[Dork.]

I know a lot of folks are still angry about that $700 billion TARP bailout. Anger over bailouts is part of what's driving the popularity of the Tea Party after all.

It turns out that TARP was never really a $700 billion bailout after all: while all $700 billion got approved, according to Wikipedia, through February 2009 only $388 billion was appropriated by Congress, and only $296 billion was spent. Even with the additions that Obama made in the following year, Congress did not come close to spending $500 billion much less the $700 billion figure we originally heard about.

(Disclaimer: this next paragraph is missing some details, but I think I have the gist of it right.)
TARP was structured so that institutions that participated ended up transferring some equity to the Treasury as part of the deal (At bargain prices). At the time the program was first instituted, the Treasury thought it would be lucky to get half if its money back, but recently we heard that the Treasury has been able to sell the equity stakes for much more than it originally thought, and the latest estimates are that TARP will only cost about $66 billion. If the recent plan on the part of AIG to pay back their TARP loans pan out, and if the governement are able sell its stake in the automakers at a profit, TARP may ultimately be a net gain for the treasury.

So, why the anger over TARP? It seems to have worked: it stabilized the banking industry, and the Treasury served as a lender and bad-asset buyer of last resort. Financial institutions who took the help kept going, but the Government was able to share in the benefit, and will ultimately get out of the way. People seem to be upset at Bush for proposing it in the first place, and at Obama for extending it further toward more issues that were not strictly bank-related (like the automakers and home mortgage modifications). But what would we have done differently that would have worked?

I am not a fan of Bush and his policies, but I think in hindsight TARP is something he got right. It's too bad that many congressmen who saw the wisdom in it and voted for it got teabagged in their primaries. What do you think?

(My apologies for the lack of links, this is something I've been thinking about all week but just got 5 minutes to post about now. Go search for "TARP" in Google News, or look at the Wiki I think all my facts are correct. Feel free to correct me where I need it!)

[ghporter]

The Troubled Asset Relief Program, set up to keep a lot of big banks from tanking and taking the whole world's economy with them, was generally successful at that. Many of the institutions that got bailed out have at least worked at making the effort worthwhile. This has made those assets Treasury took as equity worth more, which has helped make the whole thing work economically.

I agree that "if they hadn't @%#$&'d it up in the first place this wouldn't have been needed," but actually it wasn't as much banks and primary lenders that @%#$&'d things up. It was secondary products, bundled products, "mortgage brokers" who "qualified" people without much income for loans they should never have gotten near, speculators who bundled these "sub prime" mortgages and actually sold futures in them... It wasn't so much lack of regulation as lack of a rein on what was happening in financial markets. You can't regulate something until it's invented, and a lot of derived financial products were, well, just made up as they went. And people bought the stuff. Barnum must still be grinning.

[turtle777]

Has it stabilized the banks ? Yes.

What does that mean ?
The banks still continue their shell games, placing highly risky bets with governments money.
If it goes well, they rake in million $ bonuses. If it goes badly, the government will give more money.

So, TARP was successful, and made sure the a$$-f*ckery of the big Wall Street firms continues.
That's really awesome, thanks to Bush

IMO, the banks were (are) willing accomplices in the financial games the Government is playing.
Who owns who in this game is not clear, it probably varies. But politicians and Wall Street banker (together with the Fed) keep f*cking up the American economy, and make it worse by the day.

TARP was a mistake, because it socialized failure, and kept the privatization of success going.
The banks that f*cked up should have let gone broke, like Lehman.

Would that have hurt ? Sure.
Would this have caused a bigger recession ? Probably.
But at least if would have cleared the system and purged it from all the BS.
Now we're continuing the f*ckery, and we'll double-dip next year.

-t

[Dork.]

TARP socialized failure, that much is certain. But doesn't TARP socialize the recovery also, and make it faster? At the end of the day, does it really matter whether or not AIG gets totally wiped out, if the recovery happens baster?

[turtle777]

Originally Posted by Dork. 

TARP socialized failure, that much is certain. But doesn't TARP socialize the recovery also, and make it faster? At the end of the day, does it really matter whether or not AIG gets totally wiped out, if the recovery happens baster?

TARP didn't fix anything, the problems in the financial system and with the major players are still the same.

There WILL be a repeat of banking failure, brnging the economy again and again to the brink of collapse.

