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"Flip" this Bailout

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  • "Flip" this Bailout

    I wonder why the government would not hold those accountable who Profited off of the run up in home values. Like the show Flip this house, these people and the like made a fortune on the run up of home values. I know we are in a free market and I support this fully however that's where the money went. People keep pointing to the banks as those who made the money. They only make money when people pay off loans. Not when people default. Now me and my wife and many of you who put down 20% and work our tails off have to fork up tax payer funds to support people who made poor decesions and those people who took advantage of house values to clean up.
    Sad but true
    Every tool you own is broken, you just don't know it yet :-)

  • #2
    I agree, they should have insisted on taking half of what the MARKET was presenting. Those people should just be drawn and quartered for making a profit, those no good price gougers.

    While we're at it, let's get the CEO's of HGTV and A&E on Capitol Hill to answer for this, and then we'll nationalize those networks. I'm going to throw myself into jail because I watched those shows a few times.

    Banks gave bad loans to people who couldn't afford them. People took bad loans. People defaulted, now there is no credit in the market and banks are in trouble. Let's not blame the people who benefited from the market. Let's blame those that spent something they didn't have and weren't going to get.

    If this is too political, please delete it.
    Joe

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    • #3
      I don't think the blame rests with the "flippers". They didn't do anything but take profits from those willing to pay the "going rate". They showed smarts by turning around those investments when the time was right. It is the buyers who should have stopped to think what would happen if the market took a downturn after they bought at the top, and the banks who, in their greed, made so many questionable loans to people who might not be able to repay.

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      • #4
        i agree with UC
        the flipper program people just came at the right time and benefited from an active market. Flippers are OK, too if they add value to the house and don't get in over heir heads.
        Loring in Katy, TX USA
        If your only tool is a hammer, you tend to treat all problems as if they were nails.
        BT3 FAQ - https://www.sawdustzone.org/forum/di...sked-questions

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        • #5
          The trouble is I think in many cases the flippers ARE the buyers. In other words, the flippers didn't take the money and run, they turned around and bought another house that they never could pay for and now can't unload on someone else. Why else would there be so many empty houses that are foreclosed on? That's why it really burns me up that taxpayer dollars are going to subsidize poor financial risks.
          - Chris.

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          • #6
            Sure, there are a lot of foreclosed "Investment Property" houses but there are also massive incomplete housing developments with 1000's of vacant homesites.

            Supply and demand...

            Fundamentally, people need about 1 home per family (some have 2nd houses, some are sharing a domicile with another family).



            During the bubble:
            • The number of people in America has continued to rise (more demand), but builders were putting up new houses at record pace for years (more supply).
            • Some of those homes (or the ones people were leaving to move into new homes) were being purchased by speculators, or by people looking to make improvements then resell and make a profit (increased demand, then later increased supply but the net is zero).
            • Banks were lending hundreds of thousands of dollars to people who didn't even need to prove they had a job or other source of income (increased demand)
            • Most speculators and flippers were doing their business with borrowed money (just like everyone else).
            The burst
            • Amazingly people who didn't have a reliable source of income weren't able to pay off those "unconventional" aka Junk Loans.
            • When this starts happening more houses go on the market (supply increases) and the homeowner's credit is torched so they cannot likely obtain another loan (demand decreases)
            • The banks decide they'd rather not make so many loans that won't be repaid and start tightening up their lending guidelines preventing many people from obtaining loans (demand decreases)
            • The impact hits the industries that support home building and improvement leading to layoffs, reduced hours, etc. Now folks who were making enough before start having trouble with their bills and the problem spreads into the general economy.
            • Oh, but now all of the banks have wised up that the Junk Loan business wasn't really such a great idea and they have billions in bad paper that needs to be written off... This leads into the whole financial market and credit market meltdown.
            During that whole chain the flippers/speculators who didn't lie on their loan applications don't seem to be a huge culprit in the problem. Ultimately they are buying and selling the same number of houses. Sure they had the potential to make money when the market was rising, but plenty of them are taking a hit now that home prices are down.

