Bye Bye Banks and Wall Street

[Alex]

Originally Posted by Kevy Baby

About the only Latin I know is Caveat Emptor. While there were mistakes made on both sides (lenders and buyers), the majority of the blame seems to be falling on the lenders.

The majority of the blame does belong upstream from the individual homeowner.

Sure the mortgage company and the homeowner can split the blame 50-50 on the stupidity of the initial loan. But the homeowner gets none of the blame for that stupid mortgage being repackaged in such a way that the entire world economy comes to be so dependent on ever increasing home values that a widespread 5% value drop and less than 3% default rate triggers a global economic crisis.

Yes, there was a lot of homeowner stupidity. But then there are a lot of simply not well informed/educated people who can obviously see that they're getting more than they think they should be able to get and yet being told by a massive international corporation "hey, we're experts in this. No, you can't afford the balloon payment but you'll never need to make it. In a couple years, you can refinance and get out if it, you're personal income situation will likely have improved dramatically since that is the standard life cycle for people, and worst case scenario if you don't you just sell the house at a small profit and move into something smaller when the time comes. We don't want to foreclose on your house so this must make sense, why would we give you money expecting to lose it?" You may recall a thread here on LoT a couple years ago when someone was asking for advice on whether to refinance their loan into some option arms. Fortunately, I believe if you go back and look at that you'll find the LoT giving good advice (primarily that the loan was structured on the faulty assumption of guaranteed appreciation of the home) but there were compelling arguments in favor and the last 15 years supported them.

On top of this you have major "how to" organizations telling people that if you aren't continuously extracting equity out of your house (read: living perpetually at maximum debt) then you're a sucker (for some reason I haven't seen so many people reading Rich Dad, Poor Dad on the train this last year and some).

Lani and I have watched over the years wondering how it is that we make 2-3 times what most people we know do and yet we're driving around in one $22k car, no kids, and an apartment and not exactly socking it away. Yes, it could be said we were very prudent and smart about the whole thing. We're just lucky in that we are temperamentally disinclined to each own a nice car (seriously, if I really wanted to I could have my dream car, an SL500) or even our own house (mostly just lazy, we hate shopping so much that buying a house seems like pure torture).

[The Lovely Mrs. tod]

Originally Posted by Kevy Baby

About the only Latin I know is Caveat Emptor. While there were mistakes made on both sides (lenders and buyers), the majority of the blame seems to be falling on the lenders. We always want to go after the big bad evil corporation but I don't think that people (individuals) take the responsibility that they should.

Again, I am not letting the lenders off the hook in a wholesale fashion; just pointing out that a lot of people made some stupid decisions.

Oh, agreed. But I don't think we HAD to end up where we are because of them. Slamming the door shut on lending wasn't the answer, it may have been the last straw. This has been simmering for several years now, I maintain that it could have been fixed long before it imploded.

[bewitched]

Originally Posted by BarTopDancer

Does whatever bailout they are proposing have any help for people who didn't fvck up and take on more debt then they could afford?

Or are us people who didn't get in over their heads expected to hold on for the dive.

That's about the long and short of it. My house was entirely affordable prior to my (almost but not quite yet) divorce. It is still barely (with child support and spousal support) affordable; but I've had to make cutbacks. Do I get any relief? Does anyone want to cut me a deal? Nope.

Thankfully, my mortgage is held by a smaller, local bank and they have been willing to work with me when I've had money flow problems (like when I had to replace my furnace, air conditioner and water heater-- all within about 6 weeks of each other.)

Originally Posted by innerSpaceman

All in all, I'm about the most non-affected person in America. Oh, and my job only gets more secure as the economy worsens and everone starts suing everyone else for the money owed.

Luckily, my not quite ex is a lawyer too so I feel pretty secure about what I have. In good times, and especially bad, lawyers are ALWAYS in demand.

[Ghoulish Delight]

Originally Posted by Kevy Baby

, the majority of the blame seems to be falling on the lenders. We always want to go after the big bad evil corporation but I don't think that people (individuals) take the responsibility that they should.

