Please: I have a question about Economics/Housing Market bailout

[Bonobo]

This is going to be a dumb, naive question but I have been wondering about this. Could someone explain why this wouldn't be a good idea?

Since banks/creditors are in trouble because all these ill-advised loans are being defaulted on, and since so many people are losing their homes because they cannot pay their mortgages, why doesn't the govt. bail out the homeowners by giving them money that MUST be earmarked for paying back loans/home loans only? It seems to me if they did that, then the money would "flow" up to the banking institutions anyway AND people could not become homeless thus becoming a further drain on our country's infrastructure. Think of it as a reverse trickle down theory.

Is there some fatal flaw in this?

Thanks for the explanation. This is one of the things I love about DU. We are a vast pool of people with expertise, educating each other.

[nadinbrzezinski]

1. One problem from their point of view... PROGRESSIVE

But it would stimulate the economy. In fact, this is quite keinseian. Oh and another term... they hate.. statist, the state would intervene and not let the "hand of the market" play its way through the economy.

My view, all of this mess is partly greed, partly by design

[nightrider767]

2. My 2 cents worth...

One problem I see with that idea, and it's a noble idea make no mistake about that, is that house prices do need to adjust downward. The price of the average house has run up so high, in proportion to income, that many people are locked out of the market. So while you're helping one group, you are hurting another group.

[Bonobo]

4. Isn't the govt going to wind up bailing these creditors out anyway?

"Injecting liquidity" or whatever their euphemism du jour for corporate welfare and all that?

[nadinbrzezinski]

5. They already are... the half a trillion already injected

into the mix to try to stabilize the markets world wide is impressive

[Bonobo]

7. And what exactly does an "injection" mean. Do they just print up money?

And then give it out? Why not give it to the American people so they could stimulate the economy on a macro level?

You know, I have always thought that one of the reasons that the Japanese are so stable economically despite their poor economy of the last 13 years is that they get huge bonuses 2x per year. This means they get used to living on their relatively low monthly salaries, but then 2x per year they get an "injection" if 2 or 3 months of their salary. That means, if you earn 5,000 dollars/month, you will get 2 bonuses of perhaps $10,000 each. Think of it!

[Rosemary2205]

13. $5000 a month is "low"

I can't even begin to tell you how many families would love to make that "low" income.

Me included.

[Bonobo]

15. Try living in Tokyo for that.

[Rosemary2205]

21. I understand but

raising a family in Atlanta with little to no public transportation and buying our own healthcare is no picnic either.

I'm just sayin........ :)

[Bonobo]

22. I know and I'm sorry.

Things are not going so great with me either so I sympathize.

Stay well, Rose.

[nightrider767]

9. The government hates people...

Yes, all that money will go to the mortgage institutions to bail them out. Corporate welfare and funding wars all over the world is just fine and dandy. But anything that might be possibly conceived to help the common man is simply not an option. $30 aid package for Israel id good, but heaven forbid we fund a child health bill.

Hillary had an idea to freeze interests rates.

That might be work able.

[nannah]

30. The rising cost of housing has created a divide between

those who are priced out of the housing market and hope to see it go down and those who already own and have an interest in seeing the price of homes continue to rise. any real breakthoughs in affordable housing threatens those who own a home now and perceive themselves the holder of X number of dollars in assets.

As a homeowner the bailout of banks and over extended homeowners seems like a good idea as the value of your home is secured.

If you are not a homeowner, but a renter, the continued high value of housing costs you additional money each monthh and put many into the streets.

Here at DU I imagine we are divided along these lines. One man's (or woman's) progressive idea is for another a continuation of housing costing more than their wages provide.

[Bonobo]

31. Jeez, this thing really breaks in several ways, doesn't it?

Renters VS. Buyers... I hadn't thought about that either. Wow. Tough problem.

[truedelphi]

32. Also the continued high costs of housing means that

Middle income families have lost, perhaps forever, their ability to have a mortgage deduction.

It all depends upon where you live. If you live in the wilds of The Dakota Black Hills, anyone there has the ability to own their own home, even if it is a mobile home.

But in the mega-cities of either coasts, with houses costing more than a half million apiece, there isn't any way to attain home ownership. And things like mobile home parks are zoned out.

So you get bled by a landlord and have to work two jobs (or one with overtime) to pay the rent. And then you have to pay the government a huge amount of taxes because you've worked two jobs and have no mortgage deduction.

