Subprime Bailout In The Works

A bailout if government comes in and reimburses the lenders. But this sounds like the naughty lenders are taking the pusishment - not the taxpayers.
(yet I wouldn't be surprised that in the fine print somewhere the taxpayer probably is bailing out some rich(investor/large corp) guy again)

Posted by: guest at November 30, 2007 9:09 AM

I too think this is ridiculous. I have been saving as much as I can to hopefully buy something "real soon now". Part of the reason I have to pay such a high price for real estate these days is because of all the buyers in the past who really had no business getting the loans they did. All those extra buyers pushed prices up.

Foreclosure sucks, but that's life and the free market. I don't expect any help when I can't pay my bills.

Posted by: guest at November 30, 2007 9:17 AM

I'm with Newsouthsloper. Everyone wants to blame the lenders not the borrowers. Get a clue. If you're going to buy property like a grownup then learn to read a contract like a grownup. If you can't and you need other adults to take care of you, then continue to rent and your landlord will tell you when to pay and how much while s/he takes care of the details of ownership. Grow up and pay up.

Posted by: guest at November 30, 2007 9:17 AM

"This plan rewards irresponsible people and their banks for buying property that should never have been in the first place."

Thats how this country is. Band aid solutions. Big money always gets protected by the govt.

The buyers will do the same thing again. My wife's coworker is one of the subprime borrowers and was just sitting and waiting for a bailout. I guess he was right.

Posted by: guest at November 30, 2007 9:22 AM

As long as the homedebtors are required to spend more than 30% of their income for housing, which is what Section 8 and Public Housing residents are required to pay (many renters pay more) and there are no taxpayer funds, then fine.

Otherwise, you'll end up in the same place but via individual foreclosures and bankruptcies, with greater losses all around.

If investors take a hiding, than lots of the stupidity of the past five years will be unfinancable in the future.

Posted by: guest at November 30, 2007 9:24 AM

it is a very tough call.

I agree with most who say this is bullshit and the government shouldn't be in the business of bailing out morons who took out $450k loans with no money down and had annual salaries of $40k. Its not only the morons taking the loans who are to blame, but also the lenders. Who was looking at the risks? Also the mortgage brokers, who profited handsomely should take it on the chin..

It pisses me off because ultimately, I'm going to end up paying the bill.

I do agree with Bob Marvin that there isn't really a better alternative. But saying that, aren't the banks and lenders in the "risk" business and they should be footing the bill for the bad loans?

I pay my bills every month. I'm not looking for a bail out. When I purchased my apartment I was sure that I purchased what I could afford. (which made me pas up the real estate deal of the century, a boerum hill townhouse for 200K).

Posted by: guest at November 30, 2007 9:25 AM

If done correctly, I am for the this plan, and here is why:

In theory, I am against any kind of government intervention in free markets. There is usually no place for them. But in this case, if done correctly, then i think a government plan for people who own their homes and would actually be helped by a freeze in interest rate levels might be a good thing for all concerned. I too saved and saved and bought a home in the last few years, and did so with a 30-yr fixed rate loan. But if foreclosures are allowed to happen on all loans that cannot be serviced, this could potentially throw our economy into a recession due to the many-reported effects of the weakening of the real estate market. And I don't believe that a recession is in the best interests of the nation as a whole. I, for one, am rooting for a soft landing -- sorry i don't share in the same Schadenfreude that the majority of the readers of this blog do -- as opposed to a full sclae real estate meltdown and corresponding recession. And it sounds like the plan, as dicussed in the article, might just help those that can really be helped in this situation. To wit:

Treasury officials say financial institutions are likely to set criteria that divide subprime borrowers into three groups: those who can continue to make their payments even if rates rise, those who can't afford their mortgages even if rates stay steady, and those who could keep their homes if the maturity date of their mortgages were extended or the interest rates remained at the teaser rates. Only the third group would be eligible for help.

So, if the Administration (of which I am no fan), can limit the program to the latter group of individuals, help keep people in their homes, and stave off a recession, stock market and real estate meltdown, then i'm all for it.
Why not?

