Consequences of Massive Bailouts

[LuciferSam]

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.

 

[Teresa]

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.

 

[30ashopper]

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.

 

[scooterbug44]

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."

 

[Lynnie]

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

 

[LuciferSam]

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.

 

[scooterbug44]

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

 

[Geo]

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!

 

[LuciferSam]

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.

 

[scooterbug44]

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.