The people who helped to create this mess are now going to make all of us pay back those loans under the guise of helping the little guy:
Prodded in part by some of the nation’s biggest banks, the Bush administration and Congress are considering costly new proposals for the government to rescue hundreds of thousands of homeowners whose mortgages are higher than the value of their houses.
Not since the Depression has a larger share of Americans owed more on their homes than they are worth. With the collapse of the housing boom, nearly 8.8 million homeowners, or 10.3 percent of the total, are underwater. That is more than double the percentage just a year ago, according to a new estimate of the damage by Moody’s Economy.com.
Administration officials say they still oppose any taxpayer bailout for either people who borrowed more than they could afford or banks that made foolish loans during the height of the speculative bubble in housing.
I don’t know what can be done, but I don’t want a transfer payment from the government (us) to the banks. I just don’t. I want some people in the industry to be punished for their malfeasance.
The Other Steve
Save time, and cut out the middle men.
Just give me all the money.
4tehlulz
Oh you! Your ideas of just punishment for bad acts is so quaint.
jj
Shit like this is why I am hoping the MUP selects Eliot Spitzer for Attorney General.\
These people need to go to jail for what they’ve done to the economy.
Period.
PC
This post is sexist.
Dennis - SGMM
From the linked article:
BofA to the government: we’re buying a busted company, we want the taxpayers to make it profitable for us. This whole bailout business reminds me of the scene in “Blazing Saddles” where Sheriff Bart holds his own gun to his head and takes himself hostage.
Dug Jay
This portion of the text from your article should help assuage the concerns that you express:
zak822
“I want some people in the industry to be punished for their malfeasance.”
Who can we punish? I’m serious. At each stage, the parties involved apparently acted in accord with standard business practices.
An undiscussed aspect of this mess is the fact that at each step, the writers and buyers of dicey loans made good performance bonus’s for doing so. At each step, the parties involved figured they were going to off-load the risk by moving the loan onto someone elses books. And they get to keep their money! The money is the key. As long as the various parties in these transaction stand to get paid big time, they will go after the money.
When mortgage loans came from a bank that kept that loan on its own books, it was a very different game. Not without its flaws, but still, a very different game. There was someone nearby that was accountable. Not like that today.
John S.
Translation (for the reading impaired):
Fuck the middle class people that made a mistake or were victims of predatory lending practices or who are in danger of losing their primary dwelling. We’re only bailing out the rich folk and the real estate speculators.
bootlegger
I love that scene.
I think markets are tools for us to use, not some objective arbiter of right and wrong, but in this case I think we do far more damage to ourselves by not letting the market correct for this mistake. The people who “lose” their homes probably shouldn’t have had them to begin with, and I don’t mean that as a moral judgment but as an economic one. If we try to correct this by taxpaying for the bad loans the cost of all loans will go up in the future. Ditto if we try to “freeze” interest rates arbitrarily. I think this is one case where we need to leave the market alone and take the nasty medicine.
The Other Steve
zak822 is correct. The problem was really one of bad business practices, rather than any given individuals. The bad practices were widespread in the market.
Now I work for one of these companies, and from what I saw, the market shifted so radically that most companies just went along with it because they feared if they did not, they’d be out of business. It was really bizarre.
The reason why banks such as Wells Fargo and such did not go down this path, is because they are more widely diversified, and have a broad base from which to draw their business from.
The Other Steve
Somewhat agree. Just want to point out though, that the people responsible for this mess are no longer working in the industry. So I’m not certain that the industries memory will be that long-lived.
I think we need further regulation, which prevents much of this from happening again. The bill they passed already HR 3915(?) I think it was, tried to address that by restricting certain types of loans and such.
vishnu schizt
My message to the banks, speculators, and just plain dumbshits who bought these glorified pay day loans: go buy some tulip bulbs assholes, I hear they are a good value. But in the end, we the taxpayer will flip the bill, the conservatiz will wrap themselves in another flag, pray to jeebus and shovel their “low taxes” into a few special pockets. And the country can continue to spin down the drain until we get what the whole point is: A glorified United States of Argentina.
Good Night and Good Luck….
bootlegger
I completely agree that this points to the need for more regulation. As I said, markets are our tools and we need to sharpen them when they get dull.
