[PassedOut]

Winstonm, on Feb 19 2009, 02:49 PM, said:

Yes, I see how you could think that. All I am saying is of the offered solutions, nationalization is the one I favor.

Unfortunately, no one is offering the one I support - let them fail or succeed of their own accord.

It seems to me that proper anti-trust laws would make sure that no company could become "too big to fail," thereby averting the need for taxpayer bailouts.

[luke warm]

jdonn, on Feb 19 2009, 01:51 PM, said:

Winstonm, on Feb 19 2009, 01:42 PM, said:

jdonn, on Feb 19 2009, 01:40 PM, said:

Winstonm, on Feb 19 2009, 01:31 PM, said:

Quote

The master of changing the subject from the question/point that was stated to begin with strikes again, surely to vanish into thin air as soon as he's called out on it, as usual...

As usual, I try to clarify for you what my words meant after you have misrepresented my statements and then you claim inconsistency?

That was not in reply to you. If I find any fault in you at all, changing the subject would be the very last thing, I promise.

I am SO confused.

I quoted lukewarm, made a statement in reply, and you took offense at believing I meant it toward you. If you are still confused by all this then I suggest starting on the ginko pronto!

i'm not confused or insulted now i'll disappear again

[mike777]

As I noted if the managers are wiping out shareholder value fair enough. It just concerns me that forced nationalization will only make things worse. Bankruptcy in some form or voluntary nationalization or the FDIC stepping in is a different matter from what I heard Winston and others in the media discussing. I quoted Bernanke and his concerns.

Back to the OP, another concern with this bailout is that some suggest as many as 55% of those who receive help will end up failing to make the new level of payments in 12 months. Perhaps Winston is concerned this will just delay the overall recovery and stabalization in home prices.

[mike777]

PassedOut, on Feb 19 2009, 03:48 PM, said:

Winstonm, on Feb 19 2009, 02:49 PM, said:

Yes, I see how you could think that.  All I am saying is of the offered solutions, nationalization is the one I favor.

Unfortunately, no one is offering the one I support - let them fail or succeed of their own accord.

It seems to me that proper anti-trust laws would make sure that no company could become "too big to fail," thereby averting the need for taxpayer bailouts.

We may indeed new more laws or regulations and that is worth discussing. I think this may be the third time in 20 years Citi has been bailed out.

IMO it seems we do not have enough jails, judges, enforcement of the ones already on the books. My concern is passing even more laws will simply mean more people not following the rules. Keep in mind we have people who do not pay taxes or find fraud now.

It would be interesting to roll back the clock and let Bear Stearns and other investment banks fail without a taxpayer backing of their debt such as what happened with Lehman.

Keep in mind that commercial banks and FNMA and Freddie Mac basically exist with government backing. They can borrow money cheaper than anyone else because directly or indirectly the taxpayer will step in and back the checking and savings accounts or mortgages in the case of FNMA.

This allows 90% of us to buy a house with a lower cost mortgage.

We can make these large companies such as FNMA go away but I do not see the President or Congress advocating such a thing.

[barmar]

The difference between Citigroup and Enron/WorldCom is that the failures of the latter companies were not indicative of industry-wide problems, they were due to malfeasance unique to their management. While there was poor judgement on the parts of the banks, it was so widespread that you can't really blame any particular company. When everyone was buying and selling CDOs, it would have been imprudent not to join that process, even though it didn't really stand up to detailed scrutiny.

It's kind of like expecting companies that do business in China not to participate in the graft that has been practically institutionalized over there, because it's a violation of western business ethics (hmm, is that an oxymoron?). If everyone else is doing it, you have to join in to be competitive.

[Gerben42]

Quote

It seems to me that proper anti-trust laws would make sure that no company could become "too big to fail," thereby averting the need for taxpayer bailouts.

The logic is that a big company failing costs 100,000s of jobs (those in the company and those who have them as customers), and paying social benefits for all those people would be more expensive than saving the company. This is of course not correct, because either their is a market for the products, in which case someone will take over the plants and continue to produce the product, or there is no market for the product and saving the company will work only for a short time.

[hotShot]

Gerben42, on Feb 20 2009, 11:16 AM, said:

The logic is that a big company failing costs 100,000s of jobs (those in the company and those who have them as customers), and paying social benefits for all those people would be more expensive than saving the company. This is of course not correct, because either their is a market for the products, in which case someone will take over the plants and continue to produce the product, or there is no market for the product and saving the company will work only for a short time.

Although you are not wrong, you fail to see the true complexity here.
If a big company fails, the market is gone (at least for a while) too.

At first there is the direct loss of jobs in the company that failed.
Secondly there is a loss of jobs in the businesses that provided raw materials and services to the company.
The third domino that falls are the businesses (shops and craftsmen and other services) who's regular costumers lost their jobs.

And this is not even the worst part yet.

The people who still have jobs, but have to see that colleges or friends lose their jobs and that businesses go bankrupt, start to prepare for the worst and cut their budgets too. Now that's a big problem! If 50% of the consumers cut their budgets by 4%, all businesses will average a sales loss of 2%. Of cause they will (have to) reduce the costs of human resources and now the big job loss numbers emerge when 2% of all jobs are lost.
If this is getting into a self-supporting trend, there is no stop to it.

