Consequences of Massive Bailouts

LS,
I don't think we used absolute words like "everyone" in the discussion. But if we did, hopefully we know each other well enough to recognize that it was in error and that we're all smart enough not to view the world this way in a never/always manner.

I agree with Scooty's last few posts. Many could have weathered a reasonable fluctuation. And I also believe that a significant number of people- especially in this area- got into the game. I know this is not representative of the US but- just did a run through in my head of all 10 prop owners on my street. 10 out of 10 bought as investment prop, as a second home or live here full time but own property elsewhere as well.

In a fair market, values rise (and fall). But what we just saw was not a fair market.

"fair market"?

Yes. A fair market.

Here's are a few more examples-
remember the rolling electricity blackouts in CA in the 90's? That didn't happen under normal conditions. There were shenanigans going on by insiders at Enron and others in the industry that caused this.

And remember when gas all of a sudden was $4 a gallon. It didn't get that way due to normal/fair market conditions. There were shenanigans caused by industry insiders.

In a fair market, values rise (and fall). But what we just saw was not a fair market.

It was not disclosed that home prices were artificially high as a direct result of all the shenanigans of wall street and mortgage companies.

I know it feels good for the folks who lived below their means and who resisted the temptation to extend a bit or cash out a nest egg for a nice car or a better house to say I told you so. Anyone in a bad spot is in it as a result of their choices. It is always their fault. They signed the papers. So I do not remove blame. But I do acknowledge the other very guilty parties in the equation.

If you are playing with penny stocks that's one thing. The trend is there for all to see. Again- only folks perceived as a little nutty forecasted that home values would drop 50% in a couple years.

A house on my block sold for 830k at the peak. Nearly identical house in same 10 home subdivision closed for 325k at short sale. I share an example like this and I keep getting back- well people shouldn't buy houses they can't afford. But that's just assuming. The details of the above example are that all parties DID buy houses they could afford. No one was irresponsible. So what is the crux? How did this occur? Very unnaturally!

I agree with that completely that there were plenty of outside forces at work in this situation.

I just guess for me personally it rubs that some will be bailed out for making bad decisions when others such as myself that lived frugaly and responsibly will not be rewarded for that.

We have made mistakes, one being we should have saved for our child's college much earlier. We had to dig deep and make sacrifices to cover that.

I am no financial wizard by any stretch. But when a realtor and a bank told us we could afford a house 3 times our income, I only needed to add and subtract to know that was wrong.

I am sure you and others know people that deserve your concern, I just personally do not.

The people I know that work with my husband lived extravagant lifestyles, made fun of us for where we live, looked down their noses on our lifestyle, made fun of my husband when he parked his used Honda Accord next to their new Mercedes, and now want someone to bail them out for their poor choices.

I see it kinda like the Red flags on the beach, if you ignore the warnings, you will pay the consequences of such action.

I just think most plan for the expected, we planned for the worst case scenario. Many took a gamble, we chose to be conservative and not gamble. Am I happy we were right and they were wrong, absolutely not, just very relieved. I get no pleasure out of their misery.

Do I feel they should get a bailout, no.

Hi Minnie, very fair points in your post. The only thing I would interject is that I am not supporting a bailout either. Just advocating the position that the stigma of doing something immoral/unethical no longer applies across the board.

Why? Because many drowned in big riptides while the lifeguards were sleeping and the locals told them the water was perfect.

Hi Minnie, very fair points in your post. The only thing I would interject is that I am not supporting a bailout either. Just advocating the position that the stigma of doing something immoral/unethical no longer applies across the board.

Why? Because many drowned in big riptides while the lifeguards were sleeping and the locals told them the water was perfect.

I understand your point and agree to some extent.

I guess my husband and I are not the norm and are very cautious. I would never trust my life to a lifeguard that might be asleep or distracted by a cute babe in a bikini, and before I went in deep water I would do my research and make sure I understood the dangers of a rip tide. If I felt my ability to stay safe was not a sure thing I would stay on the beach. Doing that might not be as exciting but I would not be in danger.

Thanks for your insight though; I always enjoy hearing it, whether I agree or not.