If we can pin any crimes on anyone then prosecution should be aggressive. I also don’t mind some kind of fund to help those in homes they can’t afford to move to one they can, maybe a tax credit.
But if we charge to the rescue under the guise of helping these poor folks we not only make home buying harder in the future but we also reward the companies that did this in the first place. They made the bad the loans, let ’em eat ’em.
GSD
As Adam Smith would say:
Privatize the profit, socialize the loss.
-GSD
jack fate
Yeah, good luck with that. This situation is the way it is because of the banks. People didn’t “take” money to buy houses, the banks “gave” them money to houses. The lenders thought they had a way to hide risky debt so they exploited it. Now it has bitten them in the ass and we get to pay for it (yeah!) The next person, normally a Republican, who talks to me a personal responsibility with regards to this mess, is going to get punched in his/her stupid face.
DrDave
Donald Sensing has a post at Winds of Change about a proposal Lamar Alexander is floating for the Federal Government to provide a tax credit to new construction home buyers. To help bailout builders, their lenders and the towns and cities who have invested in infrastructure to build new developments (to add to their tax base).
Another good way to use our tax dollars to
*bail out builders
*bail out lenders
*bail out local governments
It would be painful but beneficial to let the market take care of these things, in my view.
zmulls
Yeah, me too. Good luck with that.
The point I would make to any conservative (any who would listen) about the “free market” and “deregulation” memes that have held sway since Reagan came to office (and in a few other choice periods in our history leading to McKinley’s assassination and to the Great Depression), follows from the “markets are tools” point made above:
Capitalism is a mighty force, but it is amoral. And yet we in America think of our country as moral, and say we want to live in a moral society. Relying on Captialism to be “right” in any moral sense is a contradiction in terms. Capitalism is successful because it has no sense of right and wrong, only for a ruthless bottom line. We provide structure and regulation for business to keep outcomes in scope of what we think of as a moral society.
So shit like this doesn’t happen every 10 years or so.
Have we finished paying for the S&L bailout yet, or are we still paying off bonds for that…..?
bootlegger
There is no end to examples of how a “free” market causes real personal and social problems. Its the reason we have regulation in any form, including criminal law which is nothing more that regulation protecting personal and property interests. Add to that the need to control the free rider and there can be no doubt that markets must be controlled. Alas, we now have another example.
Ash
naw, the bonds are lined up there on the shelf right next to the newly printed ones paying for the Iraq war, medicare, SS, ect.
Seems we’ve got ourselves into a right pickle though with the desire to punish the greedy guts who profited on the sale of these mortages (whom are long gone with pockets lined with gold and diamonds) and the rubes who bought the paper and paid those nifty fees. Unfortunately letting the ‘market decide’ is akin to the seizure that led to the great depression of the ’30’s and the current flooding of the markets with liquidity is like pouring gas on a fire. Unfortunately liquidity is not capital but maybe, just maybe, it’ll allow the can to be kicked further down the road staving off a great reckoning.
wasabi gasp
Somehow, someway, somewhere on a planet far, far way, this can all be fixed with deregulation.
Lonny Martello
THE MORTGEDGE BANKS ARE IN LEGUE WITH TEH FUCHING FERRETS AS IS USUELLY THE CASE IN THIS CONTRY. THEY HAVE STOLEN THE MONY AND GIVEN IT TO JOHN MCCANE SO HE CAN RUN FOR PRESIDENT AND BOMB IRAN AND STEEL THEIR HUGE NATUREL SUPPLIES OF EYELINER. CINDY MCCANE USES AT LEEST SIX TONS OF EYELINER PER WEEK AND ONCE TRIED TO CHEW OFF JOHN MCCANES LEGS WHEN SHE RAN OUT. THE JOKE WILL BE ON HIM WHEN TEH FUCHING FERRETS COME TO HIM WITH THE BILL. HE WILL BE CORNERED IN A CHEEP MOTEL IN RANTOUL ILLINOS AND TEH FUCHING FERRETS WILL RIP OFF HIS PRIVATES AND HE WILL DIE ON THE FLOOR SCREAMING. CINDY MCCANE WILL TRY TO STAB THEM WITH A GIANT EYELINER PENSIL BUT SHE WILL BE CAPTARED AND TURNED INTO A THROW RUG.
