Can we stop blaming the sub-prime meltdown on the borrowers?

[salin]

Let's not pander to the media game of focusing on individuals who are losing their home, who to readers look like:
duh, how did you possibly think you could afford *that* house.

Yes their were some greedy lendees. Yes there were foolish lendees. And yes their were some foolish, greedy "flippers" and developers who should have seen that they were putting themselves into a potential financial vice grip.

However - there are two points that are largely missing in the discussion on this board about these stories.

1) There was a serious problem with predatory lending in urban areas since the early 2000, where home owners in poor, minority areas were targeted (especially the elderly) and told how refinancing could help with current crises (health, and otherwise), where a lot of fraudulent practices per hidden fees, not explaining complex resets, etc. left individuals unknowingly exposed. There was WIDESPREAD fraud. And when states like Ohio, tried to pass laws to prevent predatory/fraudulent practices they were overridden at the federal level with the now familiar claim (per EPA using it elsewhere) that allowing states to have their own sets of differing regulations would be too difficult for the "industry" and it was better to have a single set of federal regs (much looser).

2) There was a serious need to fuel the housing "boom" by whatever means from both Washington and Wall Street. On the Washington side, go back to 2002 with a slowed (recession) economy and the reports month after month of the one sector that was "booming" was.... the housing market (refi for home improvement; refi for consumer spending; new housing) - it was what seemed to keep the "economy" running. There was an incentive to turn a blind eye, and indeed when the bankruptcy bill finally was passed into law - all efforts to crack down on predatory lending was thwarted.

On the Wall street side, after the corporate implosions of 2002 there was a skittishness about getting back into the market, especially for large institutional investors (think pension funds) - suddenly there was a growing demand for these "safe" new financial vehicles that purportedly would provide a steady flow of money to the investors due to mortgage payments, and were purportedly leveraged in a way to lower risk. There were tons of fees to be made from lenders, brokers, rating agencies, etc. The reports on how little oversight (as in fiduciary oversight) was exerted is shocking. However, it was a new money train and who would want to rain on that?

3) Blaming foolish, greedy or preyed upon lendees is misplaced when considering the whole debacle. Except for the flippers and developers - these were folks engaged in a SINGLE transaction. The mortgage brokers, lenders, etc. were engaged in hundreds, thousands or tens (hundreds?) of thousands of such shaky transactions. Which has the greater impact on the debacle and melting down economy? The individual lendee? Or the lenders who dropped previously accepted practices (such as employment and income verification, studying the debt ratio of the lendee, etc.) in order to "make the deal"?

Please do not take me for saying that lendees have no blame. Many were foolish. Just the premise of the ARMS, as they became known, made my skin crawl - as my risk adverse nature just thought it was crap shoot thinking to finance a home with these things. However when we talk about the overall problems and possible fault lines running throughout the economy, lets keep focused on the culprits. One faulty/foolish loan is the blame point? Or the thousands of loans, the intentional blocking of tightening regulations on lenders, the greedy and due diligence roles of lenders/investors/bundlers being dropped to keep the money train flowing?

[Bandit]

1. I disagree. People have to take responsibility for their financial decisions

It is like saying Bush* isn't responsible for the increase in National Debt..IMO

[salin]

2. Did you read the post?

I don't free from responsibility those who took out these loans (except when they were victims of fraud). However I am pointing out that when we look at the big meltdown in the economy - it makes less sense to blame a whole lot of individuals who made a single loan - vs. those intentionally making thousands of these shaky loans, and those (fed level) who went to court to prevent states from passing new regs (esp in urban areas related to predatory lending), and the wallstreet institutions turning a blind eye to fiduciary responsibility per understanding the new financial "vehicles" and making sure that they were as "secured" as they were markted to investors to be.

In terms of the big picture - responsibility I think falls more to the large institutions and down to the individuals making the loans.

In terms of folks who are losing their homes, except for those who were victims of fraud, I agree that is individual responsibility to the lendees.

[AdHocSolver]

96. The whole housing fiasco was a scam designed by corporate financial insiders.

The borrowers were dupes who were fed a line of bull to ease any concerns. The Fed under Greenspan did its part by keeping interest rates artificially low. Bill Clinton did his part by driving the final stake in the Glass-Steagall Act, legislation originally passed by FDR as part of the New Deal, to prevent the kind of speculation that led to the Great Depression and the current real estate meltdown.

Just as much of the stock market is based on a Ponzi scheme, the free-wheeling mortgage market, as well as the stock market bubble, was orchestrated by the corporate insiders to steal people's savings. The Fed kept interest rates low so that banks paid next to nothing on insured CDs and savings accounts. The suckers looked at all the capital gains people were making on the stock market, and took their money out of insured accounts and invested in risky stocks. Of course, they didn't understand that it was the money that they and the other suckers threw at the stocks that was causing the price rise. At some point, the people will stop buying the stock, and the price will start to plunge. That is how a Ponzi scheme works. The insiders, of course, will have long ago achieved their profit goals, and couldn't care less if the stock price tanks.

The housing price boom was set up in the same way. The Fed keeps interest rates low so that mortgage payments are lower than they would normally be. Then the real estate companies, whose commissions and earnings are based on the price of a house, encourage buyers to pay more than they can actually afford, based on monthly payments and ignoring overall cost. ARM's sweeten the deal and further lull the buyer into false security. American consumers and investors tend to be easily suckered. If the lenders really worried about getting paid back, they wouldn't have made many of the loans.

This is exactly what happened in 1929 and the early 1930's. This whole bubble and subsequent meltdown is supposed to work that way. This flurry of activity to "save" the markets is designed merely to prop up the system until all the "big boys" get their money out. Company "A" buys company "B"s stock, and "B" buys "C"s stock, and "C" buys "A"s stock. This keeps the price of the stock of all three companies up. Once the insiders get their money out, the price of the stock, based on nothing but this round robin of buying and selling, is supposed to drop. The suckers are supposed to get stuck with worthless paper. Then they can blame the "victim" for losing his investment. It was a risk he took on himself. Nobody made him buy over his head, or invest his savings in "risky" stocks.

[truedelphi]

63. I felt the way that you felt until I started hearing some very troubling stories

People who were told that their new mortgage was not going to have any closing costs - until the day of the closing when the phone rings "You will need to come with $ 6,500"

People who were told one figure as being valid for their monthly pay out - only to find out that that was a lie. And this is just a fraction of the deception that went on.

I experienced some very dishonest, very ugly activities when I bought a used car in 2002. (At that point in time, my credit was stellar. And my purchase was smart enough that it outweighed the horrid things that happened to me inside the fiannce office.) But I had no idea that people could end up being lied to in the same way about their purchase of a home. It is supposed to be carefully regulated, right??

Most people in our society have very little understanding of money and how it works. I remember how badly I felt when I worked for Silicon Valley companies in the early eighties - young engineers would be offered seven or eight thousand more than they were making- say in Omaha - and they had no idea that it was going to cost them 12 to 14 thousand more a year just to survive.

Plus forget about their ever owning a home. So for that seven or eight thousand they would also be losing their mortgage deduction.


I really do not think that it is an accident that people do not have a basic understanding of money, income, taxes, tort contracts etc. If someone ever makes me "king" every high school senior would take a contract law class, (so at least they can negotiate a lease or a sale of property) and also a basic "personal wealth" class.

[AdHocSolver]

87. He isn't. The Congress that controls the purse strings gave it to him. n/t

[Morereason]

103. ah yes, Milton Friedman's social darwinism trumps empathy.

I don't buy MFs free market religion. We have a history that in the past used regulation and has helped people even when they make mistakes. It is integral to having a middle class, despite what the corporate masters would have folks believe.

Reinstate regulation and fair bancruptcy laws and I would agree with you. But our current setup will make some who make mistakes pay all of their lives, and some with their lives.

[NashVegas]

3. It's Everyone Involved

If homebuyers had refused to budge on anything that goes over 2x their income, there would have been tons more affordable housing built over the last 7 years, and prices wouldn't have gone through the roof.

If homebuyers would have bought homes they planned to live in for 10 years or more, we wouldn't be seeing what's happening right now.

If Wall St. hadn't been so fucking greedy, we wouldn't be seeing what's happening right now.

[salin]

6. That middle point is the something "new" in the equation.

The first point hasn't been true in very expensive markets for years (think: those living in the SF bay area - even moving out for a one-hour commute while the prices were lower, they often exceeded the ratio you state).

The third point - that has been true for eons - an industry that makes money by providing little service or goods, just moves money around and extracts big fees. (Okay maybe that is a little harsh)

But the second point - that is new the idea that one is buying for a very short period of time, and with the goal of "making money" on the sale. Where did that attitude/practice come from - that isn't a long-standing behavior of homebuyers, except perhaps for those in jobs that involve constant relocations.

Also new is the concept of taking out equity from homes NOW for nonessential costs (as in not for financing a college education for a child, or to pay off unexpected medical expenses). Both of these newer trends that contributed to this mess, seem indicative of a frame of mind that is really troubling.

[Donnachaidh]

13. your third point is FAR from Harsh - I'd say it's right on the money (no pun intended}

"The third point - that has been true for eons - an industry that makes money by providing little service or goods, just moves money around and extracts big fees. (Okay maybe that is a little harsh)"

I've worked for mortgage underwriting companies in the past (before all this crap hit the fan) and watched BOTH the underwriters AND the mortgage brokers spin figures primarily to get their FEE. It didn't matter that the homebuyer would have to pay more, it didn't matter that some of the income listed was pulled straight out of someone's ass -- as long as they got their FEE and hit a company quota -- they'd do it. And they'd be positively GLEEFUL every time a potentially *problematic* mortgage got *slid under the door*.

