Consequences of Massive Bailouts

Shopper, I don't think we see it as differently as you might think. Scooter said it better for me when she said- change the OR to an AND. I absolutely place fault and blame on a borrower for borrowing. And I also believe everyone in that list made it possible. So to clarify (and beat the horse)-

on a subprime loan by loan basis I hold each borrower responsible for their mess. But at the 100,000 ft level if we are discussing who is to blame for the subprime crisis- well, I blame the folks in the bottom list of my earlier post. And finally, I agree with you completely regarding the options on the other side of those invisible lines.

Enjoyed the discussion...

The buck stops with the borrower.

The buck stops with the borrower.

Especially since we bail out the big dogs.

The buck stops with the borrower.

So true. If the market had stayed strong would the same individuals blaming the financial insitutions for losses on loans they requested be praising them for their new found wealth? I doubt it, they would patting themselves on the back for their wise business decisions.

Bailout can be a relative term. Were depression-era soup lines "bailouts" for good people? Or the more benign Charity? Yes & Yes... and that in a country that was significantly more rurally agrarian and essentially 'self-sustaining' than we are as a nation today.

By now, the default crises are shaking down to encompass numerous fiscally responsible people who did plan for the worst... but the worst turned out to be so much worse, so much longer than even careful people living modest lives could have dreamt of.

Point being... we can not know what we do not know. Multiple external-force (some Natural) disasters have occurred in the last 10 years that were so bad that no one (regardless how wise, savvy, experienced, conservative, idealistic, or just plain lucky) could conceive of the possibilities; let alone put strong enough safety nets in place to avoid.

As many have stated... there are good and responsible people out there with their butts in a sling. And it's like cancer... we all know them. We are them.

Sometimes it just seems to come down to the Universe periodically imposing hard lessons to force us to a greater empathy... whether to ourselves, our neighbors & families, fellow mankind or Mother Nature.
What else could induce us to collectively return to smaller simpler lives (y'know the old days when a kid's birthday party consisted only of a cake just big enough for the immediate family.)

And finally... with regards to ruined credit ratings... WHO CARES??? It's a societal construct anyway. When majority numbers hit the proverbial crapper, Averages & Bell Curves will automatically redefine the standard (not "watching" your rating as that moronic credit-rating company commercial with the furry doggy numerals implies.)

Current rant over

So true. If the market had stayed strong would the same individuals blaming the financial insitutions for losses on loans they requested be praising them for their new found wealth? I doubt it, they would patting themselves on the back for their wise business decisions.

Yeah, perhaps for those who knew when to say when. I think a lot of them would have kept on with it and parlayed their winnings. I think a crash would have been inevitable. There would be winners and losers just like there are now. Insiders have the advantage. This reminds me so much of the pump and dump you saw in the stock market back in the '90s. Obviously there are some differences, but ultimately in either case the purchaser is the last line of protection from decisions that might hurt him financially. He at least has the option of evaluating the bad advice he is given from the corrupt evil lender (or broker) and rejecting it.

So true. If the market had stayed strong would the same individuals blaming the financial insitutions for losses on loans they requested be praising them for their new found wealth? I doubt it, they would patting themselves on the back for their wise business decisions.

Poppy, very thought provoking post. Really made me think. Here is what I came up with-

If I buy property and it appreciates I will view it as a sound business decision. If it appreciates to a degree greater than the norm I would view it as good timing. And if it appreciates wildly and I found out that it was because of shananigans of wall street and lenders I would view it as good luck.

In other words- irrespective of how it worked out for me-I would place credit and blame where it is due (including with myself).

People staying in their homes without paying and squatting as long as they can is not a consequence of massive bailouts. It is instead a consequence of the invention of Credit Default Swaps. If true modifications were offered (reduction in interest rates or reduction in mtg. principal based on true appraisal) then those who purchased the short side of a CDS would be penalized. In other words they would not get paid if people stayed in their homes or were able to keep their investment properties.

The consequence of masssive bailouts is that investment banks and hedge funds who bet and lost were reimbursed.

