Only one–one!–U.S. senator opposes federal housing bailout
I’ve been chronicling the continued, depressing, bipartisan push to adopt Hillarycare for the housing market. The US Senate took the latest step this afternoon to rescue strapped homeowners from their own bad decisions–with our money:
The thousands of Americans facing foreclosure because of the ballooning interest rates on their subprime mortgages would get help from the federal government under legislation overwhelmingly approved by senators Friday.
The legislation, approved 93-1, is the Senate’s first attempt to address the looming subprime mortgage crisis through stand-alone legislation…The bill would allow the Federal Housing Administration to back refinanced loans for tens of thousands of borrowers who are delinquent on payments because their mortgages are resetting to sharply higher rates from low initial “teaser” levels.
An estimated 2 million to 2.5 million adjustable-rate mortgages are scheduled to “reset” this year and next, jumping from low “teaser” rates for the first two or three years to much steeper rates that could cost borrowers their homes.
The wave of resets could crest during the presidential and congressional election campaigns next year, and the issue has brought politically charged debate in recent weeks over possible responses by the government.
The legislation will help the Federal Housing Administration “be a source of salvation for those families who were tricked into unaffordable loans,” said Sen. Charles Schumer, D-N.Y.
“Tricked.” Right. It’s never their fault. Always someone else’s. Not long now before the Coffmans get their handout and poster family status, I’m tellin’ ya.
Only one–yes, one–US Senator voted against the bill: GOP Sen. Jon Kyl. Here’s the roll call vote:
Like I said: Depressing.
See what others have said
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Shocka! no vote Obama at it again, and mine from ca. boxer she’s just a bad joke anyway.. wonder if all the candidates debate together on voting?
Kyl for President.
Those same six are no votes on most everything in the past few months.
Notice those that did not vote?
Guess they don’t want anything biting them in the butt at a later date.
If they can’t vote, they shouldn’t run for office.
What’s the deal with Senators who are also presidential candidates not voting? Is there some sort of rule that says you can’t do your job while campaigning for a new one?
Kyl (R) AZ - A.K.A. the Lone Ranger.
God Bless Him.
I could see Kay Bailey going along with this since she has bent liberal for years, but Cornyn too? Are there ANY conservative Texas politicians in office anymore?
Does Obama vote on anything? Too busy on the campaign trail to give voters even a tiny insight into his stance on issues?
Oh sorry, Oprah is for him. Who needs to know where he stands on issues when all you need to know is Oprah says he’s the “truth”. At least he is until someone else is.
I vote in Iowa soon. I will see if I can write in Kyl’s name. First person I have seen worth voting for.
And once again none of the presidential candidates voted. Real profiles in courage , on both sides of the aisle. I am sticking with my motto of “Deeds not Words” this election and for that reason the only two viable candidates left are Duncan Hunter and Fred Thompson.
Everybody else is somewhere between used car salesmen and, well, gee, congressmen.
Shameful.
This is so unfair. My partner and I have been wanting to buy a home (or apartment) in NYC for the last few years instead of paying massive rental, but have held off for the reason that we wanted to save more in order to allow for any additional unforeseen expenses and interest rate increases. For using what we thought was wise judgment, we are being punished two-fold - once for the loss of equity we could have gained in the interim by paying off a heavy mortgage rather than rent, and secondly having to pay for those who were too greedy and self-involved to stop and realize they were over-extending themselves and take responsibility for their lack of foresight.
I am soooooo tempted to run out and buy a house waaaay beyond our means now, being secure in the knowledge that others can pay for my error. Maybe I’ll add $100k onto it and take a world trip while I’m at it - no problem, someone else will pay for it later, right?
Hunter ‘08
ok 30 i’ll meet ya half way on this one.
FRED/HUNTER 08
hehe…
Chuckie Schumer is such a schmuck. People were “tricked” into getting a loan that was specifically designed to reset on a date certain to a higher rate and the borrowers could not see that a potential financial catastrophe was looming ahead? Sheesh! Maybe these borrowers are the same voters from 2000 who couldn’t figure out how to use a punch-card ballot and actually went on national TV to tell the world how dense they are. They’re baa-ack!
Oh, and if this bailout is because the consumers were ‘tricked’ into the loans (I’d be laughing if I weren’t so angry), then why aren’t the people who did the alleged ‘tricking’ being held responsible financially? Why will it be left to honest responsible people to pay for it in the long run? Sickening.
I received this e-mail from Senator Boxer this morning. I says, in part…
So, why the non-vote on this legislation? My guess is that this bill didn’t have naything in it that would financially, or politically enrich her. What a tool!
Boxers e-mails and letters make great ways to start your fireplace or BBQ.