LS,
I don't think we used absolute words like "everyone" in the discussion. But if we did, hopefully we know each other well enough to recognize that it was in error and that we're all smart enough not to view the world this way in a never/always manner.

I agree with Scooty's last few posts. Many could have weathered a reasonable fluctuation. And I also believe that a significant number of people- especially in this area- got into the game. I know this is not representative of the US but- just did a run through in my head of all 10 prop owners on my street. 10 out of 10 bought as investment prop, as a second home or live here full time but own property elsewhere as well.

I understand, but I just know a number of people who never considered diving into this. When my property value peaked I remember thinking there is no way I would buy at those prices. I mean the upper income job base in NW Florida has never been very strong, so what sort of sustainable residential customer base do we have for expensive homes here? It's been that way in the Panhandle as long as I can remember. I was thinking maybe there was going to be an influx of wealthy retirees coming into the area.

I'm talking about the expensive row houses along Thomas Drive in Panama City as well. Some of them were selling for $600-700K and people were buying them. That's for maybe 1500 sqf. For anybody who has lived here more than 15 years I think the potential downside must have seemed obvious.

In any event, this is all really academic. I don't think anybody really needs to explain why the made a "right" or "wrong" decision if it's even possible to make such a determination. I will say that no amount of analysis of past events will ever help me see the system gamers in a favorable light. Nevertheless, if I found myself in a jam, I could definitely see myself going that route. It's just not a situation I'd ever want to find myself in.

Why? Because many drowned in big riptides while the lifeguards were sleeping and the locals told them the water was perfect.

"Swim at your own risk."

So my parents made me learn how to swim, they sell life preservers, I trained to be a lifeguard, and my college made it a graduation requirement because they thought it was an important life skill.

All I want is for people to take some responsibility for their decisions and choices instead of blaming someone else. I make bad decisions, I screw up, and 99.9% of the time IT IS ALL MY FAULT!

There have been no reports of people being physically coerced into borrowing, going deeper into debt, refinancing, or buying more than they can afford. They made these choices and while I certainly do not hold the banks et al blameless, they still chose to borrow that money and ignore the potential negatives (and in many cases basic math)!

People want the government to stay out of their lives, but as soon as something happens they are crying foul because the government didn't do enough to save them from themselves.

There are a lot of good people who have been hurt by the real estate bubble popping and the economic downturn. There are a lot of people who took calculated risks that didn't pay off like they wanted.

But there are also a lot of people (on Main Street, Wall Street, and in gov't buildings topped by domes) who seem to have not learned a damn thing through all of this and will continue to make the same dumb decisions that the rest of us will have to foot the bill for.

"fair market"?

pissah!!

Isn't caveat emptor always a good rule to try to live by regardless of who might have legal liability?

What's amusing to me is that the swimming in the gulf analogy works well for the opposing arguments. So I'll keep using it too.

A tourist is well aware that they should swim at their own risk. And they did learn to swim just fine. They took the time to do some research- they read the riptide signs and know the flag system. They make themselves aware of the nearest lifeguard tower. So they loom up and see a yellow flag (if not a green one). And they see many many locals in the water having the time of their lives. They recall the wise words of their parents and grandparents who told them to wear floaties and to stay close to shore. But this seems safe. So they jump in and within a little while they find themselves in a riptide. And suddenly there's a mass drowning. Many die.

Afterwards, many folks who survived count their blessings especially after it is discovered that the lifeguards were clueless and just watched everyone drown and that despite there being an unprecedented danger due to riptides the fire department flew green/yellow flags instead of closing the beach.

Instead of discussing the terrible failures of the system, a vocal
group who wisely stayed on shore covered from head to toe in sunblock wearing a lifevest sitting under an umbrella talk about how all those people drowned as a result of their own irresponsible actions.

"My parents taught me the dangers of swimming in the gulf", they said. "It was obvious something like this would happen. You swim at your own peril."

Hi Minnie, very fair points in your post. The only thing I would interject is that I am not supporting a bailout either. Just advocating the position that the stigma of doing something immoral/unethical no longer applies across the board.

Why? Because many drowned in big riptides while the lifeguards were sleeping and the locals told them the water was perfect.