            Do I want to bail them out because they would have to sell for a loss now? Of course not, just like I don't expect a check in my mailbox for the difference in my house price today and two years ago. At the same time I just can't rip on them for trying to make a buck. Especially the ones who were taking the really cheap garbage houses and fixing them up to resell. That's a win for them and the neighborhoods.
            Last edited by Kristofor; 02-18-2009, 08:21 PM.

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            • #7
              House flippers didn't break the stock market, housing market, etc. Artificial inflation in the stock market, fraudulent business dealings, etc caused the problems.

              Lets count the evils that pushed the market to 13,000+ and dropped it to just over 7200.

              1. IPO's <- idiotic price inflation
              2. Oil Futures <- more idiotic inflation
              3. Pork Politics
              4. "Enron accounting" scandals
              5. The pyrmid schemes by huge investment companies that came out in the last year

              Comment


              • #8
                Markets generally work pretty well. They work very well considering the alternative, which is state ownership. However, markets are not perfect, and as I get older I see more and more evidence of this.

                I'm not at all happy about the present state of affairs, but I'm afraid politicians will impose another layer of regulation without thinking about the consequences. This article for example, correctly points out that simply checking the boxes when it comes to board selection is not enough. Warren Buffett has been criticized for not checking the boxes but you'd be hard pressed to find someone who thinks he's not doing what's in his shareholders' best interest.

                You can't legislate ethics or common sense.

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                • #9
                  &quot;flip&quot; this bailout

                  Let's put the blame where it belongs...and should be. The largest banks, and other lending institutes are just plain and simple...greedy! They were more than willing to make loans to people who had no visible means of support,
                  little or no money, poor or no credit and no obvious way of repaying the loan if they got one. All of this, because of the federal gov't. acting as guarantor
                  for these loans. You can not make loans to people who have no money for a down payment usually 20% of the selling price....I don't care how much you
                  juggle the figures on paper, shuffle them around to other loan officers or try and sell the idea to someone else to cover it up...if the money ain't there...
                  it ain't going to work.

                  I have knowledge of a family that has sorry credit, not enough income between the man and woman (because of a disability) and bad debt( he owes money to almost everyone that sees him) and the real estate agent
                  "got them qualified" for a loan on a 3 year old house! The real estate man
                  told me himself all he had to do was "jiggle some figures around a little"
                  and what do you know? They got that loan...go figure! Something don't add up here...if you know what I mean!

                  Comment


                  • #10
                    The people who sold their homes at inflated prices because of the bubble did make out well. That, to a large degree, is where a lot of the money went. But just because the money went there doesn't mean they're at fault or accountable.

                    What I'm not hearing a lot about is the role of the credit agencies in all this. There is nothing wrong with a subprime loan as is. As long as the subprime loans are bundled as a 'speculative' rated MBS, financial institutions can evaluate risks of investing in them and balance that risk by demanding a higher return.

                    What seems to have happened in the current crisis is that the huge demand for investment grade AAA MBS before 2007 caused a huge pull for them to be created. Since the credit agencies are paid by the issuer to rate the loan bundle there is the potential for conflict of interest... and in any case it's pretty obvious by the subsequent downgrades of MBSs that the original AAA designation slapped on them should never have been applied.

                    So you have AIG running around with derivatives based on the MBS, using quantative analysis showing very low risk of default from AAA MBS even in economic downturn, and issuing CDS's on these things... but not realizing (or ignoring) the fact that these AAA rated MBSs were closer to speculative grade than AAA... so they didn't charge the premium needed to balance the risk out.

                    Dang this is complicated. I understand what I just wrote but it's pretty much jibberish I guess. My point is that the credit agencies were key enablers in this whole thing because their faulty ratings allowed speculative loans to be issued by banks that knew the risks would be passed on.