Krykee. There’s a brass pair in D.C.!
On a republican, no less. And a man, too!
~My brothers keep inviting me to move to Arizona…..
Good for Kyl.
However, wasn’t he Mr. Amnesty only a few months ago?
Yeah, first they start to challenge their own views on sanctuary, and now they’re willing to take a stand for sanity and personal responsiblity. Is there a wind of change in AZ?
Michelle – I have not read the entire bill, but I think you are out of line on this one.
I believe that this bill is not not the “bailout” that all of us fear and loathe. This bill is a revamping of the guidelines for FHA loans.
For those of you not in the mortgage industry (I am), the FHA does not loan money. It is called a “FHA loan” because the FHA has set the underwriting guidelines and handles the mortgage insurance. Taxpayer’s money is not used to pay any mortgage insurance (each borrower has to pay their own premium), and the FHA does not hold/own the notes nor handles the monthly servicing.
If this bill was passed as originally advertised — just a revising and updating of FHA guidelines that was desparately needed — then it is not the bailout that everybody is howling about.
I’ll see if I can find out more….
just wondering…
Can I retroactively buy a couple houses? Or can I stop paying for my house too? With impunity?
.
They take God out of children’s school classes and remove any hint of our Creator from our, OUR, buildings and now they want to take accountability out of business dealings. Chaos will prevail.
.
MAKE THE SLEAZY MORTGAGE LENDERS GIVE SOME OF IT BACK.
They’re the ones who allowed a $9 an hour illegal alien buy $600,000 house. How many more are out there just like this?
ajmontana #18
you forgot about lining the bird cage
Don’t see anyone calling Kyl a “Maverick,” since that belongs to John McShame. When will someone approach the courts and demand that these “entitlements” be labeled as unconstitutional?
[chirp. chirp. chirp. chirp.]
Sorry y’all. I expected a yes vote from my sometimes Republican senator, Hutchison, but Cornyn surprised me. I guess I’ll be firing off a letter or two now.
Hey, shooter, take a deep breath. What line of work are you in? I’m sure that every single person in that line of work is sqeaky-clean…. (/sarc off)
There are some mortgage lenders and brokers out there breaking the rules, but no more than the rulebreakers in any — I repeat, any — other industry. Too many checks and balances in my world, and too much paperwork. Every single day we get email updates about various fraudsters in our industry going to jail, and every single day the vast majority of us cheer.
Don’t make encompassing, broad-brush statements about people who as a rule bust their ass every day to do things by the book….makes you look like a liberal troll, which if my memory of your other posts serves correct, you are not.
Schumer is such an @ss.
I should have bought that bigger house I couldn’t afford.
The Senate also passed the $696 billion dollar defense bill today that will include $189 billion for the war with no strings attached.
However they still have not passed the tax bill.
It is frustrating. This is so short-sighted and myopic. The rule breakers are at it again. They allow this reckless behavior to go unchecked, blinded by greed and power. The warning signs were there and now everyone has to pay for the sins of the few.
Funny how our dollar is backed by the full faith and credit of our government. Have you seen its value lately? It says it all.
Wrong Bill, Guys.
I was right — this is the FHA Modernization bill, not the “bailout” bill. Scroll back up to the “Roll Call vote” link, click through, then on the “S. 2338″ link. It will take you to the text. This is not — repeat, not — a “Bailout” bill.
Save your outrage and vent it with mine if and/or when an actual “bailout” bill gets passed…..
So Kyle voted right(correct) on this one issue..how soon people forget…he was one of the biggest supporters of the “shamnesty bill” only a few months ago. Com on people pinch yourselves.
I’m on disability, below poverty level income, do i qualify for my own palace? Sure the government will bail me out if I need it.
/sarc.
Although I get there by a different route I have a similar worldview to most of the people who comment here. What I say now I say as an ally: it’s getting a little creepy the way some of you find a way to inject god into every policy issue.
I know you don’t want to believe this but morality without religion is possible. I know plenty of athiests and agnostics, starting with myself, that conduct their lives in a responsible manner. We hold jobs, pay our bills, contribute to our communities, serve in the military and do all sorts of other things that you think citizens should do. We do these things not because some supernatural force threatens us, we do them because we think it’s right.
The way some of you claim exclusive rights to the country you risk alienating a lot of people that would otherwise be on your side.
We respect your right to believe. I’d be cool if you respected our right not to.
Reading the story of the Coffmans really chaps my hide. They originally bought their Fullerton house in 1977. Just think, if they had used a 30 year fixed mortgage, it would be paid off now! Sure, they could have tapped off some of the equity over time, but not all of it.