BFR
The cost of risk during the boom went down to nothing because everyone was making money hand over fist. What had been sound business practice for decades was suddently not so sound anymore – if all your competitors were raking in obscene profits by ignoring risk, you’d be a fool (or quickly unemployed) if you didn’t follow suit.
I understand the desire to punish someone for this, but the bigger problem is that someone is going to equal just about of us one way or another, whether it’s through making debt payments to cover the banks’ losses (but keep them solvent) or whether it’s depressed economic growth for an extended period of time.
If this is as bad as it seems like it is, then we should just focus on picking the least bad option. My 2 cents – bailout the banks in return for better regulations. Stop voting for the GOP until they get over their de-regulation mania.
John Cole
Birdzilla, is that you?
AkaDad
Another clear example of Liberal Fascism.
zmulls
The single most destructive thought in the American capitalist mind:
“Wow, this is easy money. I can make a bundle if I just get in and get out before the stupid people find out about it”
ccham44
I’m torn on different parts of this whole mess.
Obviously I’d like to see the shysters that profited and passed on the risk to lose their shirts, but at the same time if the bond insurers go under a lot of things could go splodey.
I also feel some sympathy for the people that just wanted to buy a house, and probably should have known better, but got suckered in to something they couldn’t handle.
I agree with Spitzer for AG. He’s also the only politician I’ve heard speak intelligently about this whole mess. He and the NY AG are trying to arrange a buyout of the bond insurers by the banks themselves, and also spilt the Muni-Bond insurance business off fromt the mortgage insurer business. Both would be major positives… not holding my breath though.
Bottom line, the grown-ups need to take over again.
The Moar You Know
Lonny: my new favorite poster. I needed that this morning.
zsa
We’ve known for a hundred years that unregulated markets follow a boom-and-bust cycle. The whole subprime/CDO meltdown is a case study on why capital markets need to be well-regulated.
The GOP knowingly looked the other while the investment community went totally apeshit, rolling up huge profits selling complex securities back by absolute crap. This is the inevitable result of negligent, corrupt governance … the concrete manifestation of the principles of the conservative movement.
I don’t think any additional punishment is required. Let the whole damn thing collapse. This is the invisible hand, my friends, leading us to the great Wecession of ’08. Laissez mutherfuckin’ faire, b17ch3zzz.
What? You mean we love the invisible hand when it gives us luxury cars and second homes in the Hamptons, but we beg for rescue when the hand begins to beat us bloody?
Do tell.
TenguPhule
We do not Torture.
There are Ponies in Iraq.
Quick, someone sell Dug Jay a bridge in Alaska!
Ash
Unfortunately the invisible hand will allow those to keep the second home in the Hamptons and all the other scooped up wealth it is the rest of us that’ll be beat bloody by that ‘hand’.
TenguPhule
Except that will catch the rest of us in collateral damage.
I say we rescue the banks, but only after the board of directors and management commit harakiri and will their estates to the government.
The shits who designed the mess can’t be allowed to profit.
ET
Like this is going to help the “little people.” BAH! This was never even intended to do that, that is just what they say to make the poison go down easier.
Punchy
This reminds me of the NASDAQ bubble of 2000. Qcom reaching up to $700 a share, people only buying it thinking it’d be worth more in a few days. Likewise, people bought a lot of houses purely to turn a fast buck. They got burned when someone figured out that a 2 bedroom, 1 bath in Palo Alto shouldn’t cost $600K.
Ergo, I have no sympathy for greed.
zsa
Assuming you haven’t invested in CDOs or various other SIVs backed by the liquefied horseshit of the mortgage market (or invested in funds that invested in such), and assuming you haven’t refinanced over the past 6 years, or bought a newer bigger home, or withdrawn the equity from your home, etc, etc, etc, you might be an innocent bystander in all of this.
I sure as hell am not.
Assuming you are “collateral” to all of this, why should your tax dollars go to the people (such as myself, frankly) who actively aided, abetted, and profited from the whole fiasco? Let them sink or swim.
Tough love, baby, tough love. Ideally this should be something that we as a society actually learn from. If we bail out the banks and investment houses now, what keeps the whole thing from happening again in 20 years?
It’s the Republican welfare argument, only instead of “Welfare queens”, “Unwed mothers”, and “dependence on government handouts”, read “Jim Cramer”, “Bank of America”, and, well, “dependence on government handouts”.
