Comments on: Cash For Craters

By: Peter Lobo

Peter Lobo — Thu, 26 Nov 2009 03:34:36 +0000

After viewing your article Bill and the comments particularly by Eric, Filmrisk and Jeff Rosenberg I was struck that everyone spoke some of the truth.
Cutting to the chase
1) People bought under pressure of rising prices and flawed advice and lending practices. – Reason- Bad sales advisers and Financial institutions and Govt monitoring practices.
2) That does not absolve purchasers from making unaffordable stupid mortgage commitments OR CAN afford but are just underwater and want to bail as their model of what should happen failed. Reason – Homeowner failure to be prudent
3)Why did many of these people NOT pay of their loans so they could be safe if someone got sick or lost their jobs – or is it because they could have a tax write off and spend recklessly on fun or nice to haves? – Reason – Homeowner failure to be prudent
4) Collapse of Real Estate pricing by speculators putting good home owners in a hole is true, as no one lives as an island. Example -if a neigbours house is rat infested, it affects the neigbourhood
Reason – Failure of Government oversight and homeowners both to differing degrees.
5) Finally re: bailout of the above it is not really possible. Heres Why!
a) The values have to go down to be affordable to succeding generations.
b) Stupidity and culpability comes at a price even to the somewhat innocent. A best can do, is to have a net to prevent starvation which should be funded, and to have these people move to affordable rentals which there will be an abundance of.
c) These people never really owned their homes -just paid rental via mortgages and the rent has become unaffordable due to job loss or other and should give it up.
d) It is immoral to saddle both the prudent fully paid owners/renters with their debt, or succeding generations with additional government debt via future taxes.

Tried to say this all succinctly – hope it makes sense.

By: bill

bill — Sat, 21 Nov 2009 19:13:40 +0000

11-19-09 — AP – WASHINGTON – A rising proportion of fixed-rate home loans made to people with good credit are sinking into foreclosure, adding to concerns about the strength of the economic recovery.

http://www.msnbc.msn.com/id/34039065/ns/business-real_estate/

By: bill

bill — Thu, 19 Nov 2009 05:02:36 +0000

Jeff: Thanks for checking back in. Understood.

By: Jeff Rosenberg

Jeff Rosenberg — Wed, 18 Nov 2009 22:26:54 +0000

Bill — I’m back, after a very busy week without making any progress on my promised lengthy comment. I fear I won’t tie it all together and post it, though I shall try to find the time to do so.
Should I not post further on this matter, suffice it to say that both Eric & Filmrest’s comments express portions of my views very succinctly.

By: Homer Simpson

Homer Simpson — Wed, 18 Nov 2009 04:26:27 +0000

My realtor said, “You better buy now before you get priced out of the market forever,” in ’2004.

Rather than listening to her, I rented a home for the past 5 years and just bought a foreclosure for 1/2 the price it was two years earlier.

Sucks to listen to realtors, so I hear…

By: Filmrisk

Filmrisk — Mon, 16 Nov 2009 23:25:02 +0000

None of this changes the fact that there is market risk involved in every purchase. For all the excuses offered for the so-called ‘innocent’ victims who can no longer afford their mortgage, if they can’t afford their mortgage payments now, they should not have bought the home in the first place.

When home prices went past 2.5 x income, 3x income and (far) more, the responsible decision was to NOT BUY.

If you were counting on ever-rising home prices and refinancing to allow you to keep your payments current, you should not have bought.

If you were not already making enough money to pay any possible payment that could occur under the terms of your mortgage, you should not have bought.

If you could not understand the terms of the loan and did not have the sense to have an attorney explain what the contract meant, you should not have bought.

It is not the responsibility of the government, the taxpayers, or anyone else to guarantee that something you buy will not go down in value…

You suggest that those who truly showed responsibility – the ones who did not participate in the insanity of real estate in the last decade – should bail you out because ‘people in craters don’t spend money’. A famous writer once said democracy is not a suicide pact. Well, neither is capitalism.

People who bought when they should not have, took out loans they did not understand and could not afford need to take their lumps, eat their losses and learn a lesson. Then perhaps in the future their judgment will be better.

By: Eric

Eric — Mon, 16 Nov 2009 12:42:37 +0000

This artile has some provocative ideas in it, but from the first paragraph it throws out some very challengeable comments. Such as:

“As you sit in your living room, do you feel as if you are treading water in the bottom of a crater, staring up at the walls of seemingly insurmountable mortgage debt that now surrounds you?” I ask, how does the drop in asset value do anything to increase mortgage debt? It doesn’t. Or:

“During the rest of my lifetime, there is absolutely no way I can earn enough to get out of this hole.” Again, it makes absolutely no sense that the current asset value of the house influences the ability to service the debt held against it. Or:

“I didn’t do this. I’m a victim of the irresponsible actions of others.” This only makes some sense if you think of a house as an investment. But as anyone who invests understands well, not all investments perform as anticipated. This does not make anyone a victim. If you don’t view a house as an investment, then again there is no victim – you get to stay in the house for what you agreed to pay for it.

These are serious issues for all Americans, so care should be taken to discuss them in the most accurate way. Conflating asset values with the ability to service a debt is inaccurate and describing the sitation as generally one of being a victim is also inaccurate.

By: bill

bill — Thu, 12 Nov 2009 04:35:49 +0000

Jeff:

You may also want to refer to this article that I authored as a context for what I have elaborated on in “Cash For Craters.”

http://www.billdahl.net/articles/rmc2-recovery-and-the-misunderstood-u-s-consumer-conundrum/

By: bill

bill — Thu, 12 Nov 2009 04:16:00 +0000

Jeff: Thank you for your cogent reply. I look forward to your treatise. Please feel free to post it on the blog so others will have an opportunity to read it and respond. Trust me! "I hear you." I possess many of the same disappointments you refer to regarding the effort to provide a safety net for those considered "too big to fail" or those posing "systemic risk." However, my study of the "crisis" (...ongoing) and what do do about the numerous dimensions of it are informed by both history and the complexities/differences of this crisis vs. those in the past. Harvard Economics Professor Kenneth Rogoff has a new book out entitled "This Time Its Different" and has some very interesting insights you may want to devour. You can also access some of his myriad of papers here: As Rogoff says in one of his papers with Carmen Reinhart (University of Maryland and NBER): one would be wise not to push too far the conceit that we are smarter than our predecessors. By the way, please appreciate that I am grateful for your position on these matters - and that you are willing to express them. I have no intention of attempting to convert you to my perspective....simply sharing views. Thank you for your ongoing thoughtful commentary. Best, Bill

By: Jeff Rosenberg

Jeff Rosenberg — Wed, 11 Nov 2009 21:24:58 +0000

Bill,
Thank you for for responding to your readers. RE: my reply, I’ve started a treatise in MS Word which will be emailed to you upon completion (in a day or two). Suffice it to say: the US consumer has been led — willingly — astray by business and political leadership for many decades, and now must pay the piper. Gov’t efforts to prevent the severe, widespread, and debilitating economic fallout only prolongs the agony and prevents the necessary lessons from being learned. The only way to recover our “sense of confidence, fairness, trust and hope” is to renew AND DISPLAY our commitment to follow free market rules, yet the only rule currently being followed by our leadership is to avoid pain as much as possible.

The Fed & Treasury officials were right to judge the past two years full of systemic risks. Seeing as how perverse the system had become, it would have been better to let it fail.

Yes, I understand the consequences and subsequent pain that would be brought about: economic devastation, likely violent social unrest, political upheaval, worldwide security concerns as US power collapsed. Still worth it.

BTW, I take a historians long-term view of things.