[Lydia Leftcoast]

48. On the other hand, the mortgage deduction is overrated

Several times, friends have urged me to buy, touting the mortgage deduction. I simply can't afford to buy anything comparable to what I'm currently renting, and so I'd be paying more money (mortgage, taxes, association fee) to the bank and local governments in order to get back 35% of the interest I paid to the bank?

It simply isn't worth it. As a self-employed person, I already get tax deductions that other people don't get.

[truedelphi]

50. From your icon you are living in MN perhaps?

Double or triple your current rent payments and imagine an even smaller living space.

Then tell me what you would do, if you were living in the rental world many Californians are living in. Methinks you would really resent having to raise all that money to pay for rent and know you'll never ever see a mortgage deduction or its equivalent.

[ayeshahaqqiqa]

3. Too many think the government only needs to bail out

banks and other such institutions. Heaven help us if the government actually helped out the people!

Of course, some would object, because it would be "rewarding" people who engaged in risky behaviors. That's the meme the GOP would run with. Of course, that same GOP has no problem bailing out corporations.

[LSK]

6. the problem is that the money is in Iraq

[Bonobo]

8. But we don't even have THAT money. We are just borrowing it, no?

Or printing it.

[nightrider767]

12. That's a mystery to me....

We authorize the Federal Reserve to create money and lend that fake money to banks. They also lend the fake money to the US government at an interest. But we did borrow a huge amount of war funding money from countries like CHina and Japan.

I wish I could read in informative book or article to clear up issues like that and how it all really works...

[Bonobo]

14. I am hoping an economic guru will take interest in this thread and enlighten us.

I have no idea what is going on with any of this. Just that it feels wrong.

[nightrider767]

20. It's a complicated issue

You need to learn about the Federal Reserve, which is a private institution. Then go on to how money is created and how it's used to manage the economy. Then look into funding deficit spending, and how the annual deficit they publish is normally low-balled by a factor of ten. ANd then a general course of how our banking and lending institutions actually work.

I've been looking into those things, but it's hard to find real info. As, I'd presume, when treachery is at hand, people like to keep their trail hidden.

[Bonobo]

23. Thanks for the head start.

[nightrider767]

27. Well if you're going to really look into it,,,

there are plenty of good recourses on the Internet. But I'd also suggest looking into youtube. Just do a search for "federal reserve", "fiat money", or "deficit spending".

I use youtube all the time to do research. ANything from politics to cooking. I learned how to make my own french bread from you tube.

Take care...

[Bonobo]

29. Yes, me too. Youtube is an amazing resource! nt

[truedelphi]

34. Read the "tinyurl" at the end of my sig line

It takes about six to eight viewings because it is a long film. But after the section on religion, it gets into the Federal Reserve.

The Federal Reserve is not Federal, any more than Fed-Ex. It was created ostensibly for the purpose of not having consumers losing their hard earned monies every ten years - but if you think about it - we watch consumers lose money every ten years anyway. (In my lifetime, here is what I have seen: One: The turn down in the economy in the late seventies due to the high interest rates (Money was borrowed for Vietnam War) and the oil crisis under Carter but probably really on account of Kissinger/Bush having the Saudis stall the oil deliveries. Two: in the mid eighties the S & L scandal which cost us the tax payers half a trillion dollars to bail out.
Three the stagnant economy in '91 and '92 Four: the dot com bubble bursting in 2000 And now
Five: the housing market, mortgage lender, credit card depression of 2008. And I'll add in that so much of our capital will be needed to pay for the two trillion dollar Iraq War.)

Under the Federal Reserve, we have watched our dollar go from an item of currency backed by gold and silver to an item backed by nada. Even our coins are now simple, low value metals of "plug" value. This increases the likelihood of the foreign investors thinking it might be wise to get out whenever our economy tanks.

[LSK]

25. yes

[flvegan]

10. A wiser move, IMO, and one that I think could get bipartisan support

is to NOT bail anyone out, rather institute some form of incentive for lenders performing portfolios. That way, it wouldn't matter what grade the paper is, it would behoove the lender/noteholder to keep as many loans performing as possible. Make the lenders more proactive with loss mitigation and default resolution.

If we want to end the cycle of greed, we're going to have to reward them for doing it, as stupid as that sounds.

[Bonobo]

11. I don't understand the jargon, well, but if I get you right you are saying that

we should create incentives for the lenders to be more flexible in terms of allowing the borrowers to continue to try to pay back their loans. Is that right?

[flvegan]

17. Bingo.

Flip the script from "what do I have to do to put you in a loan" to "what do I have to do to KEEP you in this loan"

[papau]

16. force is the only thing that works in the financial world I worked in - incentives rarely do squat

[flvegan]

19. Which is why with incentive should come penalty, too.

[papau]

47. I agree - one regulatory black mark can screw up future mergers.

[Rosemary2205]

18. Yes.

I have been accused of being a cold hearted freeper but I totally agree. IMHO we need to just let the cheese hit the fan and ride it out. Yes, a lot of people will lose their homes, and yes the ultra wealthy who own the banks will have to figure out how to sell zillions of houses. IMHO it will be painful, most painful for the little people looking to move in with Aunt Mabel, but in the long run I think it will be all around better.

Homebuyers will be "once burnt twice shy" and think twice about how much credit they can really afford. Housing prices will be forced down to what people can actually afford to pay. And quite frankly, the rich guys won't lose one damn penny because chances are they insured all those crappy loans and will collect either way.

[nightrider767]

24. A lot of it will be a wash anyways....

Generally in real estate, when you sell during a bad market, it's a wash, because the house you buy into will also be bought at that lower value.

Unfortunately for many families, this will be a disaster.

But keep in mind, the entire economy will be adjusting down as people will realize that all the dept they've been amassing will never be payed off and they'll either default or stop spending money.

[hfojvt]

26. from my perspective

I would kinda hate to see the government helping somebody to buy a $250,000 home since I only paid $35,000 for mine. I have seen news reports showing one guy hit by the housing crunch who was trying to "flip" a 2nd house. Should he receive help? Six years ago, before I bought this house I had bought a property for $35,000 that I lived in for three years and sold for about $8,000 by the time I paid commission and such. Nobody helped me eat that $27,000.

I'd like to see more details on the housing crunch. As somebody else mentioned, Hillary's idea of freezing interest rates, which she copied from Edwards' earlier proposal, sounds like a good idea that would help the homeowners too, without openly subsidizing them.

[Bonobo]

28. Oh yeah, I see the problem with that. Thanks for that angle. eom

[wintersoulja]

33. this aint about flippers and mcmansions

their crooked scam has stolen the houses of people unable to handle the skillful games played against them. Its just another version of the S&L shell game. To write off the victims of this atrocity because some people are less deserving of sympathy is to support the real crooks. You know why you never saw any consumer warnings against this on the media? Because they were deluged with the ridiculous advertising cash that buys silence, if nothing else.
How many automated phone calls have you received promising great deals?

[Bonobo]

36. I agree with that. The predators deserve the "lion's share" of the blame.

I have had millions of phone calls offering me free cash.

I got into credit card trouble right out of college. They hit you young when you are feeling confident. It took me a decade to fix my credit.

And I'm pretty conservative with my borrowing/spending. I can only imagine how very bad it must be for so many.

[wintersoulja]

38. Let me share a personal anecdote

For better or for worse Ive been involved with homeless and homelessness for several years now.
Imagine my disgust when a friend Ive known for 15 years lost the house his parents bought 23 years before and became homeless himself? He thought he was in a position to take advantage of what they were offering, get some money together to reopen a business he sold years before. It didnt turn out that way, I cant say it was because he was particularly clever, but how many people really are? The bell curve may be abused for social purposes, but its possibly an apt description for relative intelligence. Whether you believe its alright for some people to prey on the weak is a personal decision, but in this case he lost a house that was costing him about $430 a month originally. With no job or source of income he was qualified for a baloon mortgage that shot to $1000+ a month in a year or so.
Please read that last sentence again, because I believe it is what the crime boils down to.
The man has no family, his mother and brother both died in the last two years. Hes in his 60s and renting a room for what his house payment had been. Still with no job or source of income aside from an SSI/VA benefit that he finally turned up.
This is most likely not a worst case scenario or a particularly unusual one. I suppose if it affected young children it might be more bothersome to some consciences.

[Bonobo]

41. That is a terrible tragedy.

Must be thousands and thousands and thousands in a similar situation.

[wintersoulja]

43. absolutely particularly in our region

makes it even more rewarding to take on the challenges of ending homelessness!
On the bright side, someday the rich will be on the menu.

[hfojvt]

44. I am confused by these huge payment jumps the media reports

The difference on 80,000 in debt from 5% to 7.2% goes from $419 a month to $543 a month based on 30 year amortization. Not that much of a jump. IT seems that the jump comes from $180,000 mortgage then the payment goes from $944 to $1221. I don't know how you get a jump from $430 to over $1,000 unless you are talking about something really risky like an interest only loan.

Again though, a freeze in interest rates seems to benefit both without really subsidizing either, especially as interest rates have been dropping.

[wintersoulja]

46. I was never privy to the details, let alone consulted

The catch is probably the inflated value of housing that suddenly made everyones property seem to be twice as pricey, and when someone takes a big pile of cash on an ARM... its all greek to me.
What stands out is how does anyone with no income qualify for sudden death financing?

[bpj62]

35. Bailout

Why does everyone think that people who are in forclosure are there becuase they overspent or overborrowed. Many people are in forclosure because of lost jobs or divorce or medical bills. It is a small percentage that are in forclosure because they overborrowed. Many of the loan products offered should never have been allowed on the market and with the underwriting guidelines now being used most people would not have qualified for those loans. Most borrowers are not that knowledgeble about the product that the loan officer is putting them in. Many states do not license brokers or loan officeers.

[Bonobo]

37. I hear you! And I totally agree. The margin between "making it" and

"not making it" is awfully tiny these days. One slip, one heart attack or even one crown can send you spinning into a debt that is hard to recover from.

[InkAddict]

49. In addition, the Board of Realtors runs a toothless ethics code

in which a complaint must be made quite rapidly upon learning of a breach of trust, 30 to 120 days at best; a savvy swarmy broker can expedite deals through the processes faster than the investigators can even take the first step to investigating one of their own beloved. These are at best local inquiries, so the predator-that-cared-so-much just moves on. Imagine how those peer reviews go, huh? There are also some really bad notaries public that would sell out their own grandmothers by not following the RULES for little more than a cheap fee without a second glance at granny in her underwear.

GET THIS, AND GET IT GOOD - If you are suffering from burn-out from more on your plate than you can push around, have a clinical depression, or grieving, or are just having trouble adjusting to a bad experience, don't wait--get help NOW, so that you are not victimized by unscrupulous people you thought you could trust to do the right thing. Meanwhile, a masked depression is often very difficult for others to "read," so a person that looks quite functional may be unable to think clearly enough at times to make good decisions. They may also be giving you the bums rush to take you out at the knees!

[sicksicksick_N_tired]

39. The ones being "bailed out" are the same who CAUSED the problem.

The people aren't being "bailed out". The POWER-BROKERING ECONOMIC HITMEN ARE BEING BAILED OUT!

Who told you 'the people' were being SAVED? :shrug:

Whatever gave you that notion?

The people are STILL BEING STUCK LIKE A PIG!!!

[Bonobo]

40. I'm sorry, but I don't think you read my post very clearly. Maybe try to read it again.

[sicksicksick_N_tired]

42. I read it, again. It is NOT homeowners being 'bailed out'.

I'm sorry.

Look. Umpteens amounts of money have been INJECTED into those mofos. Now, there is a so-called proposal to SAVE 'the people'.

It's a lie.

Only the big-time major financial players are being saved.

The people will still pay out the arse,...for shelter.

it is the truth

i skipped your assertion

[Bonobo]

45. I never said it was. I asked 'Why DOESN'T the Govt. bail THEM out?'

You have it backwards.

I made no assertion at all. I asked questions.

[slipslidingaway]

51. K&R n/t

[Corgigal]

52. How about a waiting period

If the homeowner is having difficulty with the mortgage why can't the Fed's force the mortgage companies to use a 90 days grace period. In a 30 year mortgage you can have that placed in twice for the term of the loan. You would have to contact the mortgage company tell them what happened, sickness, lost of income, family crisis and then the mortgage company can work with you for a period of 90 days to give you a chance to get back on track or for the company to find new terms that will help your problem.

Will this help everyone? No, but it might help about 50 percent of homeowners to keep their home. It's the fee that they tackle onto the mortgages when you're late the makes it almost impossible to catch up. Also this won't go against your credit either because it will be build into the loan. I know this forces companies to give a damn about their customers but maybe we need to go back to the good ole days when they actually did.