Posted by: guest at November 30, 2007 9:32 AM

Most holding a property now should consider it a good idea even if they think it rewards the bad actors because the wave of foreclosures now is just the start. If it continues as predicted by the reset schedules it is going to severely depress your own much coveted home equity that far exceeds any personal income you've saved in the last 5 years.

To these 700+ fico whiners with good equity and a cheap fixed mortgage: to a large extent the run-up in house prices - the run-up that boosted your home equity so much in the first place - was BECAUSE so many "small income no asset" folks could afford to buy expensive properties with teaser rates. Your paper wealth is largely because of the recent & massive expansion of the great american home-owning dream.

So you face a choice: maybe hold on to most of that equity and watch everyone else get bailed out (rewarded) for their greed, or be a hard-ass about it, and lose a large part of your own free ride as the foreclosure wave hits and house prices return to the long term trend/affordability line (down 20 to 30% on current levels).

As a dedicated saver with no (US) property I wish the whiners reap what they now want: no bail out and the full force of the foreclosure wave - because then I can watch prices return to sane levels and the equity of these smug home owners - who think themselves geniuses for buying 5 years ago - get halved inside 12 months.

Posted by: guest at November 30, 2007 9:38 AM

This definitely "rewards" those irresponsible individuals who bit off more than they could chew, but the banks and the mortgage industry are just as responsible for facilitating such reckless behavior.

Nevertheless, it is in everyone's interest that these homeowners continue living in their homes and continuing paying something rather than nothing. The last thing this country needs is for communities with a high percentage ownership of no-interest mortgages, etc. to see these families let their homes go to foreclosure because the neighborhood will quickly follow. Simply look at what's happening in Cleveland right now.

Is this a slap in the face to those people who budgeted and saved diligently for their down payment? Absolutely! However, the overall social and economic costs of these families leaving their homes is far greater than the feeling of playing by the rules and watching others get by. What's also terrible is the fact that some of these people in danger of losing their homes are showing up to foreclosure prevention seminars in Escalades and S500's. Go figure!

I'll feel your frustration, so the next round is on me.

Posted by: guest at November 30, 2007 9:41 AM

The thing that really bugs me about all of this is that it was PREDICTED three years ago! And yet no one cared because the gravy train was simply too damn flush for lots of different sectors.

All I keep thinking about is what my grandparents would think about this - not just most of these bank's devastating irresponsibility but also our government's COMPLETE irresponsibility in the way thay have conducted themselves over the last seven years.

We went from black to red in a heartbeat, and now, as a nation, we continue to borrow tons of foreign money at rates we really can't afford (and that probably can never be paid back) to buy tons of cheap toxin-laden shit made overseas that we don't even need. It's very sad.

Posted by: guest at November 30, 2007 9:50 AM

Uh-OH. This deal could DESTROY "The What's" dreams!

Posted by: guest at November 30, 2007 9:57 AM

the govt bailed out chrysler, the govt bailed out LTCM counterparties and now the govt is bailing out mortgage company counterparties. where does it end? in reality none of these bail outs prevented any future irresponsibility and should be discouraged in any free market society. it simply sends the wrong message and ENCOURAGES irresponsible behavior.

Posted by: guest at November 30, 2007 9:59 AM

I bought my commercial property in 2006 for $525k and promptly sank another $100k to fix it up. The previous owner bought it in 2001 for $130k. I knew it was overvalued by $300k before I bought it, but I had no choice if I wanted to continue my business growth. I put 30% down and have a 15 year mortgage. I am getting killed on payments, but I saved enough before buying to be in a safe position even if the economy sours. I have a crapload of schadenfreude, and I am hoping for a hard crash. I don't care if my property drops $400k in value over the next 5 years because a)I am not selling, b)I didn't buy to flip, and c)it will allow me to buy the property next door to expand our building. The decrease in the assessed value of the property will lower my taxes, which is nice.

Posted by: guest at November 30, 2007 9:59 AM

Don't worry Washington will take care of the Banks, they are the ones writing the legislation.

My question is, do the banks have the right to rewrite the loans after they have sliced and diced them and sold them off to the Bank of China. If 2% of a loan is held by the Bank of China's CDO can the originator of the loan simply offer a lower interest rate? Who makes up that difference?

Many people who are in trouble can not pay their mortgages even with a fixed rate, they bought assuming they could cash out in 3 years. The problem is going to remain.

