Consequences of Massive Bailouts

The idea of stretching myself financially to provide a roof over my head has always terrified me.

Scooter, I agree with you that people made bad choices. Buy I no longer agree with you that they are continuing to make bad choices. I know longer believe in the "moral" stigma that we see attached to someone who makes a rational business decision.

When the ultrarich (e.g. Donald Trump) find themselves on the wrong side of market conditions they don't keep throwing good money after bad and they don't let emotion or morals cloud their judgement. They "work the system" and start over. It's not personal- it's business.

I have a friend who was professionally advised a year ago to stop paying on his house. But he refused this course of action because it didn't *feel* right. A year later he is wiped out, umemployed and not paying on his mortgage because he paid on it until he could pay no more. Cashed out all investments and what little savings he had to keep paying on it as long as he could
because it was the "moral" thing to do. And as it has worked out- the stupid thing to do.

This post wins.

excellent discussion. love listening to you all. always learning from you too.

so, we have a lot of friends in and around South Walton who have lost or who are losing their homes. probably most were due to financial mistakes and overextending. but the market was far different then and the risks did not seem to be that great - this is a real estate market with a lot of work going on in building, developing, selling, renting, etc. that was then. this is now. the worst nightmare risks kicked in and these people were good people then, making business decisions, and they are still good people, making business decisions. I am with 30A Shopper - its pretty straight forward. Good people caught in bad real estate economy. Its very stressful for them. I would not think its ever easy to walk away from the home that was once your dream come true. It is heartbreaking while at the same time a relief to be able to shed the unbelievable burden. I think its immoral to make such blanket judgments on anyone going through this. sure, there are some really bad decisions going on out with some folks there but what's new about that?

Lenders need to take some cues from the mafia and go after those who are gaming them. It's not good "business" to just let someone walk away owing you money be it $1 or $100,000 via a loan or bad checks (shopper). Word gets around quickly that nothing bad will happen if you stiff your lender except maybe a loss of some credit points and hell anyone can live with that. Break a couple of legs and pull a few fingernails and a surprising number of people will find the money.

I don't think someone who is in financial trouble is a bad person or an immoral person who necessarily got there because of bad decisions - we all know the economy hasn't been a bed of roses lately and a lot of good people have gotten hurt as a result.

It's not a question of morality as much as a question of responsibility, learning from mistakes, not repeating them, and trying to recover.

I don't begrudge a drowning person a lifeline - accidents/sheet happen, but I start to get annoyed when they are drowning because they don't know how to swim, ignored the posted warnings, jumped in the deep end of the pool when it was closed..............and now are biatching about no lifeguard being on duty.

IMO the people in the article Bob posted are deadbeats playing the system and ultimately making ALL OF US pick up the tab for their idiocy.

They haven't been paying their mortgage since last summer, his mother stopped paying 2 years ago, their credit was already shot, and they continue to blame everyone but themselves for their financial situation. That is the my biggest problem - that they won't take any blame or responsibility.

"refinanced at the height of the market, taking out cash to buy a truck they used as a contest prize for their hired animal trappers. It was a stupid move by their lender, according to Mr. Pemberton."

(I agree it was a stupid move - and not just by the bank). :roll:

His mother "refinanced several times during the boom but says she benefited only once, when she got enough money for a new roof. The other times, she said, unscrupulous salesmen promised her lower rates but simply charged her high fees."

(Why did she refinance several times if it didn't help her - and why did she sign paperwork that didn't give her a better rate or that she didn't understand?)

It's all well and good for them to walk away or not pay if that's the "smart" choice, but our economy is not going to recover when millions of households aren't paying their bills. These actions don't just hurt the evil banks and stop - it has major economic and social implications.

And skipping your mortgage payment to go have fun at the Hard Rock Casino or tool around in your airboat (is that paid off?) makes me see red - not just red ink!

Lenders need to take some cues from the mafia and go after those who are gaming them. It's not good "business" to just let someone walk away owing you money be it $1 or $100,000 via a loan or bad checks (shopper). Word gets around quickly that nothing bad will happen if you stiff your lender except maybe a loss of some credit points and hell anyone can live with that. Break a couple of legs and pull a few fingernails and a surprising number of people will find the money.

You had my support until the last sentance!