As it should. The lenders were playing with an unfair advantage. They were the only ones with implied assurance that the federal government had their back should something go wrong.

It's one thing to irresponsibly put yourself at risk when the playing field is even. It's an entirely different ballgame to knowingly take advantage of people in a situation where you had an insurmountable advantage which guarantees that you can't lose the game.

[BarTopDancer]

What happened to the saying "when something is to good to be true it probably is?"

[Ghoulish Delight]

Originally Posted by BarTopDancer

What happened to the saying "when something is to good to be true it probably is?"

What happened to it is that it's a nice little platitude, but reality is not platitudes. It's just a wee bit more complex than Bartlet's Book of Quotations.

Look what's happening. "Our economy is basically soun......what? It's the BANKS that are losing money?! Oh sh*t, open the coffers!!"

I can't possibly say this any more clearly - I do not want consumers who made poor decisions off the hook any more than I want the sheisters with the money off.

But the reality is, we're dug in deep and we're going to need to do some backfilling, to use a mediocre analogy. It'd be nice if they backfill and get the playing field back to even instead of digging the dirt from the low side onto the high side. Because as long as someone in a two sided deal has absolutely nothing to risk, people are going to get taken advantage of, putting the value of MY home at risk.

[The Lovely Mrs. tod]

Originally Posted by BarTopDancer

What happened to the saying "when something is to good to be true it probably is?"

No one makes a decision knowing it's the wrong one. Alex nailed the lenders' sales pitch perfectly. I can understand consumers feeling abused and resentful of the mere fact that the government is even considering bailing out the banks. Or home owners. But I doubt most of these people intended to default. Lenders refused to negotiate, they refused to modify, some lenders simply sold property without telling the homeowners until the sale was complete.

Had these lenders taken some responsibility for their part in this mess when it started to simmer instead of putting it on the back burner and pretending it wouldn't explode there's a distinct possibility that there would be no need for a bail out. This one was a bad deal, but, I think, it's inevitable that one will be necessary down the line.

[BarTopDancer]

Originally Posted by Ghoulish Delight

What happened to it is that it's a nice little platitude, but reality is not platitudes. It's just a wee bit more complex than Bartlet's Book of Quotations.

Thanks (and thanks to Alex and Moonie too). I am trying to understand this in the scope that it is. I get why it's happening, trying to understand the different thoughts of fixing it.

[wendybeth]

Another problem adding fuel to the mortgage fire is the 2005 BAPCPA law, which severely limited a person's ability to file Chapter 7 bankruptcy. Credit card companies, etc, can garnish wages -which they do, leaving the debtor with little choice but to stop paying other things, like mortgages. It doesn't take much to find yourself in financial straits, especially not these days. Most people are a paycheck away from the poorhouse. Illness, layoffs.....anything can happen to any one of us here that would be our financial undoing, yet we are left twisting in the wind while the government takes our tax dollars and bails out the big boys. No wonder people are so pissed off.

[Morrigoon]

iSm: it becomes your problem when your HOA can't afford to maintain your building because nobody's paying HOA dues on the foreclosed condos.

That's what's happening in our neighborhood. So many defaulting homeowners have simply stopped bothering to pay up their dues that our HOA is strapped for cash right when we have a major termite tenting/painting project going on (one that is LONG overdue and can no longer be postponed).

However you may feel about bailing out the banks, or the defaulting homeowners, etc, the reason that the government is getting involved is that it's not just the wrongdoers or the foolish who will pay the price.

There were lots of people in the 20's who didn't buy stocks on margin, but when unemployment hit 23.6% IT WAS EVERYBODY'S PROBLEM. So you can sit back on your heels and laugh at all the people who are not like you and did things you didn't do getting taken down by their actions. But they're taking you down with them, your head just hasn't gone below water yet. And if you wait till then, it'll be too late. Oops, it probably already is.