Those lifeguards were making 10% commission for each swimmer that jumped in the water. If people trusted them when they were screaming "now is a great time to go for a swim!", that's their own fault. This was a gold rush, plain and simple. There are always unwitting participants.. each of which has now learned a very valuable lesson.

Full disclosure- I ran to the water, swam all day with the locals and now I'm drowning.

What's amusing to me is that the swimming in the gulf analogy works well for the opposing arguments. So I'll keep using it too.

A tourist is well aware that they should swim at their own risk. And they did learn to swim just fine. They took the time to do some research- they read the riptide signs and know the flag system. They make themselves aware of the nearest lifeguard tower. So they loom up and see a yellow flag (if not a green one). And they see many many locals in the water having the time of their lives. They recall the wise words of their parents and grandparents who told them to wear floaties and to stay close to shore. But this seems safe. So they jump in and within a little while they find themselves in a riptide. And suddenly there's a mass drowning. Many die.

Afterwards, many folks who survived count their blessings especially after it is discovered that the lifeguards were clueless and just watched everyone drown and that despite there being an unprecedented danger due to riptides the fire department flew green/yellow flags instead of closing the beach.

Instead of discussing the terrible failures of the system, a vocal
group who wisely stayed on shore covered from head to toe in sunblock wearing a lifevest sitting under an umbrella talk about how all those people drowned as a result of their own irresponsible actions.

"My parents taught me the dangers of swimming in the gulf", they said. "It was obvious something like this would happen. You swim at your own peril."

Yep, very good analogy:

1) If they did know how to swim and read the rip currents, they wouldn't have gotten in the water - no matter what others were doing or what the flags said.

They knew better, disregarded the signs and their elders' advice, and went in anyway.

2) Even a green flag does not mean it is safe - just like with mortgages, you have to read the fine print - though that isn't exactly fine print since it's posted in letters over an inch high. :roll:

3) You leave your safety to someone else and ignore the warnings and you will get in trouble. "Trust in Allah, but tether your camel."

4) There is something missing from the story. A mass drowning does not occur when people know how to swim and tell when the water is safe - regardless of flags and lifeguards.

5) Floaties are crap for anything but keeping your beer hand above water.

Those lifeguards were making 10% commission for each swimmer that jumped in the water. If people trusted them when they were screaming "now is a great time to go for a swim!", that's their own fault. This was a gold rush, plain and simple. There are always unwitting participants.. each of which has now learned a very valuable lesson.

Sort of like the 1850 Fugitive slave law where magistrates got paid $5 to determine someone was a freeman wrongly imprisoned by slavecatchers and $10 to say they were a slave. :roll:

Full disclosure - the water looked really nice so the locals/lifeguards/Sheriff watched me while I waded, but wouldn't let me swim.

Some drunk tried to tell me it was safe to swim, but he was pointing at a dune and slurring so I didn't believe him...................and then one of the locals chased him off.

We didn't want anybody to drown, but by the time we knew they were in trouble, they were too far out to save.

Good times, Scooty!

Sort of like the 1850 Fugitive slave law where magistrates got paid $5 to determine someone was a freeman wrongly imprisoned by slavecatchers and $10 to say they were a slave. :roll:

Full disclosure - the water looked really nice so the locals/lifeguards/Sheriff watched me while I waded, but wouldn't let me swim.

Some drunk tried to tell me it was safe to swim, but he was pointing at a dune and slurring so I didn't believe him...................and then one of the locals chased him off.

We didn't want anybody to drown, but by the time we knew they were in trouble, they were too far out to save.

I went through a similar experience, I've wanted a house with a larger backyard and space for a green house for years. I started shopping in 2005 and found the homes I liked were out of my price range. Despite the fact that BofA was telling me they could "make it work", I just didn't bite - too much debt for what I was getting. Now those same homes are down ~40%, and continue falling.

What's amusing to me is that the swimming in the gulf analogy works well for the opposing arguments. So I'll keep using it too.

