Peas for All

As I noted yesterday when you get right down to it, John McCain's mortgage "plan" is almost staggering in its callousness. Keeping with the general sentiment on the right that what's needed to rescue the GOP from the depredations of Bushism is a more dogmatic form of rightwingery, McCain basically proposes federal intervention to save giant financial services firms and bupkis for anyone else. As The New York Times correctly points out he's taking on straw men: "No one has ever proposed helping real estate speculators" but at the same time McCain refuses to help out homeowners of any sort he "seemed less concerned about the government helping reckless bankers, endorsing its role in preventing the bankruptcy of Bear Stearns."

The Times endorses Obama's plan as superior to Clinton's, but notes that either Democratic approach would be vastly preferable to what McCain is offering. In these days of bitterness, it's worth recalling that this is the overall pattern on domestic issues. On any given topic, either Clinton or Obama will have a smallish advantage over the other, but either option is much, much better than McCain ignorance and indifference.

Photo by Flickr user Mdiddulph used under a Creative Commons license

Comments

Really, where is our Edward Gibbon? Who will consult the Delphic oracle and ask what curse this republic finds itself under? Why is our discourse on public policy beginning to resemble a conversation between the inmates of One Flew Over the Cuckoo's Nest? The mind reels....

Posted by elle loco | March 27, 2008 12:50 PM

I don't know why peas get such a bad rap. They are delicious.

Posted by blah | March 27, 2008 12:56 PM

Man, this post just REEKS of anti-pea bias. Chicken pot pie with carrots and peas, split pea soup, peas and Bermuda onions -- these are dishes fit for kings.

As blah said so eloquently:

Peas are delicious.

Posted by Jeff | March 27, 2008 1:04 PM

As The New York Times correctly points out he's taking on straw men: "No one has ever proposed helping real estate speculators"

But of course the Clinton and Obama plan helps speculators. It's a pretty silly idea that they don't.

Meanwhile, what is this forclosure "crisis"? People get foreclosed on because that bought a house they can't afford. Which is exactly right - why should people be allowed to live in houses they can't afford? They should move to houses they can afford.

It is typical left wing policy - make sure we help people live in expensive houses that were too much for their budgets. Meanwhile, people who acted prudently and bought a house they CAN afford - people like me - get screwed by the Democrats.

Posted by Al | March 27, 2008 1:08 PM

Split peas are lentils, not peas.

Posted by phil | March 27, 2008 1:09 PM

"McCain basically proposes federal intervention to save giant financial services firms and bupkis for anyone else."

If homeowners got the same sort of federal intervention that "saved" Bear Stearns, their "bond holders" (the investors who own their mortgages) would be paid off in full, and the homeowners would be forced to sell their homes for 10% of what they were worth in December. "Bupkis" would be a better deal.

Posted by Fred | March 27, 2008 1:09 PM

Those sure are some pretty peas there. Mmmmm, peas.

Posted by lemuel pitkin | March 27, 2008 1:10 PM

Why am I expected to pay for someone else's bad financial decision, Matt? Can I maybe bail out the person who decided to buy a new car, some designer shoes, and went on vacation in the Islands?

I've been busting ass for years and saving my money. Why are you expecting me to pay for the mortgage defaults?

Posted by Helter | March 27, 2008 1:10 PM

And, BTW - why is it "callous" to say that people should eat their peas? People SHOULD eat their peas! Peas are very healthy!

Posted by Al | March 27, 2008 1:10 PM

One of the consequences of these mass foreclosures is that these outlying developments may/will fall into abandoned disrepair, becoming a blight on their communities and draining governments from needed funds to maintain them. From a pro-density perspective, one could argue that refusing to bail out the municipal governments is a good idea because it creates a disincentive against approving these sorts of developments.

So we can refuse to bail out speculators, banks, AND irresponsible local governments.

Posted by Tyro | March 27, 2008 1:12 PM

"It is typical left wing policy - make sure we help people live in expensive houses that were too much for their budgets. Meanwhile, people who acted prudently and bought a house they CAN afford - people like me - get screwed by the Democrats."

If what was going to happen was that EVERYONE involved in the housing mess (buyers, lenders, builders, etc) would have to eat it, that might make some sense...even though that would enormously enhance the short-term economic pain. But that's not what's going to happen (Helloooooo, Bear Stearns!) So the question becomes, if you're going to bail out the big money guys for screwing up...what exactly is the rationale for NOT bailing out the individual home buyer who screwed up.

In one way, McCain is doing the entire country a huge favor on this issue because he's presenting conservative economic policy in its purest form.

Mike

Posted by MBunge | March 27, 2008 1:17 PM

The broader point that needs to be repeated is that reflexive liberal responses are often proposed by pandering politicians who are ignorant of the consequences of their policies. If the government intervenes to arbitrarily re-write mortgage contracts, make it impossible for lenders to foreclose on borrowers who have defaulted, etc., this will lead to less availability of credit and higher mortgage rates in the future. Tougher underwriting standards and higher interest rates will be required to compensate mortgage lenders for assuming the risk of similar government intervention in the future.

Non-jumbo mortgage interest rates are near 40-year lows right now. Anyone who is qualified can refinance their mortgage into a 30-year fixed. If they can't afford their homes with a 30 year mortgage @ ~6% interest -- or, if they can't qualify to refinance because they lied about their income the first time around -- they can't afford their houses. The sooner these folks go back to renting, the sooner we'll be done with this real estate correction. Ripping the band-aid off slowly doesn't help.

