Too Big to Fail; Too Irresponsible to Succeed

By: hawkgrrrl
January 15, 2013

Upton Sinclair famously said:  “It is difficult to get a man to understand something, when his salary depends upon his not understanding it.”  Do our convictions necessarily follow our self-interest?  To me, Sinclair’s caution is to always look at the monetary incentives associated with a course of action, not just the direct ones, but those that lead to more financial success even in untraditional fields (e.g. votes, grants, favors).  We need to look at all our motivations, whatever we have to gain from a situation.  Without this kind of introspection, we are prone to act irresponsibly and make terrible errors in judgment.

I recently watched the TV movie “Too Big to Fail,” about the collapse of Lehman Brothers and the subsequent TARP bailout and cash infusion into the “big” lenders.  These events are very recent history, almost too recent to have been made into entertainment, although this movie had an info-tainment quality, like an after school special for people in the financial services industry.  Since we are all living in the post-apocalyptic world after the collapse of Lehman Brothers, introspection into its causes is warranted.

The narrative that helps most Americans sleep at night goes something like this:

Evil greedy villanous rich people on Wall Street conspired to bilk honest, hard-working Americans and take away their homes.  When they got caught, being the financial terrorists that they are, they threatened to blow up the world economy unless the government bailed them out.  Thankfully, the government (using tax money from citizens, those very same people who were also tricked and losing their homes) bailed them out, preventing even more catastrophic impacts to the economy.

The roles in this drama are pretty clear.  Protagonist:  Main Street citizens.  Rescuer:  Government.  Villian:  Big Business.  But is this the whole story or are there shades of gray being overlooked?

Government

Politicians, including both Clinton and Bush, bought the myth of home ownership as an integral part of the American dream.  They also sold this myth to the American people, a myth people are eager to buy.  Film clips in Too Big to Fail showed both of them giving speeches about the goal of home ownership being attainable for all.  Clinton no doubt saw it as an egalitarian ideal – a chicken in every pot and a car in every garage.  Bush doubtless saw it as evidence of prosperity – all boats rise with the tide of a booming economy.  Both seemed to sincerely believe their rhetoric.

Working in the financial services industry about a decade ago, I was absolutely dumbfounded at some of the governmental lending requirements.  We were forced to lend to individuals and businesses with low FICO scores (so low our systems were designed to automatically reject an approval) who would never be able to pay these loans off.  Essentially, we were writing them a check, under the Community Reinvestment Act.  As I evaluated some of these loans I had to ask myself how the government could legally bind a lending institution to loan money with the statistical certainty of default.  Basically, we were legally required to write off a certain amount of debt in bad loans that nobody could ever be expected to pay off.

Discussing the reasons for the Clinton administration’s proposal to strengthen the CRA and further reduce red-lining, Lloyd Bentsen, Secretary of the Treasury at that time, affirmed his belief that availability of credit should not depend on where a person lives, “The only thing that ought to matter on a loan application is whether or not you can pay it back, not where you live.” Bentsen said that the proposed changes would “make it easier for lenders to show how they’re complying with the Community Reinvestment Act.”

Because politicians relied on the notion that home ownership equates to prosperity and that it is something that all Americans are entitled to achieve, they sold this vision to their constituents and then had to make good on this “promise” by creating legislation that would relax lending criteria and enable people who were previously deemed not credit-worthy to obtain 30 year mortgages they eventually could not afford.

Home owners were also able to borrow against their mortgages, not as a method of reinvesting on their home, but as a way of borrowing against their future equity to reinvest in the economy now.  Who benefited?  In the short term, those responsible for a strong economy did.  And they told voters what they wanted to hear:  “You deserve that house you can’t afford.”

Lenders

Well, we all know the villainous tale of the lenders.  In order to benefit from these lopsided lending rules, lenders insured the loans they knew would fail.  By insuring the loans, they took the sting out of loaning to people who weren’t credit-worthy.  Because the lending rules had been relaxed, there was a higher percentage of bad loans.  Did lenders know it would all come crashing down?  Well, the insurance was to prevent that from causing their collapse.  Not all companies were equally irresponsible lenders, but companies are generally survivors.

