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Say Hell NO to Government Bailouts!

Seriously. What the hell.

August 9, 2007 – Bush: No bailout for pinched homeowners

President Bush said Thursday concern should be shown those who’ve lost their homes but it’s not the federal government’s job to bail them out.

“Obviously anybody who loses their home is somebody with whom we must show an enormous empathy,” Bush said. Asked whether he would champion a government bailout, Bush responded: “If you mean direct grants to homeowners, the answer would be `No, I don’t support that.'”

August 31, 2007 – Bush to outline aid to mortgage holders

Offering federal aid for strapped mortgage holders, President Bush is proposing to help hundreds of thousands of borrowers hard hit by the housing slump.

The president on Friday was to talk about several initiatives and reforms to help homeowners with risky mortgages keep their homes, a senior administration official said Thursday. Bush also was to discuss efforts to prevent these kinds of problems from arising in the future.

Any federal program that allows home-loan-owners to keep the house that they can’t afford, and at the same time avoid paying back their debt obligation under the terms that they willingly agreed to is a “government bailout.” If believing that people should be held responsible for their own stupidly risky decision to take on more home debt than they could afford makes me a heartless bastard, then I guess that’s what I am.

I have been responsible with my money throughout this housing mania. I paid off all my debts (which consisted mostly of student loans), contributed to my 401(k), saved, invested, and didn’t buy things that I couldn’t afford. I’m not about to sit here and watch the government spend my tax money to prevent people from suffering the consequences of their own piss poor financial decisions.

[Update: For the record, I am equally against a bailout of the lending institutions and investors that propped this whole thing up from the back end. Would letting it all play out be painful? Yes, and maybe that’s exactly what this country needs to teach us not to gleefully prance down this well-trod bubble path again.]

Say Hell NO to government bailouts!

[Update 2: For the counterpoint to this post, see Sniglet’s forum post: 3 cheers for Bush mortgage bail-out!]

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

74 comments:

  1. 1
    Augs says:

    If this bailout goes forward, which I believe it will, I’d be willing to take part in a lawsuit against the federal government on two accounts:

    1) Failure to investigate and prosecute mortgage fraud.
    2) Failure to collect income tax on stated income declarations made when applying for mortgages.

    Are there precedents for such a lawsuit?

  2. 2
    johnnybigspenda says:

    I posted this on one of the other threads (and then read your next post): “the whole “rate cut thing” is not a bail out… its only a bail out for the market makers who will sell on the ‘good news’ that there is a rate cut. By creating this widespread fear, I believe this is how the fed hopes to create a ’soft landing’… hopefully by now people will have stopped refinancing their house in order to buy a car (and thus go further into debt for something that isn’t really a necessity). If people adjust their spending / debt attitude because of this fear that the sky is falling, then the fed’s job is done and the world will continue to spin as it always has… then again, there are those who ‘need’ their BMW and will continue to rack up their credit cards… i say let those dumb dumb’s go bankrupt and rent my apartments for a while (since a lot of them actually have pretty good cashflow… just no concept of money)”

    Based on the latest comments from Bush, I think I may retract my idea… there goes the much needed fear (that would have balanced out the greed)… if they start bailing people out by giving out grants, that is ridiculous… i can possibly understand mandating that the ‘toxic’ loans or ARMS that agressively increase be replaced with some 30year fixed deals or something like that … some of the lenders really did ‘prey’ on the weak buyers… I don’t think that would be as much of a bail out as a way to say: ok you screwed up by accepting the loan, but really those loans shouldn’t have been available… so here are some improved terms, don’t screw it up again…

    Then again, if the sucess of that plan depends on the people who screwed up once and took the bad loan… I don’t see how they will learn their lesson unless they feel some pain?

  3. 3
    sourmash says:

    The plan as outlined is pretty minor. Bush wants:

    -the FHA to insure refis for borrowers who are 90 days late but still in their homes. (Not sure who will pay for the risk of such insurance, but my guess is it would be rolled into the refi.)

    -short term (?) tax relief for people who refi to lower their total debt and people who lose homes to foreclosure, in the form of a waiver of a tax hit they take today.

    -a study to get the lending industry to come up with new products to offer debtors at risk of default (ie: the 40- and 50-year loan).

    About the only piece that could be considered a bailout is the IRS change, and that would have to be approved by Congress. Not likely.

    This won’t change much. It will put the issue on the radar for 2008, though. I know I’ll be watching closely.

  4. 4
    david losh says:

    Between making a comment on the previous post and now I read Bush’s comments. In my comments I alluded to the idea our government has been manipulating the housing sector by rate cuts.
    Hell no? Did you actually believe for a second that our government would not bail out our lending institutions? It’s a simple thing. This is much more palatable than the Savings and Loan scandal.

  5. 5
    nitsuj says:

    Ha, my first reaction this morning was a similar HELL NO! Pisses me off that people can be financially irresponsible and get away with it.

  6. 6
    johnnybigspenda says:

    does this mean i should buy that A4 that i’ve always wanted?

  7. 7
    Sniglet says:

    As I mentioned in the forum thread, I think that this bail-out is the LEAST our government leaders should be doing. A doctor should still treat a terminally ill patient with anti-biotics to fight off an infection even if metastasized cancer will kill them anyway. They should give anti-biotics to the terminally ill EVEN if that will lead to increased pathogenic immunity of the medicine that will result in more deaths down the road.

    http://seattlebubble.com/forum/viewtopic.php?p=4675#4675

  8. 8
    Alan says:

    Saying “No” doesn’t mean a damn thing after bills have been passed to implement such programs.

    Write your congressmen today and tell them that you do not support a bailout. You can do it in 10 minutes online.

    US Senate
    US House

    Remember, you live in a representational democracy. If your representatives do not know your views, they cannot represent you. Write early. Write often.

  9. 9
    Queen Anne Condo says:

    It is naive to think the Federal Reserve is not bailing out the speculators who packaged and resold high risk loans to investors. The Federal Reserve Bank IS a bail out program started in the 1930s in response to the stock market crash. We are living in a system that incorporates various bail out programs. Laissez faire capitalism is dangerous. Saving in a 401(k), investing, real estate, nothing is safe — part of the reason the investors set up the high risk loan backed paper was in response to the need for more investing options — we no longer have pension programs. Bail out the high end spenders or bail out the poor misguided, yes stupid, yes ill-informed mortgage holder. Someone is going to pay … we will probably have to pay from both ends …But do not feed us the common libertarian line that somehow the high end greedy investors are better than the ill-informed mortgage holder. These bubble economies may be the way exhausted over burdoned stressed out markets create value. I simply do not know enough economics to comment. The next bubble is going to come in the over heated Asian markets.

  10. 10
    mikek says:

    saying no to a bailout without knowing the terms of the bailout is just a knee jerk reaction (no offense).

    i agree dumb people shouldnt be rewarded with free money to live in nicer houses than i allowed myself to buy (b/c i am fiscally responsible), but i also do not want the chaos that a totally uncontrolled economic collaspe would bring. if helping stupid people prevents broader societal problems, then its better than the alternative, however annoying it might be.

    i have been frugal and invested in my 401k. i have zero faith in my ability or my 401k administrators ability to determine where in the funds i have available to me i can park money to avoid significant losses in the event of an economic meltdown. i have never looked to 10-15% returns from my 401k, the bulk of the funds were invested very conservitively. unfortunately, it appears that a significant amount of bad debt has contaminated my 401k plan, even though i tried to invest conservatively.

    if the governement, via money policy, bailouts, or whatever tools they have can prevent bank failures and massive losses to 401k plans and pension plans, great.

    for example, plans to enable underwater borrowers to refi into fixed 40, 50 or 60 years loans (in effect, making them permanent renters who have a chance to get above water in 10 years when the housing market is healthy again) might prevent mass foreclosures and mass losses to supposedly conservative invenstments purchased by pension plans and 401ks.

    becasue Wall Street knowingly marketed low quality loans as high quality investments, any governement solution should include taxes and penalties on Wall Street.

  11. 11
    redmondjp says:

    You do realize that this is a completely political move, right?

    The current powers-that-be created this situation and knew full well what the outcome would be. Now we’re seeing “compassionate conservatism” on parade in attempt to placate the sheeple (“just ignore that pack of wolves over yonder, they won’t hurt you”).

    I’m still reading Orwell’s 1984 and it is chilling to see the similarities. This isn’t about repubs vs. dems either — it’s about power.

  12. 12
    The Tim says:

    FYI, I updated the post with a comment about bailouts for lending institutions and investors.

  13. 13
    lowrydr310 says:

    Don’t buy an A4… Like a fool I wasted my money on one and it turns out the car isn’t what I thought it would be. It was at the dealership every other week for one little problem or another (YMMV, but I wasn’t too thrilled with the quality – I have a friend with an 03 A4 and he hasn’t had any problems and loves the car) I sold it and bought a brand new Honda Accord LX (for $10K less than the A4) and I couldn’t be happier!

  14. 14
    sourmash says:

    Mish’s take nails it.

  15. 15
    patient says:

    I think Bush severly overestimates the empathy for the ~2 million reckless mortgage gamblers that the other ~300 million americans have. If it’s a political move it’s probably a very bad one. Bernanke is doing better by focusing on saving the economy in his statements.

  16. 16
    hesotriflin says:

    Tim, Tim, Tim, Tim….

    You didn’t buy anything you could not afford??? wow, you obviously are not helping the US economy then, nor living the American dream.

  17. 17

    HEY, FELLOW BLOGGERS, YA READ THAT BERNANKE TRIPE THAT CAME OUT TODAY?

    Its hilarious and brainless too, yet stocks went way uppity today over the drunken speech, with vague interest cut promises omitted anyway.

    Its a must read:

    http://us.f515.mail.yahoo.com/ym/ShowLetter?box=Inbox&MsgId=6130_5870309_103703_1825_2168572_0_738409_2809389_1098150566&bodyPart=2&tnef=&YY=98647&y5beta=yes&y5beta=yes&order=down&sort=date&pos=0&view=a&head=b&VScan=1&Idx=0

    If you own stock, Whopeeeee!!!!

  18. 18

    OK, THE URL ABOVE TO THE NEWS STORY IS LIKELY RIGGED NOT TO WORK, HERE’S THE BERNANKE PINK PONY STORY:

    Bernanke Says Fed Will Do What’s Needed
    By JEANNINE AVERSA,AP
    Posted: 2007-08-31 11:51:07
    JACKSON, Wyo. (AP) – Federal Reserve Chairman Ben Bernanke pledged Friday that the central bank will “act as needed” to keep the credit crisis that has unhinged Wall Street from hurting the national economy.

    In anxiously awaited remarks, Bernanke didn’t specify what the Fed’s next move will be but made clear policymakers are keeping close tabs on the problem, which has roiled investors in the United States and around the globe.

    Even as Bernanke vowed Fed action, he sought to temper investors’ expectations.

    “It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions,” Bernanke said. “But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy.”

    President Bush , meanwhile, said the economy was strong enough to deal with turbulence on Wall Street.

    Bush, speaking in the Rose Garden, said he was briefed on the financial markets by Treasury Secretary Henry Paulson.

    “The markets are in a period of transition as participants reassess and reprice risk,” the president said in a rare comment about Wall Street. “This process has been unfolding for some time and it’s going to take more time to fully play out. As it does, America’s overall economy will remain strong enough to weather any turbulence.”

    Many believe the odds are growing that the Fed will cut its most important interest rate, now at 5.25 percent, by at least one-quarter percentage point on or before Sept. 18, its next regularly scheduled meeting. The Fed hasn’t lowered this rate in four years.

    The Fed “will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets,” Bernanke told an economics conference here.

    On Wall Street, stocks rose after the Fed chief’s remarks. The Dow Jones industrials were up around 90 points in late-morning trading.

    To guide the Fed in terms of what its next move will be, Bernanke said policymakers will pay especially close attention to the “timeliest indicators” as well as information gleaned from businesses and banks around the country. Economic data that was taken before the credit markets really seized up in August will be much less useful to policymakers to assess the country’s economic health, he explained.

    It was his first speech – and his most extensive comments – since the credit crunch took a turn for the worst in August. The carnage in credit markets and the turmoil on Wall Street pose the biggest test of Bernanke’s skills since taking the Fed helm 19 months ago.

    President Bush was announcing steps Friday to aide homeowners who are having trouble making the payments on risky mortgages.

    The Fed’s most important interest rate, called the federal funds rate, has been at 5.25 percent for more than a year. Any reduction to this rate would mean lower interest rates for millions of people and businesses. That’s why it is the Fed’s main tool for influencing economic activity.

    After listening to Bernanke’s speech, John Makin, principal at Caxton Associates Inc., believed the Fed was moving “a tiny bit closer” to a rate cut.

    In his remarks to a high-profile conference here on housing sponsored by the Federal Reserve Bank of Kansas City, Bernanke discussed some of the steps the Fed has taken so far to deal with the credit crunch.

    While problems were triggered largely by heightened concerns about higher-risk “subprime” mortgages made to people with blemished credit histories or low incomes, Bernanke said “global financial losses have far exceeded even the most pessimistic projections of credit losses on those loans.”

    To stabilize wobbly markets, the Fed on Aug. 17 sliced its lending rate to banks by a half percentage point to 5.75 percent. It also has pumped billions of dollars into the financial system to help banks and other institutions get through the credit hump and carry out their business.

    The Fed’s main concern, however, is the extent to which these problems might short-circuit economic growth.

    “The further tightening of credit conditions, if sustained, would increase the risk that the current weakness in housing could be deeper or more prolonged than previously expected, with possible adverse effect on consumer spending and the economy more generally,” Bernanke said.

    The fear is that if credit continues to become harder for people and businesses to get, spending and investment will be crimped. That could hurt overall economic growth. In a worst-case scenario, the country could slide into a recession. Credit is the economy’s life blood. It allows people to finance big-ticket purchases such as homes and cars and can help businesses bankroll expansions and other things that can boost hiring.

    After a five-year boom, the housing market went bust last year; problems are expected to persist well into next year as builders try to whittle down a glut of unsold homes.

    During the housing slump, a combination of higher interest rates and weaker home values clobbered homeowners, especially those with blemished credit histories or low incomes holding higher-risk “subprime” loans.

    With squeezed homeowners finding it impossible to make their mortgage payments or pay them in a timely fashion, foreclosures and delinquencies are soaring and are expected to get worse. Lenders have been forced out of business, and hedge funds and other big investors in subprime mortgage securities also have taken a big financial hit.

    Very low initial “teaser” rates jumping to much higher rates as they reset are socking some homeowners. Analysts estimate 2 million adjustable-rate mortgages will reset this year and next. Steep prepayment penalties have made it difficult for some to get out of their mortgages. Some overstretched homeowners can’t afford to refinance or even sell their homes.

    Most of the carnage has been in the subprime market, but problems have spread to other more creditworthy borrowers. That has sent investors into periods of panic in recent weeks, causing stocks on Wall Street to careen wildly.

    Copyright 2007 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. All active hyperlinks have been inserted by AOL.
    08/31/07 11:39 EDT

  19. 19
    johnyboy says:

    One thing to keep in mind is that the economy must really be threatened for the president and the FED to step in like this. Everything is not fine.

  20. 20
    wtf says:

    Perhaps I should have overbought when I had the chance. What’s the point of being fiscally responsible and rational when it comes to making high dollar decisions if you can be rewarded for greed and stupidity?

  21. 21
    Nude says:

    On it’s face this doesn’t help anyone enough to stem the tidal wave of coming foreclosures and subsequent cut-rate REO sales. But it does open the door for a full bailout at tax-payer expense. Congress comes back next week and in an election season I think we are likely to see the following scenario play out. In fact, some of it already has.

    Candidates come out with proposal “A”. Bush comes out with proposal “B”. Congress, with a lower approval rating than Bush, responds with proposal “C” that promises more than “A” and “B” combined. Political one-upsmanship dictates that the numbers of people being “helped” has to increase by each new proposal, escalating to an effective bailout of everyone.

    Bush’s motivation is his “legacy” as his administration comes to an end. By entering into the process now he has raised the political stakes for Congress. The current make-up of Congress doesn’t inspire confidence that they will resist the urge to score political points on an emotional issue at the expense of fiscal sanity. Given the past partisan battles, they won’t allow any Republican measure to be seen as more compasionate then their own in an election year. I can’t even imagine what a Democratic administration with a compliant Congress will do to tax rates in order to help people stay in homes they never should have owned in the first place, but I think it’s a safe bet that “the rich” will be footing the bill in 2009.

  22. 22
    uptown says:

    Here’s a great comment by John Law on the thehousingbubbleblog

    do you guys realize that temporarily forgiving taxes on a short sale is going to tank this market? think about it, so many people are probably only still paying their mortgage because they can’t afford to pay the taxes on a short sale because they are so underwater. now they can AND it looks like there could be a short window to do it! the herd is going to stampede out of the market before that gift goes away. people will say walk away while you still can.

  23. 23
    Happy Renter says:

    We are going to bail people out who bought more than they could afford one way or the other. Eventually many declare bankruptcy anyway. People who make good decisions will always be at the mercy of a government supporting people who make bad decisions.
    And unlike insurance, (the young subsidize the old, and they will be old someday, the healthy will likely be sick someday, etc), there is no eventual benefit from the govt for good decision makers.

  24. 24

    […] in 100% agreement with The Tim of Seattle Bubble: Say Hell NO to government bailouts! Any federal program that allows home-loan-owners to keep the house that they can’t afford, and at […]

  25. 25
    Grvetti says:

    President Bush said Thursday concern should be shown those who’ve lost their homes but it’s not the federal government’s job to bail them out.

    Geez, cold in Hell. I actually agree with the two-bit moron n’ Cheif for once…

    Although, the GOP’s been screwing working families for years, I guess there’s no discretion when it comes to stupid working families who signed their life away to the company store (aka toxic loans)…

  26. 26
    EconE says:

    Yeah…but since Seattle was late to the party…or so to speak. Seattle FB’s will most likely be screwed. After all…all GWB reads about in the paper is how special Seattle is and how it is immune to the bubble.

    So…GWB will save all the bible belt states and anywhere else there are packs of religious conservatives and by the time it gets to Seattle the bailout will have long since passed and been used up in places like FL, NV, AZ and all the other places.

    You guys had the best MSM cheerleaders up here and were pumped by every other publication in the country to get people up here to “invest” in Seattle RE.

    Somehow I doubt that Seattle will see much bail-out help .

    just my 2c fwiw

  27. 27
    Grvetti says:

    Offering federal aid for strapped mortgage holders, President Bush is proposing to help hundreds of thousands of borrowers hard hit by the housing slump.

    Alright, I take it all back, what said in the previous post. He IS planning on a bailout. The guy’s an idiot, why shouldn’t he reward idiocy?… Basically he’ll keep the subrimers in indentured servitude so Wall Street can recieve its IV drip to keep all those Hedge Fund bastards in the millions…

    Welcome to America, where stupidity is rewarded and everything’s done for show.

  28. 28
    Matt says:

    Yeah, let’s burn the idiots who borrowed too much, then cause a national recession and stop the spending craze that keeps our economy afloat and eventually burns your hard-earned money that you “wisely” saved (by investing likely investing a heavy chunk in stocks via your 401(k) or brokerage account.

    That’ll teach ’em!

  29. 29

    MATT, ASSUMING NO DEPRESSION, YOU’RE WRONG

    If we let the subprimes rot the stock market equity funds and don’t bail ’em out and there’s no stock market collapse, at least not bad enough to cause a depression, we enter a recession. Banks tighten credit requirements up or go broke, causing real estate to plummet because no one qualifies. The dollar falls in value, federal bonds collapse and the world moves their money out of America.

    What will savings rates in America do if that happens?

    Sky-rocket Matt. Then what will real estate do? Plummet some more Matt….

    The key, it doesn’t get so bad that we enter a depression with a stock market collapse too. The good thing [it may be a bad thing too] about American stocks, unless the foreigners sell, the equities are all getting bought out by foreigners and the manufaturing base for US stocks is overseas. It may insulate the stocks from a depression, the foreigners don’t want to go down too, with the American Titanic.

  30. 30
    CCG says:

    “Mish’s take nails it.”

    Yep. The point of any “bailout” is to keep the serfs in debt bondage. The ARM rape turned out to be a bit much and there’s a danger of the hoi polloi saying “kiss my ass” and walking away, so the PTB need to turn the temp down a bit to keep the frog boiling happily.

  31. 31
    david losh says:

    Good God!
    Some how Home Ownership seems like a good thing to me.
    We don’t have Health Care, unless we have that good job that offers good benefits. To me that’s slavery. We pay billions of dollars to prop up the oil industry, hell we send troops to war on a regular basis to protect our interests around the world. Do you think we kill people to benefit me, or you? No we don’t. Our government kills people to protect our oil, and drug industries. Do you have any idea what the prices are like at the pharmacy? We incarcerate and kill people to prop up that industry. Maybe that’s a comment for another time.
    People who have gone out on a limb to participate in the American Dream are not all idiots. Many of them, and I mean most, have been swindled.
    Our government brainwashes people every day about the American Dream. We show fancy houses and cars to the world as proof we are a great nation. You guys aren’t objecting to any of that. You’re objecting because Fed policy created a sense of well being that was totally false.
    The United States was attacked by an individual, not a soveriegn nation, who had the help of a few hundred men. An individual killed a couple of thousand people. Our government did nothing. A hurricane wiped out New Orleans and our government did nothing. The auto industry collapsed by building bigger and bigger cars and our government did nothing. The list goes on with AIDS, tobacco, insurance scams, pension funds, a stock market collapse, a tech industry implosion, but you guys today are talking about a drop of water in the housing sector.
    Hell no? The comments made by George today are the very least that can be offered.

  32. 32
    CHESSNOID says:

    I don’t know if this will be a true bailout. It looks like it might prolong the housing bubble from bursting, but not a long term solution. I am in the California area, so I am not sure what type of refinances the Fha can offer on the jumbo loans out here.

    The payments are still going to be substantially more per month going from any adjustable rate loan or interest only option loan to a 30,40 or 50 year fixed rate loan on a 500,000 to $1,000,000+ that is completely amortized. As far as the tax break, only consumers who are actually foreclosed on will get that tax break of not being taxed, but will not feel that until the following year’s tax filing. This actually reduces the tax revenue base collected for the government, since they would be recipient on the tax income.With a lower tax base on over 100,000 people being forgiven on the debt with no tax consequence, the federal government will have to increase taxes in the future to make up for lost tax revenues.

    Many people will just walk away from properties that are now worth less. It is like being upside down on a car loan but the loan is 50-100 times bigger. That is just not a good feeling.

    One last thing about the possible bailout, it would be a slow process of implementation that people who want to keep their houses while looking for relief from the government may be evicted before the program is put into effect.

  33. 33
  34. 34
    Andrew says:

    I did send this in to all 3 of my representatives – at least it helps me feel a bit less (very slightly) frustrated…

    Dear Senator Cantwell,

    I want to go on record with both you and Senator Murray as vehemently opposed to any type of bail-out for the housing situation so many Americans find themselves in.

    The reasons are many-fold, but to start: this does nothing but defer and subdue the needed effect of economic law to ‘ground’ people (both borrowers and creditors) to the reality of poor decisions and (‘extreme,’ in this case) over-extension/over-usage of credit.

    I have avoided to the best of my ability investments related to this phenomenon in any way, and have put-off the purchase of my first home because of the wrecklessness in the housing markets we’ve seen in the past few years.

    On a moral level, using my tax dollars, faithfully paid and maintained year after year, to in effect underwrite someone else who should have been making the same ‘sacrifice’ as myself (renting vs. owning) – is the ultimate in hypocrisy and taxation mis-representation.

    By extending this extremely skewed logic, instead of navigating myself in a free-market system, I should now in my own best interests, go out and purchase as much home as I can negotiate. And believe me, despite the credit market’s deterioration in the past several weeks, institutions are salivating for well-managed individuals like me with no debt, significant savings and excellent clean credit.

    In this manner, I can join the ranks of the ‘well-heeled’ in our country, who measure their prosperity by their indebtedness. This bail-out action removes any incentive for personal responsibility
    and prudent financial conduct on the part of individuals.

    When and where will this end? Would the government like to re-pay the dollars I lost in the dot-com correction of several years ago? That event profoundly affected my life and economic well-being for many years, and it’s only recently that I’ve in effect ‘caught-up’ to where I would have been had things gone differently. But I was willing to swallow my medicine and learn from my mistakes – homeowners dipossessed of their new homes will not fare any differently than I did. They’ll have to re-prioritize their lives and carry-on. After all, the house was never really their’s in the first place, and they’ll return to their renters’ status, appropriately.

    By the way, I tend to vote very liberal and actually support higher taxes to clean-up our national mess, as that is the only real salient path to pursue, albeit an unpopular one. But those higher taxes need to be spent on our national debt structure, to re-assert American economic primacy on a global level, not to aid and assist individual floundering new-home owners.

    Thank you for your time and consideration,
    Respectfully,
    -Andrew XXXX

  35. 35
    Andrew says:

    (ps – thank-you Alan for the links)

  36. 36
    UrbanArtist says:

    Tim you said exactly how I feel about the possible bailout. It should be painful for all involved, and this country does need to learn a lesson. My husband and I worked hard did not spend beyond are means. We both say no way to a bailout.

  37. 37
    rose-colored-coolaid says:

    David Losh,

    You point out a number of other policies that I imagine many of the people on this blog oppose. It just so happens this is a housing blog however and not a New Orleans blog, an Iraq War blog, or a Sicko blog.

    But I’ll weigh in; I’m with you on one out of three and undecided on the other two. The Iraq war is just to get oil. New Orleans is similar to housing, in that I feel bad for the people who got hurt, but on the other hand if you choose to live below sea level in hurricane alley you should consider what might happen. It’s kind of like if a really big earthquake hit Seattle. It’s awful, but we should all accept that it’s the risk we are taking to live here. As for health care, I believe there is still considerable public debate that needs to take place to determine whether public health solutions are better than private solutions. The HMO solution clearly is among the suckiest, but it’s not the only private options.

  38. 38
    UrbanArtist says:

    We also plan on writing to our Representitives.

  39. 39
    deepcgi says:

    bail outs, 60 yr mortgages, rate cuts? There is no silver lining here folks! This won’t prevent a collapse. It is simply saving some people today at the expense of others tomorrow. Here comes 1970s style inflation and the destruction of the dollar.

  40. 40
    uptown says:

    As we saw in Japan: you can artificially extend the pain, but it doesn’t make the outcome any different (i.e., lower prices).

  41. 41
    david losh says:

    Sorry, this is a Real Estate blog. Real Estate, or more important home ownership, is something I think our government should spend money on.
    My government sure as hell spends billions of dollars on doing evil. We are one of the most hated nations on earth, yet The Tim is advocating writing Congress to not spend my tax dollars on helping home owners.

  42. 42
    jcsc