GG Posted August 1, 2012 Share Posted August 1, 2012 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. You make it sound like this is the first time there ever was a real estate induced recession, and principal modification is the final hurdle to a recovery. Link to comment Share on other sites More sharing options...
3rdnlng Posted August 2, 2012 Share Posted August 2, 2012 The root cause of the housing bubble was the loosening of lending standards by the political left. It was not done by "deregulation" but by regulating. In other words the CRA regulated standards and made them more lax. The left's misguided manipulation of standard lending processes has screwed the very people that they thought (claimed) they were helping. Then there were the speculators who jumped in to the market. The people that saw this coming didn't put a second mortgage on their house to speculate on some 3+2 condo in Ft. Lauderdale like the people who did and have probably lost their own residence too. The smart people knew that things were screwed up and wanted no part of it. They kept their money under their mattresses and have been waiting for things to bottom out. They are the ones who will be buying that $350,000 condo for $150,000. So, who gets screwed here? The people that the crazy left wanted to help. The moral of the story is that you shouldn't !@#$ with the natural order of things. Let the market bottom out so that it can recover. Link to comment Share on other sites More sharing options...
DC Tom Posted August 2, 2012 Share Posted August 2, 2012 The root cause of the housing bubble was the loosening of lending standards by the political left everybody. Because let's be honest...the conservatives did it to "spur economic growth" just as much as the liberals did it so "everyone" could live the American Dream. Link to comment Share on other sites More sharing options...
Rob's House Posted August 2, 2012 Share Posted August 2, 2012 Because let's be honest...the conservativesRepublicans did it to "spur economic growth" just as much as the liberals did it so "everyone" could live the American Dream. fixed Link to comment Share on other sites More sharing options...
GG Posted August 2, 2012 Share Posted August 2, 2012 fixed Nope, it was everyone. Conservatives were cheering the mortgage securitization markets on as the antidote to Fan/Fred. Link to comment Share on other sites More sharing options...
3rdnlng Posted August 2, 2012 Share Posted August 2, 2012 (edited) http://sweetness-light.com/archive/bush-mccain-tried-to-reform-housing-finance http://www.bucksright.com/bush-proposed-fannie-mae-freddie-mac-supervision-in-2003-1141 http://www.thehispanicconservative.com/General/the-fanny-mae-and-freddie-mac-debacle.html "On September 10th of 2003, Treasury Secretary John Snow recommended to the House Financial Services Committee that Congress enact "legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises" and set prudent and appropriate minimum capital adequacy requirements. The new agency was a recommendation from the Bush Administration for a serious regulatory overhaul in the housing finance industry. The plan was an acknowledgment of two things. First, more oversight was necessary for Fannie Mae and Freddie Mac that have managed to accumulate over 1.5 trillion dollars in outstanding debt - averaging a 20% increase in residential debt per year. And second, the supervisory system in place did not have the tools to deal effectively with the size, scope, and complexity of Fannie Mae and Freddie Mac. Subsequently, the recommendation was staunchly opposed by Congressional Democrats and National Association of Home Builders who thought that tighter regulation of Fannie Mae and Freddie Mac would reduce their commitment to financing low-income and affordable housing. In response to the Bush's regulatory overhaul proposal, Barney Frank, a ranking Democrat on the Financial Services Committee, defended Fannie Mae and Freddie Mac saying, These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing . . . I think it is clear that Fannie Mae and Freddie Mac are sufficiently secure so they are in no great danger. . . I don't think we face a crisis; I don't think that we have an impending disaster. . . . Fannie Mae and Freddie Mac do very good work, and they are not endangering the fiscal health of this country. At a Congressional Hearing in 2003, Rep. Maxine Waters, Democrat of California objected to the proposal of stricter regulations on Fannie Mae and Freddie Mac stating, I have sat through nearly a dozen hearings where, frankly, we were trying to fix something that wasn't broke. [sic] ...These GSEs have more than adequate capital for the business they are in: providing affordable housing. As I mentioned, we should not be making radical or fundamental change... If there is anything to fix or improve, it is the [regulators]. Rep. Gregory Meeks, Democrat of New York, agreed with Rep. Waters and rabidly stated, ...I have to go to another hearing, I will try to be just real quick... I am just pissed off at [the regulator] because if it wasn't for you I don't think that we would be here in the first place. ...we are faced with is maybe some individuals who wanted to do away with GSEs in the first place, you have given them an excuse to try to have this forum [to change the] mission of what the GSEs had, which they have done a tremendous job... There has been nothing that was indicated is wrong, you know, with Fannie Mae... The question that then presents is the competence that your agency has with reference to deciding and regulating these GSEs." Say what you want, Bush tried to reign in Fannie & Freddie & the dems fought him tooth & nail. Edited August 2, 2012 by 3rdnlng Link to comment Share on other sites More sharing options...
JuanGuzman Posted August 2, 2012 Share Posted August 2, 2012 You make it sound like this is the first time there ever was a real estate induced recession, and principal modification is the final hurdle to a recovery. Didn't mean to make it sound it sound like it was the final hurdle, but I do think it's positive step for a stronger turn around in the economy. I just wanted to articulate that there is a reason why policy makes and economist think this would benefit the economy... Link to comment Share on other sites More sharing options...
WorldTraveller Posted August 2, 2012 Share Posted August 2, 2012 Didn't mean to make it sound it sound like it was the final hurdle, but I do think it's positive step for a stronger turn around in the economy. I just wanted to articulate that there is a reason why policy makes and economist think this would benefit the economy... Yes, but that doesn't mean its good policy. Link to comment Share on other sites More sharing options...
JuanGuzman Posted August 3, 2012 Share Posted August 3, 2012 Yes, but that doesn't mean its good policy. I made my point in thread about why I think it's good policy. Nothing is 100 per cent when it comes to policy and I agree that there is a chance that this policy might not have the desired effect of stemming the death spiral of foreclosures that is holding back the housing market, as well as preventing economic mobility in families. But all things considered I think its a worthwhile risk to take, with the upside significantly out weighing the downside. One thing I am not hearing argued from those that think DeMarco made the right call is a defense of DeMarco not even considering or evaluating the chances that write-downs might spur a wider recover in the American economy. For DeMarco to only consider the cost/benefit analysis of F&F books, and ignore external benefits that might come out of this seems to be an error on his part. I would have been satisfied if they had considered the argument during their decision making process and than rejected but they didn't even both to look at it. Link to comment Share on other sites More sharing options...
WorldTraveller Posted August 3, 2012 Share Posted August 3, 2012 I made my point in thread about why I think it's good policy. Nothing is 100 per cent when it comes to policy and I agree that there is a chance that this policy might not have the desired effect of stemming the death spiral of foreclosures that is holding back the housing market, as well as preventing economic mobility in families. But all things considered I think its a worthwhile risk to take, with the upside significantly out weighing the downside. One thing I am not hearing argued from those that think DeMarco made the right call is a defense of DeMarco not even considering or evaluating the chances that write-downs might spur a wider recover in the American economy. For DeMarco to only consider the cost/benefit analysis of F&F books, and ignore external benefits that might come out of this seems to be an error on his part. I would have been satisfied if they had considered the argument during their decision making process and than rejected but they didn't even both to look at it. Where have you been? Or do you just selectively hear what you want to hear? It's been discussed ad nauseum. Also how on earth do you know that he didn't consider the "external benefits"? I will tell you, you don't. You pulled it out of your ass or read a krugman article and came to this baseless conclusion. You're just making stuff up Link to comment Share on other sites More sharing options...
dayman Posted August 3, 2012 Share Posted August 3, 2012 Where have you been? Or do you just selectively hear what you want to hear? It's been discussed ad nauseum. Also how on earth do you know that he didn't consider the "external benefits"? I will tell you, you don't. You pulled it out of your ass or read a krugman article and came to this baseless conclusion. You're just making stuff up It's well known DeMarco views his mission as interim director as conserving F&F's assets, not restoring the market or aiding the recovery. Never mind their quasi-public (or just plain public) nature of the two firms post collapse, he isn't concerned with macro-policy. Link to comment Share on other sites More sharing options...
DC Tom Posted August 3, 2012 Share Posted August 3, 2012 It's well known DeMarco views his mission as interim director as conserving F&F's assets, not restoring the market or aiding the recovery. Never mind their quasi-public (or just plain public) nature of the two firms post collapse, he isn't concerned with macro-policy. In other words: he's concerned with doing his job instead of doing someone else's. Link to comment Share on other sites More sharing options...
dayman Posted August 3, 2012 Share Posted August 3, 2012 (edited) In other words: he's concerned with doing his job instead of doing someone else's. He may save F&F some money today but in the long run until the underlying problem is addressed housing stock will continue to decrease. And in any event half of foreclosures are F&F and they have taken on a public persona w/ the bailout...it's a complex issue and I get that not everyone thinks it will help. A lot of people do...help both the recovery and the long term stability of housing stock. Edited August 3, 2012 by TheNewBills Link to comment Share on other sites More sharing options...
WorldTraveller Posted August 3, 2012 Share Posted August 3, 2012 It's well known DeMarco views his mission as interim director as conserving F&F's assets, not restoring the market or aiding the recovery. Never mind their quasi-public (or just plain public) nature of the two firms post collapse, he isn't concerned with macro-policy. I would suggest that you not take lessons from the opinion pages He may save F&F some money today but in the long run until the underlying problem is addressed housing stock will continue to decrease. And in any event half of foreclosures are F&F and they have taken on a public persona w/ the bailout...it's a complex issue and I get that not everyone thinks it will help. A lot of people do...help both the recovery and the long term stability of housing stock. And a lot of people disagree. So there we have it Link to comment Share on other sites More sharing options...
dayman Posted August 3, 2012 Share Posted August 3, 2012 And a lot of people disagree. So there we have it More people should get on board with providing debt relief to the people to spur recovery. Are these bailouts of the F&F and while the people get the shaft not one of the original tea party gripes? (haha, just snarky comment there btw don't blow a load). So there we have it. Link to comment Share on other sites More sharing options...
WorldTraveller Posted August 3, 2012 Share Posted August 3, 2012 More people should get on board with providing debt relief to the people to spur recovery. Are these bailouts of the F&F and while the people get the shaft not one of the original tea party gripes? (haha, just snarky comment there btw don't blow a load). So there we have it. Who's "getting the shaft"? Link to comment Share on other sites More sharing options...
dayman Posted August 3, 2012 Share Posted August 3, 2012 Who's "getting the shaft"? When you think debt relief will help the mortgage market and the recovery, and it isn't happening b/c it isn't good for F&F's short term profits...then you think there's a little shaft to all of us. I'm not starting an occupy DeMarco movement here btw...I'm just saying. I'd like to see some action here. Link to comment Share on other sites More sharing options...
JuanGuzman Posted August 3, 2012 Share Posted August 3, 2012 This part strikes me as idiotic: "Mr. DeMarco also said that the agency did not consider whether lower levels of debt might bolster economic growth. Economists have long argued that this is a primary reason for the government to support debt reduction." Where have you been? Or do you just selectively hear what you want to hear? It's been discussed ad nauseum. Also how on earth do you know that he didn't consider the "external benefits"? I will tell you, you don't. You pulled it out of your ass or read a krugman article and came to this baseless conclusion. You're just making stuff up Again I don't follow your logic, on one hand you're saying it's been discussed ad nauseum (I don't think much of the discussion at all has surrounded whether it made sense for Mr. DeMarco to not consider economic benefits and only consider F&F cost benefit analysis)..... but then on the other hand you're saying I'm making stuff up and that I can't know whether he said that. The original article which sparked this discussion and is quoted in my second post in this thread specifically made it clear that Mr. Demarco did not that he did not consider whether lower levels of debt might bolster the economic growth. Here is a link Unless the reporting is false I stand by what I said. I am a big believer in free markets, but I also outlined reasons why markets sometime fail (in this case the housing market) and that results in sub-optimal outcomes for the economy as a whole. Perhaps to narrow down the conversation I'll just ask you this question. Do you think it made sense for DeMarco to only consider F&F's bottomline and ignore any of the broader benefits of the economy as a whole? My viewpoint is that is a terrible way to conduct cost-benefit analysis. Link to comment Share on other sites More sharing options...
WorldTraveller Posted August 3, 2012 Share Posted August 3, 2012 When you think debt relief will help the mortgage market and the recovery, and it isn't happening b/c it isn't good for F&F's short term profits...then you think there's a little shaft to all of us. I'm not starting an occupy DeMarco movement here btw...I'm just saying. I'd like to see some action here. Of course you do, you support interventionist policies, which have a long history of failures. So how are we getting the shaft? By not getting bailed out for the decisions we made? Could you expand on this thought specifically on who is getting shafted and how? Link to comment Share on other sites More sharing options...
dayman Posted August 3, 2012 Share Posted August 3, 2012 Of course you do, you support interventionist policies, which have a long history of failures. So how are we getting the shaft? By not getting bailed out for the decisions we made? Could you expand on this thought specifically on who is getting shafted and how? Now it really is just repeating things already said to ask that. I've posted at length to this subject. Link to comment Share on other sites More sharing options...
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