Home Owners

There are also some who borrowed more money than they could afford to pay back.  When we were expecting our first child, we were living in an apartment in Rose Park.  Our neighbors neglected their children who showed up at our door looking for help.  We saw people getting arrested in our apartment complex several times.  One night it looked like an episode of Cops as policemen emerged from hiding places all over the quad and converged on one apartment. When we bought our first home, the bank was willing to loan us up to twice our annual income, which was frankly not that much at the time.  We bought a starter home under those parameters in West Valley City, in a neighborhood that a couple years later had a drive by shooting, followed by another one.  Our home was partly finished with two bedrooms and one bathroom.  By the time we moved to another part of Salt Lake a few years later, we had added another bedroom, a family room, and another bathroom.

As time passed, we continued to make more money and eventually we moved to Arizona in 2006 just after the height of the housing bubble. This time the banks were willing to loan us up to four times our annual income, which seemed incredibly risky to us at the time.  We decided to stay close to the less risky loan parameters that were offered to us in our first home, and we bought a house that cost more than twice what the house we had sold in Utah had been worth.  Housing values in Arizona were extremely inflated at the time.  We probably should have rented, but we totally bought in to the myth of home ownership.  Our home is still worth less than 2/3 of the amount we paid for it.  After six years, we owe more than the current market value of that home.

Yet we were the lucky ones.  We could afford our folly.  People who naively believed that they would not be loaned more than they could afford to pay back were quickly overextended.  Many lost their homes through foreclosure or short sale, which is one thing that devalued our home (as neighbors’ homes were sold for extremely low prices, values in the neighborhood went down overall).

A few questions to discuss:

  • Was the crash inevitable or could it have been avoided?
  • Are politicians getting a free pass in the media on this?  Is it because we prefer to believe them than to share in the blame by admitting we borrowed more than we should have been allowed?  Or are they sharing the blame proportionately?
  • Should we be busting the myth of home ownership?  Is the housing bubble just “righting” a system that was never tenable by creating more renters (who have lost their homes)?
  • Would you consider renting rather than buying next time?

Discuss.

Tags: , , , , ,

25 Responses to Too Big to Fail; Too Irresponsible to Succeed

  1. Hedgehog on January 15, 2013 at 7:40 AM

    I hadn’t known that government legislation had played a part in the relaxation of lending criteria. I don’t know if it was true in Britain prior to the crash, but I do know that at the moment the British government are constantly on at the banks to lend more, make it easier for first-time buyers to get a mortgage, lend more to small business etc., and the banks don’t seem to be playing along. Certainly, it would seem to be a bad idea, and somewhat in conflict with the recapitalisation also required.

    On your questions:
    Quite possibly the media are not giving enough attention to the culpability of politicians for the current mess. Though there have been a number of Radio discussions here about how we should make it easier for families to rent, and how we should pull back on the home-ownership for all model (Mrs Thatcher usually gets the blame for that one). I like owning, the private rental market here isn’t secure for families: annual contracts seem to be the norm, and rents are very high; there isn’t enough public rental housing either.

    Our first mortgage we borrowed considerably less than the banks would have been prepared to lend. We based it on one salary, rather than the two we had at the time (and even based on one they would have lent more). When we moved, house prices had risen so much in the interim that we only needed to borrow a fraction of the cost. The mortgage is our only debt, and is reducing.

    Home ownership in Japan was interesting, in that whilst there is a large rental market, those who buy only seem to do so once (for the most part), and if they are required to move elsewhere for work etc, they simply rent out their home, and rent another where they are going. The home they buy is the one they’ll retire with. I don’t know if this is still the model that is used.

