Rick Santelli's Rant: A Response

CNBC reporter Rick Santelli made an on-air statement the other day that irked the White House. The statement was in response to the solution to the mortgage crisis that President Obama announced this week.

Mr. Santelli was reporting from the floor of the Chicago Mercantile Exchange and said, “How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills- raise their hands? President Obama are you listening?”. The traders on the floor responded loudly with boos. Then Mr. Santelli called for a Chicago Tea Party in July.

I have to both agree and disagree with Mr. Santelli due to the complex nature of the problem. No one wants to pay for bills that were not incurred by them- so why should we accept the President’s solution for every American to pay for this mortgage bailout package? Well, the answer is not so simple. Had the banks realized, as I did several years ago, that this crisis would be rather significant, perhaps they would have cut back their risk and not offered mortgages to those that were unqualified or not offered products that were extremely risky. The reality is that they didn’t realize this fact- and they didn’t realize that this was not business as usual.

In fact, I told many people 3 years ago that if the banks did not stem the tide of coming foreclosures, it would just spread like wildfire to good, hardworking responsible people- through job losses and rapid deterioration of the value of their own homes. If just one or two homes in a neighborhood are foreclosed on- no one realistically thinks that it will significantly impact the value of their home, but that is not what is occurring right now in most neighborhoods throughout the country. Now the banks have foreclosed on so many homes in some neighborhoods that the good, hardworking, responsible owner now has a home that is no longer worth a fraction of what it was just a few years ago- and perhaps even less than what they owe on their mortgage. After all, if you have 10 homes on a block, and 4 have been foreclosed on, wouldn’t you be reluctant to buy a home on that block? Perhaps if the price was low enough- you might consider it - but that is just my point. Some neighborhoods have been affected so badly and are so abandoned that some wildlife is starting to encroach – such as coyotes and bobcats (seriously! - a reporter from California captured this on video).

What if Rick Santelli was that responsible borrower and his neighbors weren’t? If I was living in his home I would want some help to come to my neighbor’s aid. Because one way or another, Rick is going to have to pay for this; whether it’s in the form of taxes via the stimulus packages or whether the cost is a bit more hidden, when it comes time to sell his home - with a strong possibility that it would sell at a loss or at stagnant prices for a long time out into the future. Either way, Rick is paying for his neighbor’s problems. Now personally, if I realized I was going to have to pay for this regardless of whether it’s from tax money or out of the sale of my home- I would rather pay for it via tax money. Why? The answer is simple…if you keep people in their homes it will stop home prices from freefalling. The other answer is also simple- would you want to live on a block with lots of abandoned foreclosed homes? I know I wouldn’t.

Rick also made the point that even if you brought the mortgage to negative two percent (which was an exaggeration because the bank would be paying you to have a mortgage), people still couldn’t afford to keep their homes. On this point I have to agree, but this is also the reason why the banks must be willing to cut principal amounts and take some responsibility for the lousy loans that they made. After all, what good is it for the bank to own the property if they can’t sell it unless it’s a loss anyway? More importantly, this whole crisis began because banks made lousy loans. JP Morgan Chase (JPM) CEO was interviewed by CNBC shortly after the housing plan was announced and he called the plan elegant. When the reporter asked if the bank planned on giving principal reductions, the answer was a flat out no, that reductions in interest rates would be sufficient. I realize he is trying to calm his shareholders, but after that, I wouldn’t be surprised if they suffer more pain by refusing to cut principal amounts.

Foreclosure creates chaos for the homeowner, the bank and the community- particularly acute during periods like now when the banks are foreclosing on entire communities at a time. The economy has deteriorated to a point where simply fixing the mortgage problem won’t be enough – but action did need to be taken. I feel the stimulus bill was not bold enough, but I applaud our government for moving in the right direction.

Comments

[NITRAM:]

Its amazing how many of you brilliant people have such great hindsight. You and all the members of the financial world knew these problems years ago. What did you do to help stop it. You are a pompus ----. Rick is the only person to call it as it is. Obama is a nightmare of a president. He will make Jimmy Carter look good. You are right, we dont need a Tea Party. We need a new DECLARATION OF INDEPENDENCE. Obama treats us worse than the king did.

Feb 23 06:01 AM

[tdillian:]

" We need a new DECLARATION OF INDEPENDENCE. Obama treats us worse than the king did."

AMEN!!!!!!!!! he is the nightmare of presidents! an inexperienced ignorant fool!

cartoonists are afraid to critize him, people are afraid to critize him!

when the heck did this country turn into a facist country?