Conservatively Liberal
These asshats raped the home market and walked away with the cash. People were advertising ‘buy now, flip later’ scams on TV, banks were throwing money at just about anyone to hook them in and the whole thing was one huge Ponzi scheme. I watched this go on for years, all the while saying that reality was going to come back and bite them in the ass one day. The longer it went on, the worse I knew the eventual bite in the ass was going to be. When people were buying homes that were ten times their yearly income, I knew the end was near.
Sorry that this may not please those who were dumb enough to buy in to the hyper-housing market, but if banks and investors want to fight taxation, oversight and responsibility, then let them eat it. No bailout, make them stand up and take it in the chin like they want us to for them. Hell, if they can take bankruptcy away and force years of payments on credit cards, the banks can swallow the same pill (and choke on it). What is good for the goose is good for the gander. They demand financial responsibility for the individual, well we demand financial responsibility for them too.
To those who bought into the mess by getting a home that they could not afford, too bad. My wife and I wanted to buy a house but because you idiots just HAD to have your new McMansion, we put it off because the housing prices spiraled out of our reach. So we did not jump just because everyone else did, we just stood by and watched home ownership (anytime soon) slip right out of our hands.
We had a choice and did the responsible thing, and now we are being told ‘too bad, but you are going to foot the bill for this’. Fuck dat.
louisms
Maybe Countrywide’s CEO, Angelo Mozilo, could kindly donate the rest of the $115 million dollar windfall he collected after the BankOfAmerica buyout of Countrywide. Under intense pressure he’s already returned $37.5 million, but that still leaves him with a reward of $77.5 million for near-ruining his company with irresponsible business practices. As long as execs can sacrifice long-term corporate financial stability for short-term profit and walk away with staggering fortunes, our economic system will remain a house of cards.
binzinerator
Love that excuse. People who run the businesses didn’t do any thing wrong, their businesses did. And all are guilty of doing it, so none are.
It’s individuals when it comes to rewards, it’s a faceless corporation when it comes to responsibility for fuckups. Privatize the rewards, socialize the blame.
ZOMG! If we don’t make dumbfuck loans to people we know can’t pay and if we don’t repackage and resell ’em to rubes as top-rated securities and if we don’t conceal the shitty loans backing it all up on someone else’s balance sheet then WE’LL BE OUT OF BUSINESS!
[Scene: Financial Institution, various business suited drones gathered around a huge conference table, CEO J.J. Biggbux sits at its head]JJ: Hear, hear gentleman! We have to change our business practices RIGHT NOW or we’ll go out of business!
DRONES: ZOMG! What’ll we do, J.J.?
JJ: Simple. We make the kind of loans your grandfathers would’ve shot us dead for — we loan money to people who can’t pay.
DRONES: How’s that gonna help us, J.J.? We never made those loans before because we always wanted to stay in business.
JJ: Don’t be a dope. Everybody’s doing that now. And if we don’t start doing it, someone else will — and we’ll be out of business.
DRONES: ZOMG! But you mean we have to do exactly what will put us out of business to avoid being put out of business?
JJ: Yep. And because everybody’s doin’ it, no one’s to blame.
DRONES: Brilliant! You’re a fucking financial wizard, J.J.! C’mon, let’s do it, boys!
[exuent, slapping each other on the back]Well, gosh, they had absolutely no choice, did they!
You said it was bad business practices that were responsible, not individuals. So it’s really “People who run the businesses weren’t the problem, the way they ran their businesses were. But never mind, because those people are gone now, not that they were the problem.”
With explanations like that, I’d say nothing’s changed. These people decided to make a huge pile of money by blowing the brains out of their own businesses. That’s not much different from the Sheriff Bart routine we hear now, only now they’re saying we’ll get some of it splashed on us if we don’t give them a huge pile of money.
zak822
TenguPhule said “The shits who designed the mess can’t be allowed to profit.”
It’s too late. At every step along the way where people might normally have questioned the way business was being done, people profited directly from not doing so. Everyone got bonus’s! The big guys got really big ones. Middle management got smaller ones, but they got paid because they ignored the problems.
They had no risks themselves, they moved the risk on to another buyer of risky debt packages. They pocketed the money and moved on to the next deal. And everyone got their performance bonus!