They did not just wake up one day, and find themselves $600K in debt. It took 30 years of reckless, mindless irresponsibility to get there. If anybody deserves to lose their house it’s these people.
With all of the income they’re making, I’m sure they could afford to rent a nice home big enough for all of the grandkids, and have money to spare.
Geez Louise.
Must have been some nice pork in that bill.
I have a huge problem with any bill that sets out to help people who made dumb decisions with their money. Especially if my taxes may go to pay for their mistakes.
We just bought a house last year, in the process of qualifying, we were told how much we could afford. it was almost twice what we wanted for our budget, and while it would have gotten us a way nicer house (and the bankwas right, we could have afforded a much more expensive house), we stayed with our planned budget. We were also told about the short term low payments with the bigger payments in the future, again no deal for us.
Now I see I could have done anything and just waited to get bailed out.
Anything that the government does to help you out of personal debt, is a bailout no matter how nicely wrapped it is.
GO READ #31 AGAIN — THIS IS NOT A BAILOUT BILL — C’MON, FOLKS, PAY ATTENTION…..
This will do nothing but create a crisis in FHA within two years.
They all suck! These guys may as well install a huge freaking nipple on the Capital building from which all their measly minions can suckle! The male population have been emasculated! Personal responsibility is dead! The era of big government has risen, so hold onto your jock straps and sports bras because the sucking sound will be so great as to deafen us all whilst these bums take our money and sell us out to the international bankers, financiers and conglomerates…of which they are all stockholders, board members and recipients of large amounts of campaign/PAC contributions. And remember, when each politico retires they get to keep all their CONTRIBUTIONS!
Watcherdownsouth- I get what you’re saying and will be reading the bill in more detail once I have time; however, Schumer’s quote above has all the appearances of making this appear to be a bailout.
I would say, though, that your statements regarding the reality of the bill would go a long way to explain why the vote was 93-1.
One question, though(well, at least one): Wouldn’t the revision of the underwriting guidelines only affect new mortgages? Or is this something that would work retroactively against existing loans?
Let me lay this out as an insider. This move is likely ceremonial.
FHA has limits on debt to income that are much more strict than sub prime. The people that are in trouble in sub prime have debt to income ratios that would fall way outside the limits that FHA has.
In order for this to have any effect, FHA would also have to dramatically increase the limits on the debt to income.
Not to worry, the politicians aren’t nearly bright enough to figure all of this out and all this will do is make it a bit easier for somewhat good borrowers to qualify for FHA.
mike volpe- I mean this with respect and an appreciation that I don’t understand the nuances, but the tone of your two postings confused me. (#38, 41)
Is #41 a correction to #38? I’m trying to reconcile the difference between a crisis in two years and it being ceremonial.
Apologies for the gross redundancy here. I overlooked it in preview.
I didn’t feel the full extent of the housing “slump” until just the other day when I was denied a small personal loan by my bank of more than 8 years. Over this time I’ve had a half a dozen loans with them, both secured and unsecured, and well as multiple lines of revolving credit which I have always paid off as agreeded WITHOUT A SINGLE ISSUE.
One of the reasons cited for their decline to extend the loan as requested was the current market status and how banks we’re now very hesistant to provide loans, especially unsecured loans. So as a results of the actions of these millions of irresponsible borrowers, I (as a responsible borrower) am unable to get even a small loan which I planned to use for further education.
Thanks a lot losers (you know who you are).
That’s because I initially thought that they were changing the limits however most colleagues have told me that they aren’t. If they aren’t changing the limits, this is ceremonial.
If they change the limits, this will create a crisis in FHA within two years.
That is the sixty four thousand dollar question. Will the limits change or not?
Salt — two thoughts on the Schumer quote: 1)He likes hearing himself speak, and was just saying something that he thought people would like to hear, or 2) he is talking about more people being able to refinance into a better loan because of the revising of the FHA guidelines.
Folks, some of the guidelines, especially concerning loan size limits, were out of touch with todays reality. Volpe makes a point in #41, but I do not agree with him on the importance of the debt load — the lower rates on FHA loans versus the subprime crap make up for the difference in lower debt ratios. Having higher loan limits is more important, hence I do think this bill will help.
Sorry that was confusing. Hopefully that sets it straight.
Let me lay it out. Generally FHA won’t go above 42% Debt to income. This means the monthly payments, plus housing, can’t be over 42% of your gross monthly income. The relatively tight limits is one of the main reasons that FHA has been relatively unscathed. FHA doesn’t take on borrowers that take on too much debt.
The borrowers that are in trouble are mostly from so called stated income loans. That means their incomes were stated but not verified. There is only one reason why I would claim to make something but not show it and I will let you guess that reason.