Go Rick and Go Larry!!!!!

Feb 23 07:13 AM

[Insiderman:]

The "protect your own investment" argument begs the question. How about the government letting GOOD credit risks buy the slackers' foreclosed homes at 70 cents on the dollar? Then we could rent the properties to those who can afford to rent at the now lower cost.

Feb 23 08:05 AM

[gon4beer:]

I agree completely w/ NITRAM and tdillian. A large % of the problem loans were mandated by the Govt. through Community Reinvestment act of 1974. The rest were taken on by real estate speculators, who are now going the way of most speculators-dwonhill. Whatever happened to personal responsibility and liability? My wife and I started to look at buying rental properties in 2002 since interest rates were so low, but when we did the math and found out that due to inflated real estate prices, there was no margin of error for us if renters skipped or stopped payments, we decided it wasn't worth the risk. It's not that we saw the current debacle coming-we weren't that smart-it was simply a process of risk/reward asessment. Luckily, we made the right decision at the time. So why should we be paying for the folks who made investment mistakes? So here's what should come next-"Dear President Obama, I bought 1000 shares of BAC @ 50 so now I've lost $47,000 sue to imprudent specualtion-I would like to have the govt. cover my losses to a much greater extent than the $3000 capital loss I can apply against ordinary income on my tax return-GIVE ME A BREAK! Actions have consequences.

Feb 23 08:13 AM

[Dave Lewenz:]

Time is running out, if we Americans do not take swift action and gets our government out of waste full spending, focusing only on investments in new technology that equals a dollar spent returns five dollars back, we will be heading for a depression that will make 1929 look like a cake walk. We are a nation of Debtors without a plan to dig out of this muddy mess with new technology that can create jobs and free us from oil, the problem is that it will take time, which we are running out of.


On Feb 23 06:01 AM NITRAM wrote:

> Its amazing how many of you brilliant people have such great hindsight.
> You and all the members of the financial world knew these problems
> years ago. What did you do to help stop it. You are a pompus ----.
> Rick is the only person to call it as it is. Obama is a nightmare
> of a president. He will make Jimmy Carter look good. You are right,
> we dont need a Tea Party. We need a new DECLARATION OF INDEPENDENCE.
> Obama treats us worse than the king did.

Feb 23 08:22 AM

[D_Virginia:]

"A large % of the problem loans were mandated by the Govt. through Community Reinvestment act of 1974."

Wrong.

www.businessweek.com/i...

Less than 1/3 of risky loans were made by banks subject to CRA regulations. The most of the most-risky loans were made by the fastest and loosest banks. CRA didn't do anything to stop the problem, but neither did any of the Chicago Tea Partiers, either.

Feb 23 08:52 AM

[User 143167:]

The house price may overshoot to the downside but won't go to zero. If a system is built on the premise that house price should never fall, that system itself should be allowed to fail first, the earlier the better. It is like using drugs. People has to go through extreme pains to get rid of the smoking, but that pain will worth it. The government is virtuely trying to replace one drug with another, then they could be all on high again.

Feb 23 08:53 AM

[D_Virginia:]

"How about the government letting GOOD credit risks buy the slackers' foreclosed homes at 70 cents on the dollar?"

Isn't that already happening? Isn't that the definition of a foreclosure?

Many mechanisms are already in place to punish slackers and let responsible folks profit from that slacking: the slackers lose their homes and kill their credit ratings, and vulture investors pick up the pieces at a discount.

That works fine on a unit-basis, but the problem has become more systemic: so many slackers are slacking off that the pieces the vultures are picking up are worth less and less in value.

Also, things are plummeting so much that people who aren't slackers are forced into slackerdom: maybe due to unemployment, or maybe due to that financial sense you people love to talk about: many homes owned by responsible borrowers are so underwater that it's just not financially sensible to keep them.

Feb 23 09:02 AM

[charlieboy:]

The writer also forget the idiots in congress who, through the community reinvestment act, forced the b anks to make loans to people whom they knew would be unable to repay them. Thank you Barney Frank!

Feb 23 10:02 AM

[kelm:]

The idea that you will lose either way is not an argument. One path relies on the market and the other is simply a wasteful sop by the government. The choice should be made on fundamentals not on helping people because they will lose anyway.

I have yet to see any policies from this administration that look like they will help and I agree that there is an imperial nature to the communication that is disturbing. Despite that we are in the middle of a crisis orders of magnitude worse than any a new president has seen in our lifetime and the administration is barely a month old. I agree with Santelli but I will give the administration time before declaring Obama a failure.