The current "recovery" is really not one at all. Just look at Main Street, people are hurting, jobless rate is high, and the government is making sure to collapse the whole system by printing money like there's no tomorrow.

We will slide back into a even greater recession in 2011 / 2012.

Why? Because none of the problems that got us into trouble in the first place were fixed.

-t

[ghporter]

Originally Posted by turtle777 

Has it stabilized the banks ? Yes.

What does that mean ?
The banks still continue their shell games, placing highly risky bets with governments money.
If it goes well, they rake in million $ bonuses. If it goes badly, the government will give more money.

So, TARP was successful, and made sure the a$$-f*ckery of the big Wall Street firms continues.
That's really awesome, thanks to Bush

IMO, the banks were (are) willing accomplices in the financial games the Government is playing.
Who owns who in this game is not clear, it probably varies. But politicians and Wall Street banker (together with the Fed) keep f*cking up the American economy, and make it worse by the day.

TARP was a mistake, because it socialized failure, and kept the privatization of success going.
The banks that f*cked up should have let gone broke, like Lehman.

Would that have hurt ? Sure.
Would this have caused a bigger recession ? Probably.
But at least if would have cleared the system and purged it from all the BS.
Now we're continuing the f*ckery, and we'll double-dip next year.

-t

Banks are no longer supporting most of the wheeler-dealer stuff that caused the problems in the first place, and new stuff that is "invented" gets some really serious review before any sizable bank will put any money behind it. The BANKS learned a lot, and they're not gonna get screwed over by stupids with big plans anymore. Executive pay is under public scrutiny, and that makes it something competitors can use against each other, bonuses and all. Suggesting that "banks" are colluding with "government" to keep our monetary system off-balance implies that both banks and government are single individuals. Banks are not in any way "individuals," they're corporations with share holders. Share holders really hate it when they lose money, and they're in a position to say "you screwed us over with the way you managed this, so get out" to all the top people. It appears that's been happening in some banks already. Government is not some individual, either. It's made up of a large number of individuals with at least the drive to stay in office motivating their actions. It wasn't a light decision to risk many billions of dollars on the gamble that the banks could be saved, and it was a bi-partisan decision to do it. Strong medicine, but necessary medicine. And there are already laws in progress to prevent any sort of "bail out" in the future. Banks will get closed and sold off if they get too close to the edge-and the banking industry knows this.

TARP prevented a worldwide collapse of financial systems. Not "bank failures," not "a major depression," but a total collapse of the whole shebang. The kind of thing suggested in the movie "Rollover." Absolute anarchy. WAY too many other countries and their local financial systems had hedged on, bet on, and otherwise invested in the US banks, and having as many of them as were foundering actually go under could easily have destroyed the global economy. This is not paranoia, but the whole reason Congress was willing to risk as much money as they did. And it worked.

I'm certainly not suggesting that needing TARP was a good thing, and I'm hopeful that this experience will lead to smarter rules and smarter bankers. But having been on the precipice we were, I'm glad something was done and that it was as effective as TARP was.

[smacintush]

Yes systemwide manipulation begets systemwide support.

"The banks" aren't the problem. "The banks" combined with government mis-regulation, poorly conceived programs and the fed are the problem. Banks should be left alone to run their businesses as they please without the "benefit" of any "benevolent" government planning or market controls and without the "benefit" of being able to avoid paying for their own mistakes. In the absence of the unifying power of government and the fed the chances of a system-wide failure disappear.

But this just regresses into the same old argument where you declare that men are corrupt and need to be controlled, so we need to give the men with real power more and more power. Because not only are those in government immune to corruption, they…as failed lawyers and careers politicians…know everything they need to know about business and markets, as opposed to those that have worked their whole lives in their respective fields.

[turtle777]

Originally Posted by ghporter 

TARP prevented a worldwide collapse of financial systems. Not "bank failures," not "a major depression," but a total collapse of the whole shebang.

Oh boy, do you *really* believe this propaganda ?

Mind you, this is the story told by the same politicians and economists that caused the housing bubble with cheap money, that never saw the bubble coming, that successfully blew a multi-trillion hole in the US budget, and that still think that printing money is the solution.

Sorry, but that's laughable. They got no f*cking clue, and they were dead wrong about basically EVERYTHING that happened in the economy in the last 10 years.

