About ARMs and legs

[cryowizard]

http://fe3.news.re3.yahoo.com/s/afp/20070325/bs_afp/useconomypropertypolitics
http://www.washingtonpost.com/wp-dyn/content/article/2007/03/22/AR2007032201973.html

What is up with people worrying about "lending practices" and "sub-prime mortgages" to the point of trying to get the government involved?

What I don't get is why should anyone give a shit about people who can't read fine print.

If you are taking out a mortgage, especially an ARM, and dont know how it is going to go payment-wise -- you fucked up!

If you have shitty credit and people just all of a sudden give you a mortgage at a lower-than-normal rate, and you don't bother wondering what's up -- you fucked up!

Two million people apparently fucked up. Bad for them, I agree. So what are we going to do -- have taxpayers compensate them for their own stupidity?

Same goes for the lending companies -- if they were giving money to people with flimsy financials, they were wading into risky waters. They deserve to go under like a fucking rock -- it's just a result of bad business.

What I really don't want to hear is "bailout". It's sad to see people lose their homes, but one should know about the origins of free cheese. If it looks too good to be true -- it probably is, and as sad as losing one's home may be, no other person should have to give up his own money to bail out someone who made a financial mistake.

Comments

[rkatsyv.livejournal.com]

Those foreclosed homes will not disappear, someone else will buy them (if home prices drop and the rent rises there will be no shortage of investors) and just as much housing will be available to New Yorkers as there was before the crysis. And rent will not rise above the level that renters are able to pay, because lendlords need income, not empty apartments. So there will be no rise in homelessness, just property changing hands, which is a normal feature of a free market economy. People will "keep buying things and keep borrowing to buy those things". Just different people. So free market economy does not need bail-outs to keep running (not to mention the fact that these bail-outs come ultimately from taxes, extracted at the expense of that same economy).

[mhmeln-57.livejournal.com]

Oh, that worked REALLY well during the great depression, before any concept of "bail-out" was ever used. Why would they even bother with the New Deal, if everything was going so smoothly, one third of the country was unemployed but some others (the different people) could continue to buy things?

The purpose of government is to govern society, not permit a handful of people to corner all property. So far, no "free market" economy has been able to sustain itself in the times of famine, war and social unrest. And the reason "New Deal" was introduced, as well as banking regulations, social welfare and other "oh, so taxing" programs was to prevent the poor and unemployed from coming into your apartment and taking by force your bread and buttermatzo and ...more matzo. i bet you'll wish they would just tax you rather than axe you.

[cryowizard.livejournal.com]

Come on now.

We're not in the depression.
We don't have famine.
We are not at war (not here anyway).
We dont have any grand social unrest in the country.

We are talking specifically about that 1.19% of "sub-prime" mortgages that may fail.

Sub-prime means there is more risk involved than usual, mostly on the side of lenders. But the lenders went greedy. They played the game and lost. In this (http://www.cbsnews.com/stories/2007/04/03/earlyshow/contributors/daveramsey/main2641252.shtml) article the host says he had a guy who makes $7,000 a year and they still qualified him for a mortgage. What do you expect??

The people who played also lost -- they either wanted free cheese, or didn't realize they were walking into a financial trap. In both cases it is their responsibility to deal with the consequences, not the taxpayers.

This thing will hurt the housing market a little bit -- slightly less buyers and slightly more homes on the market. So what? The housing prices have been rising like crazy for years. If there will be a correction - so be it, this is the market.

There is nothing catastrophic about this. Read this (http://knowledge.wharton.upenn.edu/article.cfm?articleid=1691&jsessionid=a830674255da2b701aa1): this is a subprime lending industry crisis and the market is already correcting itself.

No matter what, the bailout is the worst option, since it sends a message that you can be completely careless with your finances and then the Good Uncle Sam will bail your stupid ass out with other people's money.

If the government wants to enact a law that makes the fine print bigger so that people understand better what they are getting themselves into -- I'm all for it. If they want to investigate the subprime business practices -- be my guest.

But dont ask the taxpayers to chip in to cover someone else's folly.

[(Anonymous)]

i will respond in a few days - it's been crazy at work.

[igorn.livejournal.com]

By virtue of living in a capitalist society and not a socialist one we are at liberty to acquire and lose as much capital as we choose. Unless something catastrophic happens, a specific bailout should not happen. Also let's not forget that the US does have bankruptcy laws and a somewhat healthy economy so for most people this will mean some financial hardship, perhaps personal bankruptcy, but not homelessness and poverty.

Since the New Deal the banks and lenders and everyone has become a lot better at distributing risks. For all those failing mortgages we are going to see a lot of players on the financial food chain suffer a little bit and a few of the players suffer a lot. So some lenders will fail and some hedge funds as well but nothing catastrophic should happen. But then risk/reward is the name of the game and everyone involved knows what they're getting into.

[mhmeln-57.livejournal.com]

i am not advocating socialism - it's a necessity rather than a choice. Yes, ideally people who fuck up will say "uhm, yeah, i fucked up" and live with it. In reality, they will vote in a guy who will help them blame others and get something out of others. So why not prevent those Robin Hoods from coming to power?

It IS a system risk if a drunk driver kills a drunk pedestrian. Yes, both were drunk. Yes both fucked up. But it could have been a sober person (EVEN ME, gasp!) who got run over, and that's not cool, so we prohibit drunk driving to everyone.

That's the concept of social contract - i agree to let society to regulate itself (and all its members), in order to prevent systemic risks. And again, some hedge funds blowing up is not a big deal, but LTCM required some last-minute Fed intrusion - because there was a systemic risk.

You are a smart guy, but the people at the Fed are not dumb, either. If they think 1.19% is a big deal, i am happy to hear your argument as to why it's not, but i am also going to give them some credit.

[igorn.livejournal.com]

I don't think drunk driving is a valid comparison. Taking on a mortgage on bad terms is a deal between two individuals, both of whom are to blame. Participating in entirely voluntary. Participating in being hit by a drunk driver is not voluntary.

Systemic risk is exactly the point I was trying to make - it is well distributed here. And the financial industry is much more adapt and handling crises - LTCM failing in '98 brought a lot of paranoia and fear but Amaranth failing in '06 has had relatively little impact.

Anyway a likely bailout would most likely keep people in their homes, keep banks from foreclosing, and spread the pain further up the chain. Not the smartest thing to do if you want efficient markets.