On Thu, May 15, 2008 at 4:16 PM, David B. Shemano <[EMAIL PROTECTED]> wrote: > More specifically, I do doubt whether the economy would have collapsed if the > Fed has not bailed out Bear Stearns. The world did not > collapse when Drexel Burnham filed chapter 11.
How is this even relevant? For one thing, relative to what is happening today--where dozens of banks and countless homeowners face exposure in either the financial or homeless sense--it was a relatively isolated company. For another its demise was fairly slow (the sheen was off the rose for at least 3 or 4 years before Ch. 11) compared to the overnight debacles like Enron, Barings, or even Bear Stearns. If you really think the best thing is to just let this thing unravel till it's done, I'm all for it. Let's see how cozy your little free market utopia really is. This debacle is basically the outcome of a two decade experiment in that direction. If you really believe it's gonna get better the closer we get to the precipice, I have some mortgage backed securities I'd like to sell you. I don't think there is an easy answer here, but your evangelism is hardly a reasoned solution. > The stability and flexibility of the US debt and equity markets are not > dependent on Ben Bernanke. You say that now, but I'd put good money on your blaming the Fed for mismanaging the Great Depression, a la Friedman's _Monetary History._ That is the playbook Bernake claims to be using. Your selectively dogged faith in the other aspects of this dogma seems a little disingenuous. But maybe I'm too concerned with consistency. As for the working class couple saving up for a home, I don't understand your point, other than as some sort of puritanical belief that one simply shouldn't buy on credit, regardless of what the larger culture of lending says is possible. How is buying a house you intend to live in without money down irresponsible when you are still able to make the payments? Do you expect that every person who finds themselves in the situation where they have one of these loans that resets to a higher payment understood that at the time? The Fed itself didn't and the GAO recommended, at the very least, an information sheet to help explain this to people who might not understand this fully--or who might not have been fully appraised of it by the lender who was more interested in moving their loan out the back door the next morning. Maybe to the average bankruptcy lawyer or settlement attorney, in retrospect, all of this seems crystal clear, but it is not necessarily the case that every person who finds themselves in this situation is somehow irresponsible--especially since your definition of responsible seems to be about as robust as the housing bubble itself. If we must talk about "responsibility" in this 'individual moral failing" sort of way, it seems more reasonable to say that it was the people who didn't refinance before it reset who were irresponsible--a really fantastic process, as I found out when we refinanced our own ARM to keep it from resetting at a higher rate. What that does, is to take most of that money that you might have made and any possible equity that you built in the interum and put it towards the second set of closing costs with the settlement attorneys, lenders and every other vulture looking to pick over the average home buyer in this transaction. And, more than likely, it would have resulted in them getting another ARM, unless they happened to slide into that small window where they were watching all the housing markey collapse, knew they needed to refinance, and were able to take advantage of the Fed lowering interest rates like it was going out of style: then maybe, after folding those fees into the new loan, they would have qualified for something like a 30-year fixed at a payment they could afford. That's assuming that, in the contracting economy, stagnant wages, inflated dollar, etc. they are both still employed at relatively the same level as they were five years ago. In other words, it's assuming a lot. And, in any case, unless they've got better jobs or are able to sell at a higher price before that ARM resets, the only thing being responsible does here is shuffle your equity into administrative fees: it doesn't do anything to help solve the underlying problem (especially if the home is now worth less than the loan.) This is a completely reasonable possiblity. 5-6% of the units in my building are in foreclosure and this is hardly something anyone predicted. This is messing with the entire market because the banks are just trying to get rid of them so are selling them at fire sale prices, devaluing the price of housing generally and often undercutting whatever equity anyone else in the building might have built even at pre-bubble prices. No one knows what anything is worth or what it will be worth in the next week after the next round of foreclosures. If anything, the "working class couple" you mention, is probably even more leery of buying now since the benefits of owning a home are looking less rosy. Having some sort of assistance if they were to find themselves in a pickle would make them more likely to put that money into housing rather than a CD at this point (these are, after all, wise and completely informed investors). (on that note, there is a house in our neighborhood that has been for sale for about 6 months and they recently added a sign to the outside that said it now included 1 year of some mortgage insurance in the case that you lost your job. Not sure how this works, but it seems to be indicative of the environment.) These were new products in the midst of a housing bubble and that the same "working class couple," four or five years ago, might have put that money down, been told--incorrectly, as ACORN and many other orgs have pointed out--that, in order to afford even the average house in the inflated market, they would only qualify for one of these new improved products which, incidentally, are now screwing them out of their house. You're basically saying that any federal action to halt forclosures would be unfair to the working class couple who didn't get taken in on this initially, who have instead been paying inflated rental prices for the past four or five years to the people who "invested" while the market was good; they are responsible because they knew their place, didn't violate the Protestant Ethic that no longer exists in US culture, and were so deeply grounded in the fundamentals of the housing market that they knew--better than all the analysts who claimed it wasn't true, better than all the credit rating agencies giving these mortgage backed securities AAA ratings--they knew that, if they just sat on their little nest egg of declining dollars, that the bubble would burst and then they would be able to afford something, finally. I agree, it would be unfair, but not because of some morality tale that somehow justifies your religious adherenance to a single minded economic philosophy: it would be unfair that they were a working class couple instead of the heads of the federal reserve. They might not speak "Greenspanese" but they are obviously more prescient than any of the idiots that populate the upper eschalons of the chattering classes. Shame it was the latter who were taking their money in inflated rents over the last half decade rather than paying them for sound financial advice. s _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
