Wes wrote:
I'm never planning on moving. 20+ years and staying. Actually if my
property value went down, my property taxes would eventually have to drop.


That is NOT true. The local taxing authority will just increase the
rates to make up the required "inflated" budget.

People that get overjoyed about increases in the value of their primary
domicile are nuts. It costs them money.
Wes

There I'll agree 100% with you. I've lived in my present house for 21
years and have no intention of moving and the last one 24 years.

...lew...

On 2008-03-22, Ed Huntress wrote:
I think that traits like propensity to spend vs. save, are basic
personality traits and are not really changeable by education.

I actually agree with the remarks that you made. People who borrowed
too much, knew everything and took the risks willingly.

But they didn't "know everything," even if they could follow the legal
obscurantism in the contracts. What they didn't know was the same thing that
everyone else in the US, and in the financial community all around the world
didn't know, which is that, for the first time in history, American house
prices were going to decline on a nationwide business.

I recall doing some refinancing of my own house. Based on some law, I
received very clear summary of the loan terms and interest rates.
There was nothing that was hard to understand.

Also, a maxim that house payments should not be a large part of a
budget, is also quite obvious to anyone, people just choose to ignore
it at their own peril.

Our own house payments are about 10% of our gross income.

It never happened before. If they had asked their banker, or anyone
else who follows it, what the chances were they'd be upside-down on
their mortgage in a year or two or three, making it impossible for
them to flip their house and come out ahead if the mortgage became
too much for them, the bankers would have laughed in their
faces. The experts "knew" that it couldn't happen, because it has
never happened before.

That's exactly why there is a long standing recommendation to limit
mortgage payment to a small fraction of one's income.

So it doesn't make much sense to say these people knew what the
risks were. No one else did, either.

But they were obviously imprudent. As were the lenders.

Looks like there was plenty of investors who bought mortgage loans
containing those crap loans, who did not even bother to think about
their quality.

i

On 2008-03-23, Too_Many_Tools wrote:
On Mar 22, 1:25*pm, Ignoramus21938 ignoramus21...@NOSPAM.
21938.invalid wrote:
On 2008-03-22, Wes wrote:

These 'more affluent' consumers presumably had access to a higher level of
education than most of those on lower rungs that had their dreams wiped out
by the realities of finance.

How are you and your ilk going to spin this as how the banks took advantage
of them? *Greed. *It is prevalent at all levels of income and leads to the
undoing of many. *The banks are blameless.

I think that traits like propensity to spend vs. save, are basic
personality traits and are not really changeable by education.

I actually agree with the remarks that you made. People who borrowed
too much, knew everything and took the risks willingly.

i

I would add that includes people who lent too much, knew everything
and took the risks willingly also.

Without a doubt.

So why are we bailing them out..i.e. Bears Stearns?

I do not know all the facts, yet.

But I think that what happened is that many financial institution got
themselves into a business of taking loans and using the proceeds to
buy other (higher yielding) loans. They were highly leveraged. In
essense, from a macro standpoint, they operated like banks, creating
money supply.

So, if too many of them fail, it could cause economic disruptions just
like runs on banks would.

Whether they need to be more regulated, or not, is a very non-obvious
question.

In this instance, Bear Stearns shareholders lost almost nothing, so it
is not quite exactly a bailout. Based on what I know, and it is very
little, I would prefer to just see it go bankrupt. The moral hazard
created by all those years of bailouts, is too high.

i

On Sat, 22 Mar 2008 23:21:04 -0400, Wes wrote:
snip
Enron once looked like a sure fire deal once upon a time. I just do not see
why government should bail people or companies out for poor decisions.
snip
=============
The choice is not between the "good" and the "bad," rather
between the "bad" and the "worse."

While it is bad public policy to shield people from the results
of their own actions, failure to do so frequently causes
excessive "collateral" damage to other groups and sectors. In
this case, a reasonable person can see that there is a plausible
danger of a total economic/financial "melt down," if nothing is
done.

Note when all factors are considered, there is no actual
"rescue," in that the problem is solved, rather the cost is
simply spread over everyone rather than remaining concentrated on
a few.

The seeds of this debacle were laid when Glass-Steagall was
repealed and the doors to modern "casino capitalism" opened.
From that point, the question was never "if," but simply "when."

The underlying problem is that the cycle keeps repeating without
any corrective/preventative actions being taken.

For example, a series of bloody accidents at a particular
intersection or along a certain stretch of road with high loss of
life would result in some combination of road improvements, lower
speed limits, enhanced enforcement with radar or "gitzo" cameras,
etc., and certainly the drivers responsible would be facing
criminal charges [e.g. DUI/DWI, reckless driving], loss of
driving privileges, possibly jail time and civil suits for
damages.

A far more useful and productive effort is to identify and defeat
those legislators who have eliminated limitations and controls on
financial firms, who have worked to limit/eliminate regulatory
oversight, for example by reducing funding of the SEC, and
preventing every effort to improve transparency and corporate
officer/director accountability. FWIW -- The presidential
nominee of a major political party is at the head of this list.

It should be noted that this damage to the "fabric of society" is
not limited to just the financial sectors. Recent news items
clearly show the same affects in our supplies of food and
medicine. Expect monetary losses and huge human costs whenever
and whereever rotten and adulterated products are sold in the
marketplace. The wider the distribution, the bigger the total
loss...


Unka' George [George McDuffee]
-------------------------------------------
He that will not apply new remedies,
must expect new evils:
for Time is the greatest innovator: and
if Time, of course, alter things to the worse,
and wisdom and counsel shall not alter them to the better,
what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman.
Essays, "Of Innovations" (1597-1625).

On Sun, 23 Mar 2008 08:49:24 -0600, with neither quill nor qualm, Lew
Hartswick quickly quoth:

Larry Jaques wrote:

On Sat, 22 Mar 2008 23:52:55 -0400, with neither quill nor qualm, "Ed
Huntress" quickly quoth:

There's always a book that said everything. There's always a contrarian who
got it right. That's why contrarians write books: they only have to get it
right once, and they're famous. Everyone will forget that they got it all
wrong 99 other times.

That's what has happened with Paul Erlich of global doom books, but
the masses forget that -none- of his predictions have ever come true.
They were gloom and doom books with happy feeling endings "if we act
NOW!"


What is that word? KUMBUYA ??? :-)

Close. Global Warming(kumbaya).

--
Try not to become a man of success but rather to become a man of value.
-- Albert Einstein

On Sun, 23 Mar 2008 08:56:20 -0600, with neither quill nor qualm, Lew
Hartswick quickly quoth:

Wes wrote:
I'm never planning on moving. 20+ years and staying. Actually if my
property value went down, my property taxes would eventually have to drop.


That is NOT true. The local taxing authority will just increase the
rates to make up the required "inflated" budget.

People that get overjoyed about increases in the value of their primary
domicile are nuts. It costs them money.
Wes

There I'll agree 100% with you. I've lived in my present house for 21
years and have no intention of moving and the last one 24 years.

Right, but it's the millions of people that move every 4 years or so
who like the increased value.

