Time for the American Government and People To Confront Reality 21 comments
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Let's start today off with a bit of humor…
…now that's a bailout package that I think we can all agree on.
All kidding aside I think a "quiet problem" facing the nation as it tries to resolve the current crisis is that most people (be they politicians, policy makers, citizens, etc.) are more interested in what makes them feel good, as opposed to the mathematical business decisions that need to be made right now.
In other words, while I'm sure it's cathartic to yell at the banks for not increasing their lending volume after receiving TARP funds, the mathematical reality is that they need those funds to be solvent, past lending volume was hyper-inflated and it would be foolish for them to increase their lending as that would only lead them back to the same position they were in prior to receiving the funds.
The housing market was hyper-inflated and while I'm sure no one wants to hear that the housing market is going through a necessary correction, the fact remains that the correction is a necessary part of having stable housing markets in the future.
Foreclosures are unfortunate and tragic and everyone wants to hear how the government is going to stem the tide, but (again) you can't legislate, modify or "save" people from having bought more homes than they can afford. Facilitating the transition to more affordable housing makes more sense than trying to delay the inevitable with loan modification, delaying foreclosure proceedings, etc.
…and the list goes on and on and on.
At the end of the day the solutions/ideas that may make us feel the best aren't necessarily the ones that are going to resolve the crisis, and in many cases will only make things worse. As a result it's time for us to start accepting the harsh realities of the crisis and begin creating solutions that actually address its root causes, as opposed to only easing the pain of unpleasant symptoms.
Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.
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This article has 21 comments:
I have been saying since 2007 that what we have is a destruction of confidence, at that time in CDO’s, in order for a small group of Generation Me short sellers to destroy the monoline insurers. It all goes back to that and just snowballed out of anyone’s control (except for the short hedgies that perpetuated it) afterwards. Now we’re stuck in a mess that needs 2 things:
1). To Pass a Wind-Fall Capital Gains Tax of 65% on ALL short sales retroactive to 01/01/08 to help pay for all these bailouts and prevent future disasters, and
2). To refinance the monolines so that States and local municipalities can issue bonds again. At the SAME time Congress should give DOLLAR FOR DOLLAR STIMULUS for every bond written for infrastructure. Bigger bang for the buck, AND unless we get the private sector and the Pimco’s of the world involved – nothing we take hold.
The fundamental flaw in your thesis is this paragraph,
Foreclosures are unfortunate and tragic and everyone wants to hear how the government is going to stem the tide, but (again) you can't legislate, modify or "save" people from having bought more homes than they can afford. Facilitating the transition to more affordable housing makes more sense than trying to delay the inevitable with loan modification, delaying foreclosure proceedings, etc.
The homeowners did not say to themselves, wow, this is more home than I can afford. Rather, the mortgage brokers who held no fiduciary relationship to the homeowners steered them to banks who overinflated the value of the homes in lending money. It is no surprise that the housing market is overvalued. Your argument is to let the homeowners fail and reward the banks for accepting unreasonably high appraisals. A better argument would be to allow home prices to return to affordable levels, borne on the back of incredibly foolish Ivy-League trained bankers who stupidly believed they could get enormous yields out of mortgage backed securities with AAA bonding. But what do I know, I rent.
i live in an area where for the last 10 yrs the builders have insisted on building only 900,000 mansions on 1/5 acre lots, and no affordable housing. the county employees can't afford to live in the county & have to commute 60 mi each way. can we blame the greed of the builder corporations? the empty 900,000 mansions could be converted into apartments (?) if the county code so permitted.
> jack
The "lets put housing into the dark ages" crowd must have some perverse cost-benefit analysis procss....
Let's see: 10% deliquency /default rates..10% unemployment ...40% DOW crash...
Maybe to those who crawl over others, and delight is misfortune, are enjoying this time...
However, if you care for others,, then this is a time to seek workable solutions...
Now do you suppose that proffessionals trained in appraisal, loan ratios, credit analysis etc. might provide a product and service that is not guaranteed to bankrupt the purchaser? Pay day loans with 5% fees, credit cards with 24% plus rates, home loans that reset or amortize negatively without documentation. Who really is at fault Mr. Potter?
Then there is, of course bond and securities rating agencies that hand out AAA ratings like candy at Halloween, not to mention conflicts of interest. Commercial banks bundling up the crap and leveraging at 1/40 while their hedge fund entities are short squeezing the very same depository banks and commercial lenders.
The horror, the greed, the culpability......... but according to you we all need a dose of reality. Enron times 10,000. Massive fiduciary fraud, destruction of capital, pensions and companies for greed, then blame the consumer. To be sure, consumers, workers, middle class families will take the hit, not the hedge fund CEO's who's assets are cushioned and safely stashed.