-t

[ghporter]

Originally Posted by smacintush 

Yes systemwide manipulation begets systemwide support.

"The banks" aren't the problem. "The banks" combined with government mis-regulation, poorly conceived programs and the fed are the problem.

Very much true. But it was more DE-regulation that led to this than mis-regulation. Instead of having to have every financial product vetted before it was available (rather old rules from the 70s), "entrepreneurs" were allowed to invent stuff that didn't even have a chance of making money and sell it. There's got to be a workable and efficient medium point between "mother may I" and anything goes.

Originally Posted by turtle777 

Oh boy, do you *really* believe this propaganda ?

Interestingly, it's pretty close to the actual truth...

The housing bubble was fed by cheap ARM loans that got cheaper and went to more and more people who couldn't pay. Shady people bought up these loans and bundled them as sub-prime mortgages, and then convinced businesses to buy them. Businesses, some of them big and robust, got business-rate loans to finance these purchases. Joe Ripoff who "qualified" people for loans they couldn't pay still got his cut up front, but then as soon as the mortgagees started defaulting, those packaged sub-prime loans started tanking. Businesses who invested heavily in them (including some banks like Wachovia) started going into the red and many defaulted. This left big banks that had made "safe" loans to those businesses with lots of very bad debt. Some banks that were part of bigger "financial organizations" had themselves invested in the stupid packaged bad mortgages, and they had their own internal bad debt to deal with.

Sometimes, Joe Ripoff even colluded with a bunch of people to PRETEND to sell houses, qualifying several different people (who were never expected to pay a cent) on the same house and getting loans from different sources. This accelerated the downward financial spiral quite a bit.

The "toxic" assets, bad mortgages without anything to back them up, were the main focus of TARP-whether it was bailing out a huge bank about to topple by buying up their stupid debts, or rescuing mid-sized banks that had made the mortgage loans themselves.

And please note that just because information comes from a government spokesperson, it isn't necessarily a lie. Really. Sometimes they actually tell the full truth. On TV and to reporters and everything. Like how European markets were heavily invested in the US banking market. And how much of the global economy is actually based on Gorgon Gekko type people who gamble with enormous quantities of other people's money every day. Those sub-prime mortgage packages were going out the door like candy for quite a while. One bank tanked because they got into the sub-prime market a because it looked like that was the wave of the future-they are now a subsidiary of Wells Fargo.

I know a couple of bank examiners. They tell stories. About people they can put in jail on federal charges. Back in the savings and loan crisis in the 1980s, one of these guys put somewhere over 20 silk-suit bandits in the federal pen, some of whom are still there. But unfortunately for everyone, it wasn't the banks themselves that were to blame this time-though they were awfully gullible. It was based on shady marketing of never-affordable loans, and packaging those loans as if they were potential money makers. Much of this stuff was done by unregulated mortgage "brokers." Since there's no national definition of, nor federal qualification/certification for who can do business as a mortgage broker, Joe Ripoff flourished and we are all paying the price.

[turtle777]

I don't disagree with your analysis, but it does not prove the point of them almost "causing a worldwide, systemic collapse".

What would have collapsed is the banks, their special interests, lobbyists and all those nice, long-grown "relationships" to Washington. What would have collapsed is a nice scheme that ripped of many gullible (and stupid) average people on the street.

And now, after they "bailed out" the banks, the next f*cukery is about to start: complete annexation of the wealth of the American middle class by means of inflation, caused by reckless money policies.

And with that, the Constitution and Rule of Law is removed little by little.

-t

[smacintush]

"Businesses and private property . . . become not an instrument of private “egoism” but “functions of the people.” They remain private wherever and so long as they fulfill their “functions.” Wherever and whenever they fall down, the State steps in and either forces them to fulfill the functions or takes them over entirely."

[Dork.]

I know we almost had a worldwide, systemic collapse, because when Chuck Schumer found about it he was rendered speechless. Anything that could cause him to have a loss for words must be big!

[ghporter]

Originally Posted by turtle777 

I don't disagree with your analysis, but it does not prove the point of them almost "causing a worldwide, systemic collapse".

What would have collapsed is the banks, their special interests, lobbyists and all those nice, long-grown "relationships" to Washington. What would have collapsed is a nice scheme that ripped of many gullible (and stupid) average people on the street.

And now, after they "bailed out" the banks, the next f*cukery is about to start: complete annexation of the wealth of the American middle class by means of inflation, caused by reckless money policies.

And with that, the Constitution and Rule of Law is removed little by little.

-t

The financial system IS the world economy. If it even crumbled a little bit, currency would be quickly devalued (by the market before any governmental action), and only physical assets and real property would have any sustained value. In other words, prices would skyrocket while wages would remain the same or fall. It's not like these suits operate in a vacuum; their actions affect each and every one of us. Which is why there should be some pretty serious oversight on ALL financial activities.

Some people suggest that any oversight is a handicapping burden on business (these folks are typically very short sighted and want to support the suits that pay them or otherwise support them), but it seems that all statutory oversight has been written by lawyers that want as much in black and white as possible. This of course leads to other lawyers looking for loopholes and gaps in the black and white. I've always advocated for basic RULES that lay out what must be done and what must not be done, with a referee system (objective, completely non-partisan and independent of the overseen entities) making all the day-by-day calls on whether or not something is or is not allowed, with the courts as a recourse to contest any decisions. A fast "no you can't do that" followed by a delayed court decision on whether or not that was appropriate would be a nice set of checks and balances on the microsecond-by-microsecond crap that we're currently seeing rock the financial system.

[turtle777]

Originally Posted by ghporter 

The financial system IS the world economy. If it even crumbled a little bit, currency would be quickly devalued (by the market before any governmental action), and only physical assets and real property would have any sustained value.

I agree, but what exactly is the problem with that?

It seems like you look at the symptoms (i.g. money), and conclude that a remedy is needed.

Do you think our fiat money system is good ?
Do you see politicians use it for good ?
Do you see politicians be responsible with it ?

And re: falling asset prices - this is also an *effect* of bad money policy. Housing prices crashing was a result of the bubble.
Did anyone seriously believe that 20% gain in housing prices over years is sustainable and "normal" ?

Originally Posted by ghporter 

In other words, prices would skyrocket while wages would remain the same or fall. It's not like these suits operate in a vacuum; their actions affect each and every one of us. Which is why there should be some pretty serious oversight on ALL financial activities.

But this is EXACTLY what WILL happen with the current Fed policy (condoned / pressured by the government).
How would all that printed money NOT result in exactly what you are trying to avoid ?

This is the main gripes I have with the political and economical elite: they try to avoid something that ultimately can't be avoided (because the money bubble has to pop at some point), and by trying to avoid it, they actually CAUSE it to accelerate, rather than mitigate.
I am convinced that the true depression / recession will come as a result of the reckless policies in Washington and the not changed greed in Wall Street.
What we have seen in 2007/2008 was merely the appetizer.

-t

[ghporter]

Originally Posted by turtle777 

I agree, but what exactly is the problem with that?

It seems like you look at the symptoms (i.g. money), and conclude that a remedy is needed.

Do you think our fiat money system is good ?
Do you see politicians use it for good ?
Do you see politicians be responsible with it ?

And re: falling asset prices - this is also an *effect* of bad money policy. Housing prices crashing was a result of the bubble.
Did anyone seriously believe that 20% gain in housing prices over years is sustainable and "normal" ?



But this is EXACTLY what WILL happen with the current Fed policy (condoned / pressured by the government).
How would all that printed money NOT result in exactly what you are trying to avoid ?

This is the main gripes I have with the political and economical elite: they try to avoid something that ultimately can't be avoided (because the money bubble has to pop at some point), and by trying to avoid it, they actually CAUSE it to accelerate, rather than mitigate.
I am convinced that the true depression / recession will come as a result of the reckless policies in Washington and the not changed greed in Wall Street.
What we have seen in 2007/2008 was merely the appetizer.

-t

Controlled inflation is an effective mechanism for encouraging economic efforts. It is what allowed the US to fund our WWII costs, it is what got us out of the post-Nixon recession, and it is what is (slowly) helping to restabilize our economy. Inflation and economic issues tend to be cyclic and involve a lot of factors beyond the Fed and political pressure.

On the other hand, an international banking failure that impacted several nations' systems would cause uncontrolled inflation, which devalues money and leads to bread riots and such.

Summary: controlled inflation = useful; uncontrolled inflation = really bad.

Now if you can come up with a replacement for the fiat monetary system used by every country in the world, I'd like to hear about it. Locking ONE national currency to the value of some specific thing, like gold, puts that country at a disadvantage because other countries can, individually or in groups, simply adjust their stated monetary value (let's say in gold) to make the locked country's real value tank. At the moment, there is only one way for the global economy to work at all-with fiat currency representing abstract value irrespective of specific, hard material values.

[finboy]

Just gave an academic talk on this Thursday, here are some thoughts.

TARP was necessary at the time, but it created moral hazard - regardless of the toothless limitations written into Dodd-Frank, bailout will be expected next time, too. Dodd-Frank does NOTHING - bailouts can come from the executive if necessary, so TBTF is still with us, but now without requiring real-time Congressional approval.

TARP was planned as a buy-up, but ended up being used for GM and lots of other things that were political and not part of the original idea. THAT deal screwed bondholders and probably changed Chap 11 law for the next 20 years.

TARP/CPP gives the US Treasury the ability to appoint board members at private banks. Again that's being politicized instead of helping.

[OAW]

Turtle is right. TARP privatized the gains and socialized the losses for the big Wall Street financial institutions. And that really sucks.

Ghporter is right. TARP was necessary to prevent another Great Depression at best and a total collapse of the worldwide financial system at worst.

In the end, seeing as how it might end up costing only 66 billion .... and depending on how the AIG, GM, and Chrysler stakes are unwound it may even net a profit for the federal government ... on balance it was the right thing to do. I agree that it risks creating "moral hazard" for the future. But the financial crisis was an emergency situation that required emergency measures. The Financial Reform legislation that was recently passed is designed to address the "moral hazard" issue by setting up a mechanism to unwind any large financial institution that gets into trouble in the future. Without taxpayer funded bailouts. Personally, my view is that if a financial institution is "too big to fail" then it's "too big to exist". And these institutions got even larger as the result of TARP. The better thing to do would have been for the government to break them up and to restore the Glass-Steagall Act. Unfortunately, the political will didn't exist to take decisive action like that ... especially on the right. So the limited protections included in the Financial Reform legislations is the best that could be done and I suppose that's better than nothing.

OAW

[finboy]

Originally Posted by turtle777 

Oh boy, do you *really* believe this propaganda ?

Mind you, this is the story told by the same politicians and economists that caused the housing bubble with cheap money, that never saw the bubble coming, that successfully blew a multi-trillion hole in the US budget, and that still think that printing money is the solution.

Sorry, but that's laughable. They got no f*cking clue, and they were dead wrong about basically EVERYTHING that happened in the economy in the last 10 years.

-t

I don't think that's propaganda, I think it was actually a lot worse than they let on. EVEN WITH the election bias against the Bush Admin., and we KNOW the media tried to skew things, it was pretty bad. If you just look at the huge spikes and volatility in the Fed Funds rate back in 2008, you can see that markets were very touchy.

I have no love for the bozos (no offense to Bozo) in Washington, but this was going to be a Big F*cking Deal (TM) if TARP didn't go through. I believe that in my heart, given everything I've read about it.

Now, would we be BETTER OFF if the system collapsed as unsustainable? Eventually. But that might be a few generations. This way has got to be OK in the short-run.

[OAW]

Originally Posted by finboy 

I have no love for the bozos (no offense to Bozo) in Washington, but this was going to be a Big F*cking Deal (TM) if TARP didn't go through. I believe that in my heart, given everything I've read about it.

Most definitely. As I recall the stock market crashed about 700 points when TARP was voted down in the House the first time. Imagine what would have happened if it hadn't been passed at all.

OAW

[The Final Dakar]

No shit. turtle's hard-line stance on the government is hard to take seriously, let alone in the face gh's nuanced and usually moderate analyses.

[smacintush]

Originally Posted by ghporter 

Now if you can come up with a replacement for the fiat monetary system used by every country in the world, I'd like to hear about it. Locking ONE national currency to the value of some specific thing, like gold, puts that country at a disadvantage because other countries can, individually or in groups, simply adjust their stated monetary value (let's say in gold) to make the locked country's real value tank. At the moment, there is only one way for the global economy to work at all-with fiat currency representing abstract value irrespective of specific, hard material values.

Explain this, I don't think I get what you are saying.

Interestingly;

Originally Posted by Forbes magazine

If history is any kind of indicator, by 2013 we’ll return to money defined in terms of something real. No currency in history has lasted longer than 42 years after its intrinsic backing has been abandoned, and it was 39 years ago that President Nixon severed the dollar’s link to gold.