Thus, their debt to income is significantly higher than anything FHA would normally take.
Thus, if the limits aren’t adjusted, most of those in trouble are still not going to qualify. If they are then you are unloading a bunch of bad loans onto FHA and within two years they will become the next problem.
I didn’t realize that there was only enough gonad strength in the senate to reproduce mice. Isn’t there anyone in that place (except Kyl) who understands that NO is more often the right answer than yes?
Thanks to both mike volpe and Watcherdownsouth for humoring me.
But don’t Democrats always complain about “special interests” in Washington? If this isn’t pandering to special interests for votes, what the hell is it? And why isn’t the MSM going bonkers over this as well? (They were rather silent on the mind-boggling giveaway over Katrina in LA.)
BTW, the Republicans are no better at pandering. This country is ever more rapidly going from a liberal democracy to a social democracy. In about 20 years we’ll have all the same ethnic and economic problems as Europe has now.
I don’t think I going to both voting next year.
I disagree that the lower rate would make such a difference. Frankly, if these people could have qualified for FHA they would have already. People weren’t being put into a two year arm because that was their choice. They were put there because that is all they could get.
This is an impossible question to answer because it all depends on the individual case, however if debt limits aren’t adjusted I am saying that this is largely ceremonial.
As for loan limits, that will do nothing but create a bureaucratic nightmare. If they open up FHA to much larger loan amounts, there will be a lot more FHA loans done. Keep in mind FHA is an arm of the government. That means on each loan the loan officer, me, is not only dealing with bank bureaucracy but government bureaucracy. If FHA is expanded as it will with loan limits adjusting way up, that will create too many loans for the folks at FHA to ever be able to deal with. I suspect that sixty days will be about average for someone to close FHA.
If it’s a business, union, or organized group (NRA) it’s a special interest group. If the money goes to individuals, it’s a voting block.
I’m a Realtor,for years I’ve advised my clients NOT to take out an ARM,the question I always asked them was “Are you sure you can afford it if the rates go up?”.In 10 years I’ve only had 2-3 people say Yes,because they knew they’d be making more money later in their career.
I’d advise people with less than stellar credit to suck it up on the higher interest rate they had to pay for a couple of years,keep their noses clean & make the payments on time & then refinance at a lower rate when their credit improved.
I’ve had several tell me over the last few years that they were happy they took my advice.
I am instantly reviled by anything that Chuckie Shumer says. So, it pains me to say that there is an element of truth in what he says.
Mortgages and mortgage options are so complex that even financially sophisticated people are confused by them. It is too easy to become a realtor or a mortgage rep. Too many people get into the business thinking they will get rich with little effort and commitment. That means you have a lot of people chasing each available deal. The realtors pressure the mortgage reps to get deals done (or they go to someone who will) and the reps pressure their superiors for better (easier to qualify) products. This trifecta: dumb buyers, dumber realtors, and complicit loan officers is what brought us here. It also is what got your house to appreciate in value preposterously fast.
An anecdote: I used to teach realtors about mortgage finance. I gave them calculators with 4 buttons. They had to enter numbers (which they were given) for 3 of the buttons. To get the answer, all they had to do was push the 4th button! I would get people that could not master this in a two hour class.
These are the people we rely on to assure unsophisticated borrowers that they can afford the house they are being shown. If the bill in question is just an extension of FHA limits, that’s ok. Borrowers will refinance and pay for mortgage insurance. All of this is private money. The real concern is for only a couple of companies, like MBIA and AMBAC, that insure the problem loans. At least one of them seems to have gotten the money it needs to ride out the crisis.
Volpe — changing the limits will not “create a crisis in FHA within two years”. The current “crisis” is a result of a perfect storm — looser and looser credit standards required by Wall Street (don’t forget, folks, they are the ones supplying the money), teamed with higher Loan-to-Values (i.e. lower down payments required - often no down payment), and an overabundance of new units built. Stir in some relevations that the mortgage-backed securities were not risk-rated properly by companies like Poor’s, and Wall Street decides to pull back on buying mortgage-backed securities issued on subprime paper. This cuts a section of the population out of the buying market, thus decreasing demand. Lower demand means prices go flat — and in some areas with an overabundance of units on the market, prices actually fall. Now we have falling prices, right at the same time that millions of mortgages that were originated 2 years ago, on 2-year subprime ARMs, are coming due for their first adjustment.
With the T-bill and LIBOR rates higher now than they were two years ago, these adjustments on all of these ARMS are going UP - sometimes very steeply up.
The homeowner goes to refi before the rate goes up, but finds that his homes value has fallen slightly. He bought the home at 100% LTV, so now he is above 100%, and cannot refi — and bang! the rate adjusts and he is in deep soup.
