and used 80/20 finance schemes to avoid PMI requirements. The banks shot themselves in issuing uninsured loans like that.

{"commentId":8052026,"threadId":"619935","contentId":"2999459","authorDomain":"src97531"}

3 votes

#20.1 - Mon Jul 6, 2009 11:28 AM EDT

{"commentId":8052355,"authorDomain":"ElliePhat"}

Another barn-burner here, Mandleman. Good work. But, I have to agree with space guy, the answer is "all of the above." There were sub-prime borrowers, but then again there were the sub-prime loans. The zero-downs, interest only, LIBOR-pegged, fancy-schmancy. Oh, let's not forget the 125% loans which were probably sub-prime borrowers and loans. At some point, the borrower did participate in the downfall (generically, not personally blaming every subprime borrower). So, maybe not the poor you refer to but definitely some middle class and definitely the "Flip this House" crowd. Oh, and you can't blame the banks in a vacuum on this issue. CRA and Rainbow Push did play a role in forcing them into the subprime marketplace, too.

{"commentId":8052355,"threadId":"619935","contentId":"2999459","authorDomain":"ElliePhat"}

2 votes

#21 - Mon Jul 6, 2009 11:43 AM EDT

{"commentId":8053979,"authorDomain":"kbeacham1"}

Sorry Ellie, I gotta disagree with this:

CRA and Rainbow Push did play a role in forcing them into the subprime marketplace, too.

Simply because these programs require people to go to classes on credit counseling, pay off old debts, and sit through new homeowner seminars on what it takes to be a homeowner. (I've been an advisor in these.) NACA is one also.

Mortgage brokers targeted these people simply because they were easy. People with enough income to buy a 250k home already have one. The banks developed these new products to get new customers. Whats the largest group: people who don't already have houses.

I know because I dealt with these brokers first hand. They got paid per loan and a lot of these people (customers) had no idea on what/who they were paying. They just knew that they got a house for 500 down and 700 a month. And in 2 years refi before it went to 900 a month.

{"commentId":8053979,"threadId":"619935","contentId":"2999459","authorDomain":"kbeacham1"}

2 votes

#21.1 - Mon Jul 6, 2009 1:02 PM EDT

{"commentId":8054214,"authorDomain":"ElliePhat"}

I don't doubt they were targeted. Nor do I doubt too many borrowed too much with too little equity. Just because the broker is greedy doesn't mean the borrower isn't also greedy. That's why I say "all of the above." :)

{"commentId":8054214,"threadId":"619935","contentId":"2999459","authorDomain":"ElliePhat"}

2 votes

#21.2 - Mon Jul 6, 2009 1:12 PM EDT

{"commentId":8092884,"authorDomain":"rickace"}

But CRA did play a role. As did Fannie and Freddie.

The Great American Bubble Machine : Rolling Stone

As they say, it takes two to tango. Unscrupulous lender, dimwitted borrower. Greed and sloth, two of the seven deadly sins. No amount of legislation can make them go away.

{"commentId":8092884,"threadId":"619935","contentId":"2999459","authorDomain":"rickace"}

2 votes

#21.3 - Wed Jul 8, 2009 8:13 AM EDT

{"commentId":8053718,"authorDomain":"Sebbydad"}

Sebbydad

great article, it is never one thing or one term that causes or resolves these things. Howver that does not play well in a 10 second soundbite or a 1 minute summary on the 6 o'clock news. Most people want to hear whose fault it is especially if the finger is not pointing at them. The Obama admin will of course bear the fault if things have not turned around by christmas. These bubbles and bursts are the result of free market poltics, the looser the market the more likely and the larger these booms and busts will be, since greed is at the heart of the free market policies that rabid advocates push. The nation cannot afford to have business that are too big to fail. It will be a long and expensive climb out of the hole. Innovation and manufacturing are the keys to turnaround, we are going to need to get serious about alternative energy production, change that standard, and millions get back to work, and we have technology that can be built and exported throughout the world. We hav not had the lead in innovation in a decade and are falling further behind every year.

{"commentId":8053718,"threadId":"619935","contentId":"2999459","authorDomain":"Sebbydad"}

4 votes

#22 - Mon Jul 6, 2009 12:50 PM EDT

{"commentId":8053750,"authorDomain":"tjestus"}

tjestus

This may describe what went down, but have you seen Matt Taibbi's article linking how it was all created, perpetuated and repeated (internet bubble, housing bubble and coming soon the carbon bubble) by Goldman Sachs and their alumni.

