wouldn't it have been easier...

Re: wouldn't it have been easier...

Regardless of the pros/cons of doing so, I don't think there's enough money in the spending bill to do that.

The spending bill is what, just under 1 trillion dollars. I would think the outstanding mortgage debt for primary residences would approach 10 trillion.

Anyone have any figures?

Re: wouldn't it have been easier...

As we saw in the "Are you changing your behavior . . . ? " thread, it's almost impossible to separate the two, at least on this subject. I'll leave the thread open, but it'll be closed at the first sign of political comment.

In the meantime, a purely financial observation: Paying off the mortgages won't solve the banking problem. The problem with the banks isn't bad mortgages on the books. It's bad securities derived from mortgages (hence the term "derivatives"). Paying off all the mortgage, even if it were feasible, wouldn't solve that problem; it would probably make it worse by depressing still further the value of those securities. Until the banks are forced to accept the pain of the write-down that their balance sheets have to suffer, we're not going to make any progress.

Re: wouldn't it have been easier...

The sub-prime mortgage market is about $1.3T, according to wikipedia. Per se, with the prospect of about $1T in "stimulus" spending, it would seem that we could just ourselves out of the problem.

But as Michael notes, we've moved past "mortgage crisis" into "credit crisis". (Which, according to one analysis, happened in Sept 2008 when Lehman Brothers collapsed, injecting sub-prime mortgage problems into previously unrelated financial sectors).

But even so, what would happen if there was a national mortgage buy out? I think it would lead to a major a new housing bubble.

Suppose the the Feds announce they'll pay off all mortgages from the past 5 years. You now have an incredible number of people with massive equity who will want to cash it out: they'll put their (newly paid for) house on the market and look to buy up. Boom, instant bubble. It will also hurt those who are under water on houses bought just before the Fed-pay-off cut-off.

If the Feds said they'd pay for all mortgages taken out as of the end of '09 -- an insane thing to do -- you'd have gold rush as everyone tries to grab an over priced house because it would be essentially free.

Re: wouldn't it have been easier...

I certainly would not like your plan. I worked hard for decades to pay off my mortgage. Why should I receive NOTHING for this sacrifice?

Re: wouldn't it have been easier...

I'd say the crisis came then, but the injection happened much earlier. It was arguably a foregone conclusion from the moment Congress repealed the Glass-Steagall Act in 1999 and allowed banks to own brokerage houses and investment banks. From there it was only a matter of time.

Re: wouldn't it have been easier...

This is my problem with any mortgage bailout. It rewards people who bought more expensive houses than they can afford, while effectively punishing people who were fiscally responsible. Those who signed mortgages they couldn't afford in the long-run (even if their financial situation hasn't changed one iota) deserve to be foreclosed on. Those who signed mortgages they could afford deserve to keep making payments. A culture of childish, impulsive excess on all sides brought us into this crisis. A big, bold series of bailouts might stave off the worst of the pain, but we'll only be setting ourselves up for the next bubble to burst. This is our chance to break the boom-bust cycle of the last thirty years which has kept us swinging from recession to overinflated growth and back every three to seven years. A big recession now that leaves behind a more responsible philosophy in its wake would probably be better for the nation's long-term prospects. "Savings" needs to stop being a swear word.

Re: wouldn't it have been easier...

I still like my idea of a national debt forgiveness day. As of 1/1/09 everybody is forgiven of all debt small & large. Granted some people will make out better than others, but it will free up vastly large sums of money to get things going again. And don't worry about the people doing the lending. Chances are people will start borrowing right away and they will be getting their interest.

Re: wouldn't it have been easier...

I'm leaning more on the side of "let them fail". Everyone must accept responsibility for their mistakes, large or small.

However,

For those who were misled into accepting a sub-prime mortgage (there's a lot of victims out there), I would definitely give them a bit of leeway, but only enough to put them at a level where they'd be paying back their mortgage at the same interest rate and payment schedule as an individual who signed a regular mortgage.

This way, everyone is on a level playing field, and no "free gifts" have been given to anyone.

As far as all other debts are concerned (especially credit cards), it's your mess. No bailout there.

Then again, it's very easy for me to say all that. I'm Canadian. No sub-prime mortgages here, and no failing banks.

Re: wouldn't it have been easier...

You're assuming that such people could afford to make payments on a "regular" mortgage (whatever that means. Who decides what the interest rate "should" be?). That's not the case for many of them. They could only afford the teaser rate, buying more house than they had any business getting. In that case, your proposal doesn't help.

I'm very much against bailouts, including those for the banks. It was reported that banks getting bailout money are lending at a lower rate than those that didn't. So much for helping everyone by "freeing up credit".

Re: wouldn't it have been easier...

I'm not sure everyone is understanding what "bailout" means in practice. As far as I'm aware of, no one is receiving final pay-offs of anything. Until now, banks (and some other parties) received big loans to better their 'liquid' assets.