Reality check? We are already in the death grip of reality, unfortunately there is not an equivilant guillotineto address justice for all the perpetrators.
Insane. If they broke a LAW, prosecute them. If not, why penalize those who, looking at the Emperor's new clothes, see his willy. I've been shorting GM for YEARS. They have had the very-best-business-pla... for decades. Same with the financials - one who can recognize unsustainability is stupid to not profit from it. Those who made naked shorts - and the brokers who aided them - should be prosecuted. I buy puts.
>>if you care for others,, then this is a time to seek workable solutions..>> If you put the emphasis on WORKABLE., you must realize there's not enough money on earth to fix" this mess. This is Humpty Dumpty after the fall. Globally, losses are in the hundreds of trillions.. It's time for individuals, businesses and governments alike to get familiar with the concept of logical consequences. We can't keep on closing our eyes, clicking our heels and pretending that will fix things.
It might be called the "widow and orphan" problem, for short.
Let's face it, some people are born into dysfunctional families, and even though many overcome these severe handicaps and even rise to become President of the United States, such as George W. Bush, many fall by the wayside and buy houses they can't afford to live in.
Telling them to face up to their mistakes is something like doctors telling the five out of six lung cancer patients who smoked cigarettes that they wont treat them because they basically caused their own lung cancer.
Tempting but not politically feasible.
Solution to keep new construction going was to divert water from the San Juan and Chama rivers in northern New Mexico.
But a potential problem is arising. Pumping that water if, in fact, New Mexico starts to see electric shortages within several years.
www.prosefights.org/ab...
So. Other housing problem loom.
You are 110% correct,
As my house increased in value by $600,000, I had to ask myself, did I earn this money, NO, so common sense tells you not to spend it on car's, a boat a second house, or vacations, etc. Many people saw their nieghbors making 20% a year and wanted in with the most leverage they could find.
Blaming it all on the cocaine dealer is back ass words. It was greed by all, banks, consumers, our government, ALL OF US,
Can we take no responsibility for our own actions, it's always someone else's fault. That's the American way.
I am a baby boomer, but I wait anxiously to hear the great wailing as Baby boomers find out that their entitlement attitude will bring them to a sad retirement, if one at all. Financial responsibility was not one of the lessons of the sixty's, remember, it was, me, me, me.
I do agree with JL that home prices have to come back down to reality although that will be very painful for many. But until they do, homes will be priced out of reach for many honest, hardworking people who deserve them.
There will not be medicare or drug benefits because there will not be any federal money to pay for this. Cut now, cut everywhere possible. Go back to as pure capitalism as possible. Otherwise, just keep pilling it on so your kids have to pay & deal with it ... not you!
What will be the first thing Obama will do after inaguration: announce a stimulas package nearing a trillion dollars doing infrastructure. That's the affirmative answer the US government will not face the reality.
The current financial crisis and the resultant great recession is induced by excessive debts. Using more excessive debts to cure the problems created by excessive debts is similar to pour more alcohol to the drunk. The drunk will die quicker.
I think, in a short couple of years, we can all say to Obama: Keep the change.
The result is a terrific whipsaw effect. Few in power are able to understand the strain that average American workers are experiencing. (Try watching Lou Dobbs to see this disconnect.) But no matter how much D.C. attempts to juice the economy with more cash, people can no longer spend when they do not earn enough to live on.
If shorts break laws, prosecute them. But why focus on the one group of people who are sometimes the only buyers in collapsing markets (we have to take our profits)?
On Dec 09 07:30 AM apppro wrote:
> It’s time for everyone to go back to the beginning and remember what
> started all this, and while it has to do with housing, it has nothing
> to do with the usual suspects.
> I have been saying since 2007 that what we have is a destruction
> of confidence, at that time in CDO’s, in order for a small group
> of Generation Me short sellers to destroy the monoline insurers.
> It all goes back to that and just snowballed out of anyone’s control
> (except for the short hedgies that perpetuated it) afterwards. Now
> we’re stuck in a mess that needs 2 things:
>
> 1). To Pass a Wind-Fall Capital Gains Tax of 65% on ALL short sales
> retroactive to 01/01/08 to help pay for all these bailouts and prevent
> future disasters, and
>
> 2). To refinance the monolines so that States and local municipalities
> can issue bonds again. At the SAME time Congress should give DOLLAR
> FOR DOLLAR STIMULUS for every bond written for infrastructure. Bigger
> bang for the buck, AND unless we get the private sector and the Pimco’s
> of the world involved – nothing we take hold.