With virtually 100% of FHA loans done on fixed 30-year loans at attrative rates, most of the above would not play out again. Thus why they are tinkering with FHA guidelines, and should have done it 2 years ago.
The situation is ultimately what matters. I always tell first time home buyers to take a five or seven year arm (though not in the last three years because arms and fixed rates are almost identical) because you are almost never in the house for more than five or seven years.
That said, the realtor is right in that you should never take an arm simply because it is the lower rate.
The reason someone takes an arm is because they only plan on holding the property for the time the arm is fixed.
No one should take a two year arm if they plan on staying in the property indefinitely.
Watcher that is a lot of intelligent sounding mumbo jumbo.
The fact is that most of the people that are in trouble are in over their heads. They bought properties they couldn’t afford. I don’t know what you do for a living however mortgages is my living so if you are arguing with me and you work in another industry then stop, because you simply don’t know.
I am telling you and everyone that the people that are in trouble have debt to income levels that in reality are in the fifties. Taking on an FHA loan will lower their DTI’s something like one percent. It isn’t going to make any substantial difference in their overall financial well being.
Thus, these same people will then in the next two years start to default en masse on their new FHA loans.
Volpe — I am closing FHA loans in about 2 weeks on average. Sometimes a little longer if the property needs repairs done first, sometimes less if everybody is organized and the property is fine.
The extra paperwork is just that - paperwork. No big deal. FHA loans are the best deal in the market for the consumer right now — 30-year fixed in the high 5’s for rate, inexpensive mortgage insurance. The only loan better is a VA — but you gotta be military or prior-military for that one. I do a ton of those, too.
Oops - have to correct myself. Actually, USDA Rural Development ranks right behind VA, then FHA…but it is close.
Good for you. I never said that FHA is not a good loan. I said that with FHA there is an extra layer of bureacracy and that bureaucracy won’t be equipped to handle two and three times the loan volume that it currently has.
Also, the best deal is now and always has been a traditional conventional fannie mae loan.
What you aren’t mentioning about FHA is the built in government sponsored point and a half up front payment that everyone pays in order to get the rates you say they will get.
Volpe — Ever heard the saying about how do you bail out a boat full of water? One scoop at a time….
What I mean is that every little bit helps. Every time another homeowner refi’s off of a subprime ARM, that is another potential casualty avoided. Every time a new homeowner uses a stable mortgage product like FHA, another potential casualty is avoided.
If every mortgage banker and broker in the country would just scoop out a little of the “water” on the market, the ship would be righted in no time…
Some lenders and borrowers got stupid. They will both lose money, perhaps go bankrupt. Smarter people who read the loan papers will do well. The majority of people who took out these loans are paying them back on time, and should not have to foot the bill for those who didn’t.
Ever heard of fixing a heart attack with a band aid.
The flip side is that you are allowing people that shouldn’t qualify to en masse qualify for a loan. If you don’t see the unintended consequences of that, I can’t help you.
Again, these people are in over their heads far worse than the drop in rate that FHA will bring. They bought homes they shouldn’t have bought. They were too expensive for their incomes. The reason that they took two year sub prime arms is because they didn’t qualify for loans like FHA. The reason they didn’t is because their DTI’s were too high. That was the case before their rates went up.
You have absolutely no context. The difference between their current payment and the payment they would have would drop their DTI’s a point or two. They are low, mid, or high fifties. That isn’t going to make any difference in the long run. What it will do is transfer the ultimate responsibility for eating that loan from a private company to the federal government and with it the tax payers. Great plan.
Like I said, not to worry, because the politicians haven’t thought this fully through in all likelihood and will likely not increase the limits on FHA anyway.
Volpe - whoever is supplying you with data about FHA is agonizingly misguided.
You do not pay a “government sponsored point and a half up front payment” in order to get the rates. This is not a discount point like you would reference to in Fannie lending (yes, I do lots of Fannie too…).
The 1.5% that you reference is for Mortgage Insurance, and it is financed into the loan amount. Your Fannie loans also have mortgage insurance, unless you buy it out in rate, as in LPMI. It is just that the FHA mortgage insurance is cheaper. Spme of the “FHA-fighting” Fannie products, such as Home Possible (actually that is Freddie, but same difference) have mortgage insurance that is close to FHA’s, but they also have income limits on most of those products.
Look, this is not a Fannie - busting exercise, or a FHA promotion. But the facts are the facts - point by point, I can destroy a Fannie loan with an FHA — and I have access to both. A good deal for the consumer so I get referrals is what I am hunting.
wrcnossen — on comment #62 — AMEN.