Ha- poppy, I'm on board. Start with the biggest offenders (the corporations, the banks and wall street) and work your way down to the small fish.

excellent discussion. love listening to you all. always learning from you too.

so, we have a lot of friends in and around South Walton who have lost or who are losing their homes. probably most were due to financial mistakes and overextending. but the market was far different then and the risks did not seem to be that great - this is a real estate market with a lot of work going on in building, developing, selling, renting, etc. that was then. this is now. the worst nightmare risks kicked in and these people were good people then, making business decisions, and they are still good people, making business decisions. I am with 30A Shopper - its pretty straight forward. Good people caught in bad real estate economy. Its very stressful for them. I would not think its ever easy to walk away from the home that was once your dream come true. It is heartbreaking while at the same time a relief to be able to shed the unbelievable burden. I think its immoral to make such blanket judgments on anyone going through this. sure, there are some really bad decisions going on out with some folks there but what's new about that?

most are good people, decent people and they've been pulverized by this economy

There's an issue of confidence here. I don't have much confidence in people who game the system and it makes no difference whether they are big or small. In fact if they are small, the chances that I might have to deal with them are much greater. So while it my not be a moral character issue, I think that a person's inability to execute in a financially responsible manner undoubtedly will carry over into other facets of his life. It's not just lenders who look at credit reports anymore. It's potential employers, business partners and spouses among others. I don't think I'm speaking just for myself, I think this is the way a lot of people feel.

Actually I was told get good grades, get a job, earn and save and buy a house I can actually afford, not my dream house that a bank and a realtor told me I could afford, but truthfully knew I couldn't.

And I was told to buy a house that would allow me to save enough to pay my bills, have no debt, and put my child through college and pay for vacations with cash and save for retirement.

So yes it does me rub me when others work the system and get away with it be it Donald Trump or anyone else. I have a dear friend who is struggling to feed her children, but her ex that owes her 20,000 in back child support because he can't find a job, just had his mortgage payments reduced almost in half. There are jobs out there he could take, but he might have to move away from his lake house with the pool and the jacuzzi while she works 2 jobs to make ends meet. She was told she did not qualify for a morgage reduction because she had not missed any payments. I am sorry but that is wrong, in the worst way.

As to those that have lost their jobs and lost their homes, I feel for some of them but I do think many, not all, bought way more house than they could actually afford. Did they have savings, did they have a 6 month rainy day fund, did they pay cash for bills, did they save and pay for a house, or were they " house" poor because they wanted the luxury house instead of something much smaller with one bathroom.

Do I think they are bad people or amoral, absolutely not, greedy, maybe. Basically many gambled and lost, I don't gamble, not at the casinos and not with my purchases.

And yes I have taught my 25 year old the same lessons I was taught. Live within your means, pay for everything in full, and save for retirement.

Minnie, I agree with you. But what took place in the last decade with deregulation, loosening of lending standards, creation of faulty loans and financial products that bundle them created an artificially inflated real estate market. The overwhelming sentiment was- "well it's not like it's going to go down in value because history is on your side. So worst case scenario- if something goes bad with your job/health/income, etc you can just sell your house.

It was unprecedented that property everywhere would drop and do so
significantly.

I see lots of Monday morning quarterbacking.

Minnie, I agree with you. But what took place in the last decade with deregulation, loosening of lending standards, creation of faulty loans and financial products that bundle them created an artificially inflated real estate market. The overwhelming sentiment was- "well it's not like it's going to go down in value because history is on your side. So worst case scenario- if something goes bad with your job/health/income, etc you can just sell your house.

It was unprecedented that property everywhere would drop and do so
significantly.

I see lots of Monday morning quarterbacking.

I understand that and maybe the difference is my husband and I had parents and grandparents who lived through the Depression, so yes they knew it could happen. And maybe we are overly cautious and knew we never wanted to be where we could not pay our way if hard times came, hence our rainy day fund.

I guess when some of our friends made fun of our choice in houses, and told us we could definitely afford more; I now have a hard time feeling sorry that they lost their million dollar home, had to sell their BMW, and the bling, when their income was no greater than ours to begin with.

But I sleep well at night, knowing I am debt free, have a great retirement fund, and could sell my house or rent it and make a good return on my investment.