People staying in their homes without paying and squatting as long as they can is not a consequence of massive bailouts. It is instead a consequence of the invention of Credit Default Swaps. If true modifications were offered (reduction in interest rates or reduction in mtg. principal based on true appraisal) then those who purchased the short side of a CDS would be penalized. In other words they would not get paid if people stayed in their homes or were able to keep their investment properties.

The consequence of masssive bailouts is that investment banks and hedge funds who bet and lost were reimbursed.

You got that right!;-)

...
The consequence of masssive bailouts is that investment banks and hedge funds who bet and lost were reimbursed.

I get it. So if you can't beat 'em, join 'em.

I get it. So if you can't beat 'em, join 'em.

Are you saying that busta hustle's comment-

"The consequence of masssive bailouts is that investment banks and hedge funds who bet and lost were reimbursed. "

implies that he/she is making an argument for a bailout for borrowers?

Are you saying that busta hustle's comment-

"The consequence of masssive bailouts is that investment banks and hedge funds who bet and lost were reimbursed. "

implies that he/she is making an argument for a bailout for borrowers?

Not Busta Hustle in particular but that's a prevailing attitude and there are parrallels. You've got people who bet and lost, are pointing fingers at the big institutions, using that as a justification for their own irresponsible behavior, and now expect a bilout. Read some of the message boards, not just this one and you'll see.

Not Busta Hustle in particular but that's a prevailing attitude and there are parrallels. You've got people who bet and lost, are pointing fingers at the big institutions, using that as a justification for their own irresponsible behavior, and now expect a bilout. Read some of the message boards, not just this one and you'll see.

Fair enough. Let me ask you this-

If one bets and loses and in the process of trying to stick it out ends up losing everything including their ability to pay their mortgage-

What do you believe should happen next?

I get it. So if you can't beat 'em, join 'em.

No Sir never stated or implied that.
Tarp was massive bailout 1 and it went to we all know who. The stimulus was another massive bailout and what has gone out has mainly been to state and local governments.

Only a tiny fraction of any bailout has gone to an individual property owner/mortgagee in the form of a legitimate modification.

Those former property mortagee's the subject of the article will lose, their home all their downpayments, fees to banks and taxes, monthly mtg. payments, equity, credit rating.

I-banks win initial fees and charges, bailout cash, the hard asset to sell again, zero interest borrowing, and future bailouts unnamed and several times as large as the tarp.

On a scale of 1 to infinity i don't hold much anomosity toward....guess who?

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

Simple. You stayed in too long.

No Sir never stated or implied that.
Tarp was massive bailout 1 and it went to we all know who. The stimulus was another massive bailout and what has gone out has mainly been to state and local governments.

Only a tiny fraction of any bailout has gone to an individual property owner/mortgagee in the form of a legitimate modification.

Those former property mortagee's the subject of the article will lose, their home all their downpayments, fees to banks and taxes, monthly mtg. payments, equity, credit rating.

I-banks win initial fees and charges, bailout cash, the hard asset to sell again, zero interest borrowing, and future bailouts unnamed and several times as large as the tarp.

On a scale of 1 to infinity i don't hold much anomosity toward....guess who?

Yeah I adressed that a couple of posts earlier. I made that logical conclusion, because I think some people do feel that way.

Fair enough. Let me ask you this-

If one bets and loses and in the process of trying to stick it out ends up losing everything including their ability to pay their mortgage-

What do you believe should happen next?

They stop paying, the bank forecloses, they lose everything they've invested, and the house.

(actually, I guess they've already lost everything they've invested to the downturn in the market, so they end up losing the house as well, and get stuck with a rotten credit score taboot for seven years. Totally sucks.)

Yeah I adressed that a couple of posts earlier. I made that logical conclusion, because I think some people do feel that way.

Am I correct in that you chose not to own, but rather to rent?

One thing I don't understand with all the talk of "upside down" and "walking away". If you are upside down in your primary residence and the estimated value is expected to rebound long before your mortgage is due to be paid off, why does it matter so much?