Although replacing your mortgage by a loan of the government would slightly better your position, you'd still have to pay, and your total debt wouldn't change, just the party you owe money to.

Unless of course I'm mistaken and anyone is aware of money that was given (for good, without any oblgation to pay it back and without anything in return) to any party, as part of a bailout operation.


Cees

Re: wouldn't it have been easier...

The proposed spending bill does have a provision for replacing the $7,500 First-Time Homebuyer Tax Credit (which had to be repaid) with a $15,000 Tax Credit for anyone who buys a home within one year of the bill's enactment (or 10% of the purchase price of the home, whichever is less). The $15,000 does not have to be repaid as long as you keep the home for more than 2 years.

Re: wouldn't it have been easier...

Tony Blankley, previously editor of Wash Times, has argued that it's much too early to explain the problem and assign blame; if we're still arguing over the Great Depression, how much less can we comprehend the current crisis in the midst of it.

I'm not sure I fully agree, but as you point out, this problem runs deep and with historic roots 10+ years ago.

Re: wouldn't it have been easier...

One senator proposed just sending a check for $10,800 to every household in the US. It would cost the same as the present stimulus bill and would probably have a much greater and more immediate stimulus effect.

Re: wouldn't it have been easier...

Or people will use that money to pay down as many outstanding debts as possible, or hold on to it for emergency use at a later date, with very little of it pumped back into the economy. That was a scenario brought up by Arlene Dickinson, one of the Dragons on the CBC television show "Dragons' Den", where they were asked not that long ago how they would divide a hypothetical Canadian stimulus package of 20 billion dollars.

BTW, I believe nothing was given to the domestic car makers. Kevin O'Leary even called them losers, going as far as to say "pull the plug and let the grandmother die". Ouch!

Re: wouldn't it have been easier...

From a purely academic point of view, it's hard to disagree, but waiting is a luxury we don't have. Remedial action requires an understanding of the causes, even if it's not a perfect understanding. Historians may still be debating the causes of the Great Depression, but that didn't prevent numerous safeguards from being enacted in its immediate aftermath, and they worked pretty well, until a key one (Glass-Steagall) was repealed.

Re: wouldn't it have been easier...

Actually, they were given over $17 billion in loans. I have doubts that will be repaid anytime soon.

Re: wouldn't it have been easier...

This is certainly true to an extent but there are still people losing their jobs daily who want to pay their bills, have always paid their bills but now can't. I was laid off in October and if the appeal on my unemployment doesn't go through next Monday then I'm going to be in trouble. Living in such a small town with no job openings leaves me with the options of moving again or perhaps going back to school for a different trade. Each one is going to cost more money, which is just going to be more bills to add up to what we've already got. I could walk away from the house stuff since it is my girlfriend's but I'm certainly not going to do that to her.

This is a two family home, which I believe she paid around $220,000 for. WAY WAY WAY too much for her living on the upstairs and especially her mother living downstairs. Being "two houses" might sound like a good deal but there are so many troubles here a disaster is just waiting to happen. They received way too much of a loan before I came into the picture or God knows I never would have been okay with any of it. My girlfriend was told on Friday that U.S. Bank is going to have to cut two hours back off each paycheck, which to me is just a way to say she's eventually going to be laid off.

So far the bills haven't been missed but things could change. I always fight with her that it's her fault for getting such a large loan but then again, even if we were in a cheap apartment we'd be facing the same problems but perhaps on a different level.

Re: wouldn't it have been easier...

Sorry. I meant the Dragons gave the automobile industry nothing. And I'm afraid you're right about reality. You Americans just lost 17 billion, or just under fifty bucks per American citizen. Or was it 25 billion? I've lost track.

The Canadian government gave them 4 billion, or $115 per Canadian citizen. Our per capita "screw" is higher than yours! Go Canada!

Re: wouldn't it have been easier...

You know, Francois, you may have just inspired me with a new idea seeing that Canada is so generous to automakers. The legacy auto industry is centered around the Detroit/Windsor axis. Why not cede the US portion to Canada and make it part of Ontario? The new line could extend down from Saganaw Bay towards Toledo OH roughly along the line of highway 23.

Think of the advantages. The legacy car companies would stop being the inferior "domestic" ones and become the preferred "import" ones throughout the US.

Re: wouldn't it have been easier...

Throw in your sports teams, and it's a deal! Toronto is desperate for a REAL NHL franchise!

Re: wouldn't it have been easier...

A major endorsement for the stimulus: A-Rod Backs Stimulus - Borowitz Report

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H

Re: wouldn't it have been easier...

As someone who has been looking for full-time employment since last June, I can certainly sympathize. But other than a moratorium on foreclosures until the economy stabilizes, would any mortgage bailout rectify your situation? If there's no income coming in, even heavily subsidized mortgage payments would be tough.