"Flip" this Bailout

[Uncle Cracker]

I think the deeper problem is the cultural misunderstandings that became associated with home ownership, namely: that owning a home is a right, an entitlement, a societal given. This is not the case. It is a privilege; one afforded to those who have the money to buy it, or the good credit and income to borrow for it. The banks were so eager to lend to, and the government was so eager to back, practically anybody, in the name of economic stimulation. So, people simply got caught up in the jazz, and the feeling that they somehow deserved to own a home, even if they did not have the resources to fulfill the obligations that came with it. And as the home ownership feeding frenzy got to be so out of control, prices naturally rose in response to the demand, and rose so quickly that even more people were drawn in, thinking either that they were missing out on an endless gravy train, that it was an iron-clad lead-pipe cinch investment, or that if they didn't get a house now, they never would. Nobody stopped to think that this vicious circle could reach saturation and burn out, or that other economic crises could cut incomes and the ability to repay loans. So when the glorious self-fulfilling prophecy could no longer self-fulfill, it collapsed in on itself with unbelievable rapidity, leaving banks insolvent, investments ravaged, industry crippled, economy in agony, and a government struggling to right a ship that had already disappeared beneath the waves. And who has to pay the tab? The taxpayers, so many of whom have lost their jobs, their homes, their savings, their confidence, and their hopes. How are we supposed to foot the bill for all of this? It's tragic, and all our leaders in industry, in finance, and in government are doing is running around, trying to salvage their little pieces of the pie. Makes me wanna go on a 20-year bender.

[os1kne]

While there are lots of cases where people took on loans they couldn't afford, there are just as many poor suckers that simply got caught up in it.

Here in Michigan, there are lots of people who did it the right way and still got screwed. Just this morning on the radio, a guy called in who bought a house with 42% down four years ago. His house is now worth less than half what he paid for it. The guy is now upside down on a house he put 42% down! With Michigan's unemployment rate being the worst in the country, if he loses his job, he can't even sell the house for what he owes and leave the state.

The only places to pin the blame are the Government for relaxing the lending standards and the mortgage companies for cheating on loans to make sure they get approved. I want to know why real estate appraisers are told the selling price BEFORE they submit their report. They are hired by the bank to appraise a house for X amount. Why bother? Up until after the meltdown, every appraisal came back at exactly the selling price. Hmmm, what a coinky dink...

I was born in Dearborn, and my dad worked for Ford and GM when I was a small child. Most of my dad's side of the family still lives around Detroit. I visit at least once a year and for the past several years, I've been saddened each time I see how bad things have gotten in that area. I've spent most of my life around Pittsburgh, and when I go to Detroit I always remember how economically depressed Pittsburgh was when the steel industry collapsed in the 1980s, but I think that Detroit is even more dependant on the auto industry than Pittsburgh was on the steel industry.

I'm sure that there are many people like the guy you referred to - that "did things right", but were the victim of a "perfect storm". It's truly a shame.

I agree with you about the "appraisers". About 5 years ago, my wife and I were selling our home and had a buyer lined up. One morning, I ran to the store around the corner to pick up a few things - I was literally gone maybe 7 minutes. When I got home, a car was leaving the driveway - it was the "appraiser". He asked my wife how much we were selling the house for and left - didn't go inside, didn't walk around the house - he just looked at the front and asked about the selling price. He appraised the house at $2k over our selling price. It would seem that if you're going to lend substantial amounts of money and accept an asset as collateral - you'd want to have a good idea about the value of the collateral.

[430752]

I agree with that 100%. It's the lack of responsibility on all levels that got us into this problem.

Now the government is bailing out those who acted irresponsibly. What kind of a message does this send? Make sure those who screwed up don't have to face the consequences? Force the people who made responsible decisions to pay for the mistakes of the irresponsible?

This country needs a good leason in personal accountability. We were just about to get one. Until the government stepped in. Now it seems to me more like encouragement to act fiscally irresponsible.

What particularly burns my chaps is the government buying private sector institutions - funnelling additional power to themselves.

All in all, I think the whole thing stinks. And I'm not sure the blame game really matters - especially the way this government is working.

Ummm...are you sure you want this? Cuz it means you, your family, me and my family, and basically the whole country will be broke and starving. Personally, I'd like to see my kids live past their 3rd and 2st birthdays without dying of malnutritution, starvation, or whatever would happen when this country shut down. Cuz the problem with holding the people responsible to blame means three things in my book: (1) that about half the private citizen home owners (or maybe a third?), would be affected. Believe it or not, we need them. A few we could lose, but all of them, no way. Its too freakin' big. (2) next, the real people responsible are the bankers and financial institutions. We lose them, and "to hold those responsible" would mean just about all of them, means we lose not only all of our ecomony (e.g., not a depression, but an assassination of the economy), but the world's economy. Imagine a world with no banks or bankers. and (3) how are we going to elect 90 or 100 new senators and 400 to 435 new Representatives, plus shoot at least two retired Presidents? I mean, really, they're the ones who permitted the mess in the first place. Sure, they didn't cause it, but banking deregulation didn't happen by our say so. But then again, since we elected these bums, it kinda did. So add you and me to the list of blame. Take us all out back and shoot us!

Yeah, it is frustrating. But, who and how we got into this mess doesn't matter right now. You don't perform the autopsy on the crew until after the plane has landed safely. And, as you put it "And I'm not sure the blame game really matters - especially the way this government is working." thank god for that. The blame game shouldn't matter right now, and any politician who plays that game or points fingers or gets in the way of rebuilding should be taken to the woodshed. At least some politician gets it, the amen quote of the week!

[pierhogunn]

How the "Push" from the government works is that banks that did not make loans to risky entities ( Indaviduals, business, etc) in low income areas could be brought up on charges by the feds for discrimination and the like, or they would come under undue federal oversight by the regulators, which has high costs of their own.

The Feds basically extorted the banks to make money available to anyone and everything, whether there was any merit in the request or not.

The banks how ever, not to be out-done decided to make gold-bricks out of the lemons ( they weren't content with lemonade) and built quasi-predatory products to offer in these areas of the country...

One of Citi's executives even claimed as much, on camera, in a symposium on how to prevent today's problems by saying something to the effect of "Why should we stop lending this way to these people, that is where we make a bulk of our profit"

So in a nutshell, Don Sam ( Uncle sam to us) went to the banks and made them an offer they couldn't refuse, and the banks, being the charitable, kind hearted, altrusiticly noble organizations that they are said "Okay, let me get this straight, you want us to make risky loans to risky people, and you don't care what we do to them?" and the government responded "well, all we really care about is making money available to the people, don't bother us with the consequences, that's for the next election"

(and I work for a bank, so what does that tell you?)

[cdub101]

The truth is "flippers" flip in an up market and in a down market. They will find a way to create a spread between what they buy for and what they sell for.

So even in this market they are still flipping.

The bubble in supply is what we have to work through.

The shows that I have the biggest issue with is "What's my house worth"

I hate that they would say you put in $10K worth or material and labor and now your house is worth $10K more than it was before you spent then money and you made a 100% return on your money.

No I just got my money back. No return, my net worth is $0 better than I was before I tiled the bathroom.

And when you would do a $10K renovation and the "value" increase would only be $7K, people would think they got a 70% return on their investment. No, you just lost 30%.

Over the last few years a lot of people’s notion of wealth has been distorted, and we were making distorted decisions.