Feb 23 10:05 AM

[Back2Reality:]

Real Estate prices were artificially inflated. Current values are still inflated (in most areas). I'm tired of hearing that foreclosures will bring down the value of all homes. That if your neighbor defaults your home value will also fall. Yes it will fall to what it is truly worth and what it would have been worth if it was not inflated to start with. The value that you are losing is value that should not have been there to start with. To the banks, speculators, investors, and homeowners - grow up, take responsibility, and move on.

Feb 23 10:59 AM

[Dave Shafer:]

More sore losers who are hoping for the failure of the president at this precipitous time. Obama didn't make this crisis, he is just trying to contain it long enough that the business cycle will swing back positive. Santelli is just another hedgehog (look it up) that has nothing to add to solving the problem.

Feb 23 11:31 AM

[pikespeakdave:]

My question is a simple one, how did the price of commodities in 2008 and 2007 help tighten the credit market considering many of those staples that people feed theirdelves and their families was overpriced last year from traders like Mr Santelli who also joined in the game of greed that was prevalent in the whole financial sector in the last few years. And what does the media have to take some responsibility for not keeping the marketplace accountable. ( One of the reasons for having a free press in this country) And didn't GE receive some TARP money from the government, So Rick, it is okay to give my taxes to your employer, but no money to refinance someone's mortgage, so they can stay in a warm home instead of being on the Street.

Please this stuff is making me crazy, I just don't what to say to that soldier in Iraq who risk his life for us Americans everyday. let me repeat that. We have soldiers in Iraq serving in harms way, and people are complaining about money, Oh my God!

Feb 23 11:35 AM

[henarl:]

"Had the banks realized, as I did several years ago, that this crisis would be rather significant, perhaps they would have cut back their risk and not offered mortgages to those that were unqualified or not offered products that were extremely risky. The reality is that they didn’t realize this fact- and they didn’t realize that this was not business as usual."

Hogwash! The banks knew exactly what they were doing. They were laying off the risk on the Wall St. securitizers as fast as they could so they could keep making more stupid loans and realize the initiation fees. They just got cought with a bunch of junk that they hadn't sold yet when the bottom suddenly fell out of the mortgage scam. They got caught in the musical chairs game just like the condo flippers in Florida. They deserve to eat a bunch of these junk mortgages but they've got enough cronies in DC so that their loss will be distributed among the general public.

Feb 23 11:50 AM

[panocha man:]

1. the, solution is very obvious , my friend got an Option Arm loan in 2004 for his daughter, now Chace offered him a loan modification after the initial 5years when payments would double from$ 2700 to $5400 , he did not request it. 1.5% fixed rate and 37 year amortization for 5 years then 2.5% yr 6, 3.5% yr 7 , 4.5% yr 8 , 4.9% for the remainder and extended loan to 37years. this for a loan that was $953,000 ,perfect payments.FULLY AMORTIZED NO NEGATIVE! no escrow ,no credit report no appraisal, no income info, no cost PERIOD just sign 2 page form.NO REDUCTION IN PRINCIPAL.Who wouldn't want to live in Brentwood, Ca for $2700 for 5 years and write off the interest, even if it is upside down, rents would probably be over $6000

2. have borrower sign over property and rent it to them , charge the market rent and have management company in place, cheaper than foreclosing. HSBC has already done this.
3. Refinance houses at current 5% rate for anyone who has not missed a payment since last refinance or since purchase, obviously if they can afford the higher payment they will pay the lower payment, as above no appraisal, no cost just sign new agreement. or offer like 1 above
this will keep more people in their homes
if Chace can offer this on a WAMU Option Arm it is obvious all banks can offer this.
option 1 and 3 rewards the responsible borrower, this is the cram down needed. please comment

Feb 23 12:14 PM

[PacificGate...:]

Should you be RESPONSIBLE for your neighbor’s bad decisions?

pacificgatepost.blogsp...

Obama and Congress appear to think so. Is there any common sense in this program?

Feb 23 12:16 PM

[PacificGate...:]

AMERICA SHOULD CHANGE ITS PERCEPTION OF HOUSING

pacificgatepost.blogsp...

It is time to view a house as an expense.

Feb 23 12:16 PM

[bobbobwhite:]

I am not sure who is the greater socialist, Obama or you. I am leaning toward you. Taxpayers should never have to bail out personal financial choice problems of the individual.

Why not aim to prevent these things from happening in the first place instead of always trying to fix them later? Wouldn't that make a better and more stable society all around?