Aren't you just saving on taxes w/ a lower assessment in the meantime?

Are people just fixated on the supposed value of their "asset" when it is really a roof over their head?

Or I am just missing the point because the Scooterbug clan tends to stay in houses for decades/generations?

Another question - what happens if you stop paying your mortgage, then start paying again when your situation improves? Can you avoid the whole mess, but just have more interest racked up?

Fair enough. Let me ask you this-

If one bets and loses and in the process of trying to stick it out ends up losing everything including their ability to pay their mortgage-

What do you believe should happen next?

Geo, if I got into a real jam I would have no reservations about using all legal means to do what I needed to do. I wouldn't care what other people thought and I wouldn't ask them for advice. I would try to find a good affordable lawyer. [edit] About the only possible way I think this could happen would be job loss.

Am I correct in that you chose not to own, but rather to rent?

No, I don't understand how you arrive at that.

They stop paying, the bank forecloses, they lose everything they've invested, and the house.

(actually, I guess they've already lost everything they've invested to the downturn in the market, so they end up losing the house as well, and get stuck with a rotten credit score taboot for seven years. Totally sucks.)

This all sounds very reasonable to me. I guess I had the impression that folks wanted more blood.

Actually- for many, the ability to start out from zero/with zero is like the promised land.

This all sounds very reasonable to me. I guess I had the impression that folks wanted more blood.

That's more for the people who are working the system, squatting in their houses after they have stopped paying, destroying the houses' interiors, whining about how none of it is their fault, flush with assets, and wanting to buy again soon.

Noone wants blood from people who are getting foreclosed upon due to hardship and who truly can't pay - though I do think if you are foreclosed upon you should not be allowed to buy a house for 10 years - no exceptions.

I have an issue with people choosing foreclosure to game the system, just as I have an issue with someone declaring bankruptcy to avoid creditors, yet being well off financially a year later because they transferred all their assets to a family member, then got them back.

One thing I don't understand with all the talk of "upside down" and "walking away". If you are upside down in your primary residence and the estimated value is expected to rebound long before your mortgage is due to be paid off, why does it matter so much?

Aren't you just saving on taxes w/ a lower assessment in the meantime?

Are people just fixated on the supposed value of their "asset" when it is really a roof over their head.

Or I am just missing the point because the Scooterbug clan tends to stay in houses for decades/generations?

It's an immediate cash flow issue.

Payments fall behind &/or unable to make the FULL house payment due to unemployment (or under-employment), tapped savings, illness or care giving health expenses, rising basic maintenance costs like food & utilities, etc. etc.

Banks won't accept/apply $$ that are LESS than FULL payment/arrears. So any $$ paid end up in a bank limbo account. Then the bank goes down (partly from mismanagement & shortsightedness) the FDIC takes over, paperwork gets shuffled and lost along with the $$ floating in the nebulous limbo that the originating (failed) bank refused to apply to the mortgage loan.

SO... the only remaining option is to sell the house for enough to cover the outstanding mortgage principal. The house doesn't sell... for any amount of money... short or otherwise.

That's more for the people who are working the system, squatting in their houses after they have stopped paying, destroying the houses' interiors, whining about how none of it is their fault, flush with assets, and wanting to buy again soon.

Noone wants blood from people who are getting foreclosed upon due to hardship and who truly can't pay - though I do think if you are foreclosed upon you should not be allowed to buy a house for 10 years - no exceptions.

I have an issue with people choosing foreclosure to game the system, just as I have an issue with someone declaring bankruptcy to avoid creditors, yet being well off financially a year later because they transferred all their assets to a family member, then got them back.

Face it, SB44. Though you are absolutely right in this post and the other of your posts, human nature is human nature. Some people have absolutely no scruples when it comes to money and think only of themselves, and consequently, society as a whole, is damaged and pays for it. I guess it is part of being relatively successful, though it shouldn't be. I can live with it but it is unfair and I sure don't like it.