People think lawyers are bad? Please -- they're NOTHING compared to the thieves that work in the mortgage business. NOT.EVEN.CLOSE. :sarcasm:

[salin]

17. has this always been the case? Or has it gotten worse in recent times?

I am under the impression that this is relatively recent. But as I think about it the only reason I have this impression is reading a single article from a long time industry player (20 years +) who expressed concern about loosening lending standards in the last decade, and claimed that the practices today were vastly different than practices ten years ago. He went on to blame the pressure to get more and more loans due to the voracious appetite for mortgages to bundle from Wall Street. Thinking back about the article, perhaps he was just trying to shift blame and the field has always been a sharks nest?

[NashVegas]

14. "Flip This House"

It's still listed in my cable guide as running.

A culture of buying to sell was promoted. That's one reason so many of us were pointing out that it's a bubble.

[Xenotime]

132. People try to make some insane money on that show..

If you are selling a house and making a profit like they do on that show, it should be illegal.

[BadgerLaw2010]

28. Housing is not immune to economics. If people won't pay X price, X price drops.

Or perhaps you believe that California real estate is still going up? Seems that Californians finally are refusing to pay rediculious markup for property, yes?

There is blame to go around, but there were millions of people who were buying houses they knew - or damn well should have known - they couldn't pay for, or trying to become real estate moguls on the cheap ala "Flip This House."

[AP]

122. But if people can pay 1.5X, rather than X because banks are willing to sell them "exotic" mortgages

and then reasonable and unreasonable all have to bid for the same house...

[selador]

80. oh please

"But the second point - that is new the idea that one is buying for a very short period of time, and with the goal of "making money" on the sale. Where did that attitude/practice come from - that isn't a long-standing behavior of homebuyers, except perhaps for those in jobs that involve constant relocations."

this is a common practice in nearly ALL markets that go through parabolic rises.

what amazes me is the ignorance of people who don't understand that this has happened for CENTURIES, in all sorts of markets.

it would be surprising if it DIDN'T happen, given the parabolic nature of this last real estate bubble.

and it poses veery little risk to homeowners that didn't overextend themselves by using BASIC rules like not buying homes that are excessive multiples of their income.

period.


you need, and others who think is something new, to study the history of speculative markets. this has happened for CENTURIES. the reason it happened in real estate is the same reason it happened in dutch tulip bulbs CENTURIES ago, in boiler room stock deals at 10:1 margin in the late 1920's, etc. etc.

see also: the greater fool theory.

i am sorry but anybody who buys an asset that is worth multiples of their yearly income based on the prediction that the price will go up, and he can sell it for more (especially in a shorter timeframe) is taking risk, and risk is... RISKY

it's one thing to put 5% of your portfolio into a speculative investment (or trade) . fortunes have been made that way, and at most you are risking 5% of your investment portfolio. i have a friend who bought Google at IPO and realized 700% gains in a few years. that's the market.

but real estate is an illiquid investment (let alone trade), and we are not talking a small speculative nibble here, we are talking people taking out mortgages for 7 or 8 times (or more) their yearly income?

and they are suprised when prices go down and they lose money?

cry me a frigging river.

this is NOT new. it's ALWAYS happened in markets, and always will. and there is nothing wrong with it.

if you are going to take extraordinary risks with massively overleveraged specultive purchase(s) you have ONLY yourself to blame when and if you lose massive amounts of money.

it just never ceases to amaze me that people think this is some kind of new phenomenon. to paraphrase the bard, there's nothing new under the sun.

[salin]

82. While I don't question your point (it makes sense),

as one who has never played, nor studied speculative markets - the idea of using a home - a source of equity, as a speculative vehicle for quick money, just as the idea of using the equity in one's home as a means for nonessential/nonemergency spending, is frankly foreign and thus it seems different than other "speculative markets"... even though, as you point out, that is exactly how these houses in question were functioning. Points well taken.

And I agree that folks were foolish to take on so much risk.

[selador]

83. thank you

and i also would want to say i do NOT state that there is not some blame amongst the predatory lenders.

i do say that, to a large extent, the whole unconventional mortgage thing, and predatory lending thing, is as much an effect OF buyer frenzy, as it is a cause of it.

iow, the market responds to demands. when everybody and their mother wants to start real estate spec'ing, etc. the market creates vehicles to facilitate these desires.

when i saw guys in downtown seattle with sandwich boards standing on the sidewalk advertising MORTGAGES, i rolled my eyes.

i can't tell you how many people i talked to a year or two ago who insisted that real estate prices HAVE to keep going up, that it's a NO risk investment to buy a house, etc. seriously. it sickened me.

ask any longterm successful speculator, and they will tell you that euphoria is a more dangerous emotion than fear when it comes to trading (in any market).

and part of the reason that professional spec's can make so much money is that most people are not cut out for these kinds of markets. they are bold when they should be cautious and cautious when they should be bold.

heck, i sound like i'm channeling yeats...

"Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity. "

wow. does that sound like the real estate bubble or what?

i recall seeing a segment on CNBC where they were interviewing a miami realtor (before the bubble popped there) who said (i'm paraphrasing from memory) that it was a NO RISK proposition. all you had to do was buy and you could be certain to sell for a profit in 6 months, etc.

i'm also reminded of the adult learning concept of recency. people who get caught up in speculative markets lose longterm perspective. the only "reality" for them is the recent past, and since prices have gone up in the recent past, they must continue to do so.

[salin]

85. I agree... with one caveat

and its a big one... there was a lot of incentive from different sectors to keep this market moving - it was about the only sector of the economy that was moving in 2002. And as a result a lot of practices went into feuling this frenzy and a big problem, that I consider to be one of the major problems - was that old standard practices of lending appear to have been thrown to the wind. How mortgages were made with no credit checks, no verification of employment, no study of debt:earnings ratios (to determine ability to pay) is a clear departure from previous practice. I attribute the lax practices both to the securitization of the mortgages (someone on this thread posts very clearly on this process) where the risk was seen to be divorced from those initiating the loans (so the reason for due dilligence were seen as non important, since it wasn't the originators potential risk), and the frenzied atmosphere you describe per the speculation bubble.

That first one - the letting go of old lending standards/practices - is the caveat, I believe that played a major role in letting the speculative market grow and expand.

I have to agree with all else you have written. Hadn't heard of the term recency - quite accurate, and somewhat explanatory for the irrational behavior of many who took out these loans (esp the ones that were 4X or more the income of the borrowers).

That said, after your informative posts I am left thinking of tulips ;-)

[selador]

90. yes

the whole concept of "no doc" loans is simply insane.

btw, since you like recency, here's a really cool list of cognitive biases i found on wikipedia with some good links

understanding these biases gives one a lot of perspective into all sorts of areas of human behavior (including one's own).

it's amazing how many political discussions/arguments, current events, trends, etc. can be better understood by understanding cognitive biases.

an internet standby is the logical fallacies "dude, that is an ad hominem" etc. people love to point out the extensive use of logical fallacy in argumentation. and that's good

but i think cognitive biases are often overlooked as a method to understand things. and they are AMAZINGLY applicable to political beliefs, and that applies to lefties, righties, and everybody else.

great great stuff

http://en.wikipedia.org/wiki/List_of_cognitive_biases

endowment effect, for instance, explains much in regards to seller actions in the collapse of the real estate bubble - and the tech bubble as well

the primary difference between real estate, and assets like stocks is that stocks always (at least when the market is open) always have an EXACT price being set by the market. there is no disputing it. and the bid/ask is the same for everybody.

real estate is a little different in that every house is de facto different (even the exact same model in the same neighborhood still has different levels of wear and tear, yard upkeep, location, etc.)

this fact facilitates owners into fooling themselves, as to their belief that their house is worth more than it is actually worth. at least in terms of PRICE if not VALUE

[salin]

91. Thanks for the link...

in grad school I took a psych course on decision making - which focused on similar topics to that list. For example the recalcitrant belief in the "hot hand" theory in basketball, even when reviewing statistical data that clearly indicates that there is no such phenonomen.

Btw, as i missed saying it earlier: Welcome to DU!

[selador]

94. thanks n/t

[Morereason]

104. I do't want to go back to the "good ol days" of the dark ages. Social darwinism was trumped for a

time. That was why we had a "middle class". I have to wonder how old some on this board are. They really have no idea of what the country was like 40 years ago. The mortgage markets were regulated. Until recent times you could not buy a house without at least 10-20% down. It was not perfect but it worked for the most part at keeping these things under control.

Add to this the reduction of capital gains taxes on the sale of non-primary residences and the entry of huge capital funds based on speculation, which is REALLY what has been the inflator of housing prices, and you end up where we are.

We have been much better than this. I am sick to death of short sighted people with uncompassionate ideologies and shallow ideas who keep the country from growing. We do not need to allow a quarter of humanity to suffer and starve in order for the rest to live. This is a fallacy.