I supply my own data. That’s right with FHA you pay a point up front and that point doesn’t go to me it goes to the government. When you say it is financed, that is a nice sounding word for your loan is beefed up so that you don’t actually come to closing with the money. You are still paying the point up front. The discount point is a much better deal because in that case you are actually paying more in order to get a better rate. In this case, you are paying because the government wants that money.
With all due respect, I am also in mortgages and have been for a while so you don’t need to teach me the business I am in.
On another note, the people that are in trouble are in great numbers in loans that are far larger than the value of the property they are in. In other words, there is another reason why most of these people can’t be helped.
If you think FHA is better than Fannie Mae, that is your problem. I just hope I run into any one of your borrowers because they won’t be after I am done.
Gotta go, guys —-
Don’t let everyone continue bashing about “bailouts” on this thread — it makes everyone look dumb for not knowing what the bill is about.
I agree a bailout - if ever voted on in a future bill — would be a misguided disaster and a bad precedent. But let’s attack that one when it comes up.
Volpe - refreshed one last time before logging out…
Hey -I ain’t bashing, and I said so. I could tell you were experienced by your comments, but so am I. You can’t see me, but I am grinning….gotta like your chutzpah, though.
I feel like Mario Williams lining up on Denver’s left tackle last night. I am feeling goooood about this matchup, ’cause you CANNOT handle what is about to come at you! (Smile inserted here)
Dude - you may be different, but most FHA bashers are only bashing becuase they do not have access to FHA for some reason. If they had access, they would not be bashing…they would be using it also to tune up all of the other poor guys who do not have access.
Like the girls say….”Don’t hate me because I’m prettier…”
Have a good one, Volpe….I’ll keep an eye out for you. I like you already.
Watcher whatever.
I don’t hate FHA loans, however even the people at FHA wouldn’t tell you their loans are better than regular conventional loans. If you love FHA, that is your business, however if someone qualifies for conventional that is ALWAYS a better deal. To claim that FHA is better than conventional and acknowledge that it carries a government sponsored point and a half up front fee, tells me that you are not very experienced.
I sent an email to each of my two Senators. I demanded they explain their vote. I clearly explained their explanation will influence my future decision of their ability to serve my State.
I will not sit idlely by and let my hard earned, government confiscated, money be spent in this manner.
Taxes are akin to robbery…don’t kid yourself.
I wonder how difficult it would be to challenge this on the constitutional level? Where is anything in the constitution that provides for the general charity of the people?
The Bill of Rights comes with an unwritten Bill of Responsibilities. Now if we could just find a “politician” with the cajones to have some responsibility.
Of the people? Yah right! Of the panderers, to the panderers for the panderers.
After reading this post and a cursory read of the comments I am afraid that most of you do not understand what is going on in the debt markets. Part of the reason is that the stock and treasury debt markets have held up well and rose dramatically, respectively. The housing crisis is a symptom of a credit crunch. FDR’s fear, as in animal spirits of the markets, are causing banks to cut lending even to good credits because they have no idea how far this crisis will carry.
A credit crisis can turn into a depression so while I agree that I don’t want to see stupid/bad people bailed out we really have to think of the ramifications of sitting idly by while banks refuse to lend and business cannot raise enough capital to continue operations let alone grow.
Do you want to live through Great Depression 2?
I mentioned the same thing the last time this topic came up on a thread: I think that the DC politicians are indeed following Michelle’s “suck it up” advice.
Just not in the way she means it.
I think it comes down to how you look at the problem, at a macro or micro level. If you choose micro, then it can seem unfair that those of us who didn’t over-extend ourselves on our mortgages are having to “bail out” those who did.
The trouble with this line of thinking is that it’s not only about 70 years behind the times, but it also doesn’t take into account the larger economic and political ramifications of taking a laissez-faire approach to the problem.
Like it or not, the Federal government, and to a lesser extent state governments have at least since the Great Depression been involved in “bailing out” people.
- We pay FICA taxes to “bail out” people who didn’t plan ahead for their own retirement.
- We pay for food stamps and aid to families with dependent children to “bail out” people like single moms who made poor choices in selecting a mate.
- We pay an artificially established minimum wage to “bail out” people who made poor decisions in preparing themselves for the workplace.
- We pay welfare to “bail out” some people who made bad choices in life, the consequences of which have left them flat on their backs.
- We pay subsidies to “bail out” certain farmers who didn’t have the foresight to better choose which crops to grow, or to certain industries that chose to remain in areas of economic activity where they are no longer competitive internationally.
- We have, on occasion, chosen to “bail out” large companies (e.g., Chrysler) which through their own foolish management decisions put themselves on the brink of bankruptcy, or to “bail out” large financial sectors like the old Savings & Loans when they got greedy and stupid.