You need to get a clue and write on causation and prevention, instead of merely writing your simplistic knee-jerk reactions to resulting problems after the cause. Anyone can do that. Leave the herd behind.

Feb 23 12:24 PM

[jksisco:]

The so-called Homeowner stimulus is window dressing, it's really a subsidy to Banks. Obama and Democrats fortify their voting base, the Banks keep their campaign contributions coming, the Fannie and Freddie scam continues. Why wasn't this included in the Stimporkulus Bill?

Feb 23 12:31 PM

[panocha man:]

My suggestions reward the RESPONSIBLE homeowner how about CLAW BACK FROM BANK OF AMERICA , Bear Sterns , Citi, COUNTRYWIDE, WAMU ,executives , to pay for the stimulus.
you do the crime you do the time

Feb 23 12:47 PM

[E.D.Hart:]

How many of you want higher taxes in the future to pay for Iraq Fiasco? its the same argument...we pay for war through higher taxes down the road...where were the howls of protest from the right about helping the iraqis have a better lifem and freedom at the cost of 2-3 trillion dollars. Where was Ricks protest? Its the same thing...big conservative government and big liberal government leads down the same road. Id like the conservatives to come clean and admit that some of them have been a big part of the problem---and look honestly at how to handle thee problems we have. About Iraq, people say, well were there, we shouldnt look back-we need to move forward. Doesnt the same thinking apply with the fiancial crisis? We are here, lets move forward, it does no good to point fingers (except to learn from our mistakes). Im a small government libertarian, but if you ask me, Rick is a Hypocrit with a capital H.

Feb 23 12:49 PM

[If U Say So:]

On Feb 23 08:52 AM D_Virginia wrote:

> "A large % of the problem loans were mandated by the Govt. through
> Community Reinvestment act of 1974."
>
> Wrong.
>
> www.businessweek.com/i...
>
>
> Less than 1/3 of risky loans were made by banks subject to CRA regulations.
> The most of the most-risky loans were made by the fastest and loosest
> banks. CRA didn't do anything to stop the problem, but neither did
> any of the Chicago Tea Partiers, either.
>

Aaron Pressman didn't do his homework with that Businessweek piece. His analysis isn't taken seriously by anyone that understands the bigger picture. He admits that the CRA was at its strongest during the Clinton years and he's right. But, it was those changes made to CRA rules in 1994, 1995, and 1999 that made it a problem. He also stated that the Bush administration began weakening the CRA the day he took office. Pressman is confused. Bush came into office in 2001. It wasn't until 2005 that changes were made to the CRA, but by then the damage was done. I also don't believe that the CRA was the only cause as there is blame to go around. Their should have been oversight of the GSEs but lobbyists managed to keep Congress from allowing that. The securitization of these loans were the only way these loans would have ever been made, and without the Fannie and Freddie buying a considerable chunk, the degree of damage would never have been done. The securitization while helpful for the overall mortgage market, it also embedded morale hazard into the mortgage market making it possible for companies like New Century, and Countrywide to make oodles of dollars while not carrying to toxic waste themselves. The combination of that and extremely easy credit, a raging real estate market and SEC willingness to allow exponentially larger leverage were all that were needed to bring the house down.

Feb 23 01:12 PM

[nobull:]

Dumb article by someone with limited information...not worth debating here.

Feb 23 01:22 PM

[vitaman:]

The banks made the questionable loans because they knew they were too big to fail and that they would be bailed out by the federal government. In any case, the people at the top in the banking industry usually do their stint in government and then go back to their industry. They make their millions a year and laugh at us when we complain. You can bet that they take care of their own. Some of those responsible will have their hands slapped, few will see jail time.

Feb 23 02:29 PM

[notsosmart:]

i thought all this took place on "mission accomplished"s turf. he ruined 2 of his own corporations & the u.s. the new guy is in amonth & he is a devil already. i smell sore losers.LOL

Feb 23 04:46 PM

[Eye:]

This is the key point. The authors arguement that society at large pays for it now or pays for it later forms the basis of rampant socialism. The faster the housing bottom is reached the fewer homeowners will be affected because most people do not move but every five years or so. Protracting this thing out will scar a greater number of people. You do this slowly and you bleed the whole economy. Get it overwith and Gov. should keep it's hands out of the markets.



On Feb 23 08:05 AM Insiderman wrote:

> The "protect your own investment" argument begs the question. How
> about the government letting GOOD credit risks buy the slackers'
> foreclosed homes at 70 cents on the dollar? Then we could rent the
> properties to those who can afford to rent at the now lower cost.

