September 7, 2007

Why Should You Care About A Bad Loan Bailout?

Motley Fool’s Seth Jayson has a good, brief article about the possibility of a housing bailout:

If the NAR [National Association of Realtors] gets its way, the people of the U.S. who didn’t go out and spend irresponsibly during this housing bubble will be tasked with stepping in to guarantee the bad loans of those who did, spurred by the 6-percenters at the NAR. That might not even be enough to reanimate the dead monster bubble, but it might buy those Realtors a few more months of commissions.

He posted an earlier article when Bush was about to suggest the bailout to Congress.

If you didn’t make the stupid decision to speculate on a risky mortgage, should you be expected to cover the people who did? Speculators with more money than sense jumped on the risky loan bandwagon and bought, bought, bought investment properties simply for the reason that their also-too-rich-for-their-brains friends were going housing speculation crazy. They let the greed get the better of them.

When you make a really stupid investment, you ought to suffer the consequences. What else keeps more people from making risky investments? After they’ve been warned? Repeatedly?

Hey there, President Bush. I think my meagre investments should have returned more than they have. Maybe the government can swoop in and top off my nest egg. But I guess I have to make some really stupid decisions before I get sympathy from President Bush. He understands ignoring the warnings and jumping full speed ahead into stupid risks. And having other people (Daddy… Hardworking Americans…the next President) bail you out.

Posted by James at September 7, 2007 8:47 AM
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What gets lost in all of this talk about bailouts and subprime and all that jazz, is that if housing prices weren't so f*&!ing high, people wouldn't need these sorts of loans. And if there wasn't speculation in the market (house-flipping) then prices wouldn't be so high.

My father-in-law grew up dirt poor in rural Nevada in the first half of the last century. He joined the navy and then went to work as a civilian for the DOD. He managed to buy a house in cash from his modest government salary - lets see anyone do that today.

This idea that house prices constantly rising being a GOOD thing simply reflects a bias across all of our media that we should reward people for owning stuff rather than for working.

Posted by: David Grenier at September 7, 2007 10:01 AM

You're absolutely right, DG.

Realtors are partly to blame, telling people that they ought to take an ARM and try to flip their house before the rates adjust, counting on a good seller's market. They push people into these risky loans by appealing to their greed -- they're getting something for nothing by borrowing at ridiculously low levels with nothing to back it up.

But there's no such thing as a free lunch. Of course, they're counting on increasing prices, the ability to sell their house, etc. When they're caught int he pinch, that's the market adjusting itself. When they contributed to a rising and unstable market, they didn't care that people who just want a place to live would have trouble affording a home. Now that the market is biting back, they predictably go crying for a bailout.

Bush Family Values.

Posted by: James at September 7, 2007 10:16 AM

I'm sorry this is a little frivolous and OT, but I noticed, when we were looking for a home and then later when we were considering moving or adding on, that realtors will SAY ANYTHING to sell you a house. As a citizen, I find that really creepy. For example, when I told one realtor I was looking for waterfront, he suggested a house on the reservoir. When I said I wanted waterfront I could sail on and swim in, he said, "well, nobody's going to stop you if you dip your feet in now and again."

Yuck! Thanks for encouraging people to "dip their feet in" the water supply, creep! Hey, just dump your baby's diaper in there while you're at it!

They lie, cajole, misrepresent... tell you how you can do everything and anything to make their commission.

Posted by: Maggie at September 7, 2007 10:54 AM

Swoop in and top off my nest egg.

I'm going to try to work that into meetings next week. For example:

"Yeah, I'll get right on that [insert impossible and/or annoying task here]. In the meantime, why don't you swoop in and top off my nest egg."

Posted by: Patti M. at September 7, 2007 3:34 PM

I'm not thrilled with bailing out people who make bad investments. I can live with helping people re-fi who ACTUALLY LIVE IN THE HOUSE and who haven't gotten more than a couple of months behind at the time of the re-fi -- and preferably who have enough equity in the house to make it not an unreasonable investment.

Flipping - those folks can lose their investments and I won't waste one tear on them.

Posted by: Judy at September 7, 2007 3:35 PM

Oh, and by the way. If you can't afford something, don't take out a humongous loan you won't be able to afford, either.

I remember when we were looking to buy our house. Each of us had different ideas of what we could afford, and I told Bob that I wouldn't consider buying a house in the price range he had proposed because I was certain we could afford to look at somewhat higher-priced homes.

Had a long talk with my dad who advised that we stretch beyond the price range originall considered as we were buying with 1995 dollars, which would remain static, but our income would increase. Note he didn't suggest I buy a house that was 200% more than I could reasonably afford.

Yes, I'm sure some people were hoodwinked, but I can't believe they all were. Ever heard of the phrase caveat emptor, people? Before you sign on the dotted line, read it, understand it, and in the case of a home loan, hire a lawyer, fool!