It seems logical to stop this as close to the beginning as possible. Saving the company seems a good start and if done well, future profits from the company could be used to repay the costs.

Companies used to get along by borrowing money from banks, but the banks are "broke" and don't lend money any longer.

[Gerben42]

Quote

If a big company fails, the market is gone (at least for a while) too.

I do not agree with this. Take for example GM, part of which is Opel. If GM goes broke, Opel is part of the bankruptcy, but... there is a market for Opel cars.

So suddenly we have a complete company for sale to the highest bidder, with factories, materials, human resources, connections, everything. Someone will buy this and the money will be used to pay off the GM debt. The production of Opel cars will continue and life goes on for the workers.

Big companies that go bankrupt always live on in some way, because there are so many resources. The real job losses are caused by:

* Small companies going bankrupt so that no one notices the difference.
* Shrinking companies.
* Companies relocating their production.

Quote

The people who still have jobs, but have to see that colleges or friends lose their jobs and that businesses go bankrupt, start to prepare for the worst and cut their budgets too. Now that's a big problem! If 50% of the consumers cut their budgets by 4%, all businesses will average a sales loss of 2%. Of cause they will (have to) reduce the costs of human resources and now the big job loss numbers emerge when 2% of all jobs are lost.
If this is getting into a self-supporting trend, there is no stop to it.

This part is largely self-inflicted, and partially comes true because the bloody media keep telling us that we are in the worst crisis since 1930. The economy was doing just fine here, until people started believing this.

[kenberg]

Jumping back for a moment to housing: I have a hypothetical family to help me in thinking about this.

Husband and wife are about 30 years old. They have two kids who will soon be in school, reducing their day care expenses. They live in an apartment but figure it's time to get a house. Combined, they make around 130K a year with stable jobs.

I think, but I am not sure, that with the fall in home prices they could find a three bedroom house, perhaps with a basement and a garage, with decent but not superb schools, for somewhere around 350 to 400. This would be in suburban Washington, neither close in nor far out, and neither in pricey nor hopeless areas.



OK, what happens and how does it affect the housing market?

A. They can find a house but credit is so tight they cannot swing a loan?

B. Housing prices are still in the stratosphere and nothing like what I suggest is available?

C. There just aren't that many couples out there in the situation I describe?

D. It would all work but they decide to sit tight waiting for a further drop in home prices?

E. It's fine, this is actually happening?


Winston says the Obama plan is not addressing the real issue. Thinking about this a little, I realized I really cannot select among A through E above. Can anyone help me understand?

[helene_t]

kenberg, on Feb 20 2009, 04:10 PM, said:

A. They can find a house but credit is so tight they cannot swing a loan?

Prices will fall until people can buy them for whatever tiny amount the mortgage banks are willing to lend.

Quote

B. Housing prices are still in the stratosphere and nothing like  what I suggest is available?

Well if there are enough people able to pay stratospheric prices, the prices will remain high and our 300K couple will remain in the appartment. Otherwise, prices will fall.

Quote

C. There just aren't that many couples out there in the situation I describe?

Prices will fall until poorer couples can afford the houses.

Quote

D. It would all work but they decide to sit tight waiting for a further drop in home prices?

Prices will fall until people don't expect them to fall anymore, or until people don't care because they are cheap enough.

Quote

E. It's fine, this is actually happening?

The prices have hid the bottom.

[Winstonm]

Quote

Winston says the Obama plan is not addressing the real issue.

Clarification: Ken, my point was that trying to support home prices is the wrong reasoning.

As for your questions, the answer is there is a little of all of that. The two most important are tight credit and home prices.

[kenberg]

Artificially supporting home prices, if that is the intent, seems like a loser's game. But is this actually the claim? Your quote has Obama saying that stemming foreclosure would help to shore up prices. This may well be both true and desirable. In some neighborhoods the prices may be plunging far more than elsewhere due to a bunch of foreclosed and empty houses. I would call this only one problem of many, but I would not dismiss such an effort as wrongheaded.


Helene: I agree that what you describe is the mechanism, but I am asking where are we on this map. Here are a couple of more possibilities:

F: The banks, or more generally those who issue mortgages, now require such a substantial down payment that the couple cannot manage it.


G: Their credit card debt disqualifies them.

H: Any couple such as I describe probably already came in two years ago on some screwy arrangement and they are now, well, screwed.


The answers matter, I think. If there simply are not many couples out there (or home buying singles, a similar issue) fitting this description then loosening up credit might not help much. Similarly if there are such couples, but they see a falling market and plan to wait for a better deal. Loosening credit will help only if someone wants to buy. For example, if I could buy a car on a deal where I pay nothing down and no payments until next year, I still wouldn't buy it. I'm not in the market for a car.


I am claiming to be short on factual information. I hope the folks who are rescuing us have better information.

Here is a related example. The Washington Post was quoting someone as saying that during the wildest days of buying, some forty percent of the purchases were for investment, not for living in. The problems in such cases are completely different from the problem of the guy who just lost his job in the downturn and can't make his mortgage. And this is different from the guy who still has his job but took out a second mortgage for a trip around the world, or whatever.

There are a lot of doctors out there who, when you are sick, prescribe an anti-biotic. Never mind the diagnosis, just swallow this pill.

Seems to me we need some accurate diagnoses. There are probably at least a half dozen separate housing issues, and I would like to see the crisis doctors enumerate the ills and say which particular sickness they believe their medicine will cure."Oh, this pill cures everything" is probably optimistic.


Anyway, I more think of this as an extension of Winston's issue rather than a rejection. Housing prices around here have, I think, fallen substantially. They had risen substantially. If you bought five years ago, I think you could still sell for more than the purchase price but maybe not a whole lot more. The prices may need to fall some more but there are surely other large factors at work also.

[PassedOut]

Obama is eliminating something that has infuriated me over the years: Obama Bans Gimmicks, and Deficit Will Rise

Quote

For his first annual budget next week, President Obama has banned four accounting gimmicks that President George W. Bush used to make deficit projections look smaller. The price of more honest bookkeeping: A budget that is $2.7 trillion deeper in the red over the next decade than it would otherwise appear, according to administration officials.

Concealing a problem never helps solve it, so this is an important step. Also, despite the disagreements I have with Obama, I must say that it's oh so refreshing to have an honest person as president.

[Winstonm]

Quote

Artificially supporting home prices, if that is the intent, seems like a loser's game. But is this actually the claim? Your quote has Obama saying that stemming foreclosure would help to shore up prices. This may well be both true and desirable. In some neighborhoods the prices may be plunging far more than elsewhere due to a bunch of foreclosed and empty houses. I would call this only one problem of many, but I would not dismiss such an effort as wrongheaded.

If some neighborhoods have more foreclosed and empty houses it was because that area was overbuilt and oversold. Eventually, the market will self correct. If the prices get low enough, people will buy. When it becomes as cheap to own as to rent, people will buy.

What I am saying is that if the plan is to stem foreclosures in order to shore up housing prices then it is attempting to solve the wrong problem.

[mike777]

"If some neighborhoods have more foreclosed and empty houses it was because that area was overbuilt and oversold. Eventually, the market will self correct. If the prices get low enough, people will buy. When it becomes as cheap to own as to rent, people will buy.

What I am saying is that if the plan is to stem foreclosures in order to shore up housing prices then it is attempting to solve the wrong problem."



Winston I noticed you used the phrase "if the plan is"

Just too back up perhaps it may be good to post just what the plan means and just what problem the plan is trying to solve. I am not sure what the plan really is.

Also note many many people do not get mortgages, business loans, car loans and credit cards from banks. About 80% of all lending is not from banks. I know my family has a mortgage and car loans and credit cards from nonbanks.

For the those who lost jobs and live paycheck to paycheck I think we just need to let the families live rent free after a few months or foreclose on them.

For those who have jobs but cannot pay the current mortgage, the lender needs to lower the principal amount, convert to a fixed rate or let them live there for free or foreclose on the family.

In any event I do not how politicians cannot throw a lifeline to homeowners while bailing out banks, car companies, insurance companies, GE and other huge companies.

[Winstonm]

Mike,

I didn't want to put words in the President's mouth or guess his true intent. I am only concerned because of his statement, the one I posted originally.

I am aware that most mortgages and other loans have been securitized and are owned by non-banks. However, the bailout has been predominantly in the mortgage industry and I used the word "bank" as all encompassing - knowing it is not the best term.

[kenberg]

The Washington Post real Estate section had an article today that partly responded to my query (maybe the monitor the forum):
http://www.washingtonpost.com/wp-dyn/conte...9022000049.html

It begins by telling of a young couple who just bought a foreclosed house. He teaches special ed, she is a school psychologist. They got a house in the Virgina suburbs of DC for $200,000. Apparently it was in reasonable shape, needing a little work but not all that much. There is a picture and it looks like a nice house. This appears to be a good deal.

The article also discusses difficulties and pitfalls in such purchases. Apparently home inspections are not always allowed.

Given that foreclosure is going to be a fact of life, as I think it is, we could sensibly try to make it work better. Getting this young family into a decent house is good for them and good for the community. But there has to be an opportunity for a potential buyer to be sure of what he is getting.

Another thing brought up in the story is the possibility of buying a to-be-foreclosed house before the actual foreclosure. As mentioned in the story, this can be an emotional situation requiring tact, but also as mentioned if it is successfully done it can save the credit rating of the person losing his house, leaving him in a better position for buying a house at some future time when his circumstances change.

Realism is always a useful trait but especially so when times are tough. Not everyone is going to get through this mess keeping their house, but some calamities are worse than others. Many foreclosed properties are sitting empty and going from bad shape to completely unlivable. The story speaks of mold and holes in walls. Holes can be fixed, mold you tear down the house, at least as I understand it.

I like to think that the folks who are making plans to rescue the housing market have the detailed knowledge of exactly what problems their plans will address. Perhaps they do.