Something I completely do not understand...

[Adam]

How do you feel if you and your neighbor own your respective houses... and then your neighbor is unable to pay for his house and the gov decides to start paying for it? It means, you will be paying for your mortgage and his mortgage as well.

There's a self-interest argument to be made in favor of limited government aid towards helping people pay their mortgages, or at the very least avoid defaulting.

Let's say you and your neighbor own your respective houses... and then your neighbor is unable to pay for his house and defaults. The house goes into foreclosure, but with nobody able to purchase the house with the real estate market being what it is, the house sits empty and falls into disrepair. Now you have a blighted house in your neighborhood, which in turn brings your own home value down. Maybe the lower home values make it impossible for other neighbors to refinance their usurous mortgages, so they end up defaulting, continuing the cycle. One year later, through no fault of your own, your home has dropped precipitously in value. Which sucks. Helping people avoid foreclosure helps keep everyone else's property values stable.

 

[IlyaKEightSix]

That's a really doomsday scenario, IMO, Adam.

Also, I think it just sets an extremely terrible standard if irresponsible people are bailed out any more than necessary in any circumstance. Yes, the government has a responsibility that people don't starve to death/don't freeze. But someone working for $20 an hour suddenly deciding to buy a $400k house and constantly refinancing its appreciation to repay the mortgage isn't just proverbially picking up pennies in front of Taleb's steamroller.

That's just literally asking for it--and well--those who asked for it--well--they're getting it now.

Privatized gains and socialized losses means things go to hell very fast.

 

[doug reich]

That's a really doomsday scenario, IMO, Adam.

No it's not, it has been happening.

Developments : Foreclosures, and Crime Rate, Rising in Charlotte, N.C.
Vacant-Property Fees Add to Mortgage Firms' Woes - WSJ.com

This was big news for the past year, but I guess you missed it.

 

[Prateek Bhatia]

How do you feel if you and your neighbor own your respective houses... and then your neighbor is unable to pay ........

Thanks for your reply. I personally don't really believe that the gov should be doing one thing or the other. I just wanted to know how you all feel about this whole thing and get you to know your views.

I come also come from a place (India) where gov controls many things and especially puts its 'best' efforts to bridge the gap between the rich and the poor. Recently the Indian gov waived of loans of poor farmers to the tune of around $13 billion dollars(1.3% of the Indian GDP approx), spurred on by a spate of farmer suicides. The situation here is of course not as dire, but things for the average american family could go further downhill.

Someone earning $20 an hour should not buy a $400K house. May be a little doze of bitter medicine is needed to discourage the hyper consumption culture here and to encourage people to save and live within means.

 

[newtoquant]

Let everybody admit this and just move on..

Everybody in this world works for their benefits and their own profits... Even now in the credit crises tooo.... who doesn't want to live comfortably????

Here many quants and quant aspirants are work for their ultimate benefit of comfortable living (varies to person to person some one wants to have good house or private jets or yachts) by taking huge payrolls..... pls don't say it this is my passion..

If somebody is earning $20 an hour can go for $400k house or If somebody is earning $100 an hour can go for $2000k house, so let don't define poor by someone who is earning $20 an hour or an $100 hour... (As a human being everybody wants to have some thing better than want he is having today, this would never stops). If banks are giving you mortgage loan with out considering consumer creditworthiness for the lending amount ... obviously any body can take it for their better lives...

a. Borrower did this for his benefit of comfortable living and by hoping everything will be fine..
b. Banks are did for their benefit of their profitability and reluctantly given the loans to consumers becoz of someboby has backed up their loans by so called CDS instruments issued by AIG and so on..... and by hoping everything will be fine....
c. Insurance companies did this their profitability by betting on tail of the distribution.... and by hoping everything will be fine....

Suddenly (since 1 1/2 year) things got worsen by falling house prices....Every body got effected because of this as just this is a domino effect....

Just imagine, If People (Including good and bad credit worthiness) are boarded into a ship (Having their homes) with their luggages (Respective mortgages loans) some are boarded with beyond their permissible limits.... When ship is sinking, you will survive (good credit worthiness people) only by first taking off the luggage of the ones who is carrying beyond the permissible limits (bad credit worthiness) into a better ship (Here the Fed).... then only all can survive... Ship doesn't sink.

I completely agree with what Adam is quoted...

So it will happen forever, but you can control the severity of credit crisis by placing strict regulator rules, as long as humans greed is there for their better lives..

Pls admit this and just move on.....

-Naga




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[IlyaKEightSix]

http://biz.yahoo.com/ap/080926/wamu_ceo_pay.html?.&.pf=banking-budgeting

Oy vey.