Now those that did not over stretch themselves, lived within their means, bought a house they could actually afford and have fallen on hard times due to loss of jobs or health I do feel sorry for them.

But sometimes people who have lost their jobs have to make sacrifices they are not willing to make. They might have to move, even move out of state, they might have to have a second hand car with 150,000 miles on it like we do, and they might have to shop at Target or Wal-mart, they might have to work two jobs.

Until they are willing to be frugal and still can't make it, then no, I guess I have little sympathy.

So worst case scenario- if something goes bad with your job/health/income, etc you can just sell your house

See I was taught, worst case scenario if something goes bad with your job/health/income, can you "afford" your house.

My answer was yes I can.

Minnie, I agree with you. But what took place in the last decade with deregulation, loosening of lending standards, creation of faulty loans and financial products that bundle them created an artificially inflated real estate market. The overwhelming sentiment was- "well it's not like it's going to go down in value because history is on your side. So worst case scenario- if something goes bad with your job/health/income, etc you can just sell your house.

It was unprecedented that property everywhere would drop and do so
significantly.

I see lots of Monday morning quarterbacking.

I'm not sure why you would think most people didn't see this coming ahead of time. You must not remember the boom and bust up in the northeast where there was literally a regional depression back in the late 80s. This was around the time of the savings and loan crisis. This was just the same ole same ole. Savings and loan crisis - Wikipedia, the free encyclopedia

LS, I see a lot of people coming out of the woodwork saying this scenario was so obviously going to happen- now. Don't remember all these same folks saying such things before it did.

Even the mainstream more conservative financial guru types did not predict this.

I know some PAW's (this is a reference to the book Millionaire Next Door) just like Minnie who got burned.

I'm happy for people who have been spared any suffering. And I feel for anyone who is hurting. I blame more than just their own choices and actions. The system failed us and now we are all paying for it-like it or not.

Last thought- money will be made and lost. You can't take it with you. Sometimes you gotta say what the hell and take a gamble. I respect people who go for it and who live a little and splurge sometimes.

That's just me.

LS, I see a lot of people coming out of the woodwork saying this scenario was so obviously going to happen- now. Don't remember all these same folks saying such things before it did.

Even the mainstream more conservative financial guru types did not predict this.

I know some PAW's (this is a reference to the book Millionaire Next Door) just like Minnie who got burned.

I'm happy for people who have been spared any suffering. And I feel for anyone who is hurting. I blame more than just their own choices and actions. The system failed us and now we are all paying for it-like it or not.

Last thought- money will be made and lost. You can't take it with you. Sometimes you gotta say what the hell and take a gamble. I respect people who go for it and who live a little and splurge sometimes.

That's just me.

As far as those who didn't get burned by buying in to the unrealistic housing boom and overextend themselves financially, it wasn't luck. I would not say they were "spared". They simply knew better than to get caught up in it. I quit listening to financial gurus about the time "Dow 36,000" came out. The other thing is, whether or not people are honest about whether they predicted this, or knew it was going to happen, or cast judgment, or consider themselves PAWs or UAWs or whether they splurge or "go for it" or got lucky, made the right call or a bad one is quite immaterial to anyone's current situation, isn't it? Things are what they are. This is all such water under the bridge. Maybe some financial reform is needed to prevent things like this from happening in the future, but that's not going to do much here and now. I can always look back at anything and say "what if I, other people, or the government had done something differently" but the fact is we didn't, and the opportunity to find out the answer will never come up, because the situation will never be the same.

Minnie, I agree with you. But what took place in the last decade with deregulation, loosening of lending standards, creation of faulty loans and financial products that bundle them created an artificially inflated real estate market. The overwhelming sentiment was- "well it's not like it's going to go down in value because history is on your side. So worst case scenario- if something goes bad with your job/health/income, etc you can just sell your house.

It was unprecedented that property everywhere would drop and do so
significantly.

