Sub-prime or Does the US economy always need a house of cards..

[Zeluvia]

So, I am old.

I remember almost every economic boom and crash we have had since the 50's.

Now we have the sub prime mortgages. This looks to me like greed x 2.
Greed 1...ARM. Ajustable Rate Mortagages...Balloon Mortgages....Instead of loaning money at a set interest rate that people can actually afford, we use these tricky methods to "lower payments" knowing full well when the time comes, there is a high risk of foreclosure. But in a booming housing market, the house can just be churned, making even more money. The people that are foreclosed on are out, but the investors get to sell the house AGAIN.

Greed 2...Booming housing market. By expanding the number of people that "qualify" to buy houses, (see 1) demand is created. Demand drives the prices UP. I bought my house for $34,000 in the last housing "downturn". My neighbor got $99,000 for the same POS cracker box I am living in.

So, what have "investors" done? They have cheated, and stole, and lied, and inflated, and mass produced cheap houses with labor at $7.00 an hour and lumber at .25 cents a board foot (the cost of building houses did not go up proportionate to the price) and been able to charge 5x the cost or more, because of paper manipulation. They then sold this crappy paper worldwide, to make more money.

Who is on the bottom of this pile of cards? The American family.

Not just any American family, the lower middle class working American Family.

Now, I have seen the Savings & Loan crises, where a BUSH profited, from deregulation. I have seen the "dot.com" bubble, also from deregulation.

So, does the American version of capitalism REQUIRE deregulation in order to use shoddy and greedy business practices in order to prosper?

[Tanakh Keeper]

Zeluvia

It is greed that caused this panic and nothing more. Greed by the lenders to make bad loans to people that couldn't afford it; Greed by purchasers to buy houses priced too high; Greed by investors to flip houses inflated in value by a coat of paint. I have no sympathy for people that made bad loans now complaining that their loans are bad.

[Ryokan]

So, I am old.

I remember almost every economic boom and crash we have had since the 50's. Sorry Zeluvia.

Now we have the sub prime mortgages. This looks to me like greed x 2.
Greed 1...ARM. Ajustable Rate Mortagages...Balloon Mortgages....Instead of loaning money at a set interest rate that people can actually afford, we use these tricky methods to "lower payments" knowing full well when the time comes, there is a high risk of foreclosure. But in a booming housing market, the house can just be churned, making even more money. The people that are foreclosed on are out, but the investors get to sell the house AGAIN.

Greed 2...Booming housing market. By expanding the number of people that "qualify" to buy houses, (see 1) demand is created. Demand drives the prices UP. I bought my house for $34,000 in the last housing "downturn". My neighbor got $99,000 for the same POS cracker box I am living in.

So, what have "investors" done? They have cheated, and stole, and lied, and inflated, and mass produced cheap houses with labor at $7.00 an hour and lumber at .25 cents a board foot (the cost of building houses did not go up proportionate to the price) and been able to charge 5x the cost or more, because of paper manipulation. They then sold this crappy paper worldwide, to make more money. Sorta. As I have said elsewhere what happened in my opinion is too little regulation and deregulation created a situation where bank loan officers on the lowest level had incentives to give loans to basically anyone and had tools available to hide their lack of qualification from everyone, including the bank offering the loan, perfectly legally. And as long as the housing market kept going up in value, because then the people in question could always use the money gained from their houses increase in value to refinance out of the sub-prime loan, as my parents did. But of course it created a bubble and when the bubble popped we got this mess, and speculators who owned second houses took it the hardest, followed by bansk and the Middle class.
As far as "cheap houses" go, generally speaking people would rather have a cheap hosue that last 40 years than a hosue that last 80 years without major repairs, especially since hosue a cost less than half the constuction cost of hosue b. Longevity is not the sole characteristic of value. Really, this view is something more common to older people and does not trouble younger generations. It is a difference in view. Same with, for instance, rakes. My dad has had a steal rake for 25 years that cost him 80 bucks in real dollars. I have 1 that cost me 5. Mine will not last 25 years. But it will probably last 5, and is therefore a better value to me..

Who is on the bottom of this pile of cards? The American family. No, without a doubt Citi bank is at the bottom here. worlds largest bank to a holding company for dubai cash. Even Americans who declared bankruptcy will recover. Citi bank probably won't.

Not just any American family, the lower middle class working American Family.

Now, I have seen the Savings & Loan crises, where a BUSH profited, from deregulation. I have seen the "dot.com" bubble, also from deregulation.

So, does the American version of capitalism REQUIRE deregulation in order to use shoddy and greedy business practices in order to prosper?

No. Obviously deregulation caused a problem here, but most of the growth is real and our products are not shoddy, they just have different purchasing schedule than goods made in the fifties.

[Macgawd]

So, I am old.

I remember almost every economic boom and crash we have had since the 50's.