--
Try not to become a man of success but rather to become a man of value.
-- Albert Einstein

On 2008-03-23, Larry Jaques novalidaddress@di wrote:
On Sun, 23 Mar 2008 08:56:20 -0600, with neither quill nor qualm, Lew
Hartswick quickly quoth:

Wes wrote:
I'm never planning on moving. 20+ years and staying. Actually if my
property value went down, my property taxes would eventually have to drop.


That is NOT true. The local taxing authority will just increase the
rates to make up the required "inflated" budget.

People that get overjoyed about increases in the value of their primary
domicile are nuts. It costs them money.
Wes

There I'll agree 100% with you. I've lived in my present house for 21
years and have no intention of moving and the last one 24 years.

Right, but it's the millions of people that move every 4 years or so
who like the increased value.


Do you mean they like increased prices of homes that they sell, or
prices of homes that they buy?

i

"Too_Many_Tools" wrote in message
...
On Mar 22, 8:55 pm, "Ed Huntress" wrote:
"Wes" wrote in message

...





"Ed Huntress" wrote:

Sure, on a car. Not on a house. You could have asked any broker or
banker,
a
year ago, what the chances were you'd get in trouble that way. They'd
laugh
you out of the place.

First, they would tell you what I said above. They they'd tell you that
once
you'd made two or three years of payments, you'd qualify for a
fixed-rate
mortgage before the balloon came due on (what they might call) your
"bridge"
loan. Then you could look at all the statistics and see that they're
dead
right. Only they weren't, for the first time ever.

Okay, try this. You buy a new house, the overall market does not go down
but when you go to refinance the banks appraiser notices a crack house
next
door and doesn't think your house's market value is high enough to
secure
the loan. By your logic, the bank should forgive principle since the
house
is not worth far less than when it was originally purchased.

First off, I haven't said what banks should do, or what the government
should do. It's beyond my knowledge and I'm studying the subject right now
.
I do (or did) know how mortgages work, though, and the basic situation is
not that hard to figure out.

Secondly, every day you walk out of your door you're taking a chance that
something really bad won't happen. That's true about your investments,
your
chances of getting hit by a truck, and so on. House buyers can't buy
without
some risk of some kind, and some go under and lose their houses all the
time.

But that doesn't cause the credit markets to dry up, nor does it cause
average house prices to drop throughout the country (curiously, not in my
town; prices took a one-month hiatus but now they're going up, but that's
another story). Even if a few people get it all wrong and come up losers,
the market usually isn't much affected by that. This time, we have a
perfect
storm: just as those people are getting in a bind, new mortgages are
drying
up, and prices have dropped enough that they're upside down on their
mortgages.

Nobody anticipated that. Not the experts, not the banks, and not the
government. It's a crisis because there's no way out -- except that some
of
these crap mortgages were written in such a way that a home owner can just
walk out of an upside-down situation and turn the keys over to the bank,
with no further repurcussions. That amazes me, but that's what the papers
say. The brokers are calling it "key mail." You open the bank's mail, and
there are house keys in the envelopes. d8-)



The bank loans money, the borrower agrees to pay based on the terms of
the
contract. Doesn't matter what the market is doing, you borrowed, you
owe.

Sure. Unless you can't, which is something that people and businesses
sometimes face. It's what happens afterwards that's causing all the
trouble.
In a normal market, even during a downturn, most of those people would
have
been able to get out by selling their houses. Now there aren't enough
buyers
because the buyers can't get mortgages; prices are dropping, and the
buyers
who *can* get a mortgage are waiting it out. I would, too.

This wouldn't have happened in the first place if the mortgage lenders
hadn't fallen all over each other to give mortgages with practically no
money down. That's bad banking. It's NOT necessarily bad borrowing.

--
Ed Huntress- Hide quoted text -

- Show quoted text -

But...but...but...why do the banks get bailed out but not the
borrowers?

TMT

If I'm reading Bush's proposals correctly, they're both going to get bailed
out.

--
Ed Huntress

"Too_Many_Tools" wrote in message
...
On Mar 22, 9:35 pm, "Ed Huntress" wrote:
"Wes" wrote in message

...

"Ed Huntress" wrote:

I don't follow what you're saying here. People were making millions
flipping
all kinds of crap houses. As for ARMs, the idea is that you refinance at
a
fixed rate when the time is right. Only now you can't. It didn't look to
*anyone* that such a thing was likely to happen.

Enron once looked like a sure fire deal once upon a time. I just do not
see
why government should bail people or companies out for poor decisions.

Well, they shouldn't. The reason they are is that the rest of us will wind
up paying more if they don't. There's a good analysis of it in this week's
_The Economist_. They say that the bailout will cost about $300 billion,
and, if it works, will save the rest of us about $1.2 trillion.

That's why we're bailing them. But Congress, the Fed, and the Treasury
Dept.
are already working on new regulations for the unregulated part of the
finance industry, and, particulalry if we have Dems running the show next
year, they'll probably clamp down like there's no tomorrow. Likely they'll
clamp down *too* hard.



You seem to be endorsing the idea that we are NOT responisible for our
actions.

Jesus, Wes, don't turn into another one of those guys who can't
distinguish
a few facts from an entire ideology. We have enough of those around here
already.

Focus on the facts. Forget your philosophy. When you have all the facts
and
you're able to look at them objectively, you can cook up a philisophy
about
them if you're so disposed. Right now, all the philosophies have turned to
crap. It's not the time to commit suicide for the entire economy because
you're worried about "moral hazard." The time for that has passed.

--
Ed Huntress

In my opinion, the Dems can't clamp down hard enough.

Starting with criminal charges for many in the finance industry.

TMT

I figured you were of that opinion. That's why we're lucky you aren't making
the decisions. d8-)

--
Ed Huntress

Ed Huntress wrote:


First off, I haven't said what banks should do, or what the government
should do. It's beyond my knowledge and I'm studying the subject right now .
I do (or did) know how mortgages work, though, and the basic situation is
not that hard to figure out.

Secondly, every day you walk out of your door you're taking a chance that
something really bad won't happen. That's true about your investments, your
chances of getting hit by a truck, and so on. House buyers can't buy without
some risk of some kind, and some go under and lose their houses all the
time.

But that doesn't cause the credit markets to dry up, nor does it cause
average house prices to drop throughout the country (curiously, not in my
town; prices took a one-month hiatus but now they're going up, but that's
another story).

Not in my town either, when compared to prices a year ago:

From http://www.rereport.com/sf/ron/

"The median price for single-family, re-sale homes dropped 8.3% from
Janaury, but, was up 2.1% year-over-year. The average price dropped
2.6%, yet, it gained 15.5% compared to last February.

The median price for condos in San Francisco rose 6.3% to $755,000 from
January, up 16.5% year-over-year. The average price for condos dropped
6.2% to $830,129 compared to January. The average price was up 9.8%
year-over-year."

--
Abrasha
http://www.abrasha.com

"Don Foreman" wrote in message
...
On Sat, 22 Mar 2008 22:55:10 -0400, "Ed Huntress"
wrote:



This wouldn't have happened in the first place if the mortgage lenders
hadn't fallen all over each other to give mortgages with practically no
money down. That's bad banking. It's NOT necessarily bad borrowing.

It clearly is both bad banking and bad borrowing.