I see lots of Monday morning quarterbacking.

that's a fact.

its easy for us all to look back and point to the mistakes made by everyone from the govt, banks, developers, corporations, individuals (why do we think our way is the best and right way and that we haven't made the mistakes because of our good judgment?). so so so easy. if we have been spared a financial crisis in our own personal situation then we should be highly grateful. not highly critical of those who have not been spared. I say this out of respect for many I know and love. Their decisions are mostly sound as far as I know (but that isn't for me to evaluate and point fingers) but still - they were not spared. most of us have made the very same mistakes. we will still make them in the future. but hopefully we have learned something.

this thread is valuable in that it is very important to be able to analyze and understand all of the factors leading up to this economy, including personal actions and choices. but why we need to point to our thinking, our personal financial management policy, way of doing things as best for everyone is not all that helpful, imo. yes, its relevant but not necessarily applicable to anyone but yourself.

We had a major outbreak of "somebody said it would all be ok", which I hear was purposefully released from a government lab. Now we have a full epidemic of "holy crap, did I screw up?" on our hands, the side effects of which include a bad case of "it's somebody else's fault!". Government is distributing a treatment called "It's not our fault, but we can fix it", but this has some really ugly side effects, and doesn't cure "somebody said it would all be ok". Thankfully there is a simple home remedy cure called "yeah, I totally screwed up.", but apparently it tastes so bad it's hard to swallow.

It was unprecedented that property everywhere would drop and do so
significantly.

I see lots of Monday morning quarterbacking.

I see lots of people who ignored the pre-game analysis, were talking and drinking during most of the first half, pressed their bets at halftime when the star quarterback started limping, did not account for the fact that he had no replacement, and now are surprised that the team they bet on is losing....................and that they will have to pay back the loan shark they borrowed the bet from.

I agree that noone specifically predicted something of this magnitude would occur, that is what has hurt most of the locals I know, they allowed for a certain amount of decline, but didn't see a 50% value drop and an economic gut punch coming. The combo is what is getting them.

There were plenty of people who were saying the real estate boom was too good to be true and urging more fiscal responsibility and caution and making sure you were covered for that rainy day that had to be coming.

Even people in the banking, real estate, and construction businesses were doing the math and saying it could not be sustained and a correction was long overdue.

And they got laughed at. Seriously. They got laughed at and told they were old-fashioned and would never make money that way and that there were always going to be rich out-of-town folks lining up to buy.

My favorite quote was from a local who was tentative but still investing as he watched the flipping frenzy and said "it's one giant game of musical chairs and I just want to have a seat when the music stops."

This is fairly accurate data from a nationwide perspective. CA, AZ, IL and FL remain the highest in foreclosures and this might be why it is 'felt' so strongly for some and not others. My neighborhood in Atlanta of approx 700 homes has only had one default, with foreclosure proceedings initiated, but not completed. The owners attempted a short sale, but the lender was non-responsive.....this homeowner was a 'speculator.' Maybe it was successfully modified.

This article is from realtytrac.com

Record Foreclosure Activity in 2009 Could Have Been Worse - Foreclosure community blog resource powered by RealtyTrac

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 would be interesting to see that map next to a similar one showing unemployment and one showing population density.

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!

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!

Geo, you are missing the point. For a lot of people there was no temptation to get caught up in this. If you think there was, that's pure projection on your part.

No, there was a lot of temptation - the profit was insane and it's hard to watch people getting rich for doing very little when you are working hard to earn a fraction of that.

That's why so many people got caught up in it - and then got nailed when the bottom completely fell out and their other income sources dried up.

IMO most of the Sowal people I know could have weathered a 15% price drop if that was the only factor. The 50% plus drop in prices, combined with the stock market, the economy, and their lack of income is just too much.

No, there was a lot of temptation - the profit was insane and it's hard to watch people getting rich for doing very little when you are working hard to earn a fraction of that.

That's why so many people got caught up in it - and then got nailed when the bottom completely fell out and their other income sources dried up.

IMO most of the Sowal people I know could have weathered a 15% price drop if that was the only factor. The 50% plus drop in prices, combined with the stock market, the economy, and their lack of income is just too much.

There was not temptation for everybody. That simply isn't true. You can't speak for everyone. As for myself I had more important things to do back in those days. I've never in my life considered real estate as a way to make money. That may be considered unwise by some, but that's just me. I know that many have been very successful at it, and I also know that it's something has no appeal to me. I also know that at the time, I had no interest in selling my overinflated property just so I could by some other overinflated property in the same area. It's not worth the time and effort of having to move. My attitude was let well enough alone. My attitude on this will never change and I don't want it to.