[we can do it]

39. Finally, Someone Makes Sense, Preditory Lenders and Borrowers Made This Mess

It not just the banks who are greedy, what about the assholes who bought way more than they could afford, or those who re-mortgaged to pay for plasmas, boats and other shit then throw their hands up and whine when they get the bill. Why should we who are living within our means pay for ANY of this?

[salin]

40. Don't get me wrong (I don't favor any sort of "buyout")

I think that is looking for an answer to what I predict will be a smaller problem in the long run (the individuals with the bad loans.) I hope congress stalls on this effort.

But - to blame individuals - with single loans - compared to the lenders who made thousands of these loans - who stopped following standard practices such as - checking income, debt ratios, etc.? There is one root problem. Then what about the financiers - creating this new "financial vehicle" - on risky loans - but market them as safe - and sucking up HUGE fees on the way; and the rating agencies barely glancing at the contents of these CDOs and then rating them high/safe for investors? These are the SERIOUS problems.

The news at the end of the week about banks calling in margins - this is going to have HUGE implications and this is where congress should be attending - not on the individual mortgages/homeowners.

I am linking to a thread on LBN which raises the spector of how big financial problem we may be facing and a link from a post on that thread:

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3216266&mesg_id=3216266
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3216266&mesg_id=3217472

By casting the story as dumb/greedy folks taking out risky mortgages they can not afford - diverts our attention from both the major causes that need to be addressed to prevent this from recurring AND from the very real financial/economic crises that we could be facing as a result of these lending (and loanbundling) practices that have gone unchecked for the past recent years.

[we can do it]

89. I Think We Bascially Agree, Then.

;)

[JVS]

120. I agree

[Hydra]

4. This is such a non-issue

Most people don't even understand that these loans are made with NO FINANCIAL BACKING.

The banks spin money out of nothing, and somehow it's the borrower's fault when the banks decide to burst the housing bubble.

Bushco and the Fed are the ones running the nation into the ground- not the person who was told the could refinance in two years.

[salin]

7. You said it much more concisely than I

But down count out the financial institutions (Wall Street) and their role in creating such a vaccuum for these mortgages so that they could sell more of their fancy new "safe" investment vehicles.

[Hydra]

16. Pfff

You wanna be outraged? Look up John Paulson- he's apparently made 3-4 BILLION on a "hunch" that the subprime market was going to fail. Oh, and guess what? He's offered his good friend Alan Greenspan a job.

Gee, I wonder where his "hunch" came from?

This was all planned out, and while people are busy blaming the people who were taken for a ride, the thieves are getting away with it!!!

[salin]

19. Enron... Lay very carefully laid a plan

to create a regulation free energy as a commodity market at least 10 years before markets started being deregulated - following that story both at state and federal levels shows that it didn't just spin out of control and happen - it was a very intentional step by step plan. Not that I think Lay envisioned his great company tanking - but he did (scheming originally with Michael Millikin) plot, plan, lobby and change laws/regulations etc. for years to CREATE a gamable new market.

Your post gave me pause and made me remember/think about Enron. I would bet that there is a much bigger story - very possibly a "visionary" behind putting all the pieces together to create the perfect storm for this mess.

I did not realize/read that Paulson made so much money on the subprime debacle. I would be very interested to read more about that.

[Hydra]

21. You know more than I do about that

My focus is banking, since that's where everything starts. Regardless, your idea of a visionary creating a prefect storm is not incorrect. The housing bubble had to burst sometime. The ARMs were the pin used to pop the bubble at a predicable time.

"Controlled chaos." Even heard of anybody who espouses that philosophy?

[salin]

23. Isn't that the basis - on a foreign policy front - for PNAC

and some of that groups related writings? Keep controllable instability around the world to prevent the emergence of a second Super Power.

Ya, we see how realistic that plan was.

I fear that if you are right and that is behind this mess, that this too was poorly planned and will become uncontrolable by those who thought they could control it.

[Hydra]

31. Pfff again

Consider the real benefits that have been reaped by such policies, rather than the publicity. None of this has been a failure. Not 9/11, not Afghanistan, not Iraq, not Katrina and now not this.

Somehow Bush and his friends benefit whenever they break something and blame it on incompetence.

I wish people would see that it's calculated avarice.

[Karenina]

44. Bingo!

Some here are cheering the demise of Carlyle Capitol Corp. They're simply dumping the bad paper on YOUR HEADS. 150M line of credit and 37M to avoid default? Gimme a break.

[salin]

46. Hey - there is a LBN thread on one of the big banks calling for a systematic margin call

towards the end of the thread - a DUer links a really interesting economic blog post that spells out what this means. I would love your thoughts/reactions to that piece.

[Karenina]

52. The banks are just trying to shake each other out.

They are all LYING about their exposure, NO ONE will come out of this boondoggle unscathed, they KNOW it. They no longer trust each other as EVERY MOVE has the potential of dumping worthless paper.

[salin]

53. I wonder how many corporate mergers - financed by billions in loans

from banks will fall apart in one way or another? I would guess the bigger entity would try to sap out any/all equity from the acquired entity and then dump the shell that is left. The potential of a whole lot of jobs going away is looming large.

[Karenina]

59. That's what I believe went down with Carlyle C.C.

This meltdown is UNPRECEDENTED.

[salin]

60. Indeed. Consider recent year mergers...

Didn't United Airlines buy U.S. Airways - HUGE debts, so if their margins were called (along with the hit from gas prices) - what will they be left to do but - pillage acquired assets. More jobs gone.

Who else borrowed billions to acquire other businesses and which banks hold that exposure? I think the rate of corporate bankruptcies is going to accelerate, and go far beyond mortgage brokers.

[Hydra]

57. And when they close up shop and re-setup down the street next week?

As I've pointed out, there are any number of people play super low-key lately that are making HUGE profits off this mess.

Ignore the window dressing- many of the banks that will fall will swallow up huge sums of cash- but the CEOs and others won't be taking a hit. Like Greenspan, they will move on to "new projects" with million or even billion dollar golden parachutes.

Meanwhile, the distraction act will continue, and our crumbling economy will be blamed on the little people at the bottom, and how banks were "forced" to close their doors because of reckless borrowers.

You know, I used to think Bushco was insane for thinking most Americans were easy to manipulate. Now, I see that they simply understood something I didn't.

[Karenina]

62. Sub-prime borrowers are just pawns in this game.

Carlyle positioned itself YEARS AGO in the R.E. market. I lost my voluminus cache of bookmarks in an overhaul. Suffice to say they will control VAST AREAS of the mid-Atlantic states for pennies on the dollar.

[AdHocSolver]

95. The purpose of invading Iraq was to STOP Iraqi oil production so as to limit world oil supply and...

drive up the price. Saddam Hussein's "sin" was his plan to bypass OPEC and sell oil directly to emerging oil markets such as China. This would take away control from OPEC (principally Saudi Arabia) to set (i.e., raise) oil prices. There was never any intention by Bush/Cheney to "liberate" Iraq. Their goal was to take control of Iraq's oil to ensure continued control of the world's oil supply, and price-fixing capability, by OPEC.

There was no need to win a war. In fact the longer fighting goes on in Iraq, the more unstable the region, and the easier it is to find "reasons" to raise oil prices. Imagine what would happen to the price of gasoline if Iraq oil fields came online and started pumping millions of barrels of oil again?

The push to invade Iran is based on the same logic. Reduce Iran's oil to market and watch the price go up. The fact that the powers that be keep predicting $4.00+ per gallon of gas is evidence that invading Iran is still on the table.

[Windex]

116. I disagree

Israel was screaming that Iraq was threatening them. They claimed he was funding the suicide bombers and actually giving money to the families of the deceased bomber. They thought he was going to turn his nuclear weapons on them. I think we went to Iraq for Israel but a deal on that oil would be nice too. I wonder what happened with that plan!

[Greyhound]

69. At some point we must realize that our government is of, by, and for the ruling class only.

This is just the next step in the long-term plan to loot every last dime from America before they move on to Asia.

This is similar to the what led up to the English Civil Wars of the 17th century.

[Hydra]

74. Well said

When the gov't has the tools to prevent a crisis, and it opts not to, can there be any confusion regarding who it values?

[Morereason]

105. I would add the elite who run the ponzi schemes and milk them for Millions

[gratuitous]

5. I agree

There were, indeed, a small percentage of "flippers" overextending themselves and going further and further out on a limb. It had to end sometime, and irresponsible speculation is an invitation to disaster.

But there are millions more people who wanted nothing more than a home to live in who were pressured and pushed by a wide swath of forces (including lenders, mortgage packagers, and the mass media) to put themselves in a position where they wound up with neither money nor property, snookered by shady characters. The banks and other "responsible" institutions would like you to believe that this is a matter of personal responsility; but then, the losses these institutions took are federally insured, or can just be written off their tax liability, options that their victims don't have. And those institutions will be back in business as usual tomorrow while thousands of people are reduced to grinding penury, and every spare buck for the foreseeable future is already spoken for without hope for relief.

An unregulated market has about as much stability and integrity as a game of Three Card Monte. The financial institutions know this, but they also know that they are insulated from the consequences of their actions in ways their victims aren't.

[salin]

11. I don't know how insulated they (banks) really are...

frankly it really worries me. Think back to 2002 when we first learned about Enron's exotic special purpose vehicles (I think this is what they were called) that Fastow specialized in - create an entity to take some debt off of the balance sheets, get banks to loan money to those entities - backed/leveraged by... stock in the company (think of how empty that is - back debt with stock that would become worthless IF/WHEN the entity couldn't repay the loans). Some of the debt exposure of major banking firms that was exposed to just ONE company (granted at the time a fairly mega company) was shocking.

