Where is my bail-out?

[Karlzmom]

I am so not a finance wizard, but with the logic all posted here, should houses be plummeting as far as costs go?

They are not in my area.

I saw an interesting graph recently, and it makes sense. When you adjust the price of homes for inflation the prices have remained relatively steady since the early 1900s. Specifically, the median family home is worth what the average family can pay for it. Over the last century there have been spikes up and down, but at the end of the day it settles back to the same distance from the average salary....makes sense. The market can really only charge what a people can afford. The value of the dollar is what really obscures everything.

Consider the wages of 30 years ago. The average person made much less in the number of dollars, but in many instances, the $ went further..[remember 25 cent candybars?] Today, the value of the dollar has declined such that the same product now costs considerably more for the same thing [same as for cars, milk, bread, etc.] Add in that as people ask for more $, then the wage cost needs to be refactored into the price matrix and its a double whammy [there's a reason why it seems that you can't ever get ahead ]

Also consider, that part of the price plummet is that as people are nervous about home values, the normal buyers are sitting on the sideline waiting for the "best deal", so even ordinary demand is being repressed. So, the prices are required to fall even further than what economic indicators suggest to entice buyers. I can report sales in my town have picked up, but at low prices...its all supply and demand - when noone wants an item at X price, the price must fall until buyers want it. Right now, most towns have a lot of inventory and not a lot of buyers, so prices are dropping until they get to the point of enticing buyers. When the inventory is cleared out, then we will see prices recover back to that average price a family can afford.

BTW, another interesting tidbit to consider. While there are pockets of unemployment, 5% unemployment is considered "total employment" because 5% of the population is unemployable [disabled, illiterate, not looking] We went through a period where we were below the 5% threshold and really are only 1 1/2% above today..its really not that bad on the broad perspective. Of course, if its your job then its 100% to you

 

[thelionqueen]

Im hoping that by posting to this thread I will not peek @ my 401k, although I know I'm going to

Great thoughts on this thread, keep em coming!

 

[dvcgirl]

Well, this is part of the story -- maybe even the biggest part -- but it isn't the whole story. At the same time too many people were buying too much house, they were also borrowing so they could go to THE college instead of a less expensive one, they were running credit cards up to their max, they were taking out home equity loans against that house they could barely afford, they were getting a new car every other year 'cause "everyone" has a car payment "forever", and in the midst of it all they were failing to save anything. Too many people lived this live-for-the-moment lifestyle and had nothing for a rainy day.

Completely agree....but all of *these* things were only possible for the average Joe and Mary America because of The Mother of All Credit Tsunamis washing ashore. And this was made available to everyone and their dog when rates were kept way too low for way too long (thanks to Mr Greenspan) and lots and lots of deregulation took place allowing banks to take all of their newfound liquidity and leverage themselves to the moon. Makes sense to me, why should they be different than the businesses and consumers they service.

When they ran out of customers who had a chance in hell of paying them back, they dove headfirst into the subprime market. It doesn't matter who you're selling to when you have no intention of holding the bundle of toxic loans for more than 30 seconds. It was like the Financial Musical Chairs Game of the Century. Only one chair left in this game....every one else left standing there not knowing what to do. And when you're levered 30 or 40:1 and house prices drop by 5% you're in trouble. When they drop by 10% you've got yourself a real crisis. When they hit 20%....well, you end up where we are now.

So, now we're spending 700 Billion (which means closer to Two Trillion in Government-speak....when do they come in *under* budget?), to *protect* the taxpayer. Yeah, I'm feeling real protected. This new brilliant idea to eat 700 billion in toxic assets comes from the the Bank of Ben and Hank, the same two geniuses who told us a year ago that "the sub-prime crisis is contained". Yeah....um.....not so much.

I think it's time for pitchforks and torches....I really do!

 

[Karlzmom]

I think it's time for pitchforks and torches....I really do!

Any chance you're a Glenn Beck fan?

 

[dvcgirl]

Any chance you're a Glenn Beck fan?

I think he's funny, but I didn't hear him say it with reference to this....lol.

I'll tell you what though, I've never heard people, *all* people, dems, repubs and independents so united on something before....well sadly, not since 9/11.

From everything I'm reading and my understanding of the problem, the *only* way this thing works is if we buy this toxic paper at truly depressed prices. Otherwise these banks may not step forward to unload it. If they don't....we're in the same spot we're in now.

 

[Juliet25]

[QUOTE/] If I feel bad for anyone its the people who bought houses at inflated prices honestly, and are keeping all together as their downpayments are gone or they are even upside down and stuck.[/QUOTE]

Thank you for saying that. I'm so tired of feeling like a financial dummy b/c I had the misfortune of buying my house in 2005 with a 5 year ARM. Home prices are insane; we could only afford 10% down on our extremely modest 2 bedroom, 780 sq ft bungelow (we had planned on selling w/in 5 yrs, hence the ARM). It strains our budget, but we've made our house payment on time in the three years we've had the loan.

Not everyone caught in the mortgage mess bought a McMansion they couldn't afford. I guess we're fortunate that we would probably only loose $15,000 or so if we were to sell. I know others have it much worse.

 

[LIFERBABE]

You are correct on PMI... the problem is the companies that sold the PMI were using a number of expected defaults that was much lower than the current number will in fact be. In other words the PMI folks messed up they sold insurance that they can't afford to make good on because too many defaults are happenig and the losses exceed their ability to cover them... hence the insurers would go belly up (don't want any rich share holder to lose money now do we).

The bottom line is the rich will come out whole and the average american will come out having to pay the bill.

I agree. Too much bad debt to insure. Plus, the lenders and the insurers were often divisions in the same company!

When times were good, they were making money coming and going. When you signed the loan they got rich, and when you made PMI payments they got richer.

 

[creativeamanda]

I am financially challenged to say the least...budget is something I have to work at on a daily basis, so I don't presume to understand this bailout and why we need it. However, I do know from a few years of working in real estate sales that most of my clients were required to carry something called "PMI"(mortgage insurance) on their mortgage loan. If memory serves, the PMI benefitted the lender, not the homeowner, should the homeowner default on the loan. But the borrower/homeowner was required to pay this, and it was figured into their monthly mortgage payment. The PMI payment could be as much as 1/3 of a borrower's monthly payment, and could only be removed from the loan when the homeowner had attained a certain amount of equity in their home. So if the lenders were already protected(at the expense of the borrowers), how is it that they now need to be "bailed out"? I understand that, according to most financial experts, the cost of NOT bailing out various lending institutions would be worse than doing so, but I still think it's wrong. It seems those of us that struggle to make our house payments and be financially responsible are being punished for doing so, while CEO's and irresponsible lenders and borrowers are making out like bandits. There truly are areas of the country that have been hit especially hard by the economy...I live in a former furniture manufacturing area that has seen it's share of job losses. Mortgage defaults abound because the manufacturing jobs went to China and Mexico, and there probably does need to be some programs put in place to help out the people directly affected by such job losses, but I doubt it would cost $700 billion dollars! I could be totally wrong in my understanding of what is going on here...so I may need to go to Disney for a week to figure it all out, and let the federal government bail me out when I return! And I have a paypal account!

You are correct on PMI... the problem is the companies that sold the PMI were using a number of expected defaults that was much lower than the current number will in fact be. In other words the PMI folks messed up they sold insurance that they can't afford to make good on because too many defaults are happenig and the losses exceed their ability to cover them... hence the insurers would go belly up (don't want any rich share holder to lose money now do we).

The bottom line is the rich will come out whole and the average american will come out having to pay the bill.

I was wondering the same thing, as I pay PMI on my mortgage (which, because dh and I pay 2 extra payments to the principle on our loan yearly, is due to be removed in 2 months ) Thanks for explaining it to me.

I will say, I don't understand the whole situtation, either. My lender told us based on our last 4 months' pay stubs that we needed to reduce our car payment to a certain number (which we did--we went from a 2 car family to a one car), pay off a credit card (which we did), and by X number of points (which is why we have PMI (the points plus paying off the card), which we did) in order to make a monthly payment based not on how much we should be able to make as we get raises every year, but what we were making then. We waited 5 months to break ground on building our home on property we already owned to do what the bank said we should. I do not understand how other banks allowed people to take loans out like they did. Our bank certainly did not allow us to do that.

 

[PrincessKsMom]

I'm really torn about this whole mess. I think both sides are at fault -- the borrowers and the lenders. A lot of people keep saying how people got greedy and bit off more than they could chew, but without the banks, credit card companies, etc. allowing that, it wouldn't have happened. The companies got greedy, figured they'd help people get in over their head, and then completely screw them over with penalties, fees, high interest rates, etc. I don't think they ever expected so many people to default all at once and the housing market to bottom out. I think the blame pie is plenty big enough for everyone to have a slice. I also have a hard time with bailing out a company while its CEOs walk off with millions. Your job is to make the company profitable and if you have to file for bankruptcy, then you haven't done your job, thereby foregoing your millions. To me, this whole thing is like the airlines debates -- people saying that its the public's fault for demanding lower airfare, but I feel that if they are going to offer it, I'm going to take advantage of it. If you can't afford to to offer it, DON'T.

FWIW, I'm in debt and I have NO intention of filing bankruptcy EVER. I got myself into this mess, and I'll find a way out (or it will be paid off with extra life insurance I have once I'm dead). No one to blame but myself. I'm willing to eat my slice of blame pie, but what about the companies out there now? They're allowed to file bankruptcy and it's okay with the government, because they'll get bailed out. People tend to look down on other people who file bankrutpcy, but don't really get all that riled up about companies filing bankruptcy, because there's always some excuse -- like blaming the little people for everything (people who took out too much debt, mortgage, car, cheap airline tickets, etc.). How far is the government willing to go? How many companies will it allow to file bankruptcy and then pick them up? If massive amounts of people are filing for personal bankruptcy, losing their houses and jobs, where exactly does the government think the money is going to come from to fund this, the fighting overseas, etc.? I guess I'm just as confused as everyone else over what should be done.

 

[jodifla]

I find it telling that everybody on the DIS wants to blame the individuals....but once upon a time, when banks were responsible, they only loaned money to people who could actually pay the money back. There were standards.

I'm conflicted on the mess. I don't like a bailout, but if we don't do it, then what happens? All these failures will cause MASSIVE job losses, and lead of spiral of MANY OTHER COMPANIES FAILING and more job losses!

The auto industry is next to line up for help...in fact, they are already in line. With one in 8 jobs tied directly to the auto industry in this country, it's another business we can't let sink without massive job losses.

 

[thomas998]

I was wondering the same thing, as I pay PMI on my mortgage (which, because dh and I pay 2 extra payments to the principle on our loan yearly, is due to be removed in 2 months ) Thanks for explaining it to me.

I will say, I don't understand the whole situtation, either. My lender told us based on our last 4 months' pay stubs that we needed to reduce our car payment to a certain number (which we did--we went from a 2 car family to a one car), pay off a credit card (which we did), and by X number of points (which is why we have PMI (the points plus paying off the card), which we did) in order to make a monthly payment based not on how much we should be able to make as we get raises every year, but what we were making then. We waited 5 months to break ground on building our home on property we already owned to do what the bank said we should. I do not understand how other banks allowed people to take loans out like they did. Our bank certainly did not allow us to do that.

I think if you had gone to a mortgage broker you could have gotten a "liar loan" and gotten your loan with zero down even if you only worked part time at a dollar store... that was the problem.. the mortgage brokers were making loans to anyone so they could get their fee... the realestate agents were finding the brokers that hooked up people on "liar loans" so they could get their commissions... everybody was happy except the borrower when they realized that they bought a house they couldn't afford.

 

[Praying Colonel]

We get to be the bailors, not the bailees. As Cliff Huxtable said, "They come for the 'regular folks' first."

 

[creativeamanda]

I think if you had gone to a mortgage broker you could have gotten a "liar loan" and gotten your loan with zero down even if you only worked part time at a dollar store... that was the problem.. the mortgage brokers were making loans to anyone so they could get their fee... the realestate agents were finding the brokers that hooked up people on "liar loans" so they could get their commissions... everybody was happy except the borrower when they realized that they bought a house they couldn't afford.

Did the people who borrowed the money think they could pay the loan? That's what I don't get. You give them your check stubs. They look at your bills. They figure what you can owe based on all of those variables. Both the lenders and the lendees need to face the consequences of their actions. I don't like the government becoming a huge collection agency on my dime. Even after the bank told me I could afford a $250,000 home, I built one that cost me $130,000. The people who were responsible are paying for the irresponsible banks and people who felt they were entitled to something they had not worked for.

 

[Kay1]

Did the people who borrowed the money think they could pay the loan? That's what I don't get. You give them your check stubs. They look at your bills. They figure what you can owe based on all of those variables. Both the lenders and the lendees need to face the consequences of their actions. I don't like the government becoming a huge collection agency on my dime. Even after the bank told me I could afford a $250,000 home, I built one that cost me $130,000. The people who were responsible are paying for the irresponsible banks and people who felt they were entitled to something they had not worked for.

A lot of these people were flippers and no, they didn't think they could afford the mortgage - or in many cases mortgages. They put down nothing or next to nothing, believing they could sell for a profit before they had to make the artificially low payments.

These people have no desire to live in the houses and, because they have no real skin in the game, are just walking away from their "investments."

Others, were convinced they had to buy before prices rose any higher. They often got loans that were artificially low the first year or so, some that allowed them to pay only interest, or even less than interest. They were assured they could refinance before things got expensive. Now they can't because no one wants to lend them money.

Btw, this is really just getting going. A lot of these loans have yet to reset over the next few years.

 

[creativeamanda]

A lot of these people were flippers and no, they didn't think they could afford the mortgage - or in many cases mortgages. They put down nothing or next to nothing, believing they could sell for a profit before they had to make the artificially low payments.

These people have no desire to live in the houses and, because they have no real skin in the game, are just walking away from their "investments."

Others, were convinced they had to buy before prices rose any higher. They often got loans that were artificially low the first year or so, some that allowed them to pay only interest, or even less than interest. They were assured they could refinance before things got expensive. Now they can't because no one wants to lend them money.

Btw, this is really just getting going. A lot of these loans have yet to reset over the next few years.

A friend of mine is a realtor and she says that there is a lot of the flipping going on in Columbia, SC. I never gave it any thought.

I think it stinks that the Average American, however, is going to have to pay for the indiscretions that others walked into.

Economy 101: Never buy what you don't have the money to pay for. We've been "Me Me Me" people so long that it's finally biting us in the rear.

 

[thelionqueen]

OK, so I am not financially savvy by any stretch of the imagination, but have always managed to live within my means. That being said, I agree with nearly all the posts on this thread and I too am not thrilled about this huge debt being passed on to my kids, grandkids, and more.

As I see it, the economy would fail and that would be even more of a burden for us and even harder to rebound from. Personally, the amount of this bailout is so big its hard for me to grasp, but the ramifications without it seem even more dire. What is the real solution, is there one?

 

[thomas998]

OK, so I am not financially savvy by any stretch of the imagination, but have always managed to live within my means. That being said, I agree with nearly all the posts on this thread and I too am not thrilled about this huge debt being passed on to my kids, grandkids, and more.

As I see it, the economy would fail and that would be even more of a burden for us and even harder to rebound from. Personally, the amount of this bailout is so big its hard for me to grasp, but the ramifications without it seem even more dire. What is the real solution, is there one?

If you truly care about your kids and grandkids and don't want them to suffer from this problem... then call your congressman and tell him no bail-out let the chips fall where they fall.... would we all suffer alittle from a down turn in the economy... yes... but it wouldn't last forever. If we pile on more debt we are just pushing the problem onto the back of others and it will only be worse in time. The only people truly screaming for a bail out are the ones that have a vested interest and they are the ones that created this mess.

 

[JonS99]

and the average american will come out having to pay the bill.

Apparently you are not real educated on the US tax code....

 

[Karlzmom]

If you truly care about your kids and grandkids and don't want them to suffer from this problem... then call your congressman and tell him no bail-out let the chips fall where they fall.... would we all suffer alittle from a down turn in the economy... yes... but it wouldn't last forever. If we pile on more debt we are just pushing the problem onto the back of others and it will only be worse in time. The only people truly screaming for a bail out are the ones that have a vested interest and they are the ones that created this mess.

I suppose making the call is "caring for your kids," so long as you don't work in any industry that relies on credit to operate. When all the credit dries up, then companies large and small will find themselves unable to operate...[imagine Disney Visa calling and telling you to cut up your cards! ] Then the layoffs start...so "caring about your kids" will involve figuring out how to feed them off the public dole [as long as it lasts when the large corporations are no longer paying any taxes because they are insolvent]. While you are at it, you can care for grandma, because the bonds supporting her pension or long term care insurance are worthless and the nursing home won't be able to keep her without payment. Add in the price of hard assets and commodities soaring and the surviving producers and industry having to give up because they can't afford to continue to do business [do you have any idea how many independant truckers have quit over fuel costs?]

When the grocery stores can't get products in -and their 2 day supply dries up life will get really interesting! Most Americans aren't even able to conceive the notion of having to care for themselves...we are far too urban and excessively dependant on consumer goods.

I am part of the generation that is not likely to see anything from the social security program, so have made a regular savings plan with an eye to needing to be self sufficient. Now, its highly likely I would have been better off stuffing the money in my mattress. Anyone with an IRA, a 401K, an insurance policy, etc. have to be nervous watching all this...and its not because we "made the mess," but because as share-holders our future is tied to the market. Period.

In sum, there isn't an easy answer. Do I relish the thought of the increased debt? NO! Do I want the government MORE involved in the markets and asking for more money from me? NO! Do I want to see the entire American economy collapse? H*LL NO! There are no good options, just a choice among bad.....

 

[neatokimmo]

In sum, there isn't an easy answer. Do I relish the thought of the increased debt? NO! Do I want the government MORE involved in the markets and asking for more money from me? NO! Do I want to see the entire American economy collapse? H*LL NO! There are no good options, just a choice among bad.....

I so agree, I believe the bailout is the lesser of two evils.

But I'm right there with most of you, I live within my means, bought a house MUCH less expensive that what I was approved for. My car has 100,000 miles on it now and I have a great savings account. I don't think it is fair for my tax dollars to bail out others that haven't been living within their means but what will happen..well will happen. I hate to be cynical, but calls and letters to your senator? I don't believe that will do a bit of good.

I have switched my 401K future contributions to stable bonds (a whole 2% earnings) and I am prepared to kiss the stock portion of the account goodbye. Oh well, good thing I can't use it for 26 years. I REALLY feel for those who were planning on retiring within the next 10 years and their 401Ks have crashed and now they aren't sure when they can retire.