    Like this comment? Thumb up 1

  2. Casey on January 15, 2013 at 8:38 AM

    No doubt the government played a role in the financial collapse (or, I should say, governments, since they’re all large financial players who were heavily involved in buying shady securities directly or through quasi-government organizations like Freddie or Fannie), but blaming the CRA is a smokescreen. The act was passed in 1977, so it if was the time bomb some people want to think it was, then you’d have thought it might have gone off in the 70s. Or the 80s. Or the 90s. Or the early 2000s. Suddenly, though, when financial institutions started collapsing certain people–usually conservatives–started honing in on the CRA because it fits the predetermined narrative of “disastrous things happen when you provide aid to poor people”. How many of your neighbors buying homes too large for their needs qualified for CRA assistance? I’m guessing few to none.

    Anyway, as I said, government is not the white knight of this story, and I have not doubt that the fetishization of home ownership, both rhetorically and as a matter of policy, played a role, but it’s annoying that a relatively inconsequential law from the Carter administration somehow gets saddles with so much blame.

    Like this comment? Thumb up 0

  3. Casey on January 15, 2013 at 8:48 AM

    And I should also add, private lenders weren’t howling with protest as lending rules were relaxed, they were lobbying for it! Free market! And the government, even under the stewardship of the tax n’ regulate Democrats, pretty much went along with it. So again, plenty of culpability to go around.

    Like this comment? Thumb up 2

  4. Will on January 15, 2013 at 10:06 AM

    Finally.

    This is one of the best posts ever posted and it is what I have been trying to say, just not as well has Hawkgirl, since 2007.

    Are politicians getting a free pass in the media on this? Barney Frank and Christ Dodd should be tried for treason – financial treason. Seriously. Not only does Barney Frank talk like Sylvester the cat, he is the cat when it comes to the ‘oversight’ he provided watching the rats of Freddy and Fannie. Those two men, Dodd and Frank, along with the machinations with Freddy and Fannie have caused more damaged to the US economy than all of the banks, bank robbers and identity thieves combined. By the way, the Community and Reinvestment Act (redistribution of wealth that allows anyone with a pulse to buy a home) actually started with Jimmy Carter.

    With all this corruption noted, those that bought homes they could not afford hold equal blame. As president Kimball said (speaking about porn, drugs and debt), laws can be passed and arrests can be made by those that peddle this filth, but the problem will continue as long as there is a market.

    Simple, go back to 80:20 at a minimun. When you come with with 20 percent down, then apply for a loan.

    Fan Favorite! Do you like this comment as well? Thumb up 9

  5. Mormon Heretic on January 15, 2013 at 10:44 AM

    I definitely think that politicians played a role in the crash, and it isn’t so simple as to blame just one thing. I think Casey brings up an important point. While it is never wise to give loans to people you know can’t pay you back, and I do believe that the law from the Carter administration played a role, but how can we blame the Carter administration for this?

    In my mind, the bigger problem was the repeal of Glass-Steagall. That’s what made banks too big to fail. It needs to be reinstated if we want to avoid too big to fail. There is an inherent conflict of interest between insurance and banks. They should be completely separate. The repeal of the law in 1991 led to the demise of Long Term Capital Investment in 1998, and then history repeated itself in 2008 TARP bailout. Bernanke followed Greenspan’s plan to a T.

    Like this comment? Thumb up 3

  6. Casey on January 15, 2013 at 11:13 AM

    And of course Will charges in to assure us that it’s all the liberals’ fault. In the future you can save space by just copy-pasting that in all of your posts :)

    Like this comment? Thumb up 0

  7. Mormon Heretic on January 15, 2013 at 11:26 AM

    I’ll add this blurb:

    In 1998, there was no collapsed housing bubble, the government’s budget was in surplus rather than deficit, bank leverage was much lower, and derivatives markets were smaller and less far-reaching. A financial crisis related to Long-Term Capital, however painful, probably would have been easier to handle than the perfect storm of recent months.