                    Comment


                    • #11
                      Originally posted by Uncle Cracker View Post
                      I don't think the blame rests with the "flippers". They didn't do anything but take profits from those willing to pay the "going rate". They showed smarts by turning around those investments when the time was right. It is the buyers who should have stopped to think what would happen if the market took a downturn after they bought at the top, and the banks who, in their greed, made so many questionable loans to people who might not be able to repay.
                      +1 (I was about to go on and on, but I don't think that there's much need - it basically boils down to lack of responsibility on every level.)
                      Bill

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                      • #12
                        The only thing against the grain is the very bailout. What capitalism giveth, it taketh away too, and artificial, external initiatives only postpones the real correction. Everybody who was gleeful in excess should see the pain from it...If they were happy during the boom, they should wallow in the bust now.
                        It is the mark of an educated mind to be able to entertain a thought without accepting it.
                        - Aristotle

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                        • #13
                          Not to be overly anti-government, but probably the biggest part of the problem started when the govt. got involved with loosening mortgage lending restrictions in the mid-1990s.

                          Many more people qualified to borrow much more money and were permitted to buy real state with practically, or exactly, "no money down". After all, what do the lenders care - their loan is collateralized by real estate - and real estate always appreciates in value {smirk} - if the borrower defaults they can foreclose on the property and quickly get their money back. Fairly simple, no problem, unless there are a large number of defaults and real estate doesn't appreciate in value - then there's a big problem. And it gets compounded by mortgage backed securities, etc.

                          Ideally, borrowers would have had a realistic idea of what they could comfortably afford - and it wouldn't matter how much the lenders would offer to loan them, because they'd have self-control and stay within their means. But, sadly, as a society we don't operate that way - we want as much as we can possibly can get, and we want it now.

                          The govt. shouldn't have ever needed to intervene with lending (except for with the discrimination issues that have occurred). Banks operate to make money, primarily through loan interest. They can and should develop their own lending guidelines. If one bank is too restrictive, they won't have many defaults - but they'll die because they won't make many loans. If another bank is too loose, they'll make a lot of loans - but they'll get killed with defaults.

                          The banking / lending industry should have been left to their own devices from the beginning, but they weren't - so now we're trying to patch together some way to fix the problem. A problem that probably would have never happened if not for govt. involvement 10+ years ago.

                          I don't mean to go off on a rant...
                          Bill

                          Comment


                          • #14
                            All good points, however I still stand by my position.
                            Banks may have made bad loans, but where did the money go?
                            It went to sellers who were all too eager to rack up profits hand over fist. When gas was $4.00 a gallon I heard the same people who sold homes in Cape May NJ for $950,000 (after paying only $400,000 two years earlier) complain about oil company greed.
                            The banks were lending money to pay for homes whose value was driven up by supply and demand. Now that demand had dropped why must we in effect act as the GAP INSURANCE for those who made bad deals?

                            Blame List

                            1) Sellers who took advantage of market conditions to rake in $$$. Where is that money now?

                            2) Real Estate agents who convinced buyers that values would keep increasing

                            3) Home Appraisers who worked hand and hand with Agents and Brokers to over inflate values to push through loans

                            4) Banks who bought a disproportionate amount of risky loans and packaged them and sold them in the derivative markets.

                            5) Buyers who took on more than they could handle...

                            The list of blame in my opinion goes from most to least with sellers owning the most blame.
                            Every tool you own is broken, you just don't know it yet :-)

                            Comment


                            • #15
                              Originally posted by Woodwerker View Post
                              The list of blame in my opinion goes from most to least with sellers owning the most blame.
                              OK... I flipped a house. I bought it for $175K in 2003 and sold it for $325K in 2005. By your reckoning, that makes me a greedy SOB, with a fat $150K profit, and the ruination of the free-market economy on my conscience. But let's look at it a little closer... I paid out closing costs, brokers commissions and loan fees to acquire it. Then I paid out taxes, insurance, homeowners' association dues, lawn care and utilities while I owned it. Then there was cost of renovation and improvements, only some of which I could do myself. Add to that the cost of permits and inspections, termite bond, etc. Then there was the cost of marketing and selling it, including a share of legal and broker's fees once again. Then there was the capital gains tax on the profit (and I could not reduce that to make up for the conservative estimate of 500 hours I put into the work myself). The final tally? Net after-tax profit of $17K, which comes to $34/hour. I have not even included the work at my real job that I sacrificed while I went through this process. So you will have to forgive me if I don't go right out and fall on my sword in a fit of remorse.

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