Perhaps I am expecting too much of my fellow American, considering how many microcephalics fell prey to the Nigerian email scams. Which proves the point: Why on earth should I pay to bail out their sorry asses?

I'll get right on that as soon as you swoop in and top off my nest egg.

Hey! I did it! I worked the phrase into conversation!

Posted by: Patti M. at September 7, 2007 3:43 PM


The problem for a lot of them is that they now owe more than their house is worth as the bubble has begun deflating.

I do feel some sympathy for people losing their homes, and predatory lending practices have a lot to do with it. People believe what they are told because they want to believe. It's the same principle as behind MLMs.

As for the bailout, I say let the speculators twist in the wind. Did we bail out the Enron employees who lost everything? Or did we just bail out the businesses who lost money?

Posted by: briwei at September 7, 2007 6:29 PM

Patti, be careful with the nest-egg comment. someone mya accuse you of sexual harassment. ;-)

Posted by: briwei at September 7, 2007 6:29 PM

One of DG's points has gotten lost, even in James's comment that says he's right: it's not just the "greedy" people, it's not just the speculators... it's people who (1) found that these ballooning mortgages were the only way they could afford to buy a house — their only house, the one their family will live in — the way the housing market was, and (2) could not understand, no matter how much fine print they actually read and no matter how much they cavied before they empted, the actual details of these loans. They were sold a bill of goods under terms that it takes either training or honest explanation to follow, and they had neither. Perhaps they should have hired a lawyer for themselves (and in New York they customarily have to), but in many places that's an unusual move in a "simple" real estate purchase.

I'm not necessarily saying we should be bailing anyone out, regardless. I'm just saying that many of the people who're hurt by this were neither greedy nor speculating — they were just trying to put their families into the American Dream.

Posted by: Barry Leiba at September 8, 2007 1:14 AM

I have a lot more sympathy for those people. But the aim of the bailout is partly to keep the bubble going. Which keeps housing out of the reach of people unwilling to sign ridiculous mortgages.

Posted by: James at September 8, 2007 1:29 AM

We were listening to the radio the other day and we heard an add for a subprime loan. (The ad said, "you won't believe how much you'll save on your payments by making interest-only payments.") I can't believe anybody's still offering them, and I'm still shocked at how sleazy they are. It's a cut-throat, sleazy business, getting people to buy more than they can afford and then default.

I find that salespeople really go for the, "let me tell you how you can afford this," getting customers focused on that rather than "can I and should I"?

The things our parents told us, the lessons they learned (such as buy more than you can afford) don't necessarily apply. People assume the world's going to keep on keepin' on. Global warming can't happen to us, disaster can't happen to us, violence can't happen to us... For people *now*, buying "more than you can afford" is quite often committing to that "jumbo" mortgage, assuming that your salary's going to go way up and the house value is going to go way up, and it's just insane. How long could the median house price stay well above what the medium income could afford? It didn't make sense, and now the market's adjusting. It needs to be adjusted. I feel sorry for people losing their houses. I read in the paper every week about Countrywide selling off a property in town on which the mortgage holder defaulted. There's at least one every week.

If there's an answer that's going to come from the government, I'd rather see them regulate the business practices of the mortgage lenders, or require a lawyer for the borrower or some kind of independent loan counseling whenever money is borrowed above a certain threshold.

Posted by: Maggie at September 8, 2007 9:34 AM
If there's an answer that's going to come from the government, I'd rather see them regulate the business practices of the mortgage lenders, or require a lawyer for the borrower or some kind of independent loan counseling whenever money is borrowed above a certain threshold.

Of course, none of that is necessary if people have a sensible fear of overextending themselves.

How to counteract the realtors? Even public service announcements would have helped. Put them on during American Idol. But that would cut into the network's advertising dollars and would piss off the money that was benefiting from the risky mortgages - the folks who have the ear of this administration.

It's not the sort of idea you'd have seen from this president; a stitch in time. You're supposed to deny a problem exists until it bites you in the ass. And then toss money to your friends.

Bush has only been interested in producing television programming for the public when it's fake news stories, government funded and covertly created to look like actual news, which then gets fed to stations for the purpose of convincing people that his policies are good.

Really, when people look back at this president, they're going to wonder how anyone could have ever voted for him. I'm afraid future generations are going to remember my America as a remarkably dim brand of sheep, prepared by our immersion in advertising to be so easily manipulated that we couldn't even act in our own self interest -- happy to cheer on enormous and unprecedented government spending out of one side of our mouths while cursing even comparatively small expenditures that might have had a chance of helping Americans (liberalism!!! socialism!!!).

Posted by: James at September 8, 2007 2:30 PM

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