{"commentId":8053750,"threadId":"619935","contentId":"2999459","authorDomain":"tjestus"}

3 votes

#23 - Mon Jul 6, 2009 12:52 PM EDT

{"commentId":8053988,"authorDomain":"brigidsmom"}

Mary-268849

I am in the legal field, bankruptcy to be exact, and most of the people are filing because they have lost their jobs..not because they are living above their means. You can't pay your bills if you don't have a job. It's that simple.

{"commentId":8053988,"threadId":"619935","contentId":"2999459","authorDomain":"brigidsmom"}

4 votes

#24 - Mon Jul 6, 2009 1:02 PM EDT

{"commentId":8054367,"authorDomain":"ElliePhat"}

That is also true.

{"commentId":8054367,"threadId":"619935","contentId":"2999459","authorDomain":"ElliePhat"}

4 votes

#24.1 - Mon Jul 6, 2009 1:19 PM EDT

{"commentId":8054370,"authorDomain":"eric-rinderknecht"}

Eric + Cheney

I don't doubt your what's going on now; what started this mess is a lack of standards in the mortgage loan processes.

{"commentId":8054370,"threadId":"619935","contentId":"2999459","authorDomain":"eric-rinderknecht"}

3 votes

#24.2 - Mon Jul 6, 2009 1:19 PM EDT

{"commentId":8092953,"authorDomain":"rickace"}

Eric + Cheney

what started this mess is a lack of standards in the mortgage loan processes.

Dead wrong. There are standards, I know this for a fact because I bought two houses in the 1980s. The problems stemmed from inept and greedy bankers and borrowers failing to adhere to them.

{"commentId":8092953,"threadId":"619935","contentId":"2999459","authorDomain":"rickace"}

1 vote

#24.3 - Wed Jul 8, 2009 8:20 AM EDT

{"commentId":8054822,"authorDomain":"gparents2000"}

Concerned75

I cannot put all the blame on the banks and finacial institutions. There is enough greed flying around for everyone. Washington included. People wanted the bigger better good investment get rich deal and they got it. Now they are paying the price. The banks, financial institutions or their lobbiest would have gotten no where if the people did not get the laons in the first place. And yes the fair housing act helped a lot of people get the loans. If you put all of that in one big bag you have our problems today.

More and more people are losing their jobs. The job market is being driven into the ground. The threat of taxes, regulations and goig "green is driving it down. It ain't over yet. Look at California. Ising IOU's to pay the bills. They are green and do ot want coal burning to make electricity. SO they get their electricity from neighboring states that have coal burning. Turn out the lights LA you don't have enough power. Explain again how the energy bill is good for us?

It is more than one cause. The banks and financial CEO's are not the problem. Yes part of it. Take them plus Washington plus people's desires to have it all now and that equals where we are right now. Pretty ain't it. ANd to fix it we are taxing more, creating more regualtions and spending more money. As usual we missed the boat. Or as Biden says we misread the thing.

{"commentId":8054822,"threadId":"619935","contentId":"2999459","authorDomain":"gparents2000"}

2 votes

#25 - Mon Jul 6, 2009 1:40 PM EDT

{"commentId":8061714,"authorDomain":"a-s-n"}

Yes you can. The banks are directly responsible. The entire reason we are in this mess is the Fractional reserve banking system and a debt based money supply. Let me ask you this - if the government can print as much money as it want, why are they borrowing any money from anyone? Why do they need taxes from me - why not just print the money?

The answer is pretty simple, the Banks make the money, everyone else borrows it at interest. The bnkers are running the worlds greatest extortion/protection racket.

You can @!$%# about government spending, welfare, etc. if you want, the majority of your taxes go to pay interest on debts taken out by governments who are empowered to issue money, but choose to borrow it instead (off guys who make it for free)?? Go figure .... Since the government has abdicated the responsibility of managing the money supply to the banks for some bizaare reason, then the banks are clearly responsible when they screw up .....

{"commentId":8061714,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

5 votes

#25.1 - Mon Jul 6, 2009 6:43 PM EDT

{"commentId":8063265,"authorDomain":"Sebbydad"}

Sebbydad

You actually can blame the banks, they gave the loans, there was no law or directive from washington that told them they had to lower standards to qualify. They lobbied for deregulation, they got it, and they went after the market like a football team at a buffet. They knew when they wrote bad paper that they would not be hanging on to it. Write it, bundle it and sell it. The banks controlled the pursestrings on this one. They still do, by refusing to work with homowners and prevent foreclosures.

{"commentId":8063265,"threadId":"619935","contentId":"2999459","authorDomain":"Sebbydad"}

6 votes

#25.2 - Mon Jul 6, 2009 7:43 PM EDT

{"commentId":8063764,"authorDomain":"ElliePhat"}

there was no law or directive from washington that told them they had to lower standards to qualify.