Posted by Fred | March 27, 2008 1:22 PM

"One of the consequences of these mass foreclosures is that these outlying developments may/will fall into abandoned disrepair, becoming a blight on their communities and draining governments from needed funds to maintain them."

The WSJ's Holman Jenkins has suggested that a reasonable use of government money might be to buy up these foreclosed/abandoned exurban developments and demolish them.

Posted by Fred | March 27, 2008 1:27 PM

Phil wrote:

Split peas are lentils, not peas.

You sure about this? I make lentil and split pea soup regularly, and they're not at all the same. Besides, according to Wikipedia, split peas are a variety of Pisum sativum, which is the same thing as the lovely green peas green peas in the photo above (the pods, however, look to be pole beans, probably French cut, and are not peas.)

Split peas are, of course, dried and split, while the peas depicted above are fresh.

Posted by Jeff Miller | March 27, 2008 1:29 PM

"They should move to houses they can afford."

Ah yes, the old "let them eat cake" argument. If only it were that easy. When your mortgage is underwater, how can you sell?

But I guess Al gets what he deserves when his equity dries up, since he is against plans that would basically save his equity. I'm not sure if it is ignorance or obfuscation that drives these erronious arguments from him. Reminds me of that Saddam/al-Qaeda bit from yesterday...

Posted by freddiemac | March 27, 2008 1:36 PM

Fred,

The suggestion that buying up and demolishing empty properties before they become blight is sensible. However, in your previous post you suggest that people unable to refinance are those that lied about their income. Many borrowers bought in locations where equity dropped, and banks will not refinance 125% LTV. So for many honest folks, what you suggest is impossible - hence the foreclosures and the resulting equity run.

Posted by freddiemac | March 27, 2008 1:41 PM

Well, Fred, I certainly think that more municpalities should take that possibility into consideration next time they approve permits for these sprawling developments and should be on the hook for the costs of demolishing or maintaining them. I'd also find it hilarious if exurban sprawl got stopped because towns disocvered that sprawl does all the damage that we've kept saying it does. But not everyone agrees.

From a financial perspective, the mass number of underwater mortgages causes a liquidity crisis in the housing market, akin to lack of liquidity in the bond market, because in both cases, no one can/will sell. While I do have some sympathy for the "let them eat cake" side of things (if your house is really in dire straits, odds are you can rent a comparable space for less than your mortgage), I can understand how some might prefer a bailout that maintains the market in its pre-crisis, pre-bubble state.

Posted by Tyro | March 27, 2008 1:50 PM

I love the 'let them eat cake' from the regular trolls. The problem with many of the homeowners who are in trouble now is that there are no homes they can afford to buy. The prices had made such ridiculous jumps in the areas that are undergoing the greatest foreclosure plagues that purchasing even the shittiest home was out of reach for almost everyone but the speculators without these risky mortages. If our laws were more favorable to renters rather than giving huge perks to home buyers we might not have gotten to this point.

The other problem is that some banks were actively pushing their brokers to give people the worst possible loans. People were railroaded into taking the worst possible terms. This is where the banks should get hammered and be forced to adjust their terms, but of course we all know the banks have already sold off the paper.

To me the issue of individuals holding onto their homes is more important that profits of corporations, even the pain to the broader economy is greater. The corporation is now the most sacred and protected institution in our country and its about damned time the people retook that position.

Posted by Ricky | March 27, 2008 1:52 PM

Ricky,

I love the brazen ignorance of irregular trolls like you. To put it bluntly, I don't believe you. I don't belive that the root problem is that homes are unaffordable to those homeowners who are in trouble. I'd like you to show me some evidence that this is true.

Posted by freddiemac | March 27, 2008 2:02 PM

I know that foreclosures are bad for the people who live in those homes, but I'm unconvinced they're bad on the whole. For everyone who loses their home, another person gets a home to buy, probably at a good price. There's a winner, and a loser. Why should the government help the person who owns the home now, at the expense of the person who would buy it if it were foreclosed upon?

Posted by too many steves | March 27, 2008 2:12 PM

Ah yes, the old "let them eat cake" argument. If only it were that easy. When your mortgage is underwater, how can you sell?

Obviously this is not a "let them eat cake" argument. In that case, the people didn't have bread or cake. Here, though, there is no reason that people living in too-expensive houses can't live elsewhere.

If your mortgage is underwater, you don't sell. You lose the house. You move to somewhere you can afford. Maybe you have to rent instead of buy, if you don't have the funds to buy.

Why the Democrats insist on people living in houses that are too expenseive for what they can afford really escapes me.

Posted by Al | March 27, 2008 2:12 PM

To put it bluntly, I don't believe you. I don't belive that the root problem is that homes are unaffordable to those homeowners who are in trouble. I'd like you to show me some evidence that this is true.

Er, huh?

You are saying that the houses are actually affordable, but are getting foreclosed on anyway? So people can afford the mortgages but are choosing not to and would rather be foreclosed on? And those are the people you want to bail out?

Or what?

Posted by Al | March 27, 2008 2:15 PM

Al,

I guess my question is what would be the net result of every home that is currently underwater foreclosing? Have we seen examples of this sort of equity decline before?

Posted by freddiemac | March 27, 2008 2:18 PM

"You are saying that the houses are actually affordable, but are getting foreclosed on anyway? So people can afford the mortgages but are choosing not to and would rather be foreclosed on?"

I suggest you search Mr. Yglesia's blog here for the 60 minutes interview with a borrower that said expressley that. They could afford their payments, but didn't want to make 8% interest payments on a piece of real estate because it is losing equity instead of gaining, and it is a very bad investment.

As for me, no I don't want to bail them out. I do think, however, that letting an equity run get out of hand would be bad for borrowers that are stuck in a region with sliding equity and through no fault of their own are now underwater. I don't think we should bail out borrowers directly at all. I think the idea of letting judges re-write contracts is an abomination. But I do think stopping equity from sliding is probably a good idea. As Fred points out, the idea of buying up and demolishing foreclosed and abandoned properties to correct the supply and demand curves is probably one with merit. It doesn't bail out people who don't pay their bills and it doesn't help banks; the two groups that bet heavily and lost. It does stop property values from declining which hurts the communities that depend on property taxes to fund schools, roads, police, etc. It also helps borrower who do pay their bills from finding themselves underwater.

Posted by freddiemac | March 27, 2008 2:26 PM

If your mortgage is underwater, you don't sell. You lose the house.

Not necessarily. If you can afford the payments, you might stay, but it might prevent you from selling the home when you need to, which is what could cause a liquidity problem in the housing market.

The rational move is probably to walk away from the house, leaving the bank to hold the bag. However, it might be warranted to realize that it's probably better off for the homeowner AND the bank to renegotiate the terms of the loan.

Posted by Tyro | March 27, 2008 2:26 PM

Bear Stearns wasn't really "bailed out." The company's shares lost 99% of their value, the company was sold (meaning management is fired) and most people involved had their careers ruined.

The only thing the gov't did was sweeten the buyout by guaranteeing their debt because without that the company would have totally collapsed, creating an enormous loss of confidence in the U.S. markets, which would be very bad for all investors.

Re: "No one has ever proposed helping real estate speculators" -- well, I suppose, if someone who buys a home they can't afford the payments on isn't a "speculator."

Remember, we heard for decades that the poor were being held back because banks wouldn't give them mortgages. Now we have the highest home ownership in modern times, but a huge loan crisis.

Posted by TallDave | March 27, 2008 2:34 PM

Freddiemac, I agree that, to the extent we think there is a systemic issue with foreclosures that is affecting everyone (even people who have never had problems), then, sure, we ought to consider doing something about it. That's the same logic the Fed used with respect to Bear Stearns - its collapse threatened lots of parties, not just Bear and its stockholders, and could have caused a systemic problem.

I'm not convinced there is a systemic problem. And to the extent the bailouts are simply "people are losing their homes and so we have to help them", I'm not buying it. People who made decision to buy home they can't afford ought not to be bailed out; they should lose their unaffordable homes and move to homes they are able to afford.

Posted by Al | March 27, 2008 2:38 PM

TallDave, BSC wasn't bailed out. However, BSC's CREDITORS received a sweetheart deal, since the federal loan was meant to ensure that the creditors would get paid first during BSC's dismantling, rather than having to fight between themselves for scraps of BSC's assets.

Posted by Tyro | March 27, 2008 2:39 PM

Here is that 60 minutes bit about the people who can pay but won't because it is a bad investment.

http://www.cbsnews.com/sections/i_video/main500251.shtml?id=3756665n&channel=/sections/60minutes/videoplayer3415.shtml

Ancedotal though it may be, I have a hard time finding strict numbers about the who, the why, and the how of these foreclosure numbers. The motives behind those who borrowed and lost. I do think that, while the couple in question is rather reprehensible and not deserving a bailout, they made a good risk assessment based on market conditions. The question is then what does their actions do to the other homes in the neighborhood?

Posted by freddiemac | March 27, 2008 2:40 PM

All those claiming that BSC isn't getting a great deal... Sure, that's true of the shareholders and regular employees. But what about the executives? A billion dollars worth of bonuses at the end of last year and another billion coming to them in the merger. I'd say they made out pretty well compared to bankruptcy proceedings. But that's the class that gets taken care of. We all know that.

Posted by mpowell | March 27, 2008 2:53 PM

Can Clinton and Obama bail me out of some of my poor stock investments while they are at it?

Posted by A Moderate | March 27, 2008 3:40 PM

Al writes: "You are saying that the houses are actually affordable, but are getting foreclosed on anyway? So people can afford the mortgages but are choosing not to and would rather be foreclosed on? And those are the people you want to bail out?"

Actually, you fucking fool, it's not about whether the houses are "affordable," in most cases. It's about the terms and conditions of the mortgages involved and whether it makes sense to negotiate ways for people to be given more favorable terms and conditions so that they might be able to keep their houses.

All of you worthless "my tax dollars" Bush-slurping goobers who have a problem with this can go right down to the zoo and suck the shit out of the elephants as far as I'm concerned, considering how much money your bullshit wars have wasted, and considering how your precious Bushpigs will bail out as many large banks and investment firms as they want to in the coming months.

Posted by MoeLarryAndJesus | March 27, 2008 3:59 PM

"However, in your previous post you suggest that people unable to refinance are those that lied about their income. Many borrowers bought in locations where equity dropped, and banks will not refinance 125% LTV."

If you put 20% down on your house (i.e., you bought a house you could afford), then your property would need to have declined by how much for you to need a 125% LTV mortgage?

"From a financial perspective, the mass number of underwater mortgages causes a liquidity crisis in the housing market, akin to lack of liquidity in the bond market, because in both cases, no one can/will sell."

People can and are selling, that's why year over year sales were up last month, despite the decline in average prices. We need people to keep buying and selling to clear the market of the inventory overhang. Then there will be accurate price signals to guide mortgage financing, real estate construction, and related industries going forward. If people think that if they hold out the federal government is going to stuff money in their pockets for buying a big house at the top of the market, then that will slow the correction process.

"TallDave, BSC wasn't bailed out. However, BSC's CREDITORS received a sweetheart deal"

The analogous group to BSC's CREDITORS isn't homeowners, but the INVESTORS WHO OWN THE HOMEOWNERS' MORTGAGES.

Posted by Fred | March 27, 2008 4:15 PM

"If you put 20% down on your house (i.e., you bought a house you could afford), then your property would need to have declined by how much for you to need a 125% LTV mortgage?"

So if I understand you correctly, being able to afford a home means having 20% down, not DTI?

Is the correct answer "25%"?

Posted by freddiemac | March 27, 2008 4:22 PM

Fred writes: "If you put 20% down on your house (i.e., you bought a house you could afford), then your property would need to have declined by how much for you to need a 125% LTV mortgage?"

You're extremely out of touch with current reality, Fred, if you think that very many people (and especially first time home buyers) are putting 20% down on houses these days.

I realize that right-wingers live in a fantasy world that bears no resemblance to Earth, and I really look forward to a day when their moronic policy decisions are no longer raping this country.

Posted by MoeLarryAndJesus | March 27, 2008 4:25 PM

Fred, you keep trying to pick a fight over this, and the truth is that I just don't care; I can't get worked up into any moral outrage about the possibility of and intervention that staves off bankruptcy for homeowners, even if those homeowners were stupid.

Posted by Tyro | March 27, 2008 4:26 PM

The general tone here seems to be that of derision toward "people who made a decision to buy a house they can't afford."

Well, this is the ultimate destination of the "ownership society" train. We're all told from birth on that home ownership is the American Dream. The cheerleaders in business and government and Rush and Hannity say to believe in America and those "doom and gloomers" just don't know what they're talking about, and we should know that things are just dandy. "We bet you didn't know that you could afford a new house, did you?" And when bad things happen and home prices don't keep going up and the promises made by the lenders (and the government and business and Rush and Hannity) just don't work out like they were supposed to, now it's "well they should have known better", even though if you expressed doubts at the beginning it was, "don't you believe in America?" And all of the "speculators" and house-flippers who got over-extended are just smaller versions of Bear Stearns, who gets to go on living because, why we can't let something that big go under, but the "speculators", or your neighbor who's just trying to get ahead, well, it's just too bad about them.

Posted by BlueStreak | March 27, 2008 4:33 PM

BlueStreak writes: "Well, this is the ultimate destination of the "ownership society" train. We're all told from birth on that home ownership is the American Dream."

That's right - and over the last couple of decades more and more people have looked at the way this country is going and they've been scared into buying homes instead of renting, since it has looked like that's the only way to "save money" in the long run. Most people have been living on their equity in one way or another, and they might as well, because as things are set up now you'll lose your home in the end anyway, as they take it from you in order to finance your shabby nursing-home final days.

And the asshole cheerleaders of the right will still be yapping about "tax dollars" even as they're being shaved in preparation for their entry into the Soylent Green machine.

Posted by MoeLarryAndJesus | March 27, 2008 4:44 PM

BlueStreak,

I think that there are some legitimate reservation about a homeowner bailout. Some people really couldn't afford their homes, and they knew it. And I think DTI (debt to income) is the minimum qualification for affordability. So they took out a liar's loan and got an ARM because they could only afford the teaser rate, not even the floor. How many of these foreclosures are caused by this? It is hard to say. Every day, getting more accurate numbers on this is more difficult.

As you might guess by my handle, I am deeply interested in the housing market. On one hand I think people who bought into the market during the bubble expecting it to go on forever were foolish.
http://www.youtube.com/watch?v=yoZV5jt9puc&mode=related&search=
On the other hand there are plenty of examples of people making reasonable housing investments and getting burned. For example, if you bought a house in the city of Detroit anytime over the last 40 years you probably lost equity. Detroit has one of the highest rates of foreclosure in the nation, and it isn't because of "speculators" going bust. It is because 1 million people have fled the city since 1950 (50% of the population). It is reasonable to assume that there are plent of homeowners in middle America that are being screwed too.

It is hard to be able to craft a policy that wouldn't bailout speculators but would help out people who are underwater because they were caught in the vortex, so to speak. Not that I think we should be buying people out. One of the most reasonable things to do is buy up properties at foreclosure auction, because the borrowers make no profit, the banks lose money, and the supply and demand curve can be fixed and prices stabilized -though there are good arguments for not stabilizing prices, even if only in the short term.

Posted by freddiemac | March 27, 2008 4:56 PM

"You're extremely out of touch with current reality, Fred, if you think that very many people (and especially first time home buyers) are putting 20% down on houses these days."

Back in the old days, that was how much you had to put down to avoid mortgage insurance, so it was fairly common.

"Fred, you keep trying to pick a fight over this, and the truth is that I just don't care; I can't get worked up into any moral outrage about the possibility of and intervention that staves off bankruptcy for homeowners, even if those homeowners were stupid."

Tyro,

I wasn't trying to pick a fight. Just matching your use of CAPS. Judging from your comments so far, you don't seem to understand enough about this topic to warrant further discussion.

Posted by Fred | March 27, 2008 5:08 PM

Fred, you have to pay mortgage insurance if you don't put 20% down, now, as well. In the past, it was likely that you couldn't get a loan at all without 20% down.

But then, I suspect that home prices have outstripped incomes, so it makes sense that 20% down would become less common.

And there are various ignoramuses, like TallDave, trying desperately to claim that the bailout the fed did with the BSC deal was, somehow, not "actually" a bailout, and they're making this argument because they don't want a bailout of homeowners. Mostly because he, like many republicans including you, Fred, is just suffering from class-system Stokholm syndrome.

Posted by Tyro | March 27, 2008 5:13 PM

Blue Streak,

Ownership is great, but so is common sense. When house prices become completely divorced from the average income in an area, the prices are too high, and you are better off renting. If you buy at the peak of the market that doesn't mean that real estate is a bad investment generally, just like if you bought stocks in March of 2000 it doesn't mean that stocks are a bad investment.

"For example, if you bought a house in the city of Detroit anytime over the last 40 years you probably lost equity."

The WSJ reported this week that the average home price in Detroit declined by 50% year over year: from about $40k to about $20k. I wonder what role federal policies to encourage minority home ownership played in the Detroit market.

Posted by Fred | March 27, 2008 5:16 PM

Dude, get a fucking grip.

Caring about tax dollars makes one a right-winger now? I thought it made one a responsible, prudent and economical member of society. But perhaps its easier to think of us as "Bushpigs" (clever) and brownshirts rather than responsible people working hard to make a good living.

What if we hate Bush but are still worried about our tax dollars and don't care to subsidize stupidity? What angle do you have then?

People weren't "scared" into buying homes. People tried to game the system and found that they couldn't. Oops, big fucking surprise. I simply didn't go to the school where one learns that nobody has any free will whatsoever.

Did some people fall into predatory lending schemes wherein the lenders actually lied to them? Sure. And that's a criminal act. Exploiting my work to wash others' terrible decisions? Also a criminal act.

Posted by DDP | March 27, 2008 5:22 PM

The WSJ reported this week that the average home price in Detroit declined by 50% year over year: from about $40k to about $20k. I wonder what role federal policies to encourage minority home ownership played in the Detroit market.

Probably none. Has mostly to do with the fact that anyone with money moved to the suburbs.

Posted by DDP | March 27, 2008 5:27 PM

Fred,

I'm not sure I get what you are saying about Detroit housing. It seems like a rhetorical question. What role did federal policies that encouraged minority home ownership play in the Detroit market?

Posted by freddiemac | March 27, 2008 5:29 PM

Tyro,

"And there are various ignoramuses, like TallDave, trying desperately to claim that the bailout the fed did with the BSC deal was, somehow, not "actually" a bailout, and they're making this argument because they don't want a bailout of homeowners."

It wasn't a bailout of Bear Stearns, but of its counterparties to avoid the risk of a systemic disaster in the financial system. BSC's shareholders like Joe Lewis are going to lose 90% of their equity, and probably half of the BSC employees will lose their jobs in the merger. Yes, BSC's creditors will get all the money they loaned to BSC back, but as I pointed out twice before, those creditors are analogous to the investors who own residential mortgages, not to homeowners. A similar "bailout" of homeowners would buy their houses from them for 10% of what those houses were worth in December.

As far as bailout proposals for current homeowners, I am not against them because of 'moral outrage' but because of the potential consequences (i.e., making it harder and more expensive for future homeowners to get a mortgage). Attempts to bailout current homeowners shouldn't be at the expense of future homeowners.

Posted by Fred | March 27, 2008 5:30 PM

Fred,

When BS executives get to dump their stock for millions of dollars whilst the federal reserve covers their debts, it's a bailout.

Those people deserve to be wiped out for every cent. They'll be fine, they can rent.

Posted by DDP | March 27, 2008 5:41 PM

Fred quotes and writes: ""You're extremely out of touch with current reality, Fred, if you think that very many people (and especially first time home buyers) are putting 20% down on houses these days."

Back in the old days, that was how much you had to put down to avoid mortgage insurance, so it was fairly common. "

Yes, and back in the old days paleo-conservatives like you were able to enjoy the occasional lynching in the town square and then send postcards of the special day off to your pals through the US mail.

Try updating your "old days" mentality, chuckles. In the old days my parents bought a house in 1971 that cost less than my father made in a year. That same house sold a couple of years ago for over $400,000, which is about 5 times what the buyers make in a year.

That's the current reality, and intelligent people take reality into account when pushing policy ideas. You crazy fossil, you.

Posted by MoeLarryAndJesus | March 27, 2008 5:53 PM

DDP says: "Dude, get a fucking grip.

Caring about tax dollars makes one a right-winger now? I thought it made one a responsible, prudent and economical member of society. But perhaps its easier to think of us as "Bushpigs" (clever) and brownshirts rather than responsible people working hard to make a good living.

What if we hate Bush but are still worried about our tax dollars and don't care to subsidize stupidity? What angle do you have then?

People weren't "scared" into buying homes. People tried to game the system and found that they couldn't. Oops, big fucking surprise. I simply didn't go to the school where one learns that nobody has any free will whatsoever.

Did some people fall into predatory lending schemes wherein the lenders actually lied to them? Sure. And that's a criminal act. Exploiting my work to wash others' terrible decisions? Also a criminal act."

I wasn't talking to you, chuckles. I was talking to Fred, a hypocrite who is cool with the Bushpigs bailing out BS (and any number of other companies to come) but who bitches if any non-rich people get a nickel. If you're against both forms of bailout I can understand - you're being consistent and my comments don't apply to you.