Feb 23 05:54 PM

[DuffBeer:]

Check out some of these lefty's web sites you will find some interesting comments and some revealing of their philosophy.The writer claims not be a Democrat but votes for the best candidate yet sharply "scolds" Republicans for not falling into line with a "yes we can" vote.
Another calls us sore losers for not wanting to pay for irresponsible financial decisions made in the first degree yet in his web site he using the quote " give a person a fish he eats one day "teach a person to fish he eats everyday"
Go figure ! All I know is I pay enough in taxes and I buy my own beer . What is with these libs wanting us to constanly provide for thier dead beats. I for one am sick and tired of it.
Obama and his pals are doing just fine, they need to keep it up but I am sure they will continue to expose themselves for what they really are.
Socialist.
The stock market love the Dems plans !!!!!!
Cheers, DuffBeer

Feb 23 06:00 PM

[User 347440:]

Home prices are still historically high if you use the home price/rent or home price/income ratios. Let's say you forestall every single mortgage forclosure from here on out. You have, in effect, put a floor in housing prices. If houses are still at 4 times income, nobody will be able to afford a mortgage with anything less than a substandard or exotic loan or prolonged savings to get the 20% down payment. What have you accomplished? Houses will still out of reach for the "average American". Home ownership will at best stall, if not decline. The home equity based economy is over.

Feb 23 06:11 PM

[User 347440:]

Home prices are still historically high if you use the home price/rent or home price/income ratios. Let's say you forestall every single mortgage forclosure from here on out. You have, in effect, put a floor in housing prices. If houses are still at 4 times income, nobody will be able to afford a mortgage with anything less than a substandard or exotic loan or prolonged savings to get the 20% down payment. What have you accomplished? Houses will still out of reach for the "average American". Home ownership will at best stall, if not decline. The home equity based economy is over.

Feb 23 06:11 PM

[Blackeyebart:]

It is so amusing to hear investors lambast the Government for its feeble attempts to save them from salvation. The markets failed before the President Bush (remember him?) intervened. That is why he intervened. As a result stocks got cheaper still. This is undeniably a good thing. I like cheap stocks. Walmart makes a living selling cheap stocks. (Please excuse the metaphor.)

What I cannot work out is why investors would complain about cheap stocks. Cheap stocks have higher returns. Cheap stocks have less risk. The risk on the S&P has declined by nearly 50% and people complain? Cheap stocks have greater opportunity for capital growth, which of course, makes them more expensive but I suspect there might be a bigger fool out there somewhere.

Feb 24 03:48 AM

[w_stranger:]

Your "simple" question is utterly incomprehensible. Have you read it? The remainder of your response is also sorely in need of the attention of a grammarian.

Nevertheless, I think I managed to acquire an understanding of your message. Let me get this straight -- Santelli should not be critical of a government initiative to combat the housing crisis because you think he is a speculator and you further think that speculation in commodities contributed to the housing crisis. Seriously?

In addition, you believe we should all mutely agree to finance whatever boneheaded, wasteful plans are concocted by those famously uncorruptable knuckleheads in Washington because we have soldiers stationed in Iraq -- right?

Amazing.


On Feb 23 11:35 AM pikespeakdave wrote:

> My question is a simple one, how did the price of commodities in
> 2008 and 2007 help tighten the credit market considering many of
> those staples that people feed theirdelves and their families was
> overpriced last year from traders like Mr Santelli who also joined
> in the game of greed that was prevalent in the whole financial sector
> in the last few years. And what does the media have to take some
> responsibility for not keeping the marketplace accountable. ( One
> of the reasons for having a free press in this country) And didn't
> GE receive some TARP money from the government, So Rick, it is okay
> to give my taxes to your employer, but no money to refinance someone's
> mortgage, so they can stay in a warm home instead of being on the
> Street.
>
> Please this stuff is making me crazy, I just don't what to say to
> that soldier in Iraq who risk his life for us Americans everyday.
> let me repeat that. We have soldiers in Iraq serving in harms way,
> and people are complaining about money, Oh my God!

Feb 24 10:08 PM

[19709:]

To justify the housing plan you cite Jamie Dimon's (CEO of JP Morgan Chase) calling it elegant? Dimon is indeed a rarity in banking - - he's a registered Democrat.

Mar 03 11:04 AM

[Hawaii5-0:]

I took Santelli's advice and created an online vote about Santelli and his comments about homeowners getting bailouts and financial advice from CNBC. You can take the poll at www.pollpub.com/is-ric...

Hey Rick, are you listening?

Mar 07 03:51 PM