Only lower housing prices or hyperinflation will get us out of this mess

Posted by: guest at November 30, 2007 9:59 AM

9:38 you are correct as is Bob Marvin. Really, very well said.

Posted by: guest at November 30, 2007 10:01 AM

This isn't Cleveland. If home prices come down 20-30% due to forclosures, then normal people will buy just as normal people did 5 years ago. Moreover, many of those losers hoping to get bailed out will actually sell before going into foreclosure and get a reasonable payment. The neighborhoods won't be destroyed, the value of their homes will simply be corrected as needed by the market.

As for Bob Marvins belief that the evil lenders that ran into the streets and forced people to buy houses they couldn't afford, don't worry. Banks will suffer if they have to go through the foreclosure process. They will lose money this way. If, on the other hand, both sides that are guilty are bailed out by the gov't, then the rest of us will lose by paying for them via taxes.

Posted by: guest at November 30, 2007 10:04 AM

Many people who are in trouble can not pay their mortgages even with a fixed rate, they bought assuming they could cash out in 3 years. The problem is going to remain.

Only lower housing prices or hyperinflation will get us out of this mess

Posted by: guest at November 30, 2007 9:59 AM

According to the article, those persons would not be eligible for help.
And if this plan is enacte on the limited basis proposed in the article, its not going to stave off a correction in housing prices, it will only slightly reduce the effect, possible stave off a recession, and keep more people in their homes.

Posted by: guest at November 30, 2007 10:04 AM

"My question is, do the banks have the right to rewrite the loans after they have sliced and diced them and sold them off to the Bank of China. If 2% of a loan is held by the Bank of China's CDO can the originator of the loan simply offer a lower interest rate? Who makes up that difference?"

You and I and Bob Marvin and anyone else who pays taxes to a gov't that is handing them over to bail out the stupid and irresponsible. But only one of us is happy about it and his initials are BM. Go figure.

Posted by: guest at November 30, 2007 10:12 AM

9:50 is on the money. This administration has taken us back leap years. We're hated everywhere wherever we go, our currency blows, foreign owners of USD's basically call the shots because they enable us to keep living beyond our means and we don't learn. Did I mention Iraq's costs $3 billion (at least) a week? Exporters are benefiting, but do you think they're really going to expand when the writing is on the wall regarding a US slowdown? They're stacking their chips and hoping for a soft landing too. Our society is all about self-indulgence and instant gratification and then we wonder how we got into this mess. Your child watches "Super Sweet 16" and pressures you into buying her a new Range Rover, so you refi your home at a teaser rate because you just can't grab your fcuking b@lls and tell her no, we can't afford it!?!?

This is too much...time for a smoke break...

Posted by: guest at November 30, 2007 10:13 AM

"And for you "grownups" scrimping and saving and reading contracts, bully for you. You're smarter than a lot of folks and should consider yourself lucky."

Why should we consider ourselves lucky? Maybe we'd be the lucky ones if social Darwinism rewarded the hard-working and the clever. Instead those who think they are protecting poor preyed-upon minorities are going to encourage the gov't to bail out banks. How bigoted of you to assume minorities are unable to read a contract and need your protection.

Posted by: guest at November 30, 2007 10:20 AM

Horrible government policy. Taxpayers should not be bailing out individuals or the banks. Watch the major investment banks pay out billions of dollars in bonus at the same time as the federal reserve pumps billions of dollars into the banking system.

Posted by: guest at November 30, 2007 10:38 AM

This is absolutely ridiculous. Any form of bailout would only aide the irresponsible. It would help the Street for their irresponsible supply of the liquidity that created this issue. It would aide the banks for creating exotic products and lower their lending standards to meet the need of the Street. It would help the loan officers who failed to offer the right loan program for the right clients. It would aide the irresponsible appraisers who appraised the overvalued homes to meet the contract price. The speculators which no one on this board or in the media is blaming as part of the problem. What proportion of these sub-prime loans are second and third homes for wannabe real estate investors? The first time homebuyer who wanted to keep up with the joneses and buy a home that was probably overpriced with no equity, and had no idea what kind of loan they were signing up for.