I do think you're wrong about no one being "scared" into buying a home, though - I think fear of being shut out of the market is EXACTLY what a lot of people were experiencing over the past couple of decades. And I think that fear was exploited quite deliberately both by the mortgage industry and by the real estate industry.

Posted by MoeLarryAndJesus | March 27, 2008 6:16 PM

"Bear Stearns Cos. Chairman James Cayne on Thursday sold his holdings in the embattled investment bank ahead of its expected acquisition by JPMorgan Chase & Co.

Cayne sold 5.66 million shares for exactly $10.84 a share for $61.3 million. However, it was not known if those shares were dumped into the open market or if Cayne sold them to another party."

Splendid!

Posted by MoeLarryAndJesus | March 27, 2008 6:28 PM

ML&J - right on the money with the "scared into buying a home". The prices were rising much faster than income and the longer you waited the further behind you got. But was anything bad ever going to happen? Nah, this is America, we're special.

Same thing with the Enron disaster. How many times did people hear "and your company will match your contribution" and Enron did, but only if you invested in Enron stock. So that's what they did because it really increased the amount they were putting away and it was also what all the pundits and popular advisors told them to do. Then when Enron, who was gaming the system the whole time, heads down the hole in the ground, there go the investments and it's only NOW that they hear "well, you shouldn't buy only your own company's stock, what are you, stupid?". At least someone went to jail for that - but the money's still gone.

Now if it's going to be nothing but buyer beware and dog-eat-dog, that's fine, but let's have the powers that be from the President on down telling us that, not cheerleading us down the path, then pulling the rug out when it suits them, saving only those that don't need saving.

Posted by BlueStreak | March 27, 2008 6:42 PM

Re: So they took out a liar's loan and got an ARM because they could only afford the teaser rate, not even the floor. How many of these foreclosures are caused by this? It is hard to say.

Per the foreclosure analysts where I work, at least a third of our portfolio that is in foreclosure involves provable buyer fraud, and in another third it is suspected. Split the difference and let's say that about half of foreclosures has involved people lying about income, assets and intention to reside in the home.

Re: Detroit has one of the highest rates of foreclosure in the nation, and it isn't because of "speculators" going bust. It is because 1 million people have fled the city since 1950 (50% of the population).

It's because Detroit in particular, and most of Michigan in general, no longer has an economy that can support its population. It was doing OK all through the 90s, even diversifying away from dependence of autos, but in this decade it fell off a cliff and has shown no sign of recovery. (I got out in 1999). Even the real estate bubble was feeble to non-existent in most of Michigan, except in some high-end areas and vacation homes.

Re: Back in the old days, that was how much you had to put down to avoid mortgage insurance, so it was fairly common.

Back in the old days 20% was something a person could reasonably save for in two or three years. Nowadays that 20% may represent an entire year's wages even for solidly middle class people. I will however note that one of the more deplorable scams in this mess involved people taking out an 80% loan and a 20% loan so that PMI would not be required. That loophole should never have been allowed.

Re: In the past, it was likely that you couldn't get a loan at all without 20% down.

Not true. FHA backed loans have long been available to borrowers for as little as 3% down (with PMI of course). The FHA however requires full documentation of income and is strict about loan-to-income ratios so people shunned those loans in favor of subprimes instead.

Re: I wonder what role federal policies to encourage minority home ownership played in the Detroit market.

Given that Detroit is mainly a "minority" city and has been for many years I doubt those policies played any role at all since the bulk of home-buyers in Detroit would have been minorities regardless.

Posted by JonF | March 27, 2008 6:49 PM

The other problem is that some banks were actively pushing their brokers to give people the worst possible loans. People were railroaded into taking the worst possible terms. This is where the banks should get hammered and be forced to adjust their terms, but of course we all know the banks have already sold off the paper.

Isn't tht largely because the federal government was using "antidiscrimination" laws to railroad the banks into giving lons to people with horrible credit, or to rewrite the credit-score rules to make bad credit risks look better so as to avoid "disparate impact" in the racial demographics of loan approvals?

Posted by Glaivester | March 27, 2008 6:57 PM

Isn't tht largely because the federal government was using "antidiscrimination" laws to railroad the banks into giving lons to people with horrible credit, or to rewrite the credit-score rules to make bad credit risks look better so as to avoid "disparate impact" in the racial demographics of loan approvals?

No.

Posted by Peter H | March 27, 2008 7:48 PM

As far as bailout proposals for current homeowners, I am not against them because of 'moral outrage' but because of the potential consequences (i.e., making it harder and more expensive for future homeowners to get a mortgage). Attempts to bailout current homeowners shouldn't be at the expense of future homeowners.

I think this concern is exaggerated. The major policy response coming out of Congress is to allow judicially-supervised modification of loans under Chapter 13. We already judges to modify loans for other kinds of assets under the Bankruptcy code, and they work fine.

Posted by Peter H | March 27, 2008 7:53 PM

Glaivester writes: "Isn't tht largely because the federal government was using "antidiscrimination" laws to railroad the banks into giving lons to people with horrible credit, or to rewrite the credit-score rules to make bad credit risks look better so as to avoid "disparate impact" in the racial demographics of loan approvals?"

Leave it to the Steve Sailer fan to blame it on minorities. What a fool you are, Glaivester. Your speculation is completely unfounded and is driven by your racist obsessions.

Credit scoring and analysis has been getting more exacting all along - when I started in the banking industry in the mid 80s we didn't even USE credit scores. And you're plain and simply a moron if you think there was much arm-twisting going on over racial disparities. There was sound and fury signifying nothing.