I knew some guys when I was in my 20s who became millionaires in pretty
short order borrowing that way. It was VERY good borrowing for them.

First, you'd use your VA or an FHA 221-D2 mortgage (no longer available) to
buy a house for peanuts. Then you'd live in it. In six months, you'd be a
prime borrower in the eyes of the mortgage companies, and you'd use the 5%
or 10% you'd otherwise have used on your *own* house to buy one or two more
on MGIC low-down mortgages, and rent them out. In a year you'd qualify for
an investor-grade conventional loan and buy an apartment building for very
little down. You could even put a lien on one of the houses you bought to
use for the down payment on the apartments, because the longer term trends
were always (or almost always) up.

You could go upside-down on all of those investments with even a slight
downturn, but it wouldn't matter as long as you had a job and you had income
from the properties. The margin you were looking at was the margin of income
versus mortgage payments, and you needed a slightly positive cash flow to be
safe. But a small downturn wouldn't hurt you. You'd ride it out.

In five years you could be a real estate tycoon.


No money down mortgages (GI) have been available for decades. Property
values have definitely fluctuated both up and down during that time:
long term has been up but there have been regional short-term dips. My
house has not been a "financial performer" in terms of market
appreciation and DCFROI (discounted cash flow return on investment)
but I gotta live somewhere. Shelter is a basic need.

If a person buys a house with a mortgage they can afford, they can
still afford it even if the house value declines to negative equity
for a while -- unless they then leverage equity increase with
increasing market value to maintain absolutely all the debt they can
afford to keep up with and perhaps a bit more. This can only work in
a monotonically increasing market, and no market does that forever.

Not so. A downturn doesn't change your mortgage payments. If you can make
the payments, you can ride out a downturn even if you have no money down on
the house. The ones who sweat that are the mortgage lenders, not the
borrowers, because they're afraid the borrowers will just walk away.

But there's no necessity for them to do so. The only advantage in having
more money down is that you're more likely to come out of it without paying
money out of your pocket, or without going broke, if you have, say, 20% down
on the house. But that means you've lost most of your 20%, too. So as a
borrower, you want the least money down consistent with your ability to pay
and the terms you can get. If you have the 20%, put it in the bank and take
the low-down-payment loan.

Lately the lenders have been offering *very* nice terms -- as long as you
get out of it before the balloon in rates.


Speculating in real estate is no different than speculating in any
other market. Speculating with an asset that is one's shelter is
"smart" only if it works, really dumb if it doesn't.

True enough. But it has pretty consistently worked until very recently.


Pick yer pony, take yer ride. Strut proudly when yer artful dodging
works, bleat pitifully when yer grab for the big brass ring gets ya a
face full of gravel.

That's what the banks are facing. They speculated; they lost. The home
buyers are getting off relatively easily, except that now they don't have a
house.


This is not addressed to you personally, Ed. It's meant to be
metaphoric.

I figured it was some kind of phoric. d8-)

--
Ed Huntress

"Larry Jaques" wrote in message
...
On Sat, 22 Mar 2008 23:58:10 -0400, with neither quill nor qualm, Wes
quickly quoth:

I'm not tracking you. The banks with the bad loans should not be taking
the
keys, they should be working on ways to float the loans until better
times.
The borrowers should be paying as much as they can and we ride this
monster
trying to stay clear of the ditch.

I agree entirely. Putting that many people out on the street is
assinine, especially when there is so little market left for homes.
Bank repos are a major part of the problem.


It is like a renter that doesn't have the full payment for rent so he
doesn't pay anything instead of ponying up what he has. This whole thing
seems to have a trailer trash mentality on honoring obligations.

If I were the lender, I'd be keeping as much cash flow coming in as
possible. I'm curious as to legalities why they could/would not do
so. Wes? Ed? Anyone?

I have no idea what legalities would be involved. But the lenders don't have
the option of taking lesser cash flow, because they're unable to make their
margin calls or their loan payments now. They're stretched out too thin on
margins themselves. They need the money *now* to avoid bankrupcy.

--
Ed Huntress

"Larry Jaques" wrote in message
...
On Sat, 22 Mar 2008 23:52:55 -0400, with neither quill nor qualm, "Ed
Huntress" quickly quoth:


There's always a book that said everything. There's always a contrarian
who
got it right. That's why contrarians write books: they only have to get it
right once, and they're famous. Everyone will forget that they got it all
wrong 99 other times.

That's what has happened with Paul Erlich of global doom books, but
the masses forget that -none- of his predictions have ever come true.
They were gloom and doom books with happy feeling endings "if we act
NOW!"

I haven't spent any time yet looking deeper into the housing market
FUBAR and am looking forward to your reply about why lenders are
foreclosing vs. keeping some money flowing in and rewriting all the
mortgage contracts to standard. If it wasn't the mortgage loan folks'
money, why aren't the actual lenders being smarter about refi? Massive
repos and recessions cause all their properties to decline in value.

Firstly, the ultimate lenders aren't looking at the mortgages. They may not
even know that mortgages are behind these bonds/credit swaps/collateralized
investment vehicles, and the tangled web is too far removed from the
mortgages themselves to be able to go back to the borrowers. They're looking
at the possibility of the paper they're holding collapsing entirely because
someone made a margin call that can't be met, with the whole house of cards
falling because of a default and the resulting bankrupcy.

If this thing were as rational as you propose there would be no problem. But
panic has set in, and the creditors are trying to get what they can as fast
as they can. The bailouts are intended to calm these panics and the runs on
the investment banks.

Go to today's NYT home page. The story "What Created This Monster" is on the
front page.

--
Ed Huntress

"F. George McDuffee" wrote in message
...
On Sun, 23 Mar 2008 15:15:05 -0400, "Ed Huntress"
wrote:
snip
Starting with criminal charges for many in the finance industry.

TMT

I figured you were of that opinion. That's why we're lucky you aren't
making
the decisions. d8-)
snip
=========
Don't rush things. First the investigation, then the grand jury,
then the indictment, the trial, and only then we hang them.

I wasn't talking about TMT's remarks about criminal charges. I was talking
about his opinion that "the Dems can't clamp down hard enough," in terms of
financial regulation. There is enough, and there is too much. You know I've
been an advocate of more regulation for over a couple of decades now. But I
think it's too easy to do too much, and to kill the goose.

--
Ed Huntress

"F. George McDuffee" wrote in message
...
On Sun, 23 Mar 2008 15:34:53 -0400, "Ed Huntress"
wrote:
snip
I knew some guys when I was in my 20s who became millionaires in pretty
short order borrowing that way. It was VERY good borrowing for them.

First, you'd use your VA or an FHA 221-D2 mortgage (no longer available)
to
buy a house for peanuts. Then you'd live in it. In six months, you'd be a
prime borrower in the eyes of the mortgage companies, and you'd use the 5%
or 10% you'd otherwise have used on your *own* house to buy one or two
more
on MGIC low-down mortgages, and rent them out. In a year you'd qualify for
an investor-grade conventional loan and buy an apartment building for very
little down. You could even put a lien on one of the houses you bought to
use for the down payment on the apartments, because the longer term trends
were always (or almost always) up.
snip
==========
And some one always wins the lottery....