Now we have the sub prime mortgages. This looks to me like greed x 2.
Greed 1...ARM. Ajustable Rate Mortagages...Balloon Mortgages....Instead of loaning money at a set interest rate that people can actually afford, we use these tricky methods to "lower payments" knowing full well when the time comes, there is a high risk of foreclosure. But in a booming housing market, the house can just be churned, making even more money. The people that are foreclosed on are out, but the investors get to sell the house AGAIN.

ARM loans are not new, and under the law, lenders are required to inform the borrower about balloon payments--let the buyer beware. To me, the problem has been in lending mortgages to people who shouldn't have them in the first place (bad credit, or no credit). That said, despite the appearance of "churning" and profiteering, many lenders have been financially devastated by this latest housing crunch; homes that have been foreclosed on are usually destroyed by the person being evicted, leaving the bank with a home worth less than the balance on the mortgage.

So, what have "investors" done? They have cheated, and stole, and lied, and inflated, and mass produced cheap houses with labor at $7.00 an hour and lumber at .25 cents a board foot (the cost of building houses did not go up proportionate to the price) and been able to charge 5x the cost or more, because of paper manipulation. They then sold this crappy paper worldwide, to make more money.

Yeah, I don't think it's as simple as that. Many builders have gone broke trying to take advantage of the housing boom, dumping millions into planned communities with no buyers anywhere on the horizon. And the cost of building since Hurricane Katrina has skyrocketed along with lumber prices--have you shopped for lumber lately? It's ridiculous.

Now, I have seen the Savings & Loan crises, where a BUSH profited, from deregulation. I have seen the "dot.com" bubble, also from deregulation.

I knew someone would bring Bush into this. Let's be fair then, and point out how Clinton and NAFTA have sold out the American middle class by allowing manufacturers to export our jobs to third-world countries, which is why the US Dollar is devalued, and one of the fundamental reasons why we're rocketing towards a recession.

So, does the American version of capitalism REQUIRE deregulation in order to use shoddy and greedy business practices in order to prosper?

That's usually the inevitable result of deregulation. Given that greed and lust for power are part of human nature, Laissez-faire capitalism is never, ever a good idea.

Michael

[JusticeMachine]

So, I am old.

I remember almost every economic boom and crash we have had since the 50's.

Now we have the sub prime mortgages. This looks to me like greed x 2.
Greed 1...ARM. Ajustable Rate Mortagages...Balloon Mortgages....Instead of loaning money at a set interest rate that people can actually afford, we use these tricky methods to "lower payments" knowing full well when the time comes, there is a high risk of foreclosure. But in a booming housing market, the house can just be churned, making even more money. The people that are foreclosed on are out, but the investors get to sell the house AGAIN.

ARM and Balloon loans, (though ARM loans are used much much more frequenlty that Balloon loans) are merely tools. They need to be used correctly, meaning borrowers need to educate themselves, and understand what they are agreeing to. ARMs and Balloon loans aren't bad or good, but the usage of them can be. LO's need to have more integrity on how they market these loans, but if borrowers were educated, then they could be duped into loans they don't want.

I have an ARM loan and a balloon 2nd, but I understand how to use them and get the most out of them I can, also, I understand what type of ARM/Balloon to buy to best accomodate my finicial goals.


On the sales side, the type of marketing that was being used (I say was, because most of those programs are gone now. Not the products, but the programs, which are also to blame) is the same marketing techniques that are used currently and have been for many years, in the auto industry. How many people here have been four squared at a dealership and don't really know the true price they are paying for a car, because they were qualified on the monthly payment?
It isn't anything new, but just as when buying a car, your educated borrower will nearly always come out on top.

The bigger piece of the puzzle is not the products that were being sold, but the programs they were sold under i.e. - NINA (no income no assest stated or verified), stated income, no doc (no financial docs collected from the borrower to verify amount made)....etc.

These coupled with a ill educated borrower being qualified on payment based off an income higher than what they actually made under questionable credit circumstances, leads to the issues we have now.

That couple with, people trying to get into the property investment business with little or no capital and having the property (s) they are trying filp, value go south. That is a lot of the forclosures that are happening as well.


Greed 2...Booming housing market. By expanding the number of people that "qualify" to buy houses, (see 1) demand is created. Demand drives the prices UP. I bought my house for $34,000 in the last housing "downturn". My neighbor got $99,000 for the same POS cracker box I am living in.

So, what have "investors" done? They have cheated, and stole, and lied, and inflated, and mass produced cheap houses with labor at $7.00 an hour and lumber at .25 cents a board foot (the cost of building houses did not go up proportionate to the price) and been able to charge 5x the cost or more, because of paper manipulation. They then sold this crappy paper worldwide, to make more money.

Who is on the bottom of this pile of cards? The American family.

Not just any American family, the lower middle class working American Family.

