Bailouts
So the short story is that there are plans in congress to create a fund (using taxpayer money, of course) to buy "bad assets" from financial institutions and then sell them back to the market. Most of these bad assets are mortgages that are worth little to no money because the debtors have no intention or capability to pay them. The issue is whether or not enough of these assets will actually be good to recoup the amount of money the government will be pouring into the system now. Some people say there will be enough asset value buried underneath the bad, some people say there will not be and taxpayers are going to get stuck paying the difference.
I've already stated that I do not understand enough about global economics to feel comfortable giving a strong opinion on whether or not this is the right thing to do. Money is not really disappearing from the system, people are just realizing that it was never there in the first place. Given that, there is still a LOT of money in the system (a bit more than before "liar loans" started inflating growth statistics, I would guess). If a bank or insurance company falls, there will be another, more conservative one to take its place. They will charge higher interest rates and be more cautious about approving loans, but money lending has profit margins too large to be ignored for long. I don't like the idea of supporting a system that cannot stand on its own, but I also don't comprehend the full ramifications of an even short term freeze on lending.
Now there is also congressional pressure to use government (taxpayer) money to help mortgage owners from defaulting on loans. Some say the idea is that helping people pay their loans means that the "bad assets" that are causing banks to crash are actually worth more (because they are being paid off) and thus you can support two groups at once, the bankers and the families. Again, the people who are not involved in mortgages are stuck with the bill of those who were. Some people don't pretend at pretenses and are simply saying, "If you're paying bankers for bad decisions you should be paying homeowners too."
Again, this is not an idea I am terribly fond of. If you couldn't afford to buy the house then you shouldn't own the house, and getting taxpayer money to cover the difference between what you can afford and what you want seems like bad policy.
I'm irritated, but I choose not to fault people for working their angles. It is a survival strategy, and it will be used in proportion to how successful it is. I follow my own survival strategies and time will tell whether or not it was the better choice.
This is an excerpt from an Obama speech earlier today.
"As taxpayers are asked to take extraordinary steps to protect our financial system, it's only appropriate that those who benefit are expected to contribute to the protection of American homeowners and the American economy. Just as support is not designed to pay off egregious executive compensation, it should not reward those who are ruthlessly foreclosing on American families."
The use of "ruthlessly foreclosing" caught my attention. An interesting spin on things, and it shows which angle Mr. Obama is using (Again, I'm not faulting him. There are a lot of votes to be won by this stance). What is a bank doing that constitutes "ruthless" in this instance? You pay an agreed upon amount of money for an agreed upon asset; and failure to pay said money results in failure to own said asset. That seems pretty honest and straight forward to me.
In fact, I think the banks are at a disadvantage in that the borrower can choose to back out while the bank cannot. If you agree to pay $300,000 for a $300,000 home and the house value drops to $200,000 you can stop paying and leave the bank with the -$100,000 difference. However, if you agree to pay $300,000 for a $300,000 home and the house appreciates to $400,000, the bank cannot take the home back and give you whatever portion of $300,000 you already paid.
That inherent disadvantage is why banks charge a percentage on top of the principal balance of the loan. If that seems particularly unfair then save your money and buy the house with cash. "Ruthlessly foreclosing" is the stuff of psychological manipulation.
-LNC
P.S. I don't mean to sound like I'm endorsing any particular presidential candidate. I have not yet decided which I will vote for, as there have been many bits of new data that have swung my favor back and forth. That is perhaps a topic for another time.
I've already stated that I do not understand enough about global economics to feel comfortable giving a strong opinion on whether or not this is the right thing to do. Money is not really disappearing from the system, people are just realizing that it was never there in the first place. Given that, there is still a LOT of money in the system (a bit more than before "liar loans" started inflating growth statistics, I would guess). If a bank or insurance company falls, there will be another, more conservative one to take its place. They will charge higher interest rates and be more cautious about approving loans, but money lending has profit margins too large to be ignored for long. I don't like the idea of supporting a system that cannot stand on its own, but I also don't comprehend the full ramifications of an even short term freeze on lending.
Now there is also congressional pressure to use government (taxpayer) money to help mortgage owners from defaulting on loans. Some say the idea is that helping people pay their loans means that the "bad assets" that are causing banks to crash are actually worth more (because they are being paid off) and thus you can support two groups at once, the bankers and the families. Again, the people who are not involved in mortgages are stuck with the bill of those who were. Some people don't pretend at pretenses and are simply saying, "If you're paying bankers for bad decisions you should be paying homeowners too."
Again, this is not an idea I am terribly fond of. If you couldn't afford to buy the house then you shouldn't own the house, and getting taxpayer money to cover the difference between what you can afford and what you want seems like bad policy.
I'm irritated, but I choose not to fault people for working their angles. It is a survival strategy, and it will be used in proportion to how successful it is. I follow my own survival strategies and time will tell whether or not it was the better choice.
This is an excerpt from an Obama speech earlier today.
"As taxpayers are asked to take extraordinary steps to protect our financial system, it's only appropriate that those who benefit are expected to contribute to the protection of American homeowners and the American economy. Just as support is not designed to pay off egregious executive compensation, it should not reward those who are ruthlessly foreclosing on American families."
The use of "ruthlessly foreclosing" caught my attention. An interesting spin on things, and it shows which angle Mr. Obama is using (Again, I'm not faulting him. There are a lot of votes to be won by this stance). What is a bank doing that constitutes "ruthless" in this instance? You pay an agreed upon amount of money for an agreed upon asset; and failure to pay said money results in failure to own said asset. That seems pretty honest and straight forward to me.
In fact, I think the banks are at a disadvantage in that the borrower can choose to back out while the bank cannot. If you agree to pay $300,000 for a $300,000 home and the house value drops to $200,000 you can stop paying and leave the bank with the -$100,000 difference. However, if you agree to pay $300,000 for a $300,000 home and the house appreciates to $400,000, the bank cannot take the home back and give you whatever portion of $300,000 you already paid.
That inherent disadvantage is why banks charge a percentage on top of the principal balance of the loan. If that seems particularly unfair then save your money and buy the house with cash. "Ruthlessly foreclosing" is the stuff of psychological manipulation.
-LNC
P.S. I don't mean to sound like I'm endorsing any particular presidential candidate. I have not yet decided which I will vote for, as there have been many bits of new data that have swung my favor back and forth. That is perhaps a topic for another time.