It IS true that minorities were more likely to be targeted by unscrupulous lenders and brokers, but that's a small part of the picture of the system's failures. The ever-hungry maw of the secondary market and the fact that it was almost completely unregulated is the real culprit here. Bear Stearns was one of the leaders in the secondary market from the start, and they knew full well they were profiting from a market that would fail big-time some day.

Posted by MoeLarryAndJesus | March 27, 2008 8:00 PM

ML&J,

"Yes, and back in the old days paleo-conservatives like you were able to enjoy the occasional lynching in the town square and then send postcards of the special day off to your pals through the US mail.

Try updating your "old days" mentality, chuckles."

My "the old days" I was referring to 2000, when I bought my place with 20% down. I am not a paleo-con. And there isn't much of a history of lynchings here in Northern NJ.

JonF,

"Given that Detroit is mainly a "minority" city and has been for many years I doubt those policies played any role at all since the bulk of home-buyers in Detroit would have been minorities regardless."

The policies probably played a role in increasing the percentage of Detroit residents who became home owners. They would have been better off staying in their rent-subsidized apartments and saving up money to move elsewhere.

Posted by Fred | March 27, 2008 8:37 PM

JonF,

You clearly know what you are talking about, but I do take exception with this statement:

"It's because Detroit in particular, and most of Michigan in general, no longer has an economy that can support its population. It was doing OK all through the 90s, even diversifying away from dependence of autos, but in this decade it fell off a cliff and has shown no sign of recovery"

Really? So the population of Detroit didn't decline in the 90s? No, Detroit has been a sinking ship since the mid 50s when the population began its unmitigated migration.

When Berry Gordy sold his mansion in the 90s, he got under 3 million for it. When it was originally built in 1917, it cost more to construct it in 1917 dollars! That is an incredible loss of equity. And it isn't just there. There are hundreds of homes in Detroit that are selling for less than the cost of materials. Supply and demand curves in metro Detroit are crazy because no one in suburban Detroit, for various reasons, wants to live in the city of Detroit, which now has a glut of houses that they can never sell. Let us not forget that Detroiters started "devil's night" because there were so many buildings left vacant that burning down a few hundred each year wasn't necessarily a bad thing.

Posted by freddiemac | March 27, 2008 10:23 PM

Fred,

I still don't quite understand what you mean when you write about Detroit.

"The policies probably played a role in increasing the percentage of Detroit residents who became home owners. They would have been better off staying in their rent-subsidized apartments and saving up money to move elsewhere."

I don't understand why they would have been better off staying in their rent-subsidized apartments and saving up money to move elsewhere. If they paid no money down and had an interest only negative amoritization adjustable rate mortgage, wouldn't their monthly payments be much lower than renting? And when all is said and done they can just foreclose and walk away to someplace else? Your statements seem to be contradictory.

Additionlly, your thoughts about equity seem to be a bit misguided. I guess I would have to ask what you would think about 50% of the population moving out of your northern NJ town. Would you be happy with your investment?

Posted by freddiemac | March 27, 2008 10:37 PM

"I don't understand why they would have been better off staying in their rent-subsidized apartments and saving up money to move elsewhere."

Because buying in Detroit was an obviously bad investment. It's been a bad investment for decades.

"If they paid no money down and had an interest only negative amoritization adjustable rate mortgage, wouldn't their monthly payments be much lower than renting?"

It depends on the rent subsidy. Some inner-city renters pay under $100 per month. It's usually based on a fixed percentage of their income, regardless of how low it is.

"I guess I would have to ask what you would think about 50% of the population moving out of your northern NJ town. Would you be happy with your investment?"

It would depend on which 50% left. If it was the poorer, more crime-prone 50%, I'd be thrilled.

Posted by Fred | March 27, 2008 10:52 PM

Fred writes: "Because buying in Detroit was an obviously bad investment. It's been a bad investment for decades."

Investing in subprime paper from Bear Stearns was also an obviously bad investment, but investors decided to go with the much higher level of risk anyway. It's no surprise that Fred has no problem with bailing out these investors, but he gets incensed over the notion of individual homeowners getting help.

Why is Fred taking this position? It's because he's a corporate-sucking wingnut who takes the positions Fox News and the Great Leader tell him to take.

Every. Single. Time.

Hey, Fred, the BS investors shouldn't have made investments they couldn't afford to lose! Sound familiar? It's your argument for why homeowners should be boned up the wazoo. Why doesn't it apply to the BS investors, pal?

Posted by MoeLarryAndJesus | March 27, 2008 11:14 PM

Leave it to the Steve Sailer fan to blame it on minorities. What a fool you are, Glaivester. Your speculation is completely unfounded and is driven by your racist obsessions.

Of course, I don't think that this is the most important issue. The most important thing driving the crisis is the Federal Reserve creating too much money, leading to the impression that there was more capital in the system than there was.

Essentially the government encouraged, enabled, and aided and abetted the financial institutions to loan to everyone possible and made it artificially easy to get lots of debt.

Posted by Glaivester | March 27, 2008 11:31 PM

Glaivester replies: "Of course, I don't think that this is the most important issue."

Right, sure, okay - it was just the first one that came to your mind. You Sailerites probably blamed the Hubble telescope problems on affirmative action.

Posted by MoeLarryAndJesus | March 28, 2008 12:14 AM

Moe, Larry and Jesus,

For the third or fourth time: I would have no problem with homeowners getting the same 'bailout' that Bear Stearns shareholders got, i.e., getting their homes bought from them for 10% of what those homes were worth in December.