Now, I have seen the Savings & Loan crises, where a BUSH profited, from deregulation. I have seen the "dot.com" bubble, also from deregulation.

So, does the American version of capitalism REQUIRE deregulation in order to use shoddy and greedy business practices in order to prosper?


The Savings & Loan crises happened because the big money in the banking industry were losing too much market share to the S&L's and force the governments hand to regulate more. The changes the bank force caused most S&L's to become insolvent over-night and the banks bought all their paper for dime and nickels on the dollar. At least the is my understanding of what happend, it wasn't deregulation, but specific added regulations that caused that problem.

I am one of the middle class american families that bought a new build just a the market was turning (which, I got a whipping deal through builder incentives) and my home value has stayed static. However I am in a good market, so that is what I expected, but ignorance is the american families worst enemy, not over-zealous disreputable sale industry.

That said, I am very much for closer regulation of the sales side of the business, but sales is sales, and american's need to see that and educate themselves on what the reality is.

[Ryokan]

NAFTA did not sell out the middle class. Those jobs are leaving no matter what. NAFTA jsut kept the middle class who worked in factories and a few industrialist from picking the pockets of the rich in every other field, the middle class in every other field, and the poor to subsidize their preffered mode of labor and lifestyle.

[Augustine2004]

[I did say that I wanted to focus on other threads, but for some reason, there are no new posts, so I do have some time now.]Economics is not the place to discuss what people should do or not do, including the government. Ethics or maybe civics. To be sure, everybody needs to know economics, but . . .

Tell me this: how can a bad people produce good government? How can good government make a bad people be good? Would a good people really need good government?

[Timothy Leary]

Tell me this: how can a bad people produce good government?

That depends on what your consider a good government.
Some of the most morally repulsive people I have known have also been the most intelligent people.

How can good government make a bad people be good?

That depends on what your goals are, how realistic they are. For example, requiring the warnings about the health risks that cigarettes pose has had a positive effect. However, most of the Anti-Smoking Nazi ads that they've put out are pretty worthless.

Would a good people really need good government?

Good does not equal intelligent.
So I would say "yes".

[Augustine2004]

Agent Yoshi, a good government is one that does more good than bad. Of course, the question then becomes, what is good? What is bad? How do we know that the good outweighs the bad or vice versa?

[Teallaura]

For pities sake, August - stop derailing every darned thread with that stuff! Start your own thread if you like but stop doing that in everyone else's.

[Teallaura]

NAFTA did not sell out the middle class. Those jobs are leaving no matter what. NAFTA jsut kept the middle class who worked in factories and a few industrialist from picking the pockets of the rich in every other field, the middle class in every other field, and the poor to subsidize their preffered mode of labor and lifestyle.

:huh: Could you repeat that in English, maybe? Seriously, I can't make heads or tails of that last sentence and I'm usually pretty good at reading your 'brain working faster than fingers' stuff.

[Augustine2004]

For pities sake, August - stop derailing every darned thread with that stuff! Start your own thread if you like but stop doing that in everyone else's.I'm sorry, but I can't let Zeluvia get away with make mistakes like those. However, I will unsubscribe now.

[Ryokan]

:huh: Could you repeat that in English, maybe? Seriously, I can't make heads or tails of that last sentence and I'm usually pretty good at reading your 'brain working faster than fingers' stuff.
Sorry!
What I am saying is that the good NAFTA did to everyone who doesn't work in a factory or own one, which is most rich people, most middle class people, and virtually all poor ones, far outweighs the damage done to factory workers by NAFTA. Additionally, it is not NAFTA that has hurt factory workers so much as the incredible growth of infrastructure in the third world, which now means that basic manufacturing can be done anywhere. This dramatic increase in the supply of factory able labor dramatically decreases its prices, and this affects American factory workers no matter what we do. So unless we erect massive trade barriers, costing all non factory workers, and give up on trade with the rest of the world period (which would lead to America's eventual collapse economically) the end of an America where a man can get out of high school, work at the same factory for 45 years and then retire is over, and it can never come back. Does that make sense at all?

[Teallaura]

:yes: I get it now.

[eudyptes]

Something else that has added to the sub-prime problem...was the refi side of the business too, not just the purchase.

Mortgage companies started really pushing the "over" value lending..up to 125% of value. And they were pushing them to help you "get out of debt" or "fix your credit issues"....in other words targeting those who, if they weren't when they bought the house they were now, sub-prime borrowers.
In many cases the refi, if spending habits continued unchanged, created the subprime borrower as they are now "upside down" in their home and maxed out again on their cards.

We've been riding a 'credit fueled' economy for quite some time, a "correction" was bound to happen. I don't have time right now to find a link...so this is only hearsay at this point...but I remember hearing a figure a year or so ago that on average the American consumer spends 102% of their annual income, um, annually. IF, my memory is correct, AND the source is correct....well at some point in time it had to catch up with us.