[ebuddy]

Folks who've accepted the need for TARP are buying into the ideal that TARP was actually used as designed; to buy up toxic assets to bolster lending. Unfortunately, TARP wasn't used for this at all. Instead, it was used for preferred stocks and large corporate bailouts, demonstrating exactly what it is that creates a "too big to fail" scenario. To determine whether or not TARP is still a four-letter word, we're going to need more than two years to decide. i.e. Imagine if the likes of AIG were to face potential failure at this point? It'll cost us... again.

This was nothing more than playing on the fears of the financial markets by promising to do something it never did, but something else entirely. Something that likely would not have had the support it did at the time. Classic bait and switch that did little more than band aid short-term fears to hide the infection of long-term failures.

• The availability of credit remains low
• Toxic assets remain on the balance sheets
• Bank failures remain at near unprecedented rates
• Foreclosures still high
• Rising unemployment rate
• Consumer confidence remains in a slump

While we may call it something different next time, we'll be doing this again.

[smacintush]

C'mon…the alleged success of TARP is based upon that which did not happen, which is conveniently unprovable.

[turtle777]

Originally Posted by smacintush 

C'mon…the alleged success of TARP is based upon that which did not happen, which is conveniently unprovable.

Exactly. It's the same game they were playing with the stimulus.

First they said that the stimulus would limit unemployment to 8%, and prevent all kinds of things.

Then it turns out the stimulus didn't do squat, but they said it was effective and that things would have been much worse if it wasn't for the stimulus.

Honi soit qui mal y pense

-t

[ghporter]

What didn't happen because of TARP was far from as vague and "potential" as what the stimulus package was supposed to do. The numbers were there, plain and convincing, showing that a number of large banks would fail (as in completely), which WOULD cause major financial problems worldwide. Bailing out big manufacturers was also as obvious-let GM just fold and you would put tens of thousands of workers on the street with almost nothing for support. That would have caused an even larger drain on the Treasury than the current unemployment level has, and it would have been all at once.

Just because you managed to stop the car before it got onto the tracks does not mean that the locomotive was not capable of obliterating your car if you had been just a few seconds late on the brakes.

[turtle777]

Originally Posted by ghporter 

What didn't happen because of TARP was far from as vague and "potential" as what the stimulus package was supposed to do. The numbers were there, plain and convincing, showing that a number of large banks would fail (as in completely), which WOULD cause major financial problems worldwide.

There are not FACTS like this, just opinions.

And there were bank analysts (e.g. Chris Whalen interview) that think that banks going into receivership and liquidation (arranged by the US FDIC) would have been a perfectly workable solution. Of course, Wall Streets lobbyists did a fine job to convince everyone that the end of the world would have happened if the banks weren't bailed out. Seems like they were very convincing.

Ultimately, the banks failing is going to happen anyways, because the banks are broke as ever. Listen to the above interview.

-t

[ghporter]

Whalen's analysis is just as much "opinion" as the Fed's, the Treasury's and a number of other, independent agencies. The numbers showed something really, really bad would happen if nothing was done. And liquidating banks was discussed as an option-but that option would have been some seriously damaging medicine, as it would have depleted personal worth for just about everyone in the US, and still caused a lot of financial fallout overseas.

Something had to be done, and Congress seems to have (very grudgingly) chosen what seemed to be the least harmful to the US and global economies. Best choice? Maybe not. It still hasn't cost what the worst case estimates said, not by 1/10th. And it may wind up costing as little as $30B (which IS small when compared to the original $700B estimate). Plus, a lot of regulation has been firmed up, and there are fewer potential weak spots in the financial system that could cause similar problems.

And again, there was that whole "shady and stupid mortgage loan" issue. The housing bubble was what led almost all of this problem into the sewer, and were it not for people cashing in on approving people without the means to pay for really big mortgages, (based on overinflated home prices, to boot), then the whole debacle would have been considerably smaller and more easily managed. Maybe a couple of banks could have been liquidated to fix such a problem, and you could feel good that "the guilty had been executed." But instead, the "guilty" mortgage brokers/felons that plowed this field are still out on the street.

[turtle777]

I agree, these are all opinions.

But sorry for my cynisism, I don't believe a word the government and those "great economists" tell me. They have been wrong for years, so why would I suddenly believe that their option (bailouts) is the only thing that would work ?

Again, look at who caused the housing bubble with cheap money ?
It's the same folks that now say they can "fix" things with a bailout.

It's not a fix, it's a bandaid. A bandaid on a bomb that's still ticking.

-t

[ghporter]

Loosening credit was supposed to help businesses and new home buyers-those that were actually able to afford new homes. What happened was that the idea of "home ownership is the best thing ever for absolutely everyone" started floating around like it was some sort of Constitutional right. And that put pressure on lenders. But even the loosest lenders were banks or other chartered financial institutions, with government oversight. Say what you want about Congress, but banking regulators and bank examiners have some really strict and solid rules they enforce-and people go to jail for breaking them. But the disconnect came when people started "qualifying" others for loans and effectively lying to the lenders about their qualifications. And to make it easier to pull the wool over the prospective borrower's eyes, they often set these things up as adjustable rate or balloon loans, which look a lot more affordable (at first).

Now the banks see these third party applications with Joe Swindler swearing up and down that he's done what's needed to be done to make sure the borrower is good for the loan, and in an effort to look good they make the loan. And a lot of these loans were paid for quite some time. Usually up until the rate got jacked way up or the balloon payment was due. But things just got going faster and faster, with more applications coming in and less time to verify them, and banks got sloppy. Some got greedy too, but mostly it was a time crunch that caught them off guard.

I think it would be very difficult for anyone of merely marginal ability to pay to get any kind of loan today. Possible, but difficult. This change is because the banks and the industry in general have wised up and will no longer trust third parties' statements. An excellent idea, I think. Examiners also have more specific criteria for evaluating whether or not a bank is being smart in its loans-this particular issue is what got so many savings and loan executives put in prison in the 1980s; they made loans they knew or should have known were worthless, and many expected to be able to cash in on these bad loans.

I agree that this isn't a full fix. But it's not the Wild West in the banking industry either. Fiscal policy is a very important political issue, and one we should all be aware of and understand. There's the rub though-it's a tough subject and hard to understand, and how many people even bother to read the candidates' web sites, let alone digest the hard stuff behind their sound bites?

[The Final Dakar]

Originally Posted by ghporter 

What happened was that the idea of "home ownership is the best thing ever for absolutely everyone" started floating around like it was some sort of Constitutional right.

it doesn't help that if you were to mention you're renting, people, like the ones around here, will tell you you're throwing your money away.

Blame also gets assigned to people shopping for houses well above their means. It's like credit cards all over again.

[ghporter]

Originally Posted by The Final Dakar 

it doesn't help that if you were to mention you're renting, people, like the ones around here, will tell you you're throwing your money away.

Blame also gets assigned to people shopping for houses well above their means. It's like credit cards all over again.

Indeed. I spent a long time renting because I got burned when a housing market crashed under me. When I bought again, it was below my means so I wouldn't have that problem happen again. And houses tend to be marketed as "bigger is better," which is only true if you're in the midst of growing a family and really need a lot of space. Often, "just right" is not only much more affordable but much easier in upkeep, utilities and general fuss. But that's not what's in the weekend real estate ads.

[turtle777]

The housing market aberation are nothing but symptoms for an underlying disease, which is too cheap credit / money.

Sure, there are different motivations why the government pursued a cheap money strategy, affordable homeownership was one among many. Others are the cheap financing of deficits, and proping up the economy after the dotcom bubble burst.

It's really important to differentiate between symptoms (like bank action following cheap money) and the root cause (Fed and Treasury cheap money policies).

Cheap money / credit got us into trouble in 2007/2008, and the same people, pursuing the same policies now tell you atht their new "ideas" (TARP, bailoouts, stimulus etc...) will work. LOL.

-t

[Arty50]

The other thing that really bugs me is how the media is always stating that new housing starts are some sort of indication of a healthy economy. There's a glut of housing out there, especially right now. For anyone that lives in LA, just look at all of the massive neighborhoods that went up in the San Bernardino area. Tons and tons of those homes are empty now as people got in over their heads and also eventually came to the realization that it's not worth buying a house in an area that forces you to commute 2-3 hours each way. It's all crazy.

The cookie cutter housing companies were fueling the bubble just as much as anyone else and we all bought into the new housing start myth.