- We have “bailed out” entire countries when their own mismanagement of their economies has threatened the stability of international trade or international currency markets.
There are other examples, but the point is that if we wanted to preserve the old “rugged individualism” and self-reliant pride of generations past, the time to do it would have been in 1936 - by voting out Franklin Roosevelt after his first term and thereby repudiating his “New Deal.”
But Roosevelt won in a landslide. More than once. We’ve already as a society confronted that particular fork in the road, and chosen which path to take: bigger government involvement in the market. Only capital-L Libertarians or Ron Paul style cranks still talk today of returning to the Days of Yore. And neither of those groups has any meaningful political influence, for a reason.
Like it or not, our modern form of government has, and will continue, to intervene in the market whenever enough people get into trouble that either their collective pain becomes a political issue, or the consequences of doing nothing would have spill-over effects into other areas of the economy - such as sitting on our hands and watching the financial sector go into an epileptic seizure because of a cumulative level of bad debt.
Questions of whose “fault” it is, and righteous indignation about how they’re “taking advantage of the rest of us” - and a frankly churlish desire to see them “punished” instead - don’t count for much from the political/economic macro point of view.
That, I suspect, is why 93 senators chose to vote to do something about the situation, and why the Bush administration will go along with them.
We can’t turn back the clock to 1936 for a mulligan on government involvement in the market. And gaining whatever sense of personal satisfaction from seeing people who made bad choices kicked out of their homes will feel hollow indeed when the ripple effect kicks the whole economy into a recession.
Not every choice is between “good” and “bad.” Sometimes the choice is between “bad” and “worse.” It may be bad to effectively let some people off the hook for their poor decisions or changed circumstances; but it can be a whole lot worse to do nothing.
I don’t have to like the “bail out” in this instance; I’m one of those people who had to wait until his 40s to afford a house, because I waited until I was ready for it and didn’t over-extend my finances. But I can also understand why a bail-out is going to happen, anyway.
I hate to disappoint Orpah. But maybe she learned that from her preacher at Trinity. There is only One Truth, He said so Himself, and was crucified and resurrected. And it wasnt Obama.
Bill C, after reading your comments I am convinced that you think you know a lot more than you do.
I agree that this mortgage mess has significant ramifications, however you are beyond naive if you think legislation and intervention will actually save us. If that were so, socialism would work everywhere it is tried. You are an example of a fair weather capitalist. You are for capitalism until it fails and then you support whatever government intervention is needed so that they sufficiently address the crisis.
That isn’t how capitalism works. Unless people are willing to deal with the bad times during capitalism, we don’t have it period.
You seem to think that allowing people that have no business qualifying for a loan to qualify for it en masse is somehow solving the problem. It isn’t. Rates are determined through sophisticated formula that this legislation totally ignores. In other words, the rates that FHA will be offering will not match the risk profile of the borrowers. This seems to be lost on you.
Here is my full analysis of this latest piece of misguided legislation
I have no such illusions. In fact, I think we are going to suffer a very severe recession while these problems work themselves out. I am in favor of a commodity based currency, allowing private companies to issue currency, and/or keeping fiat money but targeting growth in money supply versus what Alan greenspan started which is targeting consumer price inflation.
Mike, I do think there is a very good chance that the credit crunch will spread to affect the innocent so the gov’t can act to mitigate and possibly avoid the worst case. After the crisis is over is the proper time to discuss avoiding the creation of bubbles. An opportunity we missed in 2004 when the housing bubble first became apparent.
Bill C, let see see if I understand you…
Let me see all of the things that were supposed to put us into a recession: Katrina, high oil prices, high heating oil, the GWOT, have I left out anything.
Predicting doom in the undefined future is tricky business so be careful with such statements.
If you don’t think the bailout will make much difference why are you if favor of it? Again, you naively think that a bailout will help instead of acting counter productively.
You obviously have some sort of radical view of the way in which our economy and i suppose our currency should work and like most believers of conspiracy theories, you include it into just about everything and in this case the mortgage mess. Even though the two have nothing really to do with each other.
Unfortunately, after reading a couple of posts of yours I would be careful in claiming others don’t know what they are talking about.
You obviously have some sort of radical view of the way in which our economy and i suppose our currency should work and like most believers of conspiracy theories, you include it into just about everything and in this case the mortgage mess. Even though the two have nothing really to do with each other.
I don’t think it is a conspiracy because there is no shadowy group pulling the strings that caused the internet bubble and the housing bubble. I think it was poor planning by the Fed, in particular Alan Greenspan, who chose to keep growth in the money supply high when it was obvious that it was creating a asset price bubble.