I don’t care which group you belong too, you do not deserve any help. The government should not be involved with the free market. Without correction, the only people that will benefit are the investors who hold the bonds securitized by these mortgages. F them!! Low risk security my ass. The rating agencies had nothing in place to properly identify the risk in these bonds, and these investors were all institutional investors, so they are not afforded the same protection as individual investors.

Let the market correct itself, and let home prices fall in line with historical norms. I don’t even care about all the people who did it the “right way”. If you bought a home and didn’t sell before the bottom dropped, too bad. You should have jumped ship when the time was right.

Posted by: guest at November 30, 2007 10:38 AM

I'll start being concerned about "moral hazard" vis-a-vis borrowers as soon as I see some CEO's losing their homes when their companies tank, instead of walking off into the sunset with millions in retirement and severance provisions.

Our system has created incredible "moral hazard" with respect to management -- no ultimate penalty for bad performance, indeed, great rewards -- so I suspect those who are worrying about borrowers who overextended, particularly when they were lured into doing so by the comfy management.

Posted by: guest at November 30, 2007 10:42 AM

Last I read, Cheney was adamantly opposed to a bailout, the first thing I've ever agreed with the man on.

I don't think it's about 'making the spiteful happy,' it's more about the lenders actually being held accountable for their mistakes.

Mass foreclosures will benefit a housing market that's incredibly over inflated, and ultimately make people (both borrowers and lenders) pay more attention and be more responsible with their money, which will pay off more in the long run than a gov't band aid.

Posted by: guest at November 30, 2007 11:16 AM

Sickening.

Those of us who saved our money and didn't buy because prices were crazy despite easy mortgage conditions are the ones who suffer by bullshit government bailouts that prevent foreclosures and the normal downward adjustment of real estate prices after a hyper real estate frenzy like this one.

Life isn't fair.

Louis

Posted by: guest at November 30, 2007 11:33 AM

I am not sure where people are getting the idea that this is a bailout of the banks or mortgage lenders - seems to me this is strictly a bailout of borrowers (i.e. homeowners)?

Anyone care to explain thier outrage

Posted by: guest at November 30, 2007 11:36 AM

This is not a bail out. Very bad reporting MR B. These are loan modifications. Lenders will modify if they think they can get more by having the borrower continue to pay pricipal and a lower interest rate than contractually allowed then by foreclosing. which is very expensive and selling a home where the mortgage balance is greater than the market price. They are only allowed to do this if they believe it will lead to higher recoveries than a foreclosure, otherwise investors could sue. This is a free market program not a bailout.

Posted by: guest at November 30, 2007 11:39 AM

Actually there is no monetary bailout mentioned in the WSJ article. The idea is to get the big lenders to decide to do something collectively on their own, like extend their introductory teaser rates for up to 7 years. And then they've got to get the investors to accept this deal as well, plus they need to decide who gets the benefit of this action. It would probably mean that many people could keep their homes, at least for the time being.

But the government is certainly in no position to be lecturing the banks on financial solvency - that's like a smoker telling someone else to watch their cholesterol.

Posted by: guest at November 30, 2007 11:53 AM

"Uh-OH. This deal could DESTROY "The What's" dreams!"
Oh no! This make thing worse! If you modify any Mortgage, the Mortgage holders of this world will dump US debt on the open market. This dry up credit and make things worse. The most fuck up words are" I'm am from the government and I'm here to help." Tax payers will have to SUCK this up for years to come. I'm laughing my ass off! When housing prices was going you, All of you was smug, arrogant and thought you kings of the world. Now the piper wants his money back and he has a 'Joshua Tree' with him. This the END-GAME of this Mutant Real Estate Bubble and we will be fucked for years to come. IT"S OVER DUMBASSES!

The What

Someday this war is gonna end....

Note: I'm glad that some you are getting it! Props to Gabby

Posted by: guest at November 30, 2007 12:33 PM

Dearest What,

In your moment of perceived triumph it is more important than ever to watch your grammar & the mechanics of writing.

Posted by: guest at November 30, 2007 1:01 PM

Louis... not sure if this really a bail out. anyway, even with rising prices, you can still find a neighborhood that works for the money you have. just do research. believe NYC real estate will continue to expand in the mid to long run.

