Who is To Blame?

[howeird]

I'm against the government giving money to Wall Street's greedy fat cats. But-

Anyone who bought a home on a balloon payment plan has only themselves to blame if the payments grew to exceed what they could afford to pay. They were gambling on future salary increases which in most cases were well beyond what could be reasonably expected. It has been decades since most people could expect more than a cost of living increase, and most real income has been flat or has declined.

Comments

[cinchntouch.livejournal.com]

I think that is just a small part of the picture though. I don't have the numbers on me, and I am not interested enough to look them up, but I believe the actual number of home loans that went into default are less than 3%. The vast majority of people are responsible, get loans they understood and have paid them. The reverse to this is that there were some loan agents and real estate brokers who did engage in predatory and dishonest loan practices. There was also some very poor underwriting in the authorizations of loans. Loans were given without verifying income or employment in some cases. I also think that the average loan agent will use a larger basis for justifying granting someone a jumbo loan than is actually practical. Granted, most people succeed in meeting these qualifications but it doesn't allow for events like unemployment, etc.

The real issue isn't that roughly 1.5M of the over 200-500M first time mortgages defaulted. The issue is that these bad loans are bundled with good loans and are acting like bad mayonaise at a otherwise perfectly good BBQ. The other issue isn't that corporate America is a disaster. There are plenty of assets, the problem is the liquidity of the assets and the ability to get the money in the time required (have you noticed that every Sunday this month has been doomsday for someone?).

I haven't read the details of the Fed's "bail out" plan. I should, but I have been too busy. I will say that I am with Warren Buffet in thinking that there is no reason why the govt. cannot assist big businesses and still make a profit off it without "nationalizing" private industry. I don't know that this is the doomsday "return to the great depression" that the politicians are pushing, but I do think that we are looking down the maw at a freezing of capital that can really cripple our economy (and several foreign companies) for at least the next one to two years. In so far as that goes, it isn't about fat cats but anyone who works for a publically traded company or any company carries debt on the books.

[cinchntouch.livejournal.com]

Sorry meant to say foreign "economies" not foreign "companies"

[unseelie23.livejournal.com]

Strictly speaking, what they were actually gambling on was that the value of their home would continue to increase by double digit percentages and that they would then be able to secure better rates with a re-fi... but yes, they were still gambling and the 'house' almost always wins.

[howeird]

Most of your comment is beside the point. The point being not to deal with loan sharks.

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The bad loans are not bundled with good loans. I made a lot of money investing in companies which had as their charter buying risky loan notes - there was quite a market for those - we're talking dividends of >20% a year. When people started defaulting in droves, these companies went under, and I lost about as much in capital as I had earned in dividends. Chesapeake Corp (CSK), Hanover Capital Mortgage Holdings (HCM), Impac Mortgage Holdings (IMH), Novastar Financial (NOVS), New Century Financial (bankrupt, no symbol), etc.