Please help us buy votes!!

[Gary M]

Government intervention caused most of this, what are the odds they can fix it?

 

http://news.investors.com/article/620516/201207311851/obama-favors-subprime-strategy-for-cars-mortgages-and-education.htm?src=SeeAlso

 

another collapse waiting to happen

[GG]

There is almost no cost benefit to Freddie or Fannie to modifying people's loans under the terms of HAMP (in no small part because the qualifications for HAMP are seriously Wednesdayish).

 

Forget economics. You just used a racially incendiary term against Goths.

[Rob's House]

People disagree and I get that. If we don't start some principle write-downs, IMO we're not going to recover any time soon and that seems fairly obvious to me. So all I"m saying is don't complain about recovery. Complain away about Obama I would never take that from you, but even assuming I'm wrong and you are right...your policy on the mortgage issue admits the recover simply won't get going until the market finds it's natural bottom which is something the President has nothing to do with b/c he should be hands off.

Hence my comment a few weeks ago that the economy would be better if he'd done nothing.

[Rob's House]

I don't agree that this is the way to go here. But I do accept the basic logic that in your opinion we have to let the cyclical feeding of this disaster just continue. However, I had better not see you complaining about jobs numbers in some other thread in the near future

 

And btw just for the record guy on Eliot Spitzer talking about local government taking the debt by eminent domain. Paying fair value for the public purpose of plugging the drain and writing it down to keep people in their houses. I'm simply reporting here I don't know about this one just hearing it as I type.

This is the key to the misunderstanding of this issue. It requires knowledge a central planner can never have. As far as housing markets go, this recession is basically the returning of house prices, that have been grossly overvalued due to artificial demand created by lax lending standards. You want to pay a market price, but we don't know what that is. Only the market can tell us.

 

This is a perfect example of how you can't grow the economy through tinkering because you can't create wealth out of thin air. A lot of people made a lot of money over a short period of time on housing. It's pretty obvious that the real values were not increasing as rapidly as the price was. You can't pump all this money into housing without taking it from somewhere else UNLESS you've created corresponding new wealth, which wasn't happening. Something's got to give and that something is this correction. Basically, everyone that took massive proffits on the housing bubble (and that's everyone from individual families, house flippers, financial institutions, etc.) did so on the backs of the people who bought high & are in upside down mortgages.

 

As far as your proposed interventions go, it sounds good in theory, but there's little reason to thing "we" (govt.) is capable of accomplishing what you suggest at all, much less with any kind of efficiency. And the fact that your stated goal is to put a price floor means your goal is to prevent finding equilibrium in the market, which is itself the ultimate cause of the problem.

Edited August 1, 2012 by Rob's House

[Doc]

Despite what some people may think, not everyone should own a home. Having the taxpayers foot the bill is a horrible idea and I'm glad DeMarco is sticking to his guns.

[dayman]

This is the key to the misunderstanding of this issue. It requires knowledge a central planner can never have. As far as housing markets go, this recession is basically the returning of house prices, that have been grossly overvalued due to artificial demand created by lax lending standards. You want to pay a market price, but we don't know what that is. Only the market can tell us.

 

This is a perfect example of how you can't grow the economy through tinkering because you can't create wealth out of thin air. A lot of people made a lot of money over a short period of time on housing. It's pretty obvious that the real values were not increasing as rapidly as the price was. You can't pump all this money into housing without taking it from somewhere else UNLESS you've created corresponding new wealth, which wasn't happening. Something's got to give and that something is this correction. Basically, everyone that took massive proffits on the housing bubble (and that's everyone from individual families, house flippers, financial institutions, etc.) did so on the backs of the people who bought high & are in upside down mortgages.

 

As far as your proposed interventions go, it sounds good in theory, but there's little reason to thing "we" (govt.) is capable of accomplishing what you suggest at all, much less with any kind of efficiency. And the fact that your stated goal is to put a price floor means your goal is to prevent finding equilibrium in the market, which is itself the ultimate cause of the problem.

 

As to the first paragraph that's just nonsense. The market value is something a "central planner" can never have? These houses have identifiable market value. How do you think people realize they're underwater in the first place? These loan holders think that over time (given a recovery which once again won't happen until the housing market stabilizes) the value will go back up but the fair market value today takes that into account. People trade these all the time we can determine exactly what the fair value is. And it's not a central planner deciding btw...it IS the market.

 

In that guys idea the local municipality acquires the mortgage for fair value (yes, as determined by the market today), works with the home owner to restructure it and then it's sold into the FHA programs (so the money comes from the very people who buy mortgages today) as a superior property where the payments are far more likely to be made and where there is a person in the house and where the market is the better for it.

 

The opposition is simply from people holding lottery tickets waiting on the recovery, but those very people benefit more than anything else from the recovery of the market itself and their lotto ticket sure as hell isn't going come up a winner without it.

 

Principle write down is needed plain and simple. We're over-leveraged plain and simple and the entire economy won't recover until the housing market stabilizes and people can start again.

 

 

You guys are ideologues. It isn't true that government intervention is responsible for where we are, and it isn't true that the government can't play a role to help get us out of our spiral.

 

Despite what some people may think, not everyone should own a home. Having the taxpayers foot the bill is a horrible idea and I'm glad DeMarco is sticking to his guns.

 

And that's why addressing the problem would help some w/ the mortgage, others would get a lease/option or have some sort of equity interest created (various creative solutions for those who really can't have the house), and finally those w/ no solution should be foreclosed on QUICKLY.

 

The the general idea that we simply shouldn't write down some of this is bogus. Yes in normal times this should be our policy but it isn't right for today. The collapse hurts the entire economy many people who would benefit from these policies actually were reasonable to think they would never default when they signed the mortgage papers before the collapse. And in any event as we all know every foreclosure drives down the prices of all the other homes around it, and what we see w/ them happening in massive amounts is the depletion of the single greatest source of wealth for American families. A quarter of all mortgages are worth more that their homes...

 

And in any event the idea described above is just one get around dick head DeMarco who is simply looking to preserve F&F's assets. If F&F wrote the damn mortgages down themselves and the value does go back up the terms can be such that they homeowner should share the profits with the lenders anyway.

 

 

The overall point is this, it's time to put aside your ideology for the moment. This isn't your standard economic event, this isn't your standard downturn, we're !@#$ing stuck and we aren't coming out on our own that's just the bottom line. We aren't. There are a lot of different ideas about things we can do that many very smart people think will help us spur a recovery....when we finally recover then we can go back to being governed by "normal" principles.

 

Doing nothing is not the answer. It's obvious.

[Rob's House]

As to the first paragraph that's just nonsense. The market value is something a "central planner" can never have? These houses have identifiable market value. How do you think people realize they're underwater in the first place? These loan holders think that over time (given a recovery which once again won't happen until the housing market stabilizes) the value will go back up but the fair market value today takes that into account. People trade these all the time we can determine exactly what the fair value is. And it's not a central planner deciding btw...it IS the market.

 

Dude, you are so out of your element. Your problem is you're more concerned with defending your ideology than understanding what's at play. Market prices are created by what? That's right, the market. We track the data to try to figure out fair market value, the central planner can't set it, only hope to make a good estimation. Problem here is you're trying to stabilize market value by having government purchase property at market value at a time when prices are falling to market value. If you think this very fundamental truism of price function is nonsense I'm afraid I'll have to bow out of this conversation for the same reason I'll not indulge a flat earther.

[dayman]

Dude, you are so out of your element. Your problem is you're more concerned with defending your ideology than understanding what's at play. Market prices are created by what? That's right, the market. We track the data to try to figure out fair market value, the central planner can't set it, only hope to make a good estimation. Problem here is you're trying to stabilize market value by having government purchase property at market value at a time when prices are falling to market value. If you think this very fundamental truism of price function is nonsense I'm afraid I'll have to bow out of this conversation for the same reason I'll not indulge a flat earther.

 

 

First off I'm not advocating for that I'm just explaining it as one potential creative solution if DeMarco refuses to budge. It would be much easier if F&F would just write down some of this **** themselves and share in the profit if/when the house bounces back. And while to me it makes sense do this for a hell of a lot of houses, it's not right for every house. There are other ways some people have put forward to address those problems which I've talked about.

 

The idea that there is no market value at which any of these houses can be purchased (or revalued) at b/c they are "falling to market value" is nonsense. It just makes no sense to me, no I'm not really in the finance business I admit but I'm just having a discussion here. There is a value these houses have, people buy and sell houses even today at prices that take variables into account. Houses have no value right now? That's nonsense every house has a market value today. The government doesn't "set" the value ... that value is there.

[Rob's House]

First off I'm not advocating for that I'm just explaining it as one potential creative solution if DeMarco refuses to budge. It would be much easier if F&F would just write down some of this **** themselves and share in the profit if/when the house bounces back. And while to me it makes sense do this for a hell of a lot of houses, it's not right for every house. There are other ways some people have put forward to address those problems which I've talked about.

 

The idea that there is no market value at which any of these houses can be purchased (or revalued) at b/c they are "falling to market value" is nonsense. It just makes no sense to me, no I'm not really in the finance business I admit but I'm just having a discussion here. There is a value these houses have, people buy and sell houses even today at prices that take variables into account. Houses have no value right now? That's nonsense every house has a market value today. The government doesn't "set" the value ... that value is there.

It's not a matter of whether or not houses have value. It's a matter of where's the optimum price. House prices continue to dive and sales continue to be slow largely because what is currently perceived as fair market value by sellers is different from that of buyers. The market is still correcting the misvaluation that resulted from the extreme increase in demand (demand that was artificially induced). Sure, you can take a current assessment based on what houses in the area are currently selling for, and if government was taking property via eminent domain for legitimate purposes that would be how you would go about it. But that's not what's being discussed here. You're talking about having the government buy houses at current assessment levels to create a floor. Problem is, if that price is higher than where supply and demand meet all you're doing is giving a temporary increase in demand to maintain uncorrected prices that are not reflective of optimal fair market value. Because the market will still fall to equilibrium regardless of such tinkering, all this would do (as was explained by others) is delay clearing the market. Once we actually find the real floor, as decided by the market and not wishfully thinking politicians, people can start doing business again and that's when you see recovery. You can't recover until you correct and you're trying to put speed bumps in the path of the correction hoping that it will magically stop the downward movement and kick into reverse. I'm sorry, I don't really know how else to explain it.

[dayman]

It's not a matter of whether or not houses have value. It's a matter of where's the optimum price. House prices continue to dive and sales continue to be slow largely because what is currently perceived as fair market value by sellers is different from that of buyers. The market is still correcting the misvaluation that resulted from the extreme increase in demand (demand that was artificially induced). Sure, you can take a current assessment based on what houses in the area are currently selling for, and if government was taking property via eminent domain for legitimate purposes that would be how you would go about it. But that's not what's being discussed here. You're talking about having the government buy houses at current assessment levels to create a floor. Problem is, if that price is higher than where supply and demand meet all you're doing is giving a temporary increase in demand to maintain uncorrected prices that are not reflective of optimal fair market value. Because the market will still fall to equilibrium regardless of such tinkering, all this would do (as was explained by others) is delay clearing the market. Once we actually find the real floor, as decided by the market and not wishfully thinking politicians, people can start doing business again and that's when you see recovery. You can't recover until you correct and you're trying to put speed bumps in the path of the correction hoping that it will magically stop the downward movement and kick into reverse. I'm sorry, I don't really know how else to explain it.

 

Look we're fixating too much on the eminent domain idea. If you go back through the thread you'll see I just saw some guy going on about that as a creative idea last night while I was in the thread. It's not something I even heard about until yesterday. And besides, the government would take the mortgage, write down the principle, then sell it out again. The entire thing isn't to set the floor in individual properties it's just a work around to write down the principle on these houses that are underwater and dragging us all down with them.

 

It's not about setting the market at artificial levels. It's about providing some relief to the homeowners so they can participate in the economy normally again, in doing so foreclosures happen far less often which helps the housing market stabilize naturally, etc...

 

This isn't some big government central planning solution like you make it out to be, at least not as I see it. And like I said the eminent domain idea isn't my baby I'm just talking here...I never even heard about that until last night. But keep in mind they would take the debt from the bank, not the house.

[GG]

First off I'm not advocating for that I'm just explaining it as one potential creative solution if DeMarco refuses to budge. It would be much easier if F&F would just write down some of this **** themselves and share in the profit if/when the house bounces back. And while to me it makes sense do this for a hell of a lot of houses, it's not right for every house. There are other ways some people have put forward to address those problems which I've talked about.

 

The idea that there is no market value at which any of these houses can be purchased (or revalued) at b/c they are "falling to market value" is nonsense. It just makes no sense to me, no I'm not really in the finance business I admit but I'm just having a discussion here. There is a value these houses have, people buy and sell houses even today at prices that take variables into account. Houses have no value right now? That's nonsense every house has a market value today. The government doesn't "set" the value ... that value is there.

 

There is no such thing as a "creative solution" to market forces. The sooner you recognize that, the easier the solution will be.

 

Demarco is absolutely right to hold his ground because he knows that principal modification will open up a can of unintended consequences which will further delay the recovery. Your creative solution does not solve the underlying problem of the real estate equilibrium. Your solution is another feel good moment that attempts to keep people in homes which should be foreclosed. It's a noble gesture, but it's something that needs to be worked out individually between the borrower and the lender. A central planner does not have the capacity to understand what drives the US real estate market, because the US real estate market is inherently local, and a top down solution from a federal authority will not address the particulars of the individual real estate markets. You're hung up on the creative solution because there's a quantifiable number of people who will get kicked out of their homes. But what you don't see is the larger number of people who are negatively affected by the persistently slow recovery which is tied to the recession you keep extending with feel good measures.

[WorldTraveller]

The term "Moral Hazard" comes to mind

[dayman]

We'll never agree but I enjoy the conversation. To me it just isn't going to happen on it's own. I'm not under the impression btw that there's a magic fix, but I look at some actions various experts think can help and say I think we're better off going with them than doing nothing. You all say no, do nothing b/c it isn't going to happen in any acceptable way with that action.

 

Whatever. This is why we have elections. One thing seems clear to me though, doing nothing means no strong recovery for years and years. Is that acceptable? To people who say yes b/c that's economics...that's your disposition, and I respect that. It's fair enough and I agree in normal circumstances btw I just don't agree today. But don't go around screaming your head off about the economy not partying like it's 1999...and how Mitt will walk in and lay out a huge line of blow on day 1 and we'll all get it on again. You don't want to consider any solutions b/c they can't work, so we'll all just wait around on it to fix itself. Nothing can be done to aid market crisis or spur growth in time of recession apparently...everything in any past scenarios is the past fair enough...I don't agree though.

Edited August 1, 2012 by TheNewBills

[Rob's House]

We'll never agree but I enjoy the conversation. To me it just isn't going to happen on it's own. I'm not under the impression btw that there's a magic fix, but I look at some actions various experts think can help and say I think we're better off going with them than doing nothing. You all say no, do nothing b/c it isn't going to happen in any acceptable way with that action.

 

Whatever. This is why we have elections. One thing seems clear to me though, doing nothing means no strong recovery for years and years. Is that acceptable? To people who say yes b/c that's economics...that's your disposition, and I respect that. It's fair enough and I agree in normal circumstances btw I just don't agree today. But don't go around screaming your head off about the economy not partying like it's 1999...and how Mitt will walk in and lay out a huge line of blow on day 1 and we'll all get it on again. You don't want to consider any solutions b/c they can't work, so we'll all just wait around on it to fix itself. Nothing can be done to aid market crisis or spur growth in time of recession apparently...everything in any past scenarios is the past fair enough...I don't agree though.

Obviously you're entitled to your opinion, and no offense, but you've demonstrated that you really don't understand what a recovery is or how money works. I'd love to hear a reasonable theory by which a market recovers prior to correction, or how artificially delaying the correction expedites recovery. You've honestly not so much as attempted this and have instead deferred to "experts" who also choose to throw out a few alternate measures supported by moralizing rather than logic. If it gives you some comfort to believe government (& by extension, you) have the power to circumvent the natural laws of the world that is certainly your choice. But wanting something to be true is a horrible basis for belief.

 

Edit: And your last bit is a typical liberal straw-man argument that amounts to saying you're unwilling to address the arguments that counter yours and are going to try to save face & slip out the back door. You should strive to be better than that, and an anonymous message board is a great place to develop those skills. It will help you in your career as well.

Edited August 1, 2012 by Rob's House

[dayman]

Obviously you're entitled to your opinion, and no offense, but you've demonstrated that you really don't understand what a recovery is or how money works. I'd love to hear a reasonable theory by which a market recovers prior to correction, or how artificially delaying the correction expedites recovery. You've honestly not so much as attempted this and have instead deferred to "experts" who also choose to throw out a few alternate measures supported by moralizing rather than logic. If it gives you some comfort to believe government (& by extension, you) have the power to circumvent the natural laws of the world that is certainly your choice. But wanting something to be true is a horrible basis for belief.

 

Edit: And your last bit is a typical liberal straw-man argument that amounts to saying you're unwilling to address the arguments that counter yours and are going to try to save face & slip out the back door. You should strive to be better than that, and an anonymous message board is a great place to develop those skills. It will help you in your career as well.

 

Haha first and foremost I use PPP to develop skills that will further my career. That's why I'm here.

 

It's not about the market recovering prior to correction it's about policies that in some people's opinion can help spur that along while in your opinion only delay the correction.

 

And I read btw too...so if there are some articles that talk about the views you all have that disqualify some of the solutions I've posted I'm all for clicking links and scanning them later tonight over dinner and thinking about it. I'm not sitting around and making stuff up I mean I don't pretend the position I have is some grand original thought I have b/c I'm a genius and know how to fix everything...this isn't remotely my field anyway. These are the views of various people writing articles I've read and doing interviews I heard...it's not "hiding behind experts." I'm not an expert. What am I to do ignore everything written? This is what people do, they read about stuff.

 

The whole "circumventing the natural laws of the world" ... look I get it. And like I said I'm not some top down central planning guy. You insist I have some staunch controlling ideological agenda propelling me, it's not the case. I'm not an ideologue at all and as I said in normal circumstances I do agree, don't !@#$ with it. But in this circumstance it seems we should. My point is not hide behind experts, it's to point out that experts are the people framing the discussion and they differ. To just say "all experts who say anything will help at all are wrong" ... that's some pretty staunch ideology as I see it.

 

But anyway like I said over and over, I'm not here to sway you or anybody else. I'm not going ton convince you. I'm not even trying to argue with you. It's discussion.

Edited August 1, 2012 by TheNewBills

[DC Tom]

Haha first and foremost I use PPP to develop skills that will further my career. That's why I'm here.

 

So do I.

[erynthered]

So do I.

 

 

Calling people you work with "idiots" should further you career greatly!

 

[Rob's House]

Haha first and foremost I use PPP to develop skills that will further my career. That's why I'm here.

 

It's not about the market recovering prior to correction it's about policies that in some people's opinion can help spur that along while in your opinion only delay the correction.

 

And I read btw too...so if there are some articles that talk about the views you all have that disqualify some of the solutions I've posted I'm all for clicking links and scanning them later tonight over dinner and thinking about it. I'm not sitting around and making stuff up I mean I don't pretend the position I have is some grand original thought I have b/c I'm a genius and know how to fix everything...this isn't remotely my field anyway. These are the views of various people writing articles I've read and doing interviews I heard...it's not "hiding behind experts." I'm not an expert. What am I to do ignore everything written? This is what people do, they read about stuff.

 

The whole "circumventing the natural laws of the world" ... look I get it. And like I said I'm not some top down central planning guy. You insist I have some staunch controlling ideological agenda propelling me, it's not the case. I'm not an ideologue at all and as I said in normal circumstances I do agree, don't !@#$ with it. But in this circumstance it seems we should. My point is not hide behind experts, it's to point out that experts are the people framing the discussion and they differ. To just say "all experts who say anything will help at all are wrong" ... that's some pretty staunch ideology as I see it.