    See http://www.nytimes.com/2008/12/28/business/economy/28view.html?_r=0

    Like this comment? Thumb up 0

  8. Will on January 15, 2013 at 12:37 PM

    Casey,

    It was not ONLY the poor that were borrowing money they shouldn’t have that caused the collapse, it was the stupid policies that allowed (under equal protection under the law) those with money to borrow, in some cases, up to 125 percent of an inflated value of thier home. People using thier homes as ATM’s and so when the market corrected through a normal business cycle, we know the rest of the story.

    But, it was these STUPID polices (yes pushed, passed and implemented by the left) that lead to the collapse. Again, go back to at least 20 % down. By the way, you mention this and liberals will start bitching about how the poor cant afford to come up with 20 percent.

    Fan Favorite! Do you like this comment as well? Thumb up 5

  9. FireTag on January 15, 2013 at 4:19 PM

    Yes, the housing collapse was inevitable, in the same sense that a big Los Angeles earthquake is inevitable. You don’t know when, but you know it’s going to happen. The forces preventing it from happening are temporary, but the strains pushing toward it never stop.

    The house I live in more than tripled in value after I bought it — and then dropped 40% from its peak and is still falling according to the latest county assessment. You’d really have to be a heavily-hedged professional or someone with no sense of housing history to believe that tripled-price was anything but a bubble and buy then. Bubbles eventually run out of “greater fools” to sell to, and they do collapse. (Interestingly, bubbles don’t grow fast UNTIL they suck more than the poor into them and the middle class starts to think everybody can get rich and only suckers stay out of the market.)

    So, we should all keep repeating to ourselves, no matter how much we wish it were otherwise, There Ain’t No Such Thing As A Free Lunch, be it government debt, pensions, health care, education, or any other social or material good. People telling you otherwise, benignly or malignantly are leading you into the shrapnel of a coming bubble burst.

    Like this comment? Thumb up 2

  10. hawkgrrrl on January 15, 2013 at 5:46 PM

    Casey – Substitute “populist” for “liberal” and I think it’s accurate. But remember that most successful politicians are populist to a degree – and neither the right nor the left is immune to populism, when the voters eat it up. Bush and Clinton both bought and sold the myth of home ownership.

    As to the CRA, to me it’s not related to the housing bubble, just illustrative of the political mindset. When you read the rationale for CRA, it makes total sense – you don’t want companies being lazy about lending and excluding based on businesses operating in poor neighborhoods or those neighborhoods never improve. But when you look at the actual legislation and how it plays out, it becomes a blank check.

    I agree with Will about people using their homes as an ATM. That was another unwise choice by Americans who are notoriously bad at delayed gratification. But I don’t necessarily agree with the 20% down requirement as the rule of thumb for who should and shouldn’t buy a house. If you pay 20% down on a house with an inflated value, you might as well just create a little bonfire and burn all that money. It’s not a good investment, even if you can afford it. It also favors people who are cash-rich with a barely sufficient income (who may then lose that income and not have enough savings set aside to keep up payments).

    Like this comment? Thumb up 2

  11. Bonnie on January 15, 2013 at 10:33 PM

    Nice summation. Add to that the newly available capital from China that started this whole mess, dangle that in front of a lusty western economy, and you have a perfect storm, as you’ve described. It will be interesting to see what China will do once it overcomes its obsession with playing with its own currency and decides to call the loans. The level of complicity at the international market is breathtaking.

    Like this comment? Thumb up 1

  12. Will on January 16, 2013 at 10:09 AM

    Hawkgirl,

    I have to take issue with you on the 20 percent down. Consider the following: 1) The mortgage interest deduction, which if you are paying tithing, can easily get you over the standard deduction. When I had a mortgage, with tithing, it was about 80 K in itemized deductions 2) Capital appreciation. It is real property, which will always hold value especially if you stabilize the growth with a 20 percent down. This means less people in the market, less demand and a more stabilized market. 3) When it is paid off, it is totally sweet, because you are saving 3 to 4 K a month in payments. And, with increasing taxes, a penny saved is FAR better than a penny earned.

    Like this comment? Thumb up 0

  13. dba.brotherp on January 16, 2013 at 3:56 PM

    Construction booms and busts. That’s just the nature of the beast. So I think is was inevitable.

    I just recently bought a house. It was an FHA loan. 3.5 down, PMI, etc. And it was worth it! Where I live housing prices have dropped dramatically and my rent had increased 10 to 15% a year.

    Now I pay less for my mortgage with PMI, taxes, and insurance than I did for my rent. I think that’s the key. If renting is cheaper then rent or if owning is cheaper then buy.

    Like this comment? Thumb up 0

  14. Douglas on January 16, 2013 at 11:21 PM

    Speaking as one whose timing was utterly wrong and other circumstances (besides being underwater, the price that the home went FINALLY to Freddie Mac, with no takers at TEN consecutive Sheriff’s auctions was but 40% of the outstanding loan balance) which necessitated walking away…I blame only myself. If nothing else, regardless of what “everyone” thought, no one forced me and my then-wife to sign the deed and loan documents. We were fortunate that in “Kal-Lee-Fornia” (as “Ahh-Nauld” was governor at the time) a primary mortgage for purchase is by law a no-recourse loan, so we didn’t have to declare bankruptcy in order to escape a sizeable loan deficiency. Still, it was a bitter lesson. Now that I’m on my own, I’m house-hunting again, and believe it or not, I can still get a mortgage, though obviously not the greatest terms. This time I’ll go “minimalist”…focus more on needs than wants, which Church leaders have counseled since time immemorial.
    I blame ALL parties, but especially “Gubmint”…by freely bailing out institutions that likewise made bad decisions, they’ve created a terrible moral hazard, and saddled future generations with far more debt thanks to TARP. Mitt was right…the best thing to do, in the long run, was to let the market forces decide, and deal with the pain as we go along. Trying to postpone the inevitable only increases the hurt.
    This is why I don’t understand why the mortgage deduction isn’t (1) income limited (2) the “second” home, which can float or be on wheels, should not have a mortgage against it deductible, and (3) it should be phased out over time and let the interest rates adjust, since the average primary residence is refinanced about every eight years. Though it helps borrowers of relatively modest means, it’s more of a help to those in higher tax brackets. Now, obviously I’m dead set against higher tax brackets in the first place, but in the current political clime, they’re not going away, so let’s deal with the status quo. I can see my son and daughter-in-law, with their modest 3 bedroom halfplex (combined they make about a third of what I haul in) needing some help. I don’t understand my lawyer buddy, having made serious bank in advocating an antitrust case against the NFL on behalf of the Raiders, necessarily needing help via a mortgage tax break. Now, what is this, has Doug gone “Progressive”? Not at all. I’m simply pointing out that things like allowing a home mortgage deduction was instituted to facilitate a nation of owners of (mostly) modest homes, NOT to subsidize the aggregation of McMansions and second home condos overlooking Lake Tahoe. Get the Government out of the mortgage business altogether, by tax favoring ever-larger mortgages, and not backing failed quasi-governmental mortgage gauranty enterprises that themselves contributed greatly to the real estate meltdown, and let the market seek its true level.

    Like this comment? Thumb up 0

  15. Will on January 17, 2013 at 8:12 AM

    “I just recently bought a house. It was an FHA loan. 3.5 down…”

    This is precisely what got us in this mess. We are just blowing the bubble again. At least 20 percent down. We need the buffer to avoid people going under water on thier home WHEN the market does down. The reason most people walk away from their loan is because they owe more than their home is worth. They have no skin in the game. If they had skin in the game, they would be less likely to walk away. They would find a way to make it work.

    Like this comment? Thumb up 0

  16. dba.brotherp on January 17, 2013 at 11:20 AM

    Will,

    How will having 20% down give you more “skin in the game?” Honestly how?

    The market controls what your house is worth not your down payment. In my area, if I bought 4 years ago put down 20%, all that money would have evaporated. People weren’t being foreclosed because they didn’t have “skin in the game,” they lost their houses because for some reason (illness, job loss Variable APR, etc.) they couldn’t make the monthly payment.

    Sure, I could have put more money down and I expect that my house will loose some “market value” in the next few years but I kept my money because I wanted a reserve.

    As the old saying goes, “Money now is better than money later.”

    :)

    Like this comment? Thumb up 0

  17. Douglas on January 17, 2013 at 11:21 AM

    Will, agree in general. Rather than have low-down taxpayer-guaranteed loans, I’d rather that young people be able to designate their FICA withholding into a self-directed, tax-favored account (similar to a Roth IRA) which would be subject to income and aggregation limits, to be used for down payment as a first-time homebuyer. This way, using the “three times” rule of thumb for purchase price versus income. This would allow accumulation of a down payment in ten years, less if the account has favorable investment experience. The trade would be an annuity reduction upon retirement. I would even allow the employer contribution to be also directed into this account for further annuity reduction. This way, young people save for their home, but go in with equity, no need for mortgage insurance, and the perspective of a party that has a significant property interest. That is, they can deal with home value fluctuations or, in most dire situations, be able to sell out w/o having to default.

    Like this comment? Thumb up 0

  18. dba.brotherp on January 17, 2013 at 11:24 AM

    Also,

    Every person I have known who had their home foreclosed tried everything they could to “make it work” Sometimes things just don’t work.

    Like this comment? Thumb up 0

  19. Douglas on January 17, 2013 at 12:10 PM

    In my case a loan modification was proposed. It amounted to a five-year “stay of execution”. To add further insult, the original mortgage insurance was tacked on top of the reworked payment. I learned later that this was against the guidelines of VAMA. So it was obvious that the situation was hopeless. Even the original realtor, himself a former Stake President, advised to walk away and start over.

    Like this comment? Thumb up 0

  20. Will on January 17, 2013 at 3:10 PM

    Dba,

    The point is people are more likely to walk away from a home when they are upside down on the loan (they owe more than it is worth) and they have little or nothing down (no skin) then they would if they have put 60 to 80 k down (skin in the game) If they have sunk this kind of money into their home, they will find a way to keep it current.

    The problems in our economy stem from people walking away from a loan via foreclusure. This dumps their financial problems on their neighbors.

    Like this comment? Thumb up 1

  21. hawkgrrrl on January 17, 2013 at 5:20 PM

    Will’s point about 20% down is just a proxy / disqualifier for subprime mortgages (people who shouldn’t qualify but are being loaned to by companies who have insurance to cover the default). I agree that those folks shouldn’t be buying houses; they should rent.

    But I’m saying there’s not much motive for those of us who can do 20% down to pay it when housing values are inflated. You immediately lose that 20% over the likely time you will have the home. It doesn’t magically turn into equity like it did for our parents. In this scenario, maybe we should ALL rent and wait it out.

    Like this comment? Thumb up 1

  22. dba.brotherp on January 17, 2013 at 8:34 PM

    I dunno Will. I just don’t see people walking away from their homes just because they are upside down in the loan. Obviously when they first bought the home, they were making payments. My question to you is what changed?

    Also, I’m curious to know if you know anyone that walk away from their home because they were upside down in their loan?

    Now people with subprime credit getting mortgages is another matter. But don’t confuse a down payment with subprime.

    Like this comment? Thumb up 0

  23. Douglas on January 17, 2013 at 8:56 PM

    #21 – HawkChick shoots, and after it bounces around, drops in….

    ” In this scenario, maybe we should ALL rent and wait it out” Certainly one should NOT buy because it’s perceived as the “thing to do”…everyone’s situation is different. In general, home ownership is for someone who intends to stay and has staying power.