The greed factor seems to be at play for more than just the corporate side of things....the "have to have it now even if we can't really afford it" mentality pushed this as well. Granted those corporations that cashed in on that made it very easy, but fiscal responsibility does start with the one who's putting themselves in debt.

[Jimmy Higgins]

The greed factor seems to be at play for more than just the corporate side of things....the "have to have it now even if we can't really afford it" mentality pushed this as well. Granted those corporations that cashed in on that made it very easy, but fiscal responsibility does start with the one who's putting themselves in debt.You mean like corporations that gave credit to people who couldn't afford it? This is a very wide two-way street.

[Ryokan]

You mean like corporations that gave credit to people who couldn't afford it? This is a very wide two-way street.

Idiots lending to the poorly educated. I am more sympathetic to the lendees than the banks, because they had enough people they should have known better. But its pretty clear msot of them thought the good times were forever.

[eudyptes]

You mean like corporations that gave credit to people who couldn't afford it? This is a very wide two-way street.

Don't disagree with you at all.... the corporations making "risky" loans made it very easy to get credit, even if one couldn't afford it. It could be argued they took advantage of individuals who saw "the pot at the end of the rainbow".

But also, the person taking the credit when they couldn't afford it is responsible for their actions. As tempting as it can be to get the latest, greatest, shinyest thing out there...if you can't afford it....leave it be.

[Jimmy Higgins]

Idiots lending to the poorly educated. I am more sympathetic to the lendees than the banks, because they had enough people they should have known better. But its pretty clear msot of them thought the good times were forever.Or they knew they could weather it when the bills stopped being paid. I'm no conspiracy theorist, however, the timing of Bankruptcy rewrites being this close to the mortgage problems is a tad bit suspect.

[eudyptes]

Or they knew they could weather it when the bills stopped being paid. I'm no conspiracy theorist, however, the timing of Bankruptcy rewrites being this close to the mortgage problems is a tad bit suspect.

Not wanting to sound conspiracy theorist either...but my take on the bankruptcy rewrite was more from the unsecured credit card side....the numbers are out there and the credit card companies had to see that at some point it could come crashing down. If memory serves (and that is up for debate) the credit card companies were the biggest lobbiest for the reform - of course the whole finance industry was lobbying for it.

[Ryokan]

Or they knew they could weather it when the bills stopped being paid. I'm no conspiracy theorist, however, the timing of Bankruptcy rewrites being this close to the mortgage problems is a tad bit suspect.

So many of them haven't weathered it though. Most of the subprime specialist banks collapsed, a large number of major banks, including the biggest, Citi, are wobbling and are still standing only because Dubai wants to buy as much of America as possible. They lost, not gained on this.

[Jimmy Higgins]

So many of them haven't weathered it though. Most of the subprime specialist banks collapsed, a large number of major banks, including the biggest, Citi, are wobbling and are still standing only because Dubai wants to buy as much of America as possible. They lost, not gained on this.Not just buy America, but on the cheap!

Don't disagree with you at all.... the corporations making "risky" loans made it very easy to get credit, even if one couldn't afford it. It could be argued they took advantage of individuals who saw "the pot at the end of the rainbow".

But also, the person taking the credit when they couldn't afford it is responsible for their actions. As tempting as it can be to get the latest, greatest, shinyest thing out there...if you can't afford it....leave it be.Hence when I said it was a wide two-way street.

[Ryokan]

Not just buy America, but on the cheap! Well unlike the Japanese they one day hope to sell it back to us. They are less the evil rail baron buying the bankrupt farmers land and more like the guy who runs the Pawn Shop near me, but thinner and with less BO.

[Teallaura]

I'm lots less sympathetic with a bank who has the expertise the average person doesn't. People should exercise better judgment - but that's no excuse for approving loans the banks knew darned good and well would be defaulted if things went south. The blame for stupid lending rests with the lender.

On the bright side, real estate is getting cheaper - was the credit thingie fueling the real estate boom like I think it was? (People buying who really shouldn't have been able to or buying a heck of a lot more than they could afford.)

[Ryokan]

I'm lots less sympathetic with a bank who has the expertise the average person doesn't. People should exercise better judgment - but that's no excuse for approving loans the banks knew darned good and well would be defaulted if things went south. The blame for stupid lending rests with the lender.

On the bright side, real estate is getting cheaper - was the credit thingie fueling the real estate boom like I think it was? (People buying who really shouldn't have been able to or buying a heck of a lot more than they could afford.)

It certainly looks like it.

[joel]

I have seen the "dot.com" bubble, also from deregulation.

I have never heard someone say the ".com" bubble and subsequent burst was a result of deregulation. Can someone explain this further?


So, does the American version of capitalism REQUIRE deregulation
If there wasn't regulation in the first place, we wouldn't need deregulation. :wink: