Is it too late to get a home loan I can't ever afford?

[Manedwolf]

Well, apparently the irresponsible lenders are taken care of. The irresponsible homeowners who bought much more than they can afford are taken care of. Who does that leave?

Oh, right. The fiscally responsible people who didn't buy a house yet because they knew they couldn't afford it, but will have their taxes jacked up to cover the greedy and fiscally retarded. I.E., people like me.

Maybe I should buy a house I can't afford so I can get a piece of the bailout pie too, since I'll be PAYING FOR IT.

Thanks for signing that piece of crap, George.

[K Frame]

How very selfish of you, thinking only of yourself.

You're the reason why this country is in such terrible shape.

[never_retreat]

I think the OP was being sarcastic.

[roo_ster]

My Sarcasmometer show a positive reading for the first and second posts.

[MicroBalrog]

But the very purpose of government is to serve as Lender of Last Resort!

You're a tinfoil-hat wearing extremist, you!

[Headless Thompson Gunner]

And what alternative do you propose?  Let Freddie and Fannie fail, taking the entire financial industry down with it?  Can you imagine what would happen to the economy?  Do you somehow imagine that the ensuing disaster wouldn't hurt your bottom line any?

I'm not arguing for or against the plan.  I think that socializing the lending industry is a bad idea.  But I think the other alternatives are at least as bad. 

So what should we do now?

Incidentally, if you have your financial situation in order,the current mess shouldn't affect you measurably.  The bill to taxpayers is what, $25B??  That's a drop in the bucket.  0.8% of the Federal budget, 0.1% of GDP.  Pragmatically, it's probably money well spent.

[Headless Thompson Gunner]

But the very purpose of government is to serve as Lender of Last Resort!

You're a tinfoil-hat wearing extremist, you!

The purpose of the Federal Reserve is to be lender of last resort.  Federal Reserve != government.

[Balog]

I'm behind the times; too busy to check the news today. What happened?

[Manedwolf]

And what alternative do you propose?  Let Freddie and Fannie fail, taking the entire financial industry down with it?  Can you imagine what would happen to the economy?  Do you somehow imagine that the ensuing disaster wouldn't hurt your bottom line any?

I'm not arguing for or against the plan.  I think that socializing the lending industry is a bad idea.  But I think the other alternatives are at least as bad. 

So what should we do now?

Someone explain why we absolutely have to let people remain in houses they can't afford and keep propping up greedy lenders who f-ed it all up by extending credit to anyone who could sign a paper, while at the same time keeping home prices out of the reach of the fiscally responsible by government-intervention means? Why can't we let them foreclose and the bad lenders disintigrate? Why not?

IMO, if we let the free market follow its course:

1. Yes, people who can't pay for their house will get kicked out. Stupid should hurt.
2. Home prices will drop significantly to where they really should be to match wages.
3. Hardworking people will be able to buy houses WITHIN THEIR MEANS.

Yeah, it'd hurt. But all we're doing right now is prolonging the agony, putting ice on the splinter instead of just pulling it out. A correction HAS to come, one way or another. These people who can't afford their homes still won't be able to afford them, so it doesn't really solve anything!

And why do I have to pay for it with increased taxes? We're all going to pay for other people screwing up here. The joke's on people who actually balance their checkbook, they get to pay more!

This is socialism. Not the free market.

What's next? Keeping people in vehicles they can't afford because they bought the $60K SUV on a $40K salary and now can't make the payments? For the good of the economy? Where does the socialism and the bill to the taxpayers end?

[Headless Thompson Gunner]

And what alternative do you propose?  Let Freddie and Fannie fail, taking the entire financial industry down with it?  Can you imagine what would happen to the economy?  Do you somehow imagine that the ensuing disaster wouldn't hurt your bottom line any?

I'm not arguing for or against the plan.  I think that socializing the lending industry is a bad idea.  But I think the other alternatives are at least as bad. 

So what should we do now?

Someone explain why we absolutely have to let people remain in houses they can't afford and keep propping up greedy lenders who f-ed it all up by extending credit to anyone who could sign a paper, while at the same time keeping home prices out of the reach of the fiscally responsible by government-intervention means? Why can't we let them foreclose and the bad lenders disintigrate? Why not?

IMO, if we let the free market follow its course:

1. Yes, people who can't pay for their house will get kicked out. Stupid should hurt.
2. Home prices will drop significantly to where they really should be to match wages.
3. Hardworking people will be able to buy houses WITHIN THEIR MEANS.

Yeah, it'd hurt. But all we're doing right now is prolonging the agony, putting ice on the splinter instead of just pulling it out. A correction HAS to come, one way or another. These people who can't afford their homes still won't be able to afford them, so it doesn't really solve anything!

And why do I have to pay for it with increased taxes? We're all going to pay for other people screwing up here. The joke's on people who actually balance their checkbook, they get to pay more!

This is socialism. Not the free market.

I assume the subject of your original post is the $25B government backing for Freddie/Fannie, right?  If it isn't, then we're talking past each other here. 

Surely you realize that the implications of Freddie/Fannie failing would extend far beyond a few irresponsible buyers losing their homes. 

I don't agree with socializing the lending industry any more than you do, but you have to realize why something like this is necessary right now.  If you have a better alternative, I'd like to hear it.  I've thought about it at length, and I just don't see any good alternatives.

[FTA84]

I agree.  I am sick and tired of being responsible and having to support those that are not.

I feel bad for the people who were tricked in to buying houses.  Just as I feel bad for people swindled at the car dealership.  (Practices designed to trick you to pay more for what you get are conducive to a free market economy). However, many people were very irresponsible, buying houses because they "know their situtation will change".  Nothing is for certain, wait until your situation actually changes!

I liken this to the 'troubled' family member.  The more you fix up problems for a troubled family member the more problems they get in to.  They never had to learn their lesson because they knew someone would feel bad/guilty and fix it up for them.

[The Annoyed Man]

I agree with manedwolf.

$25 Billion is the initial cost. When it runs out, do you honestly think the government is going to stop throwing [our] money at the problem?

Despite the bail out, Fannie Mae shares were down 19.9% and Freddie Mac 18.4% today.(http://money.cnn.com/2008/07/24/markets/markets_newyork/index.htm?cnn=yes)

This bill didn't fool anyone. The stock markets are seeing that the government bandaids are becoming worthless, and like it or not, no amount of government intervention is going to make things better.

[K Frame]

I think the OP was being sarcastic.

Check your Clue-O-Meter. It's malfunctioning and reading 0.

[Grandpa Shooter]

In a truly free market economy, no one would get a tax break, assistance, bailout, discount, or any other form of governmental interference in the process.  Someone makes a bad choice, they suffer.  A business makes a bad choice and loses money, they are penalized in the market place by a drop in market share, drop in stock prices, or bankruptcy.  Someone makes good choices they are rewarded by success in their endeavor, higher pay, stock options, etc.  In a free market economy there would be no wage guarantees, no job guarantees (labor contracts), no mandated vacations, sick pay etc.  A person would negotiate with a potential employer on their own terms and be rewarded according to their individual productivity.

Governmental interference in the free flow of punishments and rewards in the marketplace negates the very essence of a free economy.

[FTA84]

Governmental interference in the free flow of punishments and rewards in the marketplace negates the very essence of a free economy.

Some interference is good.  For example, bankruptcy laws.  These provide a reset button for the game of investment/risk but with a major (7 year+) penalty.  Given the cost of getting a small business up and running (say $500,000+) and if that business fails, you would have no choice but to live in squander while working the remainder of your life to pay back your debt.  Now 90% of small businesses fail, and of course, part of the capitalist economy is starting new businesses with new ideas.  Who would make a 1:10 gamble with their entire life?  Now who would make a 1:10 gamble with 7 years of pain?

[Waitone]

Pragmatically we have no choice.  Practically some things could be done which would make it more palatable to Joe and Martha Sixpack.  'Fer instance, how 'bout going through Fannie and Freddie with a wrecking ball.  Find those on the bridge when the idiocy reigned and tak'em down.  Go through the board of directors with a fine tooth comb and fire 'em.  Locate those who packaged the questionable loans and squeeze'em.  Go to the bond rating agencies and open an investigation. 

What happened with Fannie and Freddie has been going on for a long while.  Political handlers knew something was kinky yet did nothing.  A systemic infection was allowed to fester and it blew out.  What should be done (stand back and let the entire infrastructure collapse of its own weight) won't be done because they "are too big to fail".  May be true but that does not mean we have to hold those responsible unaccountable.   

I reserve the right to be wrong but it appears to me the Fannie and Freddie bailout is typical of government malfeasance--No one is held accountable, a few ants may be stomped, and those responsible are either promoted or release into the wild to do it again.  Systemic corruption must be root out or it will destroy us.

[drewtam]

Maybe I missed something on the bail out. But doesn't the money go to cover the investors who were screwed by the FM and FM lying and cheating? Not the mortgage buyers.

1.) So you got the mortgage buyer, going bankrupt/foreclosed. - they're screwed, largely by their own doing

2.) You got the execs at FM&FM who cooked the books. - Most will get off, maybe a few will be indicted (and hopefully shot)
Also, FM&FM will lose a lot of money but will not "fail"

3.) Then there's the investors/depositors, they'll get their money back because the gov't is backing the debts/deposits.

Is this not how its going to shake out with the bail out?

[Headless Thompson Gunner]

You'll have to research the actual bill.  It's full of stupid stuff like aid money for parts of the country that are "hardest hit by the housing crisis" and tax breaks for first time home buyers and other pork barrel crap like that.

The meat of the plan is two-fold.  First, it authorizes the Treasury Secretary is to loan money to Freddie and Fannie in case they need the liquidity.  The object is to keep the two companies solvent in case they get hammered by mortgage defaults.  Second, it allows FedGov to pay Freddie and Fannie directly to insure a bunch of new mortgages.  Ordinarily those costs would be charged by Freddie/Fannie and eventually passed on to the borrower.  They think covering those costs will spur buyers to re-enter the market, and spur lenders to start lending again.

[Grandpa Shooter]

Governmental interference in the free flow of punishments and rewards in the marketplace negates the very essence of a free economy.

Some interference is good.  For example, bankruptcy laws.  These provide a reset button for the game of investment/risk but with a major (7 year+) penalty.  Given the cost of getting a small business up and running (say $500,000+) and if that business fails, you would have no choice but to live in squander while working the remainder of your life to pay back your debt.  Now 90% of small businesses fail, and of course, part of the capitalist economy is starting new businesses with new ideas.  Who would make a 1:10 gamble with their entire life?  Now who would make a 1:10 gamble with 7 years of pain?

I would and have.  I've been self employed all but 3 years of my life since I was 11 years old.  I put my entire life on the line to be successful in business.  I put up my own money, took nothing from anybody and didn't expect to succeed by anything other than my own ability and hard work.  Why should anybody take that risk but me.  If I fail, I fail and I pay, but no one else should be expected to.  With bankruptcy laws, it allows people to get off with stiffing anyone who trusts in their abilities and puts their money on the line as a sign of their trust.

[FTA84]

Some interference is good.  For example, bankruptcy laws.  These provide a reset button for the game of investment/risk but with a major (7 year+) penalty.  Given the cost of getting a small business up and running (say $500,000+) and if that business fails, you would have no choice but to live in squander while working the remainder of your life to pay back your debt.  Now 90% of small businesses fail, and of course, part of the capitalist economy is starting new businesses with new ideas.  Who would make a 1:10 gamble with their entire life?  Now who would make a 1:10 gamble with 7 years of pain?

I would and have.  I've been self employed all but 3 years of my life since I was 11 years old.  I put my entire life on the line to be successful in business.  I put up my own money, took nothing from anybody and didn't expect to succeed by anything other than my own ability and hard work.  Why should anybody take that risk but me.  If I fail, I fail and I pay, but no one else should be expected to.  With bankruptcy laws, it allows people to get off with stiffing anyone who trusts in their abilities and puts their money on the line as a sign of their trust.

I am speaking pragmatically not morally.  Of course, morally, should your business fail it should be your own fault.  I do not think that you would debate that having options / many venders / new ideas is anything but good.  However, pragmatically, things like bankruptcy laws change the mathematical expectation of the game to entise more people into doing new/exciting ventures.

