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

[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.