I believe that these two things combined to add gasoline to the fire, that the buyers of risky debt packages knew they had no exposure because the package was going to be re-sold, and because everyone was looking at the bonus they would get because they made a lot of deals.
Remember, everyone gets to keep the money. These guys have lost nothing, except for the ones who couldn’t off-load the risky debt packages before the roof caved in. But I’ll bet most of them get to keep their bonus’s. Of course they made the deals, why wouldn’t they?
Conservatively Liberal
Yup, the housing mess was almost like a game of musical chairs. But in this game, as the smart guys got their fill of the music, they just went ahead and sat down early. Since there were fewer people circling the chairs, some more people joined in the dance. But there were now more people, but fewer chairs due to some of them being occupied by the first round of early seat takers.
The music plays on, and soon some others decide that they have had their fill of the music, so they took seats too. Whoops! More spaces just opened up in the dance! Better fill them in! So more suckers join the dance, but there are even fewer chairs left because of the second round of seat takers. And the music plays on.
This kept going on, round after round, until there were a few chairs left. Problem is that there were still a lot of people walking in a circle, happily listening to the music. The music finally stops, and those closest to one of the few remaining seats grabs it and sits down.
Everyone else is shit out of luck. What? No? The government is going to go to everyones house, grab their chairs and give them to those who do not have a chair? And all of the extra chairs go to the guy who was cranking out the tunes?
What a plan!
Martin
And yet they are doing exactly that. They are ‘loaning’ billions back to the banks using their shittiest debt as collateral. It’s that bottom tier stuff that everyone knows won’t get paid back, the banks will write it off, go back to the govt. and proclaim that their collateral is gone, they couldn’t possibly have anticipated it and have the loan forgiven. It’s been a regular operation since last October or so, and each month they pony up another 50B or so…
And the states tried to rein it in, only to have Bush intervene. Sorry folks, but the GOP has the play down cold – smaller government out of necessity. Just bankrupt the nation and then we won’t have to worry about paying those welfare moms any more.
zsa
In general, yeah, but I think the second act will feature an awful lot of lawsuits against everyone who was in on the scheme.
If I’m suddenly holding a bucket of poop backed by a bunch of worthless mortgages, I’m going to get my lawyers on it. My understanding is that there is liability if there was fraud in the mortgage origination process. So there’s a lot of unraveling that needs to be done, but if my lawyers can establish fraud, then that’s actionable, and I have someone to sue for my huge losses.
Popcorn time.
I’m not a securities lawyer, so I could have my head up my ass here. (It would be instructive to hear from someone who actually knows this kind of shit.)
OriGuy
The people who are really getting screwed are the ones who are renting the properties that have gone south. In most cases, when the bank takes over, they get evicted because the bank would rather have the place sit empty than be a landlord. That’s not the case in San Francisco, I believe.
Conservatively Liberal
The lenders basically rewrote the book on lending, then they figured out a way to bundle the debt and pass it off as an ‘investment’. They got their money, and the investors got screwed. Still, banks had a bunch of crap on the books when the music stopped, so while they got their money they are also losing out at the end.
You can bet there was fraud in the originating process, and it was blatant. Nobody wants to look closely at it, so they want to patch it, then prop it up as best they can. It is not going to work this time. There is nothing to prop up, it is a shell.
Our housing market has been ‘Enronized’. The game behind this is to take control of something that people need and club it like a baby seal to squeeze it for profit. Oil, water, electricity, housing, you name it, they will find a way to milk it dry. They insert themselves into the middle of the process and suck it dry like the leeches they are. Housing was a personal investment in the past, and they turned it into an regular investment. The problem is that once the housing boom hit top, only then would people realize that ‘Hey! Homes are not like other investments, go figure’. If you thought we were paying out the nose on the way up, wait until you see the ride on the way down.
This was Enron on a massive scale like we have never seen before, and I believe that this mess is far from over. Hell, I think it is just getting started.
Jeff
I do not buy this as justification for a bailout:
What percentage of those folks actually need to sell their homes. Even if my house were currently underwater (it is not), I would not necessarily have to sell it, as it is still a place to live and the price could go back up bases upon historical trends. Also, as I am living in it and paying off the mortgage, I am paying off the loan.