I had been foolish to think that the big investment banks would have been shaken by having left themselves exposed to so much risk, and would have strengthened their arms for due dilligence to prevent being so over exposed moving forward.

Now we learn that these CDOs (sp?) were NOT reviewed carefully (the stories on the rating agencies looking at so few loans in a bundle - if any - before rating them - is a tragic-drama in how NOT to do business), and the investment banks have HUGE amounts of exposure. The "margin calls" going on this past week should give a small glimpse at what is ahead. I think that some of these financial institutions are going to be ravaged by this at times in ways that are even more extreme than the ravaging being experienced by the victims (individual lendees).

[melody]

8. Compassion? Surely you jest.

I paid off my little house. We have no debt. However, I understand the idiocy of blaming people
who were lied to and scammed.

[salin]

15. Peace to a like-minder

I also have paid off my modest home, and have no real debt (save monthly utility bills, etc - but no car nor credit card nor loan debt). I am thankful for that. Most of my money is going to savings - however I have to begin to worry - is that safe? While I am not ready to pull my money out and bury it in the yard, I would be lying if I said that some of the stories of flailing and failing financial institutions are starting to make me worried, even though I am debt free.

[melody]

18. Nothing is safe, but for most people, their FDIC insured banks probably are

Like you, all we have to pay is our monthly home expense, and we're tucking a lot of money away
every month. Nothing is sure but death and taxes (as somebody said :) but the vast depression
people are predicting is overstating the situation. Your savings will be okay.

[salin]

22. In my rational mind,

I know that you are right (per my savings), but there are some really big financial implosions that are likely to continue to occur for quite some time. I just can not get my brain around what the likely implications of such failures are going to be. My bigger fears are will I be able to keep the income at a level long enough to sock enough savings away to someday retire. I didn't get to start really saving until a few years ago - but years of living on nonprofit salaries and as a student, have left me the ability to keep living on the thread bare budget and thus, like you, sock away quite a bit each month. In my rational mind I think, at the rate I am currently saving I should be okay in twenty years...but as I read about the next financial institution crisis point, that irrational part of me sneaks into my mind.

[melody]

24. A moderate amount each month is all you need

My husband and I put away a little every month for many years. Even with the huge devaluation of our home,
it'll never be worth less than we paid for it (even the dirt is worth several times more than that), so that
-- even in the worst times -- is a hedge. We now have a good amount in a 401K. That and other assets will
permit us a modest retirement (especially in that we live so modestly as it is).

Those of us who know how to live on little will be just fine. It's the summer-in-Europe-$5-latte-all-paid
for-on-credit people who will suffer badly. No one is totally safe, of course, except the dead. lol

[salin]

29. You are right, of course,

and I try to put away quite abit a month to make up for the years that I was unable to put away a thing. This exchange made me mentally calculate - that if i were able to keep saving at the rate I am currently saving, for the next twenty years - would I hit the mark of savings that is considered decent for retirement (250K), and I should - and like you I will likely get out what I put in (or more) from this house. I bought a foreclosed home, in a transitional neighborhood, on the wrong side of the main redevelopment drag. The house needed a little work (the foreclosed upon did a little trashing up of the place) so I offered about 60 % of the original asking price (which had already been dropped) - and I actually got it. Point being the house has not devalued below what I paid for it and is unlikely to do so. So if I factor that "asset" in - and barring no health or employment emergencies - I should be fine.

Thanks for the exchange.

[truedelphi]

64. You are being too optimistic/Head of the FDIC testified on Tueday the 4th of March

That the FDIC currently has about 64 billion on hand.

This is like a small bit of a bologna sandwich, in view of what is about to hit the fan.

The lucky ones will be those whose banks fail first - it was discovered in the early 1980's that the FDIC could handle only four to five banks the size of Illinois Continental.

And this is gonna bring down a whole lot more than four or five large banks.

[melody]

81. Okay, then let's put a gun in our mouths and pull the trigger

I have two economists telling me that the crises of '80s were worse and that we'll just have a bad recession.

I also had so-called experts telling me that I was "too optimistic" in thinking there would only be moderate
disruption to society on January 1, 2000. I was wrong -- there was no disruption.

The world's foremost astrophysicist said in 1957 that "many generations would pass before man went to the moon".
We all know what happened a little more than ten years after it.

Even the experts are guessing. All we have is a moderate amount of preparation available to us -- the rest is
a choice between optimism and pessimism. One has been shown to kill you, the other doesn't.

I'll take optimism and doubts about experts coupled with reasonable preparation.

[Greyhound]

70. You might want to check on the article that appeared in the WSJ last week about the Fed

anticipating 1000s of bank failures in the next year. It points out that the FDIC cannot begin to cover the deposits of that many bank failures and how the FDIC can delay payout for years in such a case.

[salin]

76. If not there, then where?

I understand the concern, and read about the Dodd hearing (thanks DU!), but what are the options?

[Greyhound]

79. Tangible assets IMO. Stuff that you can hold that has intrinsic value.

Perhaps equipment, many think that precious metals are good (but the industry is so corrupt the return is sub-standard and investing in the funds is just as risky, look at 1968), there's always the guns and grain strategy, moving assets to more stable environments until the market corrects and then buying land (it is important, but difficult, to secure the water and mineral rights to that land), opening/investing is a small business, things like that. I'm sure you can think of many more.

[Ichingcarpenter]

9. Blame the repeal of the Glass-Steagall Act

Push by Citigroup who now is asking for a bailout.

Link for Progressives who want the real story:
http://www.progressivehistorians.com/2007/11/bill-clintons-role-in-mortgage-crisis.html

[salin]

25. Fascinating (and troubling) read.

Deregulation is always good! So the contemporary robber barons have been screaming through their rw think tanks, talking head radio shows, etc have been telling us for years.

Bah!

[Ichingcarpenter]

34. No commentator ever asks about the repeal of the Glass-Stegal act

A damning question.

[salin]

36. The words regulation and deregulation also never come up

nor does the "failure of self regulating" ala the ratings agencies.

I hope the Reagan era meme of "deregulation" = WONDERFUL! Good for the public and the economy! Dies.

FDA - just told us that they do not regulate and we are at-risk healthwise because of it.

Ag dept - just told us that they do not regulate and we are at risk - healthwise because of it.

EPA - only wants to regulate in so much to prevent states from regulating - and we are at risk, because of it.

And the bear on top of the mountain of Nonregulatory power of all - is this. And while I am a pretty savvy reader of news, and am trained as a policy analyst- this point, so central to the story, had escaped my radar. Why? As you state - NO mention of it by the commentators, reporters, policy makers, etc.

[Morereason]

106. A MUST read! You will not see the real reason in the media (nor unfortunately in some posts here)

[rockymountaindem]

113. Wow. Thanks for posting that link.

I'd learned about the Glass-Steagal act in an economic history course I took last year, but I didn't know it had been repealed by Clinton. So, when people say "after the depression they changed practices and laws to make sure nothing like it could ever happen again", I guess one of the most important changes is no longer in effect. Scaaaaaary.

[live love laugh]

10. They blamed Katrina's casualties on the victims. Why not this? n/t

[Xenotime]

133. The blame for that is on *

[whosinpower]

12. The elephant in the room

Is the Iraq war - and the cost. Bush borrowed the money to fund the war, which led to a credit crunch - and the banks responded by allowing much looser lending practices. This has become a worldwide issue - and blaming the banks solely, or the borrowers solely is ignoring the elephant in the room....the 3-4 TRILLION dollar cost of a war and occupation.

Put it this way - the banks could not lend the money to the feds without these looser lending practices, because they simply did not have the resources - so the feds needed them to find a way - and they did. What they did not count on, was how shaky the US economy was/is in the first place.

So, if you are insistant on blaming someone - put the blame where it firmly belongs - on the group that has syphoned off 3-4 trillion in money right out of the US economy.

[Hydra]

20. It's actually more simple than that

The banks claim that they can't lend- which is bs. No lending means no money going into the economy. No money = no spending. No spending = layoffs. No jobs, no spending , no loans and no gov't help = a depression.

They could stop this tomorrow, if they wanted. Keep that in mind.

[BadgerLaw2010]

32. No, it's not that simple.

It doesn't take many bad loans to wipe out the profits from an entire portfolio of good loans. If banks believe there is too much risk of bad loans, they will tighten up their standards markedly in order to avoid making loans that go belly-up. And they will charge higher interest rates to reflect the risks.

Banks cannot just "lend" into high default rates without adjustment.

[Hydra]

37. Watch "Money as Debt"

http://video.google.com/videoplay?docid=-9050474362583451279

Loans are the way our economy creates currency. That money never existed, so if you are looking at "profit", any money back minus overhead is profit.

As for the higher interest rates, when you are making nearly 100% of the loan as profit on a 3% interest loan, why would you want to push it higher? A better business model would be to get a person hooked on 3 or more loans rather than 1 they can barely afford. Then you are making near 225% of the profit you would be making on 1 high interest loan.

[BadgerLaw2010]

50. That video is idiocy. You think banks enjoy these enormous loan-loss provisions?

The losses from bad debt are plenty real.