A tourist is well aware that they should swim at their own risk. And they did learn to swim just fine. They took the time to do some research- they read the riptide signs and know the flag system. They make themselves aware of the nearest lifeguard tower. So they loom up and see a yellow flag (if not a green one). And they see many many locals in the water having the time of their lives. They recall the wise words of their parents and grandparents who told them to wear floaties and to stay close to shore. But this seems safe. So they jump in and within a little while they find themselves in a riptide. And suddenly there's a mass drowning. Many die.

Afterwards, many folks who survived count their blessings especially after it is discovered that the lifeguards were clueless and just watched everyone drown and that despite there being an unprecedented danger due to riptides the fire department flew green/yellow flags instead of closing the beach.

Instead of discussing the terrible failures of the system, a vocal
group who wisely stayed on shore covered from head to toe in sunblock wearing a lifevest sitting under an umbrella talk about how all those people drowned as a result of their own irresponsible actions.

"My parents taught me the dangers of swimming in the gulf", they said. "It was obvious something like this would happen. You swim at your own peril."

And while all this was going on, you know where I was?? I was at the condo taking a leak in the pool. But don't blame me, it's Anheuser Busch's fault.

And while all this was going on, you know where I was?? I was at the condo taking a leak in the pool. But don't blame me, it's Anheuser Busch's fault.

Ha! Ha! I was over there earlier myself. I kept yelling at that guy "That's not a Baby Ruth!"

It might be interesting to see some stats on the cause of homeowner hardship. I think it's safe to say that all the sub prime defaults were due to bad decisions on the part of the borrower. But now that we are heavily into the prime loans, a larger percentage is probably due to job loss.

I haven't seen a break down myself though, so I can only guess.

You might be right in saying, " I think it's safe to say that all the sub prime defaults were due to bad decisions on the part of the borrower. "

OR

Change the last word in the sentence to any of the following:

Congress
Investment Banks
Mortgage Companies
Property Appraisers
Mathematicians named Fabrice

You might be right in saying, " I think it's safe to say that all the sub prime defaults were due to bad decisions on the part of the borrower. "

OR

Change the last word in the sentence to any of the following:

Congress
Investment Banks
Mortgage Companies
Property Appraisers
Mathematicians named Fabrice

Well, you and I look at these things differently. To each his own.

I would add, in regards to your original question, I don't feel there are any moral issues in walking away from a contract. In fact, in my life I have found that when you consider all available options, including those that are on the other side of those invisible lines society likes to paint, you sometimes find better options that really don't have as much downside as people would think.

Congress
Freddie/Fannie
Investment Banks
Mortgage Companies
Wall Street
Everyone involved who knew it was a bad deal, but did it anyway for the profit.

I would add "AND" to the end of the sentence, then this list.

There was a huge cluster going on, but no matter what anyone says, no one was forced to take out or give out subprime loans. My bank wouldn't touch them with a 100 foot pole.

Canoehead bought a house during the boom and got a 30 year fixed mortgage - because in her words "ARMs are for people who flunked math class and think storefront payday loans are a good idea."

She has refinanced 2x since then and will probably have that 30 year mortgage paid off in less than 20 years. I'd say 15 but she budgeted for a new furnace, a kitchen upgrade, and a "new to her" car within the next 5 years.

Grandpa Scooterbug did tell us "buy more house than you think you will need" ............... but that was based on the sound idea of one's earning ability increasing over time, assumed a minimum of 20% down, and that the mortgage was the only debt you had.

And his grandchildren only have a 25% home ownership rate because they had the lessons of the Depression and fiscal responsibility beaten into them.

I viewed this in the same light as the 90s tech bubble. What I didn't see coming was the way this would mess up our whole economy, so in some way indeed we have all suffered as a result of this. Hard for me to feel sympathy for the movers and shakers on this one. And now there are these people: the new trend default on your mortgage and stay in your house!: Tech Ticker, Yahoo! Finance

The money "homeowners" are saving, meanwhile, which is really being paid for by the taxpayer in the form of ongoing subsidies to the banks, is creating some extra spending money for the economy. In the process, it's making the economy look stronger than it really is (at some point those chickens will come home to roost: people won't have free rent forever).

This would seem to indicate that the stock market rebound we've seen in the last year is a mirage.

it is a mirage of free money flowing from bank trading houses.