Posted by: guest at November 30, 2007 2:54 PM

Listen, guys, this is hardly a situation of a remedy bastardizing the "free market" for mortgage loans.

The government is already massively involved in the mortgage market and has been for years - not simply via the tax advantages conferred on owners vs. renters, but via giant government agencies designed specifically interfere with the market - Freddie Mac and Fannie Mae.

So let's not pretend there's suddenly a conspiracy to meddle with an otherwise orderly free market.

The decision has already been made that we accept intervention (as we're proactively intervening).

If anything, the lack of regulation in a market that provides sophisticated financial products to consumers who may not necessarily understand them is what led to this mess.

The fact that a statistically significant number of people were mysteriously steered into mortgage products with incredibly high fees that pay extraordinary comissions to the brokers who sold them should offer some hint that the situation isn't simply as obvious as people wantonly living beyond their means.

To the degree that those of us (including myself) saved money and read the documents and aren't double-parking our Escalades at the foreclosure seminars, I can appreciate the instinct to want to blame people for over-reaching.

But to pretend that there isn't some level of institutional responsibility is to completely misunderstand this crisis.

A ton of these mortgage products were designed specifically to fail - not by the people who answered the ads because they wanted a house for their families, but by companies willing to completely forgo any kind of common sense (or sense of social responsibility) simply to create mortgages to earn fee income and then sell them on to third parties.

Does it not seem odd that the companies that are running into trouble (or are already bankrupt) originated, but never intended to own, these mortgages?

Of course they don't care if the mortgages perform - they don't own, and never intended to own, the risk.

Wells Fargo, on the other hand, tends to keep what it originates, and they seem to be comparatively fine.

Frankly, in my opinion it's a lack of consumer protection that led to this mess in the first place.

If the government enforced a simple "keep what you originate" rule, does anyone on this board think we'd have this problem?

Nope, because we'd all have 30 year fixed mortgages and no bank would be foolish enough to extend 0% down 5-1 ARMs with 2% teaser rates.

We all expect to be protected from faulty products and egregious misrepresentation, by both laws and regulatory bodies, because even if we're really bright and read the paper we may not know whether our car actually needs new brake pads, or our dentist did a lousy job, or whether we paid the right price for some municipal bonds.

Why shouldn't reasonable people come to the conclusion that we all warrant a modicum protection in a sophisitcated transaction that, for most, is the biggest financial decision they will ever make?

And, my final point: if that protection is lacking, and we have to do something dramatic so that these oddly coherent demographic groups who have been pushed into these risky financial transactions enjoy some help rather than loose their homes, then fine.

Not a great outcome, because who wants this kind of mess in the first place, but let's at least be a little more honest about how we got into this mess.

Nothing that is happening today is a result of the efficient, invisible hand of the free market being meddled with.

Posted by: guest at November 30, 2007 3:02 PM

"A ton of these mortgage products were designed specifically to fail... by companies willing to completely forgo any kind of common sense (or sense of social responsibility) simply to create mortgages to earn fee income and then sell them on to third parties.

3:02 - Wow, nicely stated.

Posted by: guest at November 30, 2007 4:07 PM

@3:02

That was the best explanation I've read regarding this subprime mess. I now understand how and why these big banks are in the crisis they are in right now. Great post.

Posted by: guest at November 30, 2007 4:57 PM

2:54 is a broker, and the idea of finding a modest house that will fit mid-income levels anywhere in this city is a pipe dream at the current moment. Show me anywhere in the city or entire US where a person making $40K can afford a modest $500K house - and thats definitely considered modest anywhere in these 5 boroughs. I say they got what they deserved for signing the paperwork on both sides - banks as well as borrowers. If I were so stupid to speculate and sign a loan that I had no intention to pay back - hoping greed and hype would let me live there a while then sell for a profit - then I deserve what I get if the market falls. this is no different than the dot.com speculation bust except its in real estate speculation, and for banks to loan that kind of money with no doc liars loans or when they themselves were speculating in a way that if they borrower failed to pay back they could also sell for a profit after foreclosure, then shame on them too. Boo hoo. I have no sympathy

Posted by: guest at November 30, 2007 5:36 PM

5:36,

There are still options for people with middle income salaries to buy in NYC. Most of the options, I believe are in the Bronx. Parkchester has many decent two bedroom apartments selling for less than 200k.