That was a lottery with maybe 80% winners. When I was 22 I was selling real
estate to those guys, George, because I was too young to sell a house to
normal people. They didn't trust that I knew what I was doing. d8-) I
started a couple of millionaires myself. Too bad I didn't take my own
advice...


This does not make it a good investment technique in the
aggregate.

In the short run, it is an excellent technique. In the long run, we are all
dead.


You only hear about the few lottery winners, never the millions
of losers...

FWIW -- the only consistent money makers are the people running
the lottery, and they ain't using their own money.

This isn't the lottery. In 1970, it was damned near a slam-dunk.

--
Ed Huntress

On Sun, 23 Mar 2008 13:29:30 -0500, with neither quill nor qualm,
Ignoramus14119 quickly quoth:

On 2008-03-23, Larry Jaques novalidaddress@di wrote:
On Sun, 23 Mar 2008 08:56:20 -0600, with neither quill nor qualm, Lew
Hartswick quickly quoth:

Wes wrote:
I'm never planning on moving. 20+ years and staying. Actually if my
property value went down, my property taxes would eventually have to drop.


That is NOT true. The local taxing authority will just increase the
rates to make up the required "inflated" budget.

People that get overjoyed about increases in the value of their primary
domicile are nuts. It costs them money.
Wes

There I'll agree 100% with you. I've lived in my present house for 21
years and have no intention of moving and the last one 24 years.

Right, but it's the millions of people that move every 4 years or so
who like the increased value.


Do you mean they like increased prices of homes that they sell, or
prices of homes that they buy?

Both. They invariably upgrade each time (see "Keeping up with the
Joneses" in Chapter 2) so they don't notice that the new houses are
also overpriced.

--
Try not to become a man of success but rather to become a man of value.
-- Albert Einstein

On Sun, 23 Mar 2008 15:13:21 -0400, with neither quill nor qualm, "Ed
Huntress" quickly quoth:

But...but...but...why do the banks get bailed out but not the
borrowers?

If I'm reading Bush's proposals correctly, they're both going to get bailed
out.

"Go ahead and take the money. We'll print more."

--
Try not to become a man of success but rather to become a man of value.
-- Albert Einstein

On Sun, 23 Mar 2008 15:54:25 -0400, with neither quill nor qualm, "Ed
Huntress" quickly quoth:


"Larry Jaques" wrote in message
.. .

I haven't spent any time yet looking deeper into the housing market
FUBAR and am looking forward to your reply about why lenders are
foreclosing vs. keeping some money flowing in and rewriting all the
mortgage contracts to standard. If it wasn't the mortgage loan folks'
money, why aren't the actual lenders being smarter about refi? Massive
repos and recessions cause all their properties to decline in value.

Firstly, the ultimate lenders aren't looking at the mortgages. They may not
even know that mortgages are behind these bonds/credit swaps/collateralized
investment vehicles, and the tangled web is too far removed from the
mortgages themselves to be able to go back to the borrowers. They're looking
at the possibility of the paper they're holding collapsing entirely because
someone made a margin call that can't be met, with the whole house of cards
falling because of a default and the resulting bankrupcy.

I had to google "margin call". I think I learned about it I way back
in Civics class in high school and haven't needed it since.


If this thing were as rational as you propose there would be no problem. But
panic has set in, and the creditors are trying to get what they can as fast
as they can. The bailouts are intended to calm these panics and the runs on
the investment banks.

OK, got it.


Go to today's NYT home page. The story "What Created This Monster" is on the
front page.

Drat, NYT threw away my identity. I re-registered and will read that
article now. Wow, 6 pages? It's a biggie!

--
Try not to become a man of success but rather to become a man of value.
-- Albert Einstein

On Sun, 23 Mar 2008 15:34:53 -0400, "Ed Huntress"
wrote:



If a person buys a house with a mortgage they can afford, they can
still afford it even if the house value declines to negative equity
for a while -- unless they then leverage equity increase with
increasing market value to maintain absolutely all the debt they can
afford to keep up with and perhaps a bit more. This can only work in
a monotonically increasing market, and no market does that forever.

Not so. A downturn doesn't change your mortgage payments. If you can make
the payments, you can ride out a downturn even if you have no money down on
the house.

I thought that's what I said. If it isn't, it is what I meant to say.
They only get in trouble if they borrow against increased equity, get
extended to the max and then have a glitch in cash flow.


But there's no necessity for them to do so. The only advantage in having
more money down is that you're more likely to come out of it without paying
money out of your pocket, or without going broke, if you have, say, 20% down
on the house. But that means you've lost most of your 20%, too. So as a
borrower, you want the least money down consistent with your ability to pay
and the terms you can get. If you have the 20%, put it in the bank and take
the low-down-payment loan.

That's what I did -- twice.

Lately the lenders have been offering *very* nice terms -- as long as you
get out of it before the balloon in rates.


Speculating in real estate is no different than speculating in any
other market. Speculating with an asset that is one's shelter is
"smart" only if it works, really dumb if it doesn't.

True enough. But it has pretty consistently worked until very recently.

More so long-term than short-term, though.

"The inflation-adjusted average price of an existing home peaked in
1979, didn't bottom out until 1984 and didn't return to the 1979 level
until 1995."

Source: Barron's Insight by Gene Epstein, WSJ "Sunday", 3/23/08.
(Today).

One who really knows the market can do well by buying and selling the
right properties in the right neighborhoods in the right region(s) at
the right times. Some do indeed make a lot of money at it.


I figured it was some kind of phoric. d8-)

On Sun, 23 Mar 2008 15:15:05 -0400, "Ed Huntress"
wrote:
snip
Starting with criminal charges for many in the finance industry.

TMT

I figured you were of that opinion. That's why we're lucky you aren't making
the decisions. d8-)
snip
=========
Don't rush things. First the investigation, then the grand jury,
then the indictment, the trial, and only then we hang them.

If 3 trillion dollars [and counting], including defined benefit
pension plans, IRAs and 401ks can "evaporate" with no criminal
activity, then something else is [very] wrong.

S**T happens, but not that much S**T.


Unka' George [George McDuffee]
-------------------------------------------
He that will not apply new remedies,
must expect new evils:
for Time is the greatest innovator: and
if Time, of course, alter things to the worse,
and wisdom and counsel shall not alter them to the better,
what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman.
Essays, "Of Innovations" (1597-1625).

On Sun, 23 Mar 2008 15:34:53 -0400, "Ed Huntress"
wrote:
snip
I knew some guys when I was in my 20s who became millionaires in pretty
short order borrowing that way. It was VERY good borrowing for them.

First, you'd use your VA or an FHA 221-D2 mortgage (no longer available) to
buy a house for peanuts. Then you'd live in it. In six months, you'd be a
prime borrower in the eyes of the mortgage companies, and you'd use the 5%
or 10% you'd otherwise have used on your *own* house to buy one or two more
on MGIC low-down mortgages, and rent them out. In a year you'd qualify for
an investor-grade conventional loan and buy an apartment building for very
little down. You could even put a lien on one of the houses you bought to
use for the down payment on the apartments, because the longer term trends
were always (or almost always) up.
snip
==========
And some one always wins the lottery....

This does not make it a good investment technique in the
aggregate.

You only hear about the few lottery winners, never the millions
of losers...

FWIW -- the only consistent money makers are the people running
the lottery, and they ain't using their own money.


Unka' George [George McDuffee]
-------------------------------------------
He that will not apply new remedies,
must expect new evils:
for Time is the greatest innovator: and
if Time, of course, alter things to the worse,
and wisdom and counsel shall not alter them to the better,
what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman.
Essays, "Of Innovations" (1597-1625).

"Larry Jaques" wrote in message
...
On Sun, 23 Mar 2008 15:54:25 -0400, with neither quill nor qualm, "Ed
Huntress" quickly quoth:


"Larry Jaques" wrote in message
. ..

I haven't spent any time yet looking deeper into the housing market
FUBAR and am looking forward to your reply about why lenders are
foreclosing vs. keeping some money flowing in and rewriting all the
mortgage contracts to standard. If it wasn't the mortgage loan folks'
money, why aren't the actual lenders being smarter about refi? Massive
repos and recessions cause all their properties to decline in value.

Firstly, the ultimate lenders aren't looking at the mortgages. They may
not
even know that mortgages are behind these bonds/credit
swaps/collateralized
investment vehicles, and the tangled web is too far removed from the
mortgages themselves to be able to go back to the borrowers. They're
looking
at the possibility of the paper they're holding collapsing entirely
because
someone made a margin call that can't be met, with the whole house of
cards
falling because of a default and the resulting bankrupcy.

I had to google "margin call". I think I learned about it I way back
in Civics class in high school and haven't needed it since.

That's good. People who worry about margin calls are people who live with a
lot of life-shortening stress.



If this thing were as rational as you propose there would be no problem.
But
panic has set in, and the creditors are trying to get what they can as
fast
as they can. The bailouts are intended to calm these panics and the runs
on
the investment banks.

OK, got it.


Go to today's NYT home page. The story "What Created This Monster" is on
the
front page.

Drat, NYT threw away my identity. I re-registered and will read that
article now. Wow, 6 pages? It's a biggie!

And it's not bad. But the Economist stuff this week is better. If you want
I'll see if I can e-mail you the article(s). It's 10 pages of print.

--
Ed Huntress

"Don Foreman" wrote in message
...
On Sun, 23 Mar 2008 15:34:53 -0400, "Ed Huntress"
wrote:



If a person buys a house with a mortgage they can afford, they can
still afford it even if the house value declines to negative equity
for a while -- unless they then leverage equity increase with
increasing market value to maintain absolutely all the debt they can
afford to keep up with and perhaps a bit more. This can only work in
a monotonically increasing market, and no market does that forever.

Not so. A downturn doesn't change your mortgage payments. If you can make
the payments, you can ride out a downturn even if you have no money down
on
the house.

I thought that's what I said. If it isn't, it is what I meant to say.
They only get in trouble if they borrow against increased equity, get
extended to the max and then have a glitch in cash flow.

Hmm. I think that *is* what you said. I got tangled up like a credit default
swap. d8-)



But there's no necessity for them to do so. The only advantage in having
more money down is that you're more likely to come out of it without
paying
money out of your pocket, or without going broke, if you have, say, 20%
down
on the house. But that means you've lost most of your 20%, too. So as a
borrower, you want the least money down consistent with your ability to
pay
and the terms you can get. If you have the 20%, put it in the bank and
take
the low-down-payment loan.

That's what I did -- twice.

Aha. So you *did* play that game.


Lately the lenders have been offering *very* nice terms -- as long as you
get out of it before the balloon in rates.


Speculating in real estate is no different than speculating in any
other market. Speculating with an asset that is one's shelter is
"smart" only if it works, really dumb if it doesn't.

True enough. But it has pretty consistently worked until very recently.

More so long-term than short-term, though.

True enough -- unless you made out as a house-flipper. Jeez, some of them
made a bundle. And most of them made out, except for those who did it for
too long.


"The inflation-adjusted average price of an existing home peaked in
1979, didn't bottom out until 1984 and didn't return to the 1979 level
until 1995."

Source: Barron's Insight by Gene Epstein, WSJ "Sunday", 3/23/08.
(Today).

For what we're discussing, the inflation-adjusted price doesn't matter.
We're talking about prices relative to mortgage obligations. The absolute
dollar price is what matters, because the mortgage obligation doesn't
inflate.


One who really knows the market can do well by buying and selling the
right properties in the right neighborhoods in the right region(s) at
the right times. Some do indeed make a lot of money at it.

--
Ed Huntress

On Mar 23, 5:46*am, Larry Jaques
wrote:
On Sat, 22 Mar 2008 23:58:10 -0400, with neither quill nor qualm, Wes
quickly quoth:

I'm not tracking you. *The banks with the bad loans should not be taking the
keys, they should be working on ways to float the loans until better times.
The borrowers should be paying as much as they can and we ride this monster
trying to stay clear of the ditch.

I agree entirely. Putting that many people out on the street is
assinine, especially when there is so little market left for homes.
Bank repos are a major part of the problem.

It is like a renter that doesn't have the full payment for rent so he
doesn't pay anything instead of ponying up what he has. *This whole thing
seems to have a trailer trash mentality on honoring obligations.

If I were the lender, I'd be keeping as much cash flow coming in as
possible. *I'm curious as to legalities why they could/would not do
so. *Wes? *Ed? *Anyone?

--
Try not to become a man of success but rather to become a man of value.
* * * * * * * * * * * * * * * * * * * * * * * * * *-- Albert Einstein

Because they don't want to.

There is more and more talk about the Feds MAKING the banks allow
owners to stay in the houses while lowering the rates charged.

Too many homeless people getting dumped on public dole because of the
bank's greed.

TMT

On Mar 23, 8:56*am, Lew Hartswick wrote:
Wes wrote:
I'm never planning on moving. *20+ years and staying. *Actually if my
property value went down, my property taxes would eventually have to drop.

That is NOT true. The local taxing authority will just increase the
rates to make up the required "inflated" budget.

People that get overjoyed about increases in the value of their primary
domicile are nuts. *It costs them money.
Wes

There I'll agree 100% with you. I've lived in my present house for 21
years and have no intention of moving and the last one 24 years.

* * ...lew...

I am glad to hear that you have had an income that allowed you to stay
put.

The average person moves every seven years...because of job change.

Most of those job changes are not voluntary.

TMT

On Mar 23, 12:20*pm, Larry Jaques
wrote:
On Sun, 23 Mar 2008 08:56:20 -0600, with neither quill nor qualm, Lew
Hartswick quickly quoth:

Wes wrote:
I'm never planning on moving. *20+ years and staying. *Actually if my
property value went down, my property taxes would eventually have to drop.

That is NOT true. The local taxing authority will just increase the
rates to make up the required "inflated" budget.

People that get overjoyed about increases in the value of their primary
domicile are nuts. *It costs them money.
Wes

There I'll agree 100% with you. I've lived in my present house for 21
years and have no intention of moving and the last one 24 years.

Right, but it's the millions of people that move every 4 years or so
who like the increased value.

--
Try not to become a man of success but rather to become a man of value.
* * * * * * * * * * * * * * * * * * * * * * * * * *-- Albert Einstein

No...it was the people who were buying houses for speculation that
liked it.

When you have to move because of job changes, a move always costs you
money.

TMT

On Mar 23, 12:29*pm, Ignoramus14119 ignoramus14...@NOSPAM.
14119.invalid wrote:
On 2008-03-23, Larry Jaques novalidaddress@di wrote:





On Sun, 23 Mar 2008 08:56:20 -0600, with neither quill nor qualm, Lew
Hartswick quickly quoth:

Wes wrote:
I'm never planning on moving. *20+ years and staying. *Actually if my
property value went down, my property taxes would eventually have to drop.

That is NOT true. The local taxing authority will just increase the
rates to make up the required "inflated" budget.

People that get overjoyed about increases in the value of their primary
domicile are nuts. *It costs them money.
Wes

There I'll agree 100% with you. I've lived in my present house for 21
years and have no intention of moving and the last one 24 years.

Right, but it's the millions of people that move every 4 years or so
who like the increased value.

Do you mean they like increased prices of homes that they sell, or
prices of homes that they buy?

i- Hide quoted text -

- Show quoted text -

Good catch Ig. ;)

TMT

On Mar 23, 1:13*pm, "Ed Huntress" wrote:
"Too_Many_Tools" wrote in message

...
On Mar 22, 8:55 pm, "Ed Huntress" wrote:





"Wes" wrote in message

...

"Ed Huntress" wrote:

Sure, on a car. Not on a house. You could have asked any broker or
banker,
a
year ago, what the chances were you'd get in trouble that way. They'd
laugh
you out of the place.

First, they would tell you what I said above. They they'd tell you that
once
you'd made two or three years of payments, you'd qualify for a
fixed-rate
mortgage before the balloon came due on (what they might call) your
"bridge"
loan. Then you could look at all the statistics and see that they're
dead
right. Only they weren't, for the first time ever.

Okay, try this. You buy a new house, the overall market does not go down
but when you go to refinance the banks appraiser notices a crack house
next
door and doesn't think your house's market value is high enough to
secure
the loan. By your logic, the bank should forgive principle since the
house
is not worth far less than when it was originally purchased.

First off, I haven't said what banks should do, or what the government
should do. It's beyond my knowledge and I'm studying the subject right now
.
I do (or did) know how mortgages work, though, and the basic situation is
not that hard to figure out.

Secondly, every day you walk out of your door you're taking a chance that
something really bad won't happen. That's true about your investments,
your
chances of getting hit by a truck, and so on. House buyers can't buy
without
some risk of some kind, and some go under and lose their houses all the
time.

But that doesn't cause the credit markets to dry up, nor does it cause
average house prices to drop throughout the country (curiously, not in my
town; prices took a one-month hiatus but now they're going up, but that's
another story). Even if a few people get it all wrong and come up losers,
the market usually isn't much affected by that. This time, we have a
perfect
storm: just as those people are getting in a bind, new mortgages are
drying
up, and prices have dropped enough that they're upside down on their
mortgages.

Nobody anticipated that. Not the experts, not the banks, and not the
government. It's a crisis because there's no way out -- except that some
of
these crap mortgages were written in such a way that a home owner can just
walk out of an upside-down situation and turn the keys over to the bank,
with no further repurcussions. That amazes me, but that's what the papers
say. The brokers are calling it "key mail." You open the bank's mail, and
there are house keys in the envelopes. d8-)

The bank loans money, the borrower agrees to pay based on the terms of
the
contract. Doesn't matter what the market is doing, you borrowed, you
owe.

Sure. Unless you can't, which is something that people and businesses
sometimes face. It's what happens afterwards that's causing all the
trouble.
In a normal market, even during a downturn, most of those people would
have
been able to get out by selling their houses. Now there aren't enough
buyers
because the buyers can't get mortgages; prices are dropping, and the
buyers
who *can* get a mortgage are waiting it out. I would, too.

This wouldn't have happened in the first place if the mortgage lenders
hadn't fallen all over each other to give mortgages with practically no
money down. That's bad banking. It's NOT necessarily bad borrowing.

--
Ed Huntress- Hide quoted text -

- Show quoted text -
But...but...but...why do the banks get bailed out but not the
borrowers?
TMT

If I'm reading Bush's proposals correctly, they're both going to get bailed
out.

--
Ed Huntress- Hide quoted text -

- Show quoted text -

With taxpayer money....YOUR money.

What happened to Republicans believing in letting the markets be free
and self correcting?



TMT

On Mar 23, 1:46*pm, "Ed Huntress" wrote:
"Larry Jaques" wrote in message

...





On Sat, 22 Mar 2008 23:58:10 -0400, with neither quill nor qualm, Wes
quickly quoth:

I'm not tracking you. *The banks with the bad loans should not be taking
the
keys, they should be working on ways to float the loans until better
times.
The borrowers should be paying as much as they can and we ride this
monster
trying to stay clear of the ditch.

I agree entirely. Putting that many people out on the street is
assinine, especially when there is so little market left for homes.
Bank repos are a major part of the problem.

It is like a renter that doesn't have the full payment for rent so he
doesn't pay anything instead of ponying up what he has. *This whole thing
seems to have a trailer trash mentality on honoring obligations.

If I were the lender, I'd be keeping as much cash flow coming in as
possible. *I'm curious as to legalities why they could/would not do
so. *Wes? *Ed? *Anyone?

I have no idea what legalities would be involved. But the lenders don't have
the option of taking lesser cash flow, because they're unable to make their
margin calls or their loan payments now. They're stretched out too thin on
margins themselves. They need the money *now* to avoid bankrupcy.

--
Ed Huntress- Hide quoted text -

- Show quoted text -

Did lenders have the option of not lending money to those who could
not pay their loan obiligations?

Or did they commint fraud with their depositor's funds?

TMT

On Mar 23, 2:27*pm, "Ed Huntress" wrote:
"F. George McDuffee" wrote in messagenews:ldhdu3di1epujg445blag40sbiljdae3dq@4ax .com...

On Sun, 23 Mar 2008 15:15:05 -0400, "Ed Huntress"
wrote:
snip
Starting with criminal charges for many in the finance industry.

TMT

I figured you were of that opinion. That's why we're lucky you aren't
making
the decisions. d8-)
snip
=========
Don't rush things. *First the investigation, then the grand jury,
then the indictment, the trial, and only then we hang them.

I wasn't talking about TMT's remarks about criminal charges. I was talking
about his opinion that "the Dems can't clamp down hard enough," in terms of
financial regulation. There is enough, and there is too much. You know I've
been an advocate of more regulation for over a couple of decades now. But I
think it's too easy to do too much, and to kill the goose.

--
Ed Huntress

Ed...the goose is dying under the Republicans now.

Either regulation with TEETH is put into place or you and I will soon
be living under a bridge somewhere in the future when the financial
system collapes.

That is if the bridge doesn't fall down due to no maintainance under
this Republican Adminstration...

TMT

"Too_Many_Tools" wrote in message
...

snip


- Show quoted text -
But...but...but...why do the banks get bailed out but not the
borrowers?
TMT

If I'm reading Bush's proposals correctly, they're both going to get
bailed
out.

--
Ed Huntress- Hide quoted text -

- Show quoted text -

With taxpayer money....YOUR money.

What happened to Republicans believing in letting the markets be free
and self correcting?

That's on Mondays through Thursdays. On Fridays, it's time to bail out your
friends.

--
Ed Huntress

"Too_Many_Tools" wrote in message
...
On Mar 23, 1:46 pm, "Ed Huntress" wrote:
"Larry Jaques" wrote in message

...





On Sat, 22 Mar 2008 23:58:10 -0400, with neither quill nor qualm, Wes
quickly quoth:

I'm not tracking you. The banks with the bad loans should not be taking
the
keys, they should be working on ways to float the loans until better
times.
The borrowers should be paying as much as they can and we ride this
monster
trying to stay clear of the ditch.

I agree entirely. Putting that many people out on the street is
assinine, especially when there is so little market left for homes.
Bank repos are a major part of the problem.

It is like a renter that doesn't have the full payment for rent so he
doesn't pay anything instead of ponying up what he has. This whole thing
seems to have a trailer trash mentality on honoring obligations.

If I were the lender, I'd be keeping as much cash flow coming in as
possible. I'm curious as to legalities why they could/would not do
so. Wes? Ed? Anyone?

I have no idea what legalities would be involved. But the lenders don't
have
the option of taking lesser cash flow, because they're unable to make
their
margin calls or their loan payments now. They're stretched out too thin on
margins themselves. They need the money *now* to avoid bankrupcy.

--
Ed Huntress- Hide quoted text -

- Show quoted text -

Did lenders have the option of not lending money to those who could
not pay their loan obiligations?

Or did they commint fraud with their depositor's funds?

Which lenders? Private mortgage brokers don't have depositors. Most
commercial banks sold the mortgages to people who knew what they were
buying. After that, it gets kind of murky about who knew what, but most of
those instruments were understood to be collateralized with mortgages, and
that many of them were subprime. The people who bought *them* didn't have
depositors, either, in the sense that you probably mean the term.

--
Ed Huntress

"Too_Many_Tools" wrote in message
...
On Mar 23, 2:27 pm, "Ed Huntress" wrote:
"F. George McDuffee" wrote in
messagenews:ldhdu3di1epujg445blag40sbiljdae3dq@4ax .com...

On Sun, 23 Mar 2008 15:15:05 -0400, "Ed Huntress"
wrote:
snip
Starting with criminal charges for many in the finance industry.

TMT

I figured you were of that opinion. That's why we're lucky you aren't
making
the decisions. d8-)
snip
=========
Don't rush things. First the investigation, then the grand jury,
then the indictment, the trial, and only then we hang them.

I wasn't talking about TMT's remarks about criminal charges. I was talking
about his opinion that "the Dems can't clamp down hard enough," in terms
of
financial regulation. There is enough, and there is too much. You know
I've
been an advocate of more regulation for over a couple of decades now. But
I
think it's too easy to do too much, and to kill the goose.

--
Ed Huntress

Ed...the goose is dying under the Republicans now.

Either regulation with TEETH is put into place or you and I will soon
be living under a bridge somewhere in the future when the financial
system collapes.

That is if the bridge doesn't fall down due to no maintainance under
this Republican Adminstration...

TMT

Just so the teeth you're prescribing don't wind up bleeding the system out.
It wouldn't be hard, and you and I would pay big time for that, too.

--
Ed Huntress

On Sun, 23 Mar 2008 17:17:01 -0400, with neither quill nor qualm, "Ed
Huntress" quickly quoth:


"Larry Jaques" wrote in message
.. .

I had to google "margin call". I think I learned about it I way back
in Civics class in high school and haven't needed it since.

That's good. People who worry about margin calls are people who live with a
lot of life-shortening stress.

I figure I'm about as well off since I've never had excess cash to
invest poorly. g


Drat, NYT threw away my identity. I re-registered and will read that
article now. Wow, 6 pages? It's a biggie!

And it's not bad. But the Economist stuff this week is better. If you want
I'll see if I can e-mail you the article(s). It's 10 pages of print.

I regret having turned down the free prescription for The Economist a
decade ago. If the article is online, point me to it. Otherwise,
email is great. You have my real addy. (Say 'HI' to SWMBO for me.)

--
Try not to become a man of success but rather to become a man of value.
-- Albert Einstein

"Wes" wrote in message
...
"Hawke" wrote:

It's clear that you don't understand why it's wrong to let all these
people
go into foreclosure. The only way you'll get it is if a bunch of them
foreclose in your neighborhood. After you see what that does to the value
of
your home, if you have one, then maybe you'll see why it's not such a
dandy
idea to let millions of home go into foreclosure at the same time all
over
the country. What it'll do to home values across the country won't be
pretty. Maybe, and I say maybe you'll get it when a house on your street
is
foreclosed on. But probably not.

I'm never planning on moving. 20+ years and staying. Actually if my
property value went down, my property taxes would eventually have to drop.

People that get overjoyed about increases in the value of their primary
domicile are nuts. It costs them money.

Wes

Do you plan on getting sick, losing your job, getting a divorce, or any
number of other things that will change your life? I didn't think so. You
probably think everything is just going to go along the way it always has.
It won't. I wouldn't plan on being in the same place fifteen years from now
if I were you. Something will probably happen to change your plans. But that
doesn't have anything to do with the damage too many foreclosures in one
year will do to the economy. It'll be better for everyone if this real
estate downturn can be softened instead of letting it come crashing down at
full speed.

Hawke

Too_Many_Tools wrote:

These are not lower- and middle-income borrowers, but more affluent
consumers with annual incomes of $100,000 or more who are increasingly
being ensnared in the home mortgage crisis.

People in all income categories "are facing the shock of new payments
that can be twice as much as previous ones," said Susan M. Wachter,
professor of business and a real estate specialist at the Wharton
School of the University of Pennsylvania.

Nor will falling interest rates help most of these homeowners, as
their low initial payments skyrocket and the worth of their homes
erodes, said Allen Fishbein, director of housing and credit policy at
the Consumer Federation of America.

These 'more affluent' consumers presumably had access to a higher level
of
education than most of those on lower rungs that had their dreams wiped
out
by the realities of finance.

How are you and your ilk going to spin this as how the banks took
advantage
of them? Greed. It is prevalent at all levels of income and leads to the
undoing of many. The banks are blameless.

Wes

It's clear that you don't understand why it's wrong to let all these
people
go into foreclosure. The only way you'll get it is if a bunch of them
foreclose in your neighborhood. After you see what that does to the value
of
your home, if you have one, then maybe you'll see why it's not such a
dandy
idea to let millions of home go into foreclosure at the same time all over
the country. What it'll do to home values across the country won't be
pretty. Maybe, and I say maybe you'll get it when a house on your street
is
foreclosed on. But probably not.

Hawke- Hide quoted text -

- Show quoted text -

Correct...no one understands until it happens to them.

And in my experience, especially a Republican.

I wonder how becoming homeless will affect their choice of who to vote
for this November?