    The system lent itself to ever-increasing property values, which, as long as the bubble could be blown up further, worked for most parties. Municipalities obviously made out as the tax base increased. Real estate brokers and agents could reap ever-increasing commissions, and by working in connivance with local media (dependent on the realtors and developers for advertising revenue), stimulates sales in a transaction-oriented business. Same for mortgage companies, likewise based on volume and transactions. With but a few hiccups or localized setbacks (in 1970, following mass layoffs at Aerospace giant Boeing, a billboard on I-5 read, “Will the last person to leave Seattle please turn out the lights?”), it was go, go, go….there was but ONE wee problem…much of this real estate hoopla depended on the mass entry and rise through one’s life in material cirumstances of the so-called “Baby Boom” generation. Eighty millions BORN in America (never mind all the immigration) starting in 1946 through 1964…so as the leading edge is hitting retirement, and draining Social Security coffers, they’re also downsizing per household and their numbers are starting to thin. The trailing edge of said boomers are almost fifty…so…this, along with a general economic slowdown, means that demand for housing has fallen off. That, and, with ever-increasing consumer, corporate, but especially Government debt for upcoming generations to handle, leaves also less money to go after those houses.
    But not all is bleak…it’s just that the days of getting in with little or no down, having virtually instant equity due to appreciation, and then being able to tap into it for luxury cars, second homes, boats, and exquisite vacations…that is done. And it’s not a bad thing…it’s REALITY. The Lord said, “by the SWEAT of THY brow thou shalt earn thy bread…”. The end of Easy Street has been reached for the USA,folks, and it’s potholes and ruts until the excesses of the past thirty years are cleaned out. But may that will incentivize us to value things that really matter and build up treasure in Heaven.

    Like this comment? Thumb up 1

  24. Douglas on January 17, 2013 at 9:10 PM

    #20 – “The problems in our economy stem from people walking away from a loan via foreclusure. This dumps their financial problems on their neighbors.”

    Will, it’s easy to pontificate and judge why people default. To just condemn them and say “they dump their problems on their neighbors” reveals a refusal to understand. Likely undue risks WERE allowed in the first place…a borrower that only qualified for a subprime mortgage, getting in with little down..of course this is asking for trouble. And since they’re adults, they have to endure the consequences of being a poor credit risk. But to suggest that someone should stay in a position that is fundamentally hopeless…that borders on sheer idiocy. Better for people that made a bad financial decision to admit their mistake, and get out as gracefully as possible. That’s WHY some states (like CA) mandate a “no-recourse” home loan, and, of course, if there is no alternative, there is bankruptcy. Even the Prophet had to file bankruptcy in 1842, regardless of the criticism…it put the Church on better financial footing. I would counsel ANYONE to do what is best for his family! Then, LEARN from it.
    But yes, we need to get away from the Federal Government itself subsidizing high-risk, inadvisable mortgages, and not to strong-arm lenders into making bad loans for the cause of “fairness”. Was all this subprime nonsense THE cause of our current economic difficulties? Hard to substantiate that is ALL…but any policy or practice that encourages fiscal irresponsibility isn’t good. Truth is, for as much as real estate has melted down in this country, I’m surprised we’re in as good a shape as we are…it’s a tribute to the resiliency of the American economy…OR…are there other troubles lurking?

    Like this comment? Thumb up 0

  25. Zap on April 4, 2013 at 12:50 PM

    Also – and even after the 2008 crash – people are inundated every day by bullsh_t ads, mail & spam offering loans, loans and more loans. Your own creditcard companies push and push and push you to go deeper and deeper into debt. This absurdity, wholly the choice of the Debt Industry, makes a mockery of any blame Conservatives pin on home-buyers and would-be-home-buyers. How can you blame people for being fooled by promises if (a) they want something, (b) the dishonest scammers and corporations control all the media, and (c) no one is checking on those self-same “entrepreneurs”? If we have to live in a society run by crooks we should have (a) financial education (“Advertising is always all lies, don’t trust them”, “Buying a house does not mean actual ownership, but rather, Debt”, “Budget your damned household”, etc.) and (b) government and private scrutiny of scams, companies, corporations.

    Like this comment? Thumb up 0

Leave a Reply

Subscribe without commenting

Archives

%d bloggers like this: