Should the government help out with the mortgage crisis?

Reply Fri 29 Feb, 2008 03:55 pm
Personally, I'm against any kind of government involvement.

Now, I have sympathy for the folks, such as renters, innocently caught in the middle.

But shouldn't the lenders have known there'd be problems down the road?

Should we expect the borrowers to understand the terms of the loans?

Let's not reward bad behavior....
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Reply Fri 29 Feb, 2008 04:05 pm
I agree, Drew Dad. In my neck of the woods, things had been moving so fast that many brokers bought houses in a development, hoping to "flip" them, and make a fast buck. Then the market dropped out of real estate, and the "flippers" were caught with their pants down.

I have little pity for those buyers who got caught buying more than they could afford, with little cash down, and ARMs. If you are capable of buying a home, you are responsible for knowing what you are getting yourself into.

As far as lenders go, they may very well have been caught up in the excitement boom. Because of their greediness, they gave out mortgages to people who did not deserve them, so now they are stuck with foreclosed houses, that they can't get off their hands.

No, the government should not bail them out. The people (who after all pay the taxes that runs the government) should not have to pay for the mistakes of others.
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Reply Fri 29 Feb, 2008 04:15 pm
Yeah, I have mixed feelings about this too.

I bought in 2004, right when everyone was talking about how great ARMs were, etc. I did my homework and we got a regular mortgage, with an interest rate lock. I feel like if we did our homework and paid a bit extra to secure things long-term, other people should have either done the same or go ahead and suffer the consequences.

I said this to E.G. though and he said he'd thought the same thing but talked to a friend of his who was pretty convincing there were good things about a bail-out -- I don't remember details now, just enough to make me second-guess.

The main thing I don't like is the idea that people knowingly made bad decisions and then no prob, they get bailed out and they take from that that they can just keep making bad decisions and somebody will save them.

I do know that there are outright predatory lenders. I remember reading something about one that lied about whether a woman who was refinancing her house had a job, so she could get this loan. The woman didn't know. She should have, but I had a certain amount of sympathy for her from the article. Things should be more straightforward than that. I do think the predatory lenders should be dealt with somehow.
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Reply Fri 29 Feb, 2008 04:32 pm
*nods* I think there are multiple issues here. If someone was stupid and just figured they'd buy a house they could never afford then that's just their tough luck.

On the other hand, as Soz mentioned, there were some shady things going on in the background too and those need to be investigated and if people were misled then something could/should be done to protect them. I don't think the government should be in the business of paying someone's mortgage if the person shouldn't have qualified to begin with but the government could work to soften their landing as they crash.

There is also the question of why the ARMs going still going up. Interest rates set by the Fed are dropping yet people with ARMs are still getting hit with higher rates. The most recent peak of the prime rate was at 8.25% in June of 2006. A typical ARM is a 5/1 or 7/1 and 5 years ago the prime rate bottomed out at 4.00%. It's at 6.00% right now. That's a 2% difference. Why are people's mortgages going up 5, 6 or 7%?

But there are also a lot of complex deals that went on between banks and investment houses with buying and selling of mortgages and the government can certianly help people navigate that maze. Right now people can't even figure out who actually holds their mortgage.
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Robert Gentel
Reply Mon 18 Aug, 2008 06:51 pm
Yes. The government had to bail out a couple of key players. They are big enough to take everyone down and no matter how many good reasons not to (there are many but my favorite is not bailing people out for taking risks or they don't learn not to) it had to be done.

Now what I want, is for them to accept limited risk in the form of regulation (like existing banking regulations) if the taxpayer is going to bail them out.

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Reply Mon 18 Aug, 2008 07:38 pm
The problem with letting the crisis run its course is that there is a whole financial system built upon asset-backed securities (including mortages). Letting the lenders and their borrowers go bankrupt would crash this financial system and take lots and lots of otherwise sound businesses down with it.

In the short run, the only way for the government to prevent a meltdown is the policy of limited bailouts it currently pursues. In the long run, the way to prevent the recurrence of the current crisis is to regulate the parallel banking system, including all those once-trendy mortage-based instruments, the same way the regular banking system is currently regulated.

Both the short term fix and the long term solution involve stronger government intervention.
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Reply Mon 18 Aug, 2008 07:49 pm
The problem here is something that has been a big topic of discussion with economists, it is moral hazard http://en.wikipedia.org/wiki/Moral_hazard

we have over the last generation made a habit of deciding that we can't let loses take place because to do so would cause too much instability or destruction in the wider economy. So we keep bailing companies out, or in this case homeowners. However, when citizens and financial leaders expect that the government will bail them out if things go bad they take more risk than they otherwise would, and thus we inevitably have more bailing out to do down the road. At some point the line needs to be drawn in the sand, but politically it was not possible to do it with homeowner loses at the very same time we are bailing out the financial industry to the tune of a couple hundred billion dollars.
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Reply Mon 18 Aug, 2008 09:38 pm
The answer to your question depends on who is asking.

If you're the middle-class, the answer is no.

If you're the upper-class, the answer is yes.
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Reply Sun 1 Mar, 2009 10:09 pm
While Countrywide was a public company Angelo Mozillo with all his perks and stock options etc. probably got about 1 billion dollars for himself if you add it all up. He now hangs out at the most expensive country clubs in America. He knew what he was doing...getting more money for himself by expanding the market. Then running away to hide when the poop hit the fan. Taking the money and running.
Reply Sun 1 Mar, 2009 10:23 pm
Thanks for bringing this back, dogg. I had forgotten how long it had been going on.
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Reply Sun 1 Mar, 2009 11:10 pm
How is it that Republicans can always with a straight face emphasize individual accountability but never corporate accountability which they control? The corporations are run by Republicans and are running amok but hey don't control them by regulations 'cos they are ours. Republicans always want it their way in the corporate sense. It shows their hypocrisy. They are the robber barons.
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