TMT

It probably won't have any effect on their voting at all. That's because no
matter how bad things get they will always blame it on the Democrats even
when they are the minority party. Some things never change. If you can't
change, by definition you're a republican.

Hawke

"Ed Huntress" wrote:

Sure, on a car. Not on a house. You could have asked any broker or
banker,
a
year ago, what the chances were you'd get in trouble that way. They'd
laugh
you out of the place.

First, they would tell you what I said above. They they'd tell you
that
once
you'd made two or three years of payments, you'd qualify for a
fixed-rate
mortgage before the balloon came due on (what they might call) your
"bridge"
loan. Then you could look at all the statistics and see that they're
dead
right. Only they weren't, for the first time ever.

Okay, try this. You buy a new house, the overall market does not go
down
but when you go to refinance the banks appraiser notices a crack house
next
door and doesn't think your house's market value is high enough to
secure
the loan. By your logic, the bank should forgive principle since the
house
is not worth far less than when it was originally purchased.

First off, I haven't said what banks should do, or what the government
should do. It's beyond my knowledge and I'm studying the subject right
now
.
I do (or did) know how mortgages work, though, and the basic situation
is
not that hard to figure out.

Secondly, every day you walk out of your door you're taking a chance
that
something really bad won't happen. That's true about your investments,
your
chances of getting hit by a truck, and so on. House buyers can't buy
without
some risk of some kind, and some go under and lose their houses all the
time.

But that doesn't cause the credit markets to dry up, nor does it cause
average house prices to drop throughout the country (curiously, not in
my
town; prices took a one-month hiatus but now they're going up, but
that's
another story). Even if a few people get it all wrong and come up
losers,
the market usually isn't much affected by that. This time, we have a
perfect
storm: just as those people are getting in a bind, new mortgages are
drying
up, and prices have dropped enough that they're upside down on their
mortgages.

Nobody anticipated that. Not the experts, not the banks, and not the
government. It's a crisis because there's no way out -- except that some
of
these crap mortgages were written in such a way that a home owner can
just
walk out of an upside-down situation and turn the keys over to the bank,
with no further repurcussions. That amazes me, but that's what the
papers
say. The brokers are calling it "key mail." You open the bank's mail,
and
there are house keys in the envelopes. d8-)



The bank loans money, the borrower agrees to pay based on the terms of
the
contract. Doesn't matter what the market is doing, you borrowed, you
owe.

Sure. Unless you can't, which is something that people and businesses
sometimes face. It's what happens afterwards that's causing all the
trouble.
In a normal market, even during a downturn, most of those people would
have
been able to get out by selling their houses. Now there aren't enough
buyers
because the buyers can't get mortgages; prices are dropping, and the
buyers
who *can* get a mortgage are waiting it out. I would, too.

This wouldn't have happened in the first place if the mortgage lenders
hadn't fallen all over each other to give mortgages with practically no
money down. That's bad banking. It's NOT necessarily bad borrowing.

--
Ed Huntress- Hide quoted text -

- Show quoted text -

But...but...but...why do the banks get bailed out but not the
borrowers?

TMT

If I'm reading Bush's proposals correctly, they're both going to get
bailed
out.

--
Ed Huntress


It's kind of what do you mean by bailed out. Bear Stearns stock was selling
at 160 a share not long ago. Book value the week before the take over was 80
dollars a share. Price per share that J.P. Morgan is paying for the stock;
two dollars a share. If you are a stock holder in Bear Stearns I think you
would not see this as a "bail out" of any kind. One major stockholder just
lost a billion in the deal. He's suing and doesn't want the deal to go
through. It was a major gift to J.P. Morgan, but a bail out to Bear Stearns,
I don't think so.

Hawke

"Larry Jaques" wrote in message
...
On Sun, 23 Mar 2008 17:17:01 -0400, with neither quill nor qualm, "Ed
Huntress" quickly quoth:


"Larry Jaques" wrote in message
. ..

I had to google "margin call". I think I learned about it I way back
in Civics class in high school and haven't needed it since.

That's good. People who worry about margin calls are people who live with
a
lot of life-shortening stress.

I figure I'm about as well off since I've never had excess cash to
invest poorly. g


Drat, NYT threw away my identity. I re-registered and will read that
article now. Wow, 6 pages? It's a biggie!

And it's not bad. But the Economist stuff this week is better. If you want
I'll see if I can e-mail you the article(s). It's 10 pages of print.

I regret having turned down the free prescription for The Economist a
decade ago. If the article is online, point me to it. Otherwise,
email is great. You have my real addy. (Say 'HI' to SWMBO for me.)

OK, I just e-mailed it from _The Economist_ (and copied myself, to see what
you're getting). They give you an ASCII file of the text and a link to the
article with graphics. With The Economist, you always want the graphics.

The trouble is, the 10-page "briefing" consists of 10 separate articles. The
one I sent you is two pages long. I can send you the other nine, I think.
Let me know if you like the first one and I'll give it a try.

--
Ed Huntress

"Ignoramus14119" wrote in message
...
On 2008-03-22, Ed Huntress wrote:
I think that traits like propensity to spend vs. save, are basic
personality traits and are not really changeable by education.

I actually agree with the remarks that you made. People who borrowed
too much, knew everything and took the risks willingly.

But they didn't "know everything," even if they could follow the legal
obscurantism in the contracts. What they didn't know was the same thing
that
everyone else in the US, and in the financial community all around the
world
didn't know, which is that, for the first time in history, American
house
prices were going to decline on a nationwide business.

I recall doing some refinancing of my own house. Based on some law, I
received very clear summary of the loan terms and interest rates.
There was nothing that was hard to understand.

Also, a maxim that house payments should not be a large part of a
budget, is also quite obvious to anyone, people just choose to ignore
it at their own peril.

Our own house payments are about 10% of our gross income.

It never happened before. If they had asked their banker, or anyone
else who follows it, what the chances were they'd be upside-down on
their mortgage in a year or two or three, making it impossible for
them to flip their house and come out ahead if the mortgage became
too much for them, the bankers would have laughed in their
faces. The experts "knew" that it couldn't happen, because it has
never happened before.

That's exactly why there is a long standing recommendation to limit
mortgage payment to a small fraction of one's income.

So it doesn't make much sense to say these people knew what the
risks were. No one else did, either.

But they were obviously imprudent. As were the lenders.

Looks like there was plenty of investors who bought mortgage loans
containing those crap loans, who did not even bother to think about
their quality.

i

Why would you worry about quality if you thought they would only continue to
go up? Apparently, the idea that they could actually decline never occurred
to any of them.

Hawke

"Hawke" wrote in message
...

"Ignoramus14119" wrote in message
...
Looks like there was plenty of investors who bought mortgage loans
containing those crap loans, who did not even bother to think about
their quality.

i

Why would you worry about quality if you thought they would only continue
to
go up? Apparently, the idea that they could actually decline never
occurred
to any of them.

Hawke

Faith based economic perpetual motion, true believers bought into the hype
hook line and sinker.

The next economic implosion may very well be the credit card industry as
desperate people walk away from unsecured debt thru chapter 7 bankruptcy.

Best Regards
Tom.