[salin]

51. Why in the world did they leave themselves so very risk exposed.

This fiasco was very much able to be halted, if not slowed, if banks had played their once conserative role of trying to reduce risk exposure.

[BadgerLaw2010]

58. Lots of reasons, but three big ones:

1. With real estate prices, and thus, personal wealth spiking, people would generally be good for anything. When someone's collateral constantly increases, it is very unlikely that they'll be defaulting on a loan you made to them in the first place, and even if they do default, you will be getting paid in the underlying, now-more-valuable asset. House flipping also meant that loans would not be outstanding for very long. When it's going to be repaid in six months, that is absolutely free money for the bank.

2. The concept that risk could be eliminated via resale and securitization. Basically, everyone did it, and it doesn't work.

3. A general reckless lending climate driven by low interest rates (banks have to make a lot of loans with low rates and there are a lot of people who want loans they normally would realize they aren't in the market for) and the idea that between secruitization and appreciating underlying assets, there was virtually no risk.

What's happened is that securitization no longer works. You cannot sell loans to Wall Street because Wall Street cannot sell CDO's; no one is buying them. Banks now have to hold the loans on their books, which means they are assuming all risk. And there is now considerable risk because the underlying assets are *losing* value as opposed to appreciating rapidly - the bank does not *want* your collateral, whereas they certainly would have when the house was ballooning in value overnight. That means high interest rates. Interest is risk-based. That is all it is. The risker a person is, the more they have to pay due to both limited options and the very real possibility they won't be able to repay the principle.

You also have banks that were holding CDO's themselves, and are now finding out that said CDO is worth maybe 70% of face value. Whoops.

Credit was simply waaay too loose to function long term because there was no longer any risk in the calculus. Well, there is now, and the system as it existed from 2002-2007 cannot deal with it.

[salin]

66. interesting summary

but suggests that greed was creating big blinders. I am not in the financial industry nor in the housing industry, but when I started reading about these exotic loans (by 2005) I thought it sounded very foolish/risky for both the lender and the lendee. Then when there were more reports of the rates of traditional fixed loans, compared to ARMS indicated that an exponentially larger percent of new mortgages were in the more risky (and little equity generating for the consumer) loans, I had a pretty clear sense that this was a precarious situation. While I knew nothing about CDOs I could easily see that there was a point where a lot of folks were not going to be able to pay these loans. Point being if I could see the writing on the wall several years ago - how were the professionals so blinded? I guess the answer is the desire to believe "it could last" and that somehow the CDO would magically make the risk go away.

Sadly, this reads like a really big case of "fools and their money" (soon being parted) except that many of those individuals and entities that are likely to experience fall out from all of this had nothing to do the fools. (E.g., pensionees, local tax payers whose municipalities were sold the CDOs that had high "ratings", etc.)

[Greyhound]

72. This ignores the fact that the whole hyper-inflation of real estate valuations

was created specifically to allow the loot-fest in the first place. There were no market forces driving the insanity other than the desire of the investors to realize greater returns. Salaries were/are contracting and the supply of houses was abundant.

[Hydra]

86. What's idiocity in that video?

Banks make loans not attached to real wealth, the Fed among them.

Currency when not tied to any sort of physical wealth then floats on what you can actually buy with it. When there is too much money floating around, you get inflation. When you have too little, you stifle the amount of goods and services available.

The myth is huge- most people don't know how it really works. Talk to any economist, though, and they say, "Yeah, that's how it works- where the hell have you been?"

Given these facts, why is currency not being made more available? The M3 is out of control, but somehow none of it is reaching the people who spend...I smell a dead fish- don't you?

[salin]

30. excellent point.

[Poll_Blind]

26. If I could edit your post I'd put your last paragraph at the top. But you're right.

Both sides are not without blame but the pattern of behavior from the lenders' side is far worse.

PB

[AlertLurker]

27. You MUST be kidding. ARMs are for IDIOTS.

Predatory lending? Pfffffft. If someone held a gun to these morons' heads, I didn't read about it.

If you were STUPID enough and GREEDY enough to mortgage a McMansion you could not afford in the first place through an ARM, in my estimation, you ABSOLUTELY deserve to lose it.

The fact that Congress wants to take innocent people's tax dollars to help these DOLTS re-fi absolutely sickens me.

Greed, stupidity and irresponsibility.

[salin]

33. No where did I suggest congress should act on refi...

indeed, I don't think that would address the economic problems around the corner - and THAT is what I am talking about. Forget blaming the loanees for the overall financial failures that are starting to happen - they took out one loan and most are going to have to pay, one way or another, for that mistake - no I am saying that when looking at the big picture - blame the industries that engaged in making thousands of these bad loans. Blame wall street and rating agencies that created greatly exposed debt or didn't self-regulate (ala the rating agencies) to call out "the emperor has no clothes!" on these CDOs, ALL of those individuals and entities taking HUGE fees.

If you want to cast blame for "greed, stupidity, and irresponsibility". Look to those who acted on this on a massive scale, not those who engaged on a single transaction.

This is the greatest case of the need for reregulating industries - the number of these faulty and fraudulent loans that were made should NEVER have happened; the selling of completely risk exposed "investments" to institutional investors (re: pension funds) sold as SAFE investments (with high ratings from the ratings agencies) should NEVER have happened.

Congress should be more focused on how this happened - and be prepared to react to some of the fallout which is going to be much greater than the 'crisis' of the homeowners (many greedy and foolish as you state). I believe we have only begun to see the fallout.

[AlertLurker]

47. Abdication of responsibility.

Not JUST the homeowners, but principally them. A great many of them misrepresented their assets and income, or they wouldn't have qualified in the first place.

Congress should keep their noses out. You can't regulate banks for giving ARMs to unqualified borrowers, since nothing I've ever read regarding ARMs and this type of "predatory" lending is actually illegal.

People will get hurt and financial institutions will get hurt. BOTH deserve it.

[salin]

49. Sure you can

one can regulate that loans are vetted to make sure that applicants are not lying/misrepresenting their ability to pay. That used to be standard practice, until the desire to make a loan, any loan, outweighed the desire to lower risk of default on the loan based on due dilligence. If the industry won't do the due diligence that was once standard practice - then regulate it. Require documentation of review of credit history, of employment verification, etc. Unless you think that the value of keeping "Congress out of it" - outweighs repeating the crisis in the future?

By the way there have been many reports of fraud being committed on the loan applications - by the mortgage orignators.

[Morereason]

107. Another Milton Friedman/Social Darwinist?

Most of these loans are not for "McMansions". You need to question your sources and ideology friend. Your lack of empathy is showing.

[girl gone mad]

65. I would disagree that many of these individuals..

will pay a price for their foolish actions. I think most will walk away with not much lost except their pride and credit ratings, which will likely be forgiven.

Society will pay the price for their bad choices. I've been reading the bubble stories for the past five years, and few of these buyers paint a sympathetic self-portrait. Americans need to take some responsibility for their choices. No one forced them to buy McMansions and then use their equity to buy SUVs, boats, electronics and designer bags. Those were personal choices.

There were no cries for aid to the many young families who were completely priced out of cities and coastal regions. No sympathy for the low wage earners who make up the backbone of those pricey communities - emergency workers, teachers, restaurant workers - and suddenly couldn't afford to live within two hours of their jobs. When prices were moving up, I never heard homeowners complain that their school-age population was in decline as flippers moved in and formerly decent middle class neighborhood became gentrified dink havens. I wasn't approached by any lenders, but time and again, other homeowners encouraged me to take on one of these risky loans and buy before I was priced out of the market forever. I spent many evenings listening to friends from California try to convince me that the prices were justified since "they're not making any more land" and "everybody wants to live here".

Yes, the banks bear ultimate responsibility for their risky behavior. However, most individuals caught up in this mess are not victims of predatory lending so much as they are products of our over-consumptive and greedy culture.

[Morereason]

108. Where is everyone getting the "McMansion" philosophy?

I agree that speculators should not get "bailed out". But it only helps us all to get those living in their homes into fixed rate loans at the going rate.

[Lance_Boyle]

124. these would not be 'bad loans' if the borrowers upheld their end

of the contract. No rest for the wicked, and no sympathy for the greedy who don't read contracts before signing them.

[Missy Vixen]

35. You know what? You'll get to look down your nose at us.

Enjoy it. I know it's always a great day when the Keyboard Kommandos, who've never made a mistake in their LIVES, gets to lord it over someone else.

We bought our first home in 1995 with an ARM due to blemished credit. We refinanced to a fixed rate as quickly as we could. The home we're in now is a fixed rate. Before you condemn those who bought with ARMs, you might want to read the OP's thoughts. I might also mention that one of the major players in the subprime lending crisis, Countrywide, is now being investigated by the FBI.

Then again, there's nothing that'll change your mind anyway, is there?
Julie

[salin]

38. Countrywide being investigated, and others have already been shut down.

One closed-shuttered shop (can't remember the name) was run by a bush buddy who was rewarded by being given an ambassadorship.

The poster you are responding to seems to miss that the words the post ends with - should be pinned to the lenders and financial industry players who stood to make a whole lot more than a single homeowner lendee.

[Missy Vixen]

110. salin, the poster I was responding to, according to her profile,

lives in Ontario. It would seem that she's not even touched by the reverberations of what's happening here, but felt the uncontrollable need to sound off on it anyway.

Julie

[salin]

114. duly noted

thanks.

[Name removed]

119. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Missy Vixen]

130. Ahhh. The dulcet tones of Alert Lurker, eh?

Congratulations. You are one of the more odious examples I've encountered at this website, and I've been here for seven years now.

Julie

[AlertLurker]

43. I'm always cheered when one of the "little people" does well.

I'll probably ALWAYS look down my nose at you, however, since you sound like such a complete and utter waste of space.

None of your points makes any sense.

a] Countrywide is NOT being investigated for predatory lending practices, they are being "probed" because of possibly fraudulent underwriting and possible misrepresentation of losses. In my opinion, they are probably guilty of BOTH, but like BoA, will get off scott-free, since nothing they did was actually illegal. You could probably say the same for ANY mortgage underwriter in the US, however - it's a thoroughly unscrupulous business, full of thoroughly unscrupulous people .

b] Unless you re a telepath, it is an impossibility to "read the OP's thoughts."

c] Certainly, nothing YOU'VE posted would change my mind.

I bought a house in 1995, too. FIXED rate, since I wasn't stupid enough to do anything to harm my credit rating in the first place. $169,000 @ 7.25%, 25 year amortization, 15/15 clause. Paid it out and burnt the mortgage in 2005.

I'm not absolutely heartless, but all this whining from greedy morons who CLEARLY should have known better makes me a little unsympathetic. It disgusts me more, however, (and on a WHOLE different level) to remember how the 'Pukes used the "housing boom" as a * selling point in the 2004 election, all the while KNOWING that this crisis was on the horizon.

Yes - they KNEW - without a doubt. I'm just a dumb ol' farm girl and even I knew. ARMs are for IDIOTS.

[Missy Vixen]

109. Gosh. Color me surprised.

>I'll probably ALWAYS look down my nose at you, however, since you sound like such a complete and utter waste of space.<

Nice to meet you, too. I'm sure you think you really said something to me here. I comfort myself with the thought that you're probably just as much of a nightmare IRL as you are here.

>I bought a house in 1995, too. FIXED rate, since I wasn't stupid enough to do anything to harm my credit rating in the first place.<

Hope you never are hit by a driver with multiple previous accidents and it takes over a year (and the help of an attorney) to get your significant medical bills paid. Then again, it might be just the thing to knock you off your high horse. I might also mention that none other than our former banker informed us that eighty percent of the people she was dealing with in 1995, in Redmond, WA, one of the more affluent areas of the country, had at least one blemish on their credit.

>ARMs are for IDIOTS.<

Thirteen years ago, with a ten percent down payment and in a previous administration, they were a financing option.

I might not be the smartest person on the face of the earth, but I learn from my mistakes. I don't think you have the humanity to do so -- after all, you might have to admit you've made one.

Julie

[AlertLurker]

118. I thought I made a mistake once. It turned out that I was wrong.

I have made many mistakes. I have made several admittedly stupid mistakes. I have even made mistakes where I should have been known better and should have been better informed.

The difference is that I do not think that I have made any mistakes out of greed. People who cannot qualify for conventional mortgages have many other options to choose from that do not include ARMs - some of them subsudised. If they cannot qualify for these, they should not be buying a home, period. Unfortunately, due to the "bubble," a whole bunch of idiots decided that an ARM was just what they needed to get "more house for their buck." An entirely different bunch of idiots thought that an ARM would be a good investment, since in 2006, when I first noticed what was going on (and that this bubble was going to collapse - FAST), the general view of these dimwits was that "no one is losing in real estate in this economy..."

Unscrupulous financial institutions target these truly unfortunate people, as they are seen generally as dolts who do not thoroughly research their investments. Ask your broker why he LOVES to see doctors investing, sometime. If you are going to buy a home, you do not do so as a "spur of the moment decision." It requires time, education and a lot of research and shopping around. People who do not take the time to acquire the education and do the research on something that is so important deserve every vicissitude that the market throws at them.

Thanks for wishing an accident upon me and calling me a nightmare, and inhuman, to boot. You sound like one of my kids when I tell them they can't have whatever it is they want at the time. The truth is, although I can certainly sympathise with those who, through no fault of their own, experience difficulty paying their mortgage, I can have none for you, personally. In fact, I hope your lawyer soaked you good. I could care less what some bullshit-artist banker (and they are ALL bullshit-artists) said regarding your credit problems to make you feel better about your credit situation. ARMS have been around since the 1970s. They are an option either for those with a whole lot of liquidity (those people whom the option is actually MEANT for) or for idiots who just do not care to know better.

Funny thing is that I actually DID fall off my "high horse" just last week. She's an 8 year old Belgian mare named "Missy," and she decided to take a little stroll as I was stretching over her back, suspended, trying to free up a tangled halter. That was a mistake - I should have tied her first, but she's usually so calm and patient, I didn't think it would be necessary. I wasn't hurt, however, except for my pride (hubby was watching) and a bit of a bruised bum (thank God for adequate padding).

I understand that you are not the smartest person on the face of the earth because that's the exact impression I get from reading your posts.

I'm very glad that you have the ability to learn from mistakes, however - certainly sounds like you make a LOT of them.

[Missy Vixen]

129. Still riding your preconceptions into the ground, I see

The house we bought in 1995: $132,000 townhouse. We refinanced two years later and obtained a fixed-rate mortgage (written on A+ paper, I might add.) We sold that house and purchased another in 2000. We do not live in a McMansion - far from it.

You are more than willing to insult the intelligence and professionalism of people you've never met and have no personal knowledge of, so I stand by my original statement: I can't imagine the joys of dealing with you IRL. I can't imagine how anyone with such a monstrous ego (and your special brand of arrogance) gets through a day.

Julie

[AlertLurker]

136. You are behaving like a whiney moron.

"You are more than willing to insult the intelligence and professionalism..."

I am and will be more than willing to insult the (lack of) intelligence of you, since you seem to enjoy hurling the invective just a wee bit, yourself. I just wish it could be a little bit more entertaining. One one hand, you admit that the ARM that you got was a mistake, you moved to a fixed rate as soon as you were able, but on the other, you somehow still feel that they represent an intelligent financial option for borrowers who would otherwise not be able to afford home ownership...That pretty much tells me about as much as I need to know about your views on the subject.

I can't imagine the joys of...I can't imagine how anyone..."

Of course you CAN'T - but that's just part of the problem, though. You also fail to address any of my concerns, cannot back up anything you post, and continue to spew insults in post after post. Obviously, your problems are far too large for me to deal with. I'm a farmer, not a psychiatrist.

As far as dealing with me "IRL" goes, I'm pretty much "all sweetness and light," (once I've had the second cup, anyway) but I just don't deal well with abject stupidity. It's frustrating - ask anyone.

"Monstrous?" "Arrogant?" The fact that I believe you behave like a whiney moron makes me neither monstrous nor arrogant - just perceptive. Not really - it's so obvious that ANYONE could see it. The fact that I've actually received two PMs from others on this thread (who have dealt with you on others) telling me exactly the same thing and that I should not bother wasting my time with you tells me the same, as well.

Move on. You do not seem to have anyhing to add except more stupid insults, here.

[Greyhound]

73. Your motivation is completely ass-backward, but you got to the right conclusion.

The housing market must be allowed to correct or the general economy will not recover for years and years, if at all.

[flashl]

41. Heads up: Name change - Nonprime and Specialty Lending

MBA’s Nonprime and Specialty Lending Conference 2008
(Formerly MBA’s National Nonprime Mortgage and Networking Conference)
March 10-12, 2008, The Palmer House Hilton, Chicago, Ill.

As rapid changes in the mortgage industry create difficult setbacks and hidden opportunities, information is the key to ensuring that you and your business navigate the challenges the industry is facing and come out ahead.

Attend MBA’s Nonprime Mortgage and Specialty Conference 2008 to hear the latest on industry trends and changes to the legal landscape. Learn from real estate finance industry experts as they share current information and intelligent business strategies designed to help you succeed.

This year’s conference features a new name and an enhanced agenda that examines the array of lending opportunities available to borrowers with special credit needs and concerns beyond those available in the non-agency market. Redesigned sessions include information on FHA developments, GSE products and new nontraditional underwriting approaches, to name just a few.

Don’t miss this opportunity to discuss important developments and concerns with experts and peers. For detailed conference information, download the conference agenda and session descriptions.

Mortgage Bankers Events

[salin]

42. wish I could be a fly on that wall

wonder what new 'vehicles' they are going to spout.

[flashl]

45. Don't know. Here we are thinking American consumers had bled out. nt

[salin]

48. Maybe they are going to try to sell houses (more modest) to

those who have to get out from their too big mortgages?

I have already seen a ReMax ad (realtor) featuring a guy "trying to get out from under his house". I would guess this will be the next wave. "Let us help you"... "just sign for this new loan for this smaller house..."

[flashl]

56. Large inventories exist, folks still with funds

at the end of the day may be able to take advantage of new 'vehicles.

[salin]

61. I think values have to sink quite a bit more before folks

with some money are willing to sink it down into a potential, future "upside down" loan.

[DireStrike]

54. SUBPRIME CRISIS ILLUSTRATED

http://docs.google.com/TeamPresent?revision=_latest&fs=true&docID=ddv7hj34_03774hsc7&skipauth=true

[Greyhound]

77. Bingo! Good piece, thanks. n/t

[Rosemary2205]

98. That really needs it's own thread.

Great work.

[Greyhound]

55. I think you've hit on the real issue. This was all manufactured in order to artificially

inflate the "value" of homes in order for the ruling class that was heavily invested in real estate to realize obscene profits by allowing the price of housing to skyrocket when there was no reason for it.

Before the market restraints were removed through the "sub prime" scam, the price of housing had to conform to the buyers ability to afford it. Unfortunately for the investors that fled the stock market and sought shelter in bundled mortgages, the returns on those investments were nowhere near those they demanded, 4% - 6% was typical where they were gaining 20% - 40% or more during the stock market boom. The only way to realize the returns they wanted was for the value of the property itself to hyper-inflate, but that couldn't happen because wages were falling and there was an abundant supply of housing (for those with the means to buy).

Obviously, the average sheeple could never afford to buy into the market if the prices were raised to the point we see now because the payments were greater than their take-home pay. Along came the banks with their solution, remove the final remnants of consumer protection and let us structure the loans so that they will not realize how much they over-paid until it is too late. Unfortunately that would leave the banks, and their investors, holding the bag in the end as the sheep began to go bankrupt. Along came the US Congress with their solution to this new problem, eliminate bankruptcy protection for the sheeple (little people). (At this point I will point out that HRC was a tireless proponent of this for the entire process even though she did not vote on the final bill, just as her husband was the cause of the contraction in wages while he was shilling for big money during his administration).

So the big money got their years of unsustainable mega-profits before getting out, and the lenders have no worry about their flocks escaping servitude through bankruptcy, and places like California were able to sustain the illusion of an economy through allowing the sheeple to use their homes as ATMs while they slowly sink into insolvency.

And the "I've got mine, fuck you" morans, some of whom are right here, continue to blame the only players in the whole game that had no voice or choice, their fellow sheep.

[knitter4democracy]

67. I'm a Michigander, and I approve this post.

Many people here are losing their homes (we lead in foreclosures, job loss, and pretty much every economic indicator), and frankly, it's not all the borrowers' fault. I've heard of some nasty stuff going on, and it's from the top down in those lenders and banks, not from the bottom up. It's time to put real regulation in place again and time to stop blaming people who thought they were doing the right thing.

Do we blame people for getting cancer if their doctors told them not to worry about that mole or that on-going cough? No, we sue doctors for malpractice. Why can't we do the same to these predatory lenders?

[NNN0LHI]

68. People just play by the rules set down for them

When the rules were you needed 20% down and another $500.00 just to apply for a home mortgage people would naturally be more cautious about biting off more than they could chew. Back then the rules made people more risk adverse.

I can remember when you couldn't even purchase a car with no money down. I don't think anyone puts money down on a car these days without having to.

Don

[salin]

71. Several years ago a friend was looking at cars... and the salesperson

kept telling her how much the cost would be "per month" with the financing. She kept insisting that wasn't the figure she wanted but the actual total cost in the end with the financing - and he kept insisting in giving her the monthly rate. She couldn't figure out if he didn't know/couldn't figure it out, or if he was told that they way to sell was to keep folks from thinking about the final price, and instead talk interms of "affordability" per monthly payments.

The rules have changed.

I must be a dinosaur for my generation. I have never bought a car on financing - always saved up front and bought (when I first learned one could end up paying several thousand more for the car due to financing, I decided that I would work hard never to pay that extra money - and if I had to, to have as large as possible of a down payment to drive down the amount extra paid in the end). I also was fortunate to have saved aggressively (for a large downpayment) when I found a modest house that I could buy outright with what I had saved. I am personally very risk adverse.

[Greyhound]

75. The rules have not changed, it is called the 4-square method, and car sales

have used it forever (@ least 45 years that I know of). The sales sheet is divided into 4 squares, Trade in, sale price, down payment, monthly payment. The sale price is the only one that matters and the other 3 only serve to change the buyers focus away from the sale price.

The entire industry is built on lies and preying on the consumer's ignorance. Did you ever wonder why every car dealership spends many millions of dollars on the showroom, the lots, the service facility, etc. but the offices are cramped, have horribly uncomfortable furniture, and are usually too hot or too cool? There is nothing that is an accident at a dealership, everything that you see, hear, or happens to you, is designed and planned to elicit a specific reaction.

[TML]

78. There's A Lot of Blame To Go Around

Blame Bill Clinton for repealing the Glass-Stegall Act.
Blame Congress for the lack of oversight.
Blame Alan Greenspan for cutting rates to artificially inflate the housing market.
Blame real estate agents for telling clients that their "investment" would appreciate in double-digits every year.
Blame mortgage companies and their employees for printing out two reams of paper disguised as loan documents.

Most importantly, let's blame borrowers for not exercising common sense when taking on these mortgages!

I don't feel sorry for these borrowers. No one told them to sign the loan documents. No one told them they had to stretch their budgets to buy a home. No one told them they should refinance their home to make upscale home improvements, buy that luxury car or SUV parked in their driveway, or otherwise live beyond their means.

My father invested in rental properties for the past thirty years, and there was one thing I learned from him a long time ago. If you borrow more than 80% of the value of a home, and/or cannot keep your debt-to-income ratio under 28%, then you realistically can't own a home without being at risk for foreclosure. That's why my family never had a problem when there was a housing crisis. He spent his money on paying down debt, not on splurging on a BMW or granite countertops for the kitchen.

[sendero]

84. There is plenty of blame to go around..

.. nobody held a gun to anyone's head and made them take out a STUPID loan.

Sure, there was deception on the part of some lenders, and downright malfeasance on the part of others.

But the final responsibility goes to people who took on these loans out of ignorance, and/or greed. Remember, in the hottest housing markets where prices were driven up the most, it was SPECULATORS playing with OTHER PEOPLE'S MONEY in no-risk-to-themselves game that caused the rising price problem, and the rising price problem fueled the whole debacle.

The lenders suck and they are damn well paying the price as they should, but the people who took on this debt are culpable as well.

[Name removed]

88. Deleted message

Message removed by moderator. Click here to review the message board rules.

[salin]

92. I am sorry to read that...

it sounds like you got caught on two major fronts by this debacle. I don't know what to say to express my concern and hopes that you are able to catch some upswings in the near future. Best wishes.

[Missy Vixen]

111. Edweird, I'm so sorry

>can't stop gloating about how everything they've done is SO much more perfect than your life, and how you woulda-shoulda-coulda done everything just like them. But since you didn't, it must be ALL YOUR FAULT.<

There are some here that I swear become multiply orgasmic as they sit down at their keyboard to judge, criticize and lord it over people they've never met, and those who are truthful about themselves and their lives instead of cloaking themselves in anonymity. It's that good for them, isn't it?

I can only hope that somehow, there is some happiness for you. We pray for positive change in November, on so many fronts.

Julie

[Name removed]

123. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Hippo_Tron]

93. The borrowers are partly at fault but blaming them is about the dumbest way to solve the problem

[varelse]

97. Yes, please

let's focus on eliminating the root cause of the mess and on promoting the healing process, instead, what?


And let's not totally ignore the fact that many of the borrowers were fully employed and having no problems making the payments when they took the loans and are now in quite different circumstances due at least in part to the "elephant in the room" mentioned upthread.

[YellowRubberDuckie]

99. I'm putting the blame about 60% on borrowers...

40% on Lenders.
I'm in the default end of the mortgage industry. I see what gets people into trouble. I see it every day. And foolish is putting it mildly.
Duckie

[salin]

100. For the individual loans i would agree, but in many cases

ascribe more fault to the borrowers.. but on the whole macro-level meltdown - far more of the blame, imo, falls onto the financial industry. Probably the biggest thing was cleaving the risk from the loans - so that there was little due dilligence on the part of those granting the loans, that there was little due diligence on the part of those bundling the loans into securities, etc.

No one seemed to be concerned about the degree of exposed risk. Normal lending practices of the past were thrown out the window. You told me yourself there was no verification of employment/earnings on the part of the lenders. That was NOT standard practice in the past. I found some of the discussions on this thread and on another on the JPMorgan calling in margins on loans to other banks, very informative.

I think that too many of the discussions focus soley on the lendees and not on a whole system that failed - and that has so many tentacles on various sectors of the economy that our economy is in an ever increasing precarious state. If we (and policy makers) look at this as only a problem of irresponsible lendees (sorry but as I told you before I think that it is even more a problem of irresponsible lenders who made thousands of transactions than of individual who made a single transaction), then there is no chance that policies (re: regulations) will change to prevent a similar situation to arise (again) in the future.

[Skittles]

101. I agree

while I do think may of the borrowers made foolish decisions, the huge share of blame falls on the lack of oversight on predatory lenders

[Hangingon]

102. There is a lot of blame to go around but...

like the con men say, you can't cheat an honest man. A home is the biggest purchase and investment most of us make. You have plenty of documents that tell you the terms. You have plenty of people who tell you the terms. It is you who must do the due dilligence to determine what you are buying, how you are buying it and the outlook for the future of the investment.

[El Pinko]

112. There are criminal investigations of the LENDERS underway for fraud...

...the borrowers who in many cases took out loans they knew they could not afford, sometimes for more than the purchase price of the home, will get to walk off scot-free except for a damaged credit record once they send in their "jingle mail".

I agree that the lenders are largely at fault - poor lending standards DESERVE deadbeat borrowers, but I don't mind the media attention in the excess by some of these borrowers.