Posted by Fred | March 28, 2008 12:35 AM

But that's not the same deal, Fred, you fatuous Cheney-lover, since the BS shareholders can keep their stock, which will gradually regain much or all of the lost value under Chase's reign.

I'm glad to hear you live in northern New Jersey, though. Now I know that you suffer every day.

Posted by MoeLarryAndJesus | March 28, 2008 12:57 AM

MoeLarryAndJesus, you Cheney's-distant-cousin-lover:

"the BS shareholders can keep their stock, which will gradually regain much or all of the lost value under Chase's reign."

If the BSC shareholders take the offer and then use their $10 per share to buy JP Morgan stock -- and the JPM stock appreciates 10% per year, on average -- then the BSC shareholders could recoup the money their BSC stock was worth in December of 07 in about 28 years. Of course, with inflation it won't be worth anything close to its December 07 value in real terms 28 years from now. Now if the government offered the deal I mentioned for homeowners, there'd be nothing stopping those homeowners from taking their "bail out" money and investing it in JP Morgan stock themselves. Whatever they do with the money, a BSC-type bail out for homeowners would be a crappy deal. When you lose 90% of your equity it can take forever to rebuild it.

"I'm glad to hear you live in northern New Jersey, though. Now I know that you suffer every day."

Like Aeschylus said, man must suffer to be wise.

Posted by Fred | March 28, 2008 1:40 AM

Fred replies: "Now if the government offered the deal I mentioned for homeowners, there'd be nothing stopping those homeowners from taking their "bail out" money and investing it in JP Morgan stock themselves. Whatever they do with the money, a BSC-type bail out for homeowners would be a crappy deal. When you lose 90% of your equity it can take forever to rebuild it."

Aw, Fred, you poor stupid baby. Have you ever worked in the banking industry?

You seriously think people who have just been foreclosed on will be able to take this mythical bailout cash and invest it? You're dumb enough to think the initial lenders wouldn't be all over them to recoup that cash? You think that 10% would be some sort of bargain for the government when we're talking about hundreds of thousands of properties (at least)?

You're a poster child for Repiglican idiocy.

The actual worth of the Bear Stearns stock was $2 when the deal was announced. Already it's up over 500%. Your fantasy projections are cute, but they're also stupid, since the stock is highly likely to appreciate faster than you suggest. Chase isn't buying the company out of charity.

Posted by MoeLarryAndJesus | March 28, 2008 2:27 AM

MoeLarryAndJesus,

Since like a poor marksman, you keep missing the point, let me try this one more time: Losing 90% of the value of your investment -- whether that investment is equity in a publicly-traded company or in a house -- is a shitty deal. To recover from a 90% investment loss you need a 1000% cumulative gain. You would have to be completely innumerate not to understand this by now.

"You seriously think people who have just been foreclosed on will be able to take this mythical bailout cash and invest it?"

Some would be able to, and others would have to spend the money on immediate needs. Same with the BSC shareholders with their $10 payouts.

"You're dumb enough to think the initial lenders wouldn't be all over them to recoup that cash?"

You're forgetting the deal: just like in BSC, the creditors (in this case, the lenders or current owners of the mortgages) would be made whole, so there'd be nothing for them to recoup. Meanwhile the equity holders (in this case, the homeowners) would lose 90% of the value of their homes as of last December.

"You think that 10% would be some sort of bargain for the government when we're talking about hundreds of thousands of properties (at least)?"

It most certainly would be a bargain, considering that no one expects home prices to fall anywhere near 90% from peak to trough. The absolute number of properties is immaterial. If the government bought houses at 10% of December's market price, and sold them over the next ten years (so as not to flood the market in any one year and depress prices even more) for, say, 50% of their December 07 values, it would reap huge profits.

"You're a poster child for Repiglican idiocy."

I can't compare with sophisticates such as yourself who can come up with witticisms like "Repiglican".

"The actual worth of the Bear Stearns stock was $2 when the deal was announced. Already it's up over 500%"

Right, to $10 -- which, as you'll recall was the starting price I used, so this point is meaningless. Unless of course you expect the stock to keep appreciating by 500% every two weeks.

"Your fantasy projections are cute, but they're also stupid, since the stock is highly likely to appreciate faster than you suggest."

The stock is going to be JP Morgan stock. That's a large cap stock. 10% average annual returns aren't a 'fantasy' estimate, but the rough average annual appreciation large cap stocks have returned over the last 70 years. If you think JP Morgan stock will appreciate "much faster" than that, give me your annual return estimate and I'll let you know how long it will take to turn $10 back into $100 with those returns.

Posted by Fred | March 28, 2008 3:03 AM

"It most certainly would be a bargain, considering that no one expects home prices to fall anywhere near 90% from peak to trough. The absolute number of properties is immaterial. If the government bought houses at 10% of December's market price, and sold them over the next ten years (so as not to flood the market in any one year and depress prices even more) for, say, 50% of their December 07 values, it would reap huge profits."

I've got to correct myself here. This is true with respect to the houses themselves, but government's profits would depend on how much it had to spend to pay off the mortgages too, so the profits actually wouldn't be "huge".

Also, for a government 'bail out' of homeowners to be as bad a deal as the bail out for Bear Stearns shareholders, the government would have to give the homeowners 10% of the value of their equity in their homes, not 10% of the homes' values.

Time for sleep.

Posted by Fred | March 28, 2008 3:28 AM