 

But anyway like I said over and over, I'm not here to sway you or anybody else. I'm not going ton convince you. I'm not even trying to argue with you. It's discussion.

Perhaps I was too broad. An example of appropriate intervention might be TARP. The pre-equilibrium recovery is the part I can't get my mind around, but whatever. We've beat the **** out of this issue.

 

And although it's not why I'm here, posting does sharpen your debating skills. Well, unless you argue with Park in Norfolk - It can be fun in the same way running up your stats on Madden in Rookie mode can be fun, but it's not very rewarding.

[JuanGuzman]

Obviously you're entitled to your opinion, and no offense, but you've demonstrated that you really don't understand what a recovery is or how money works. I'd love to hear a reasonable theory by which a market recovers prior to correction, or how artificially delaying the correction expedites recovery. You've honestly not so much as attempted this and have instead deferred to "experts" who also choose to throw out a few alternate measures supported by moralizing rather than logic. If it gives you some comfort to believe government (& by extension, you) have the power to circumvent the natural laws of the world that is certainly your choice. But wanting something to be true is a horrible basis for belief.

 

Edit: And your last bit is a typical liberal straw-man argument that amounts to saying you're unwilling to address the arguments that counter yours and are going to try to save face & slip out the back door. You should strive to be better than that, and an anonymous message board is a great place to develop those skills. It will help you in your career as well.

 

 

Got to jump in here. First of all actors in the housing market aren't rational its been shown many times - for markets to be efficient the assumption is made that all actors are rational. If you buy a home for $100 and two years later its only worth $75, buyers will be reluctant to seel at that $70 price even thought it's the current market value. That reluctancy to sell at a loss will prevent a market from hitting bottom for some time. In fact, to take the analogy one step further if you bought that house and your unemployed living in some place where unemployment is high and teh house cost $100, but you have a chance to move to somewhere like Texas where unemployment is low, the fact that your house is only with 70 cents on the dollar might prevent you moving to Texas which would be something beneficial to the U.S. Economy. Why because there would be 1 new body in a state that needs workers, and 1 less body in a state that has an over supply of workers. On a grandeur scale you can see how this might benefit an economy.

 

The whole point is that there will be an external economic benefit created by this program, the infuriating part is Demarco did not even consider the wider imnplications for the economy is his analysis. If the deal was rejected on evidence that it wouldn't provide a benefit to the U.S. Economy than so be it, but since the only thing considered was F&F bottomline I feel like they missed the big picture.

 

Lastly, someone raised the "Moral Hazard" problem, and its a good point. This is why private mortgage lenders haven't went that far done the road on write downs. But again if you bought your home at 100, and the remaining mortgage is 90 but the home is worth only 75 on the open market than it might make sense to walk away if you can live with the implications on the credit rating. From a lenders perspective you don't want people walking away from the mortgage, the property could be vacant for months or years, damage from squatters etc only to re-sell the property at much lower value. Lenders and Borrowers (esp when there is a risk of foreclosure) actually mutual incentives to write down a loan to a reasonable value, the problem is finding a way to filter out those trying to game the system.

 

Finally I thought NewBills was doing a credible job of explaining a complicated subject such as home owner debt relief and how it might benefit the economy. The whole "you don't understand what a recovery or what money is" is just as much of logical fallacy on your part to discredit his point of view. There are some very smart people who are advocating that such a program would benefit the U.S. Economy. These smart people may not be right but there is a reason for the argument ( Personally I think it would benefit the U.S. write down homeowner debt), it may be a the wrong idea but your conviction in your own argument is a little disconcerting... In one fail swoop you dismiss the housing bubble as something created by " artificial demand created by lax lending standards" without acknowledging how the private market failed miserably to manage their own risk and when the music stopped the entire financial system stopped being able to function, or how independent financial institutions cheated each other and homeowners by re-packing debt agreements and selling worthless products to others to make a quick bonus, or how the repeal-ment of regulation such as the Glass-Steagle led to massive financial institutions rolling the dice like gambler in vegas. The answer isn't always black and white.

[Rob's House]

Got to jump in here. First of all actors in the housing market aren't rational its been shown many times - for markets to be efficient the assumption is made that all actors are rational. If you buy a home for $100 and two years later its only worth $75, buyers will be reluctant to seel at that $70 price even thought it's the current market value. That reluctancy to sell at a loss will prevent a market from hitting bottom for some time. In fact, to take the analogy one step further if you bought that house and your unemployed living in some place where unemployment is high and teh house cost $100, but you have a chance to move to somewhere like Texas where unemployment is low, the fact that your house is only with 70 cents on the dollar might prevent you moving to Texas which would be something beneficial to the U.S. Economy. Why because there would be 1 new body in a state that needs workers, and 1 less body in a state that has an over supply of workers. On a grandeur scale you can see how this might benefit an economy.

 

The whole point is that there will be an external economic benefit created by this program, the infuriating part is Demarco did not even consider the wider imnplications for the economy is his analysis. If the deal was rejected on evidence that it wouldn't provide a benefit to the U.S. Economy than so be it, but since the only thing considered was F&F bottomline I feel like they missed the big picture.

 

Lastly, someone raised the "Moral Hazard" problem, and its a good point. This is why private mortgage lenders haven't went that far done the road on write downs. But again if you bought your home at 100, and the remaining mortgage is 90 but the home is worth only 75 on the open market than it might make sense to walk away if you can live with the implications on the credit rating. From a lenders perspective you don't want people walking away from the mortgage, the property could be vacant for months or years, damage from squatters etc only to re-sell the property at much lower value. Lenders and Borrowers (esp when there is a risk of foreclosure) actually mutual incentives to write down a loan to a reasonable value, the problem is finding a way to filter out those trying to game the system.

 

Finally I thought NewBills was doing a credible job of explaining a complicated subject such as home owner debt relief and how it might benefit the economy. The whole "you don't understand what a recovery or what money is" is just as much of logical fallacy on your part to discredit his point of view. There are some very smart people who are advocating that such a program would benefit the U.S. Economy. These smart people may not be right but there is a reason for the argument ( Personally I think it would benefit the U.S. write down homeowner debt), it may be a the wrong idea but your conviction in your own argument is a little disconcerting... In one fail swoop you dismiss the housing bubble as something created by " artificial demand created by lax lending standards" without acknowledging how the private market failed miserably to manage their own risk and when the music stopped the entire financial system stopped being able to function, or how independent financial institutions cheated each other and homeowners by re-packing debt agreements and selling worthless products to others to make a quick bonus, or how the repeal-ment of regulation such as the Glass-Steagle led to massive financial institutions rolling the dice like gambler in vegas. The answer isn't always black and white.

To your first part, I understand that people being upside down in their mortgages and/or unwillingness to accept the loss along with an erroneous belief that the market will rebound (which assumes the height of the bubble or close there to is the real price and we're in a temporary downturn, rather than the other way around) is stifling the market, and I've already acknowledged that I was attacking his argument with too broad a brush.

 

Nevertheless, a correction is just that, a correction in valuation. You can't ascend if you haven't reached equilibrium and while creating artificial demand may be desirable in some situations to act as a buffer to avoid shocks to the system, it can't create long-term equilibrium. And most of the otherwise smart people who advocate this seem to base their argument on humanitarian grounds (as if those being foreclosed on will be left in the streets rather than moving to more affordable housing) rather than sound analysis that addresses the fundamental underlying economics.

 

And your point about private financial systems failing to do x, y, and z, is irrelevant to the conversation. Regardless of who was at fault for doing it, ultimately the bubble was created by artificial demand which was created by increasing the supply of funds for housing. Whether you want to blame the government, private entities, irresponsible individuals, or some combination thereof, or even if you want to take the simpleton's road and lay exclusive blame at the feet of the ever-present bogey man known as "corporate greed" it all comes down to the same condition. And whatever measures should be put in place to prevent those conditions from recurring is a much more complex matter than the one at hand. But often times smart people get too caught up in the complexities and the basic underlying principles are lost in the mix.

Edited August 1, 2012 by Rob's House