Example:  I invent a new device I call doohickeyX and it solves majorworldcrisis55 and I want to start selling it.  Now, I can't really know (I can guess but not know) how the market will respond to doohickeyX.  Maybe people will not want to learn a new deivce?  Based on the fact that 90% of small businesses fail, I am not willing to fall into the endless abyss of lifetime debt for a 1 in 10 shot at a paycheck.  However, I am willing to fall into some sort of mitigated debt repayment plan and a crap credit score for 7 years on a 1 and 10 shot.

[Headless Thompson Gunner]

Lenders lend with the full knowledge that bankruptcy laws are on the books.  They factor that into their lending decisions.  The smart ones do, anyway.  Thus bankruptcy laws don't really change the lending situation, as long as they remain stable and predictable.

Freddie/Fannie are the same way.  Most mortgage loans are offered with the full knowledge that Freddie/Fannie are there to insure the loan and reduce the risk to the lender.  This is factored into the lending decisions.  If they were to suddenly vanish, it would throw all of the lenders' risk/reward evaluations right out the window.  The banks would suddenly be liable for all sorts of risk that they didn't expect and aren't in a position to handle.  That would destroy the banking industry and overall economy along with it.

Freddie and Fannie need to be dismantled, but they cannot be allowed to disappear suddenly.  Banks must be given the time to make the necessary adjustments.

[MicroBalrog]

But the very purpose of government is to serve as Lender of Last Resort!

You're a tinfoil-hat wearing extremist, you!

The purpose of the Federal Reserve is to be lender of last resort.  Federal Reserve != government.

Obviously Congress and the Fed are not one and the same.

Now here's my Sarcasmometer - yours seems to be broken.

P.S. Obviously, the Fed is a public institution, it's just one that is not directly controlled by Congress. But let's not derail the thread.

[De Selby]

Lenders lend with the full knowledge that bankruptcy laws are on the books.  They factor that into their lending decisions.  The smart ones do, anyway.  Thus bankruptcy laws don't really change the lending situation, as long as they remain stable and predictable.

Freddie/Fannie are the same way.  Most mortgage loans are offered with the full knowledge that Freddie/Fannie are there to insure the loan and reduce the risk to the lender.  This is factored into the lending decisions.  If they were to suddenly vanish, it would throw all of the lenders' risk/reward evaluations right out the window.  The banks would suddenly be liable for all sorts of risk that they didn't expect and aren't in a position to handle.  That would destroy the banking industry and overall economy along with it.

Freddie and Fannie need to be dismantled, but they cannot be allowed to disappear suddenly.  Banks must be given the time to make the necessary adjustments.

You know, I think this is one of the reasons the welfare state concept gets so much traction.

When you're willing to say:

"Woah, we'll all have a few less dollars in the bank if these guys go under....time for some welfare"

and then say:

"Hey, granny's going to starve because she didn't invest properly? Tough, we don't do welfare"

It simply discredits the concept.  Folks (not entirely without justification) seem to get bitter that there's no money to insure them against unemployment or losing their homes (catastrophic events for individual consumers), but there's plenty of money to buoy companies so that everyone else's stock profiles don't take too much of a hit.

If you're going to oppose state intervention, you have to be consistent, or else over time people will see such measures as robbing the poor to pay the rich...and it won't belong before they are robbing right back, ala European style social programs.

[MicroBalrog]

Sssssh, Shootinstudent, that there is radical talk.

[The Annoyed Man]

But the very purpose of government is to serve as Lender of Last Resort!

You're a tinfoil-hat wearing extremist, you!

The purpose of the Federal Reserve is to be lender of last resort.  Federal Reserve != government.

Obviously Congress and the Fed are not one and the same.

Now here's my Sarcasmometer - yours seems to be broken.

P.S. Obviously, the Fed is a public institution, it's just one that is not directly controlled by Congress. But let's not derail the thread.

Please, don't derail it. We wouldn't want to get to the root of our problem. 

Also thrown into this bill, ALL credit card transactions must now be reported to the IRS.

All mortage lenders must now be fingerprinted?!?!? [WTF will that solve?]

That's the problem with bills in Washington. They can't just write a bill for a specific problem and be done with it [not that it would have made a difference in its effectiveness]. They have to throw in all sorts of crap.

I've been reading numbers like $300 Billion for this adventure in regulation. That sounds more like the wasteful government I'm used to.