What is lacking is reporting to help people to better understand historical trends of home prices in relation to median incomes and how to avoid buying into a speculative, bubble market.

I think that a lot of these borrowers knew they couldn't afford the loan, but were banking on the notion that they could sell the house later at a tidy profit.

If high school history classes covered things like the Florida land boom and crash of the 20's and even the tulip mania of the 17th century, young buyers might have a better understanding of how group psychology can create these kinds of bubbles. They can be profitable if you bought very early and sold before the peak, but for the most part, when it gets to the point where EVERYONE is talking about how much X asset is going up, and there are TV shows promoting it and everybody and their mother is getting into it, you can pretty much bet that the peak - and then a massive crash is near.

House prices are still far above what they should be on the historical trend line and in tersm of price/income ration and price/rent ratio. There are still millions of option-ARM loans set to reset over the next 2-3 years, which means more waves of foreclosures. The scary thing to me is that millions of people (and the RE industry's whores in the media) are looking for a bottom this year, but prices are going to continue to fall precipitously for at least another 2 years before all of this bad debt is shaken out of the market. Prices will be at or below circa 2000 prices before there is a real bottom, and even after that, with credit looking tight for a very long time, whatever recovery there is will be VERY slow.

Back to the main topic - there is plenty of blame to go around. The people who concocted all of these loand and securitization products are the ones with the MBAs and PHDs on their side. They're the ones who wrote and understood the small print. But the borrowers are not blameless, and the more lurid tales or borrower excess are a valuable object lesson to Joe and Jane 6-pack about what NOT to do, so I have no problem with the media focusing on them.

LIVE WITHIN YOUR MEANS.

[Windex]

115. Yes, buyers should be responsible but..

It was a modern day Gold Rush.

Those who weren't buying houses were flipping houses. Everyone was watching the programs on home makeovers or reselling flipped properties. It practically took over baseball as the favorite new American past-time. THere were internet forums on how to flip your property and realtors were springing up all over the place.

The interest rates kept dropping, you could get in a house for next to nothing, and you knew this opportunity may never come again. Banks were happy to lend you money. There were places so competitive that people were actually bidding more than the original asking price.

And when doubtful voices cropped up they were quickly squelched by the
builders who kept building. I remember reading the warnings and fears for a good three years before the powers that be would even admit the housing boom was even going to slow down.

Yes buyers were wrong but builders, banks, mortgage companies, and interest rates all had "the fever." Now, we are paying for it.

[Phoebe Loosinhouse]

117. I can point to 3 words that set off the bubble - No Down Payment

The whole concept of 100% (and above!) financing got us to where we are today. It's risk position that no responsible lender should have ever made in the first place. The day I heard about equity lines at 125% percent of value - I knew we were screwed. This was a sham and smoke and mirrors - how can you have "collateralized" debt, based on air?

I imagine 2 groups walking away from a closing table:

The buyer saying to themselves - " I can't believe they were dumb enough to give me that loan"

The Mortgage person saying -" I can't believe they were dumb enough to take that loan"

The mortgage industry created a situation where it was literally cheaper to buy than to rent. If you rent, you have to have 1st month, security, etc. These loans were enticements, a siren call to own real estate because it was the "smart" thing to do. Only it wasn't. Not for everyone anyway.

The second phenomena was the growth of the "investor" mania and the easy financing that went down that path.

I think not all people understood or understand that real estate has always been a relatively illiquid investment. You can pick up the phone and sell a stock or CD - a house has to wait to be bought by someone who wants it enough to pay a price that is close to your value and is dependent on outside factors beyond the owner's control - like interest rates and local employment. You buy your flip and spend too much on it and follow up with spending too much on the rehab and then rates go up and/or the local fish-gutting factory that employs everyone in town closes and you are just 100% totally screwed.

How many people have you met in the past few years that proudly announce to you - "I'm a real estate investor!" because they attended one seminar or read 2 books or bought an infomercial kit? And then some company somewhere actually gave them money?

I could rant on and on. But the answer is simple - lack of oversight and regulation and old-fashioned sound financial decision making by institutions and individuals have brought us to this pass.

Japanese real estate TO THIS DAY has not recovered to their 80's mania pricing.

[AP]

121. I read a post here at DU where a DU'er buying a house said his lender

ACCIDENTALLY put the paperwork for an adjustable rate mortgage under the cover sheet for a fixed rate mortgage contract. When the DU'er asked for the correct paperwork, the lender said it would take a day to do that and the borrower should just sign the contract he brought, and they'd straighten it out later.

The DU'er did not believe that the lender did that intentionally!

Sometimes, DU'ers aren't willing to put the blame where it belongs.

[KharmaTrain]

125. Busy Work With Funny Money

Salin, my friend...good to see you...and you are, as usual, right on target here.

For the past couple years, I would see new housing developments going up where cornfields once stood...thousands of single family houses and I always wondered who was buying and where they were working. Many of these home were 50 miles or more from the closest major commercial center. Many of us saw the real game at play here...it was a game among developers, realtors, governments and banks (and how could I forget lawyers??) to generate money using their money...pushing the envelope in finding ways to make more money. As long as they could keep the plates spinning...building homes, finding buyers, coming up with lucrative financing schemes that were sold on the money markets with promises of high returns to investors, the money kept flowing and the game went on. The boooosh regime encouraged this game as it generated numbers that covered up their pillage...no matter how poor the economy was performing, they could cite both the "housing boom" and the large number of homeowners as their retort and it sure sounded good to many during the '04 elections.

The killer was the Bankruptcy bill sell out. It let the foxes really run through the henhouse...and they didn't care as they expected (and we're seeing) the government would run to their rescue if they got in trouble. Their stupidity was their greed as they were so short-sighted to realize that when you increase interest rates or scare people with foreclosures, they may just go into default. The banks, for years, have loved to get you to pay a minimum...usually a fraction of the interest...then take what wasn't covered, add it to the principal and spin the borrower deeper into financial servitude.

Now they're faced with a chain-reaction that is quickly getting out of control as not only more and more people default on their homes, but also on their credit cards and other debts. Banks are stuck with thousands of empty homes that they have to maintain, pay property taxes and try to resell for whatever they can get. Local governments are sucking on less tax revenues which will mean cuts in services or higher taxes (or both) and money will stay tight as lenders are stll struggling to cover their margin calls and aren't looking for new investments.

The borrowers are a pawn in this game. I don't count "flippers" as borrowers as their game is not to own. Not long ago, my wife and I helped a nearby homeless shelter...right in the middle of Pleasant Valley Sunday. We were shocked at how many people were spending the night...families (some who we knew) who were forced to go from shelter to shelter while they tried to straighen out their lives. My wife and I just looked at ourselves and were grateful how fortunate we were...as we could have been in the same situation these folks were.

There's been a silent suffering going on in this country for a long time...and those who dare to speak out are still told, it was their fault.

So much for "compassionate conservatism"...

Cheers...

:hi:

[WCGreen]

126. Preditory lending reminds me of all the life insurance scams...

That hit poor people throughout the twenties and thirties...

[slackmaster]

127. It would make more sense to stop trying to distill everything down to a single explanation

In some cases borrowers are clearly to blame.

[MadHound]

128. This crisis is where Greed met Stupidity, and we all lost

Do the lenders have a huge chunk of the blame for this, yes. They are the ones who came up with these wonderful little lending instruments designed to fleece the borrower.

Then again the borrower also has a huge chunk of blame in not doing their homework on ARMs and other exotic types of loans. Hell, half a look at one of these things should be enough for any person to go "No thanks, give me a fixed rate like my Daddy had".

Greed on both sides, stupidity on both sides, and now we are all paying, and will continue to pay through the nose.

[Medusa]

131. Look, many of these people knew what their payments per month

would be. They also had to know they couldn't afford them long-term. Some weren't thinking long-term, they were thinking, "hey, I'll stay here a few years and flip this house and make a mint". It came back to bite them in the ass.

I don't live in a McMansion-I brought what I knew I could afford. Please don't ask me to feel sorry for people who didn't. I know so many of my friends who are in debt up to their eyeballs because they have to have the right kind of car, the right kind of house in the "right" neighborhood and wear the best clothes to impress other people with.

Me? I live in a good neighborhood, but in a small house. I drive a 10-year old car and i buy my designer goods at TJ Maxx--on sale at that.

[xchrom]

134. the majority of people who are in trouble in this mess were

credit worthy people -- who were talked into bad mortgages -- i.e. adjustable rates, balloon payments etc.

that means -- if lenders had funneled people into standard mortages -- they can still be adjustable -- but some of the balloon payments these brokers cooked up are criminal -- much of this crisis would be far less painful.

people -- i see even in this thread -- forget -- really could afford a mortagage -- but not the mortagage they got.

[Spoonman]

135. Find the crooked lenders and assist

those who were actual victims of ILLEGAL lending practices.

EVERYONE ELSE can get FUCKED!!!!!!!!!!!!!!!!!!!!!!!!!

No one forced them to sign the contract, and if they were too stupid to educate themselves, why should MY fucking tax dollars bail them out!!!!!!!!!!!!!!!!!!!!!!!!!

The vast majority of people facing foreclosure or have been foreclosed on are victims of their own fucking greed and or stupidity!

I hate the term "predatory lending". What, did the loan officers go out and "hunt" down and force the dip-shits to sign? NO!

Why should the tax payers of this country be responsible for their greed and stupidity?