See Community Reinvestment Act/Rainbow Push. Example.

{"commentId":8063764,"threadId":"619935","contentId":"2999459","authorDomain":"ElliePhat"}

2 votes

#25.3 - Mon Jul 6, 2009 8:03 PM EDT

{"commentId":8063961,"authorDomain":"adouglass3"}

http://www.nytimes.com/2009/06/07/us/07baltimore.html

It appears many banks made this decision pay quite well...

{"commentId":8063961,"threadId":"619935","contentId":"2999459","authorDomain":"adouglass3"}

1 vote

#25.4 - Mon Jul 6, 2009 8:11 PM EDT

{"commentId":8065494,"authorDomain":"a-s-n"}

The point of the article is that any "impaired" type loans (such as the CRA Rainbow) were not the cause of the crisis - but in many ways were actually better for the banks than the traditional "prime" lending. This is important because if the risk managment regime used by the banks is flawed, and it is the subprime people who are more "responsible" despite higher risk profile and lower incomes then the entire system is out of whack.

My position is that banks articficially raise the value of all collateralized assets (stocks, houses, cars, bonds, etc. ) by using them as security for loans. Since banks have a virtually unlimited supply of free money they are constantly pushing the value of these assets higher so they can create more money to charge you interest against. Therefore, they are singly and directly responsible. You could make an argument for the Government, Realtors, media, etc as well, and it is a good one (I mean how many TV shows about "flipping" houses do we need) but in the end our banks and the monetary system they operate caused this mess, and the one in 2001, 1990, 1986, 1982, 1978, 1972, etc.... 1836, 1809 .... you get the idea !

{"commentId":8065494,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

6 votes

#25.5 - Mon Jul 6, 2009 9:19 PM EDT

{"commentId":8065951,"authorDomain":"ElliePhat"}

NOooo....the subprime loans weren't "better than prime". The right answer to the overall crisis is "all of the above." The fact naive borrowers were taken advantage of by ruthless lenders doesn't mean there weren't also a LOT of ruthless borrowers, too. There is no denying that "creative" lending products and standards had to be created in response to CRA Rainbow. That is DIFFERENT from laying the "blame" for the crisis at the feet of the sub-prime borrower.

And "the monetary system" doesn't exist in a vacuum. Nor do the banks alone control the monetary system. The unholy alliance was government, banks, investment banks, borrowers, and the "fancy-schmancy" derivativesa among others. Mandleman makes the case for "who was more culpable?" and I respect that, but the correct answer is "All of the above."

{"commentId":8065951,"threadId":"619935","contentId":"2999459","authorDomain":"ElliePhat"}

6 votes

#25.6 - Mon Jul 6, 2009 9:39 PM EDT

{"commentId":8067036,"authorDomain":"a-s-n"}

Who is responsible is a fool's game. No one is responsible, and even if there is such a group, they will never be accountable. The problem is that at the top of our economy there is an "unholy alliance" as you put it of business, government, etc. who controls the monetary policy. I would not include borrowers in that group. Why? Firstly, they are neither privy to nor aware of what is really going on. Secondly, for their to be collusion the parties must all occupy a position of power - the borrowers do not.

We have been conditioned that debt is good as long as we are buying an appreciating asset. We have been told that the cornerstone of the American dream is home ownership - Suze Orman just told someone that yesterday! We are told that we need to be responsible to take chances to get ahead. This is not stuff that we argue with, we accept that this is true! The bank tells us we can afford it, and we do. The banks tell us they are helping us to acheive our "goals" - its all nonsense.

I submit that there are 3 parties who were in a position of power, had the requisite knowledge and ability to intervene to stop this mess, and did not do so:

The Banks and the Fed

The Government and Treasury

The Investment and insurers

Thats a pretty short list, but represents exactly where all the blame lies. I could add realtors who claim to be professionals, mortgage brokers and bank managers, home appraisers, developers, municipal politicians .... but they are all unwitting marks in the game just like the borrowers.

{"commentId":8067036,"threadId":"619935","contentId":"2999459","authorDomain":"a-s-n"}

6 votes

#25.7 - Mon Jul 6, 2009 10:38 PM EDT

{"commentId":8082285,"authorDomain":"pjwrites"}

pjwrites

Don't forget the ratings agencies and the accountants, either. They were complicit in this and they certainly couldn't be considered unwitting marks. They were in full play.

{"commentId":8082285,"threadId":"619935","contentId":"2999459","authorDomain":"pjwrites"}

4 votes

#25.8 - Tue Jul 7, 2009 4:56 PM EDT

{"commentId":8096962,"authorDomain":"a-s-n"}