Predicting doom in the undefined future is tricky business so be careful with such statements.
Do you remember Irrational Exuberance? I think I am in pretty good company with Robert Shiller and the many others who recognized that prices had outstripped values in the late 90s.
Now we have seen the same thing happen in the housing market and all we are saying is that this unwinding has the potential to turn into another depression.
Unfortunately, after reading a couple of posts of yours I would be careful in claiming others don’t know what they are talking about.
I sincerely hope I am wrong. I don’t want to see anyone suffer but I would be remiss if I did not point out the danger we are facing. A tight money policy now will be a disaster for the whole country. If this bailout can loosen up the credit markets it is worth a try.
Here is more on why we should be doing everything we can as a nation to keep the credit markets open, ideology be damned.
Bill C.
Congratulations on pointing out all the obvious problems with the internet bubble about a decade after it happened.
If you claim that prices outstripped “values” in internet stocks, then again you prove you think you know a lot more than you actually know.
Internet stocks had no value beyond the excitement that what they created brought. They had no earnings only deep red, and many times had no none or very little revenues. Thus, there was no valuation to them whatsoever. That was the problem. People were buying hype. Of course, it was irrational exuberance. Every speculative market has irrational exuberance. Figuring it out ten years later is no great feet.
As for the rest of your post. First, you need not worry since the fed is practicing loose money policy. I wonder why though. Given that GDP is growing at 3.6%, unemployment is 4.6%, and we just had the latest inflation figures and it was growing more than you would like. If you are practicing loose money policy right now, I would have to wonder what brought you to that conclusion.
Are you always a condescending jerk? For the record I recognized the housing bubble in February of 2005 and have been writing about ever since. I wasn’t blogging in 1999 but I am a big fan of Bill Fleckenstein who writes for MSN and was writing at Silicon Investor at the time. A lot of people saw the bubble but the mainstream consensus was the same as Greenspan, Glassman, Kudlow et al., that this time it was different.
Your wrong about inflation.
I suspect you will be wrong about GDP growth and unemployment figures lag growth by at least 6 months so todays unemployment tell you nothing about what will happen next year.
Treasury rates are falling faster than the Fed funds rate which means that the Fed is somewhat tight. That is why the Dow fell 295 points on the day that the Fed cut rates 25 basis points (Dec. 11th).
The bubble did not end in 2001, it just found another focus. The bubble economy will end when the public decides that borrowing money to buy inflated assets is a bad deal and then everything that has been inflated by easy credit, e.g. oil, gold, houses, stocks, non-Treasury bonds, will start to fall. (see Austrian school)
Now if you want to continue debating this that is fine by me but please drop the “you are obviously uninformed” tone from your posts.
Not always, just when someone who isn’t that wise comes somewhere and claims to be wise by using big words to impress people.
Here is the article from Friday about the latest inflation figures so I don’t know what you have but I have the ones from Friday.
I don’t know what will be in the future, so I go with what we have. What we have is the latest GDP figures have growth at 3.6%. I don’t know what you think I am wrong about however the latest figures are what they are.
Then, you go into a rant about how the bubble didn’t end just found a new focus. I have no idea why you bring it up since it has little to do with the discussion.
As for treasury rates, well that depends on when you are talking. They certainly haven’t fallen a quarter of a percent since the rate cut so that seems to be not only a misleading statement but inaccurate as well.
So, at this point I am not sure what you are attempting to prove except how smart you are by claiming that you predicted the real estate crash in 2005. Anyone that worked in mortgages predicted the same thing and earlier because we all saw how ridiculous the mortgages were. That is no great feet again.
I misread your statement on inflation. I thought you said it was lower. My link just confirms what yours does, inflation is showing up in consumer prices.
I base my pessimism on what forward looking indicators are showing including falling interest rates. The demand for money is falling which indicates decreased economic activity. I think the Fed is too tight because the front month Eurodollar futures is 95.570 which is an interest rate of 4.43%. This is the interest rate at which banks outside of the US lend to one another and should be higher than the Fed Funds rate. Right now it is 18 basis points lower which is not a lot. The Fed is not being very accommodating probably because of the weak dollar and inflation fears. That leaves them with their scheme to allow banks to use some of their exotic debt (CDOs, etc.) as collateral. That is the real bailout.
Mike, I have been trading treasuries going on 18 years and I have masters in finance. I try and write cogently to the layman and if I have been opaque, I apologize. I am just trying to point out the folly of seeking revenge against the malfeasant borrower when it will only lead to worse economic conditions under which we will all suffer.
Now let me think, what was it Kyl called us Americans that were against his support of the amnesty debacle? Looks like there is quite a few posters here that have short memories.