I wouldn't want to live there myself since I'm too much of a stuck up yuppies, but for somebody with a kid who really wants to own, there definitely are lower cost options.

There's no god-given right in this country for everybody to own a 500k house, but there are lots of places where houses can be purchased for less.

If I were a librarian, for example, and only made 40k and really wanted to own, I could move to Bethleham, PA, just an hour and a half by bus from NYC and but a brand new beautiful townhouse for 200k. I know they exist because I saw one last week.

For folks like you, Cuba is always an option.

Posted by: guest at November 30, 2007 8:58 PM

Personally, I think everything said has some merit of truth. Unfortunately, I think governmental intervention will not change the foreclosure situation too much. A great number of people with these sub prime loans have difficulties paying their bills NOW, not to mention when the loans reset. I think the real losers in this situation will be the taxpayers. Eventually, they will have to foot the bill for all those investors who will have to be persuaded to go along with this plan in exchange for some governmental tax cuts in the future!

Posted by: guest at December 1, 2007 1:35 AM

Hey brownstoner - how bout a link to the WSJ article this morning!!!

Kind of a huge article to miss, isn't it?

And relevant to the whole NYC real estate market.

Let me help you out.

http://online.wsj.com/article/SB119638554201808816.html?mod=pj_main_hs_coll

Posted by: guest at December 1, 2007 1:52 AM

I feel for those who were forced to take 2nd mortgages in the last few years, due to illness and other unfortunate circumstances. Help is needed there, but it's a mixed bag.

I don't care for those who "cashed out" (taking aggressive ARM, balloon, piggyback mortgage programs, etc.) in order to buy luxury cars, additional real estate, etc. I feel more disdain for the mortgage institutions that fueled the frenzy, as it looks like taxpayers will ultimately pay for the mess.

If the fed. government tries to fix the problem by giving passes and reducing interest rates, there will be a counter effect, since money is a conservative object. Eventually the market will compensate somewhere (correct); i.e., devaluation of the $, recession, greater economic polarization, depression...

Too bad for the rest of us NYers who continue to rent and save for a brighter tomorrow - as the market will remain ridiculously inflated.

Posted by: guest at December 1, 2007 11:43 AM

Guys! EVERYBODY is missing the point. The 'subprime' debacle is just a small section of the overall problem. It is the convenient whipping boy of the investment banking industry because THEY are the ones that messed up big time by sell off these debts as CDO's and other exotic snake oil.

This was a ponzi scheme of the biggest magnitude because the bond rating agencies might have been complicit in the peddling of these instruments.

The "credit" crunch comes from hedge and money markets trying to offload these instruments back to where they came from and these institutions (Bear, Citi, ect..) don't have the cash to accept them. How's getting some people to continue paying mortgages on deprecating property solve the problem that the over-valued CDO's bring to the equation?

CDO's and other derivatives were the new "roaring 20's" instruments that were designed to fall as the top tier that unloaded them first made out like fat rats. No amount of negotiating with lenders and banks is going to restore the confidence in the investment banking sector as long as "creative" financing keeps hiding behind the sub-prime boogeyman.

Question, how did the credit crunch extend all the way to Asia and beyond if it was just a mortgage issues? Answer, it didn't, the CDO's, SIV's and other pyramid investment vehicles now turned junk bonds permeated world wide. Nothing is going to stop the impending tide of nastiness that is about to ensue.

Keep whipping the sub-prime excuse without focusing on the bigger picture and you're sure to be lost in the come deluge.

Posted by: guest at December 1, 2007 4:27 PM

BTW, here's a lesson in mortgage financing many of you just don't know or haven't figured out yet:

1. The 'lending' institutions have nothing to 'lend' and are only required to have 10% actual assets in order to 'lend' out the remaining 90%.

2. Once you sign your mortgage, they illegally endorse it like a check and add this IOU as an asset in their balance sheet. The check they give to the seller then becomes a credit entry on the seller's bank account where it will stay until the seller demands part of all of this "money." This rarely happens and the seller usually only draws against his account to pay his expenses at any given time.

3. The aggregate mortgage payments that come in become the banks income and those draws against the check they cut to the sellers are usually covered. If need be, they can turn the FED for short term loans to cover additional or month to month expenses.

4. To keep the whole game solvent and make a fast buck, the lenders takes a bunch of mortgages (IOU's/assets) and combines them and sells them to the greater investment market as Collateralized debt obligations and usually for far more than they are worth.

In a nutshell, that's exactly how the "system" works. You literally finance your own loan and make the bankers and their investment buddies rich in the process.

How the "subprime" mess factors in is that it tarnished a great deal of the CDO market and a loss of confidence in this system ensued. Think of old fashioned bank runs. Ultimately, the big banks are the ones that exposed themselves to this mess because a lot of the credit originated with them and them divided to the mortgage lenders.

So ultimately, who do you owe your mortgage to? You were never "lent" anything and you're paying the bankers the principal and the interest for the whole deal and for 30 years, ha!

The subprime mess exposed the whole system to the light of day. Formally the ranting of conspiracy theorists now have been fully exposed as facts.

Don't believe me? Recently, suit bought by Deutsche Bank against lenders it was planning to foreclose one was thrown out of Ohio Federal Court.

Under Full Disclosure and Fair Credit act, the lender must disclose what they are lending (originator) and who they have transferred the note to when in fact they do transfer it. In essence, it is illegal for a bank to extend credit as a "loan" and when a lender collateralizes your promissory note, he is violating various state and federal banking regulations.

Posted by: guest at December 1, 2007 5:24 PM

Deutsche Bank link:
http://www.nytimes.com/2007/11/15/business/15lend.html?ref=business

Posted by: guest at December 1, 2007 5:49 PM

My hat is off to you 5:24. That's the whole deal, in a nutshell.
I think we have some huge problems. I hope we can come thru this OK.

The What

Someday this war is gonna end...

Posted by: guest at December 1, 2007 8:40 PM

``The thing to be worried about is whether this morphes into a bail out of the banks as well. Of course the Fed is doing it's best to handle that anyway...''

The hope that the banks would be bailed out died the day Fannie and Freddie disclosed that they are indeed exposed to the sub-prime mess already and are currently hemorrhaging capital. Add new accounting practices that go into effect early next year and you'll see the tide of bank failures come to light. This is the reason why some of the big players are trying to broker deals to get more capital before that happens and to try and restore some confidence and try and stem the tide of investors exiting their investment instruments.

Bernake wants Fannie and Freddy to up their limits to the 1 million dollar mark. This is a particularly dangerous move as it will then affect average homeowners as of now not affected the sub-prime mess. If Fannie and Freddy's limits are increased to million dollar jumbo loans, the banks would then be able to offload worthless junk mortgage derivative that will soon bring down those two institutions once the losses are all calculated.

At that point, it is clear that the US tax payer would be required to cover the "losses" as Fanny and Freddy are quasi governmental entities. But the consequences of raising their lending limits will have the effect of sustaining these ridiculously over inflated housing prices AND might even create a new wave of speculation leading to a much bigger problem in the coming years.

A correction is sorely needed in that overextended banks need to shutdown and housing prices HAVE to come down 30 – 50% or more. That is the only way these problems will be overcome. Anything short of that will only throw fuel on the fire of a coming depression.

Posted by: guest at December 2, 2007 2:26 PM

I hope someone rads this, the shit just hit the fan in the UK.
This FUCKING BIG. Banks are stuck on stupid.

Pleas for rate cut as interbank loans dive

The sterling interbank market has collapsed at the fastest rate in modern history, prompting pleas for immediate rate cuts from a chorus of top British economists.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/03/cnrates103.xml

Remember when the fucktards was happy US rates fell. However, most mortgage rates are tied to the LIBOR rate. Say goodbye to your equity.

The What

Someday this war is gonna end......

Posted by: guest at December 2, 2007 9:14 PM

Here's another story that came out on Sunday to show the scope of the problem. No matter what band-aid solution are presented to the public to obscure the real cluprits, the wheels are in motion for things to keep getting worse:

http://www.nytimes.com/2007/12/02/business/02every.html?_r=1&pagewanted=all&oref=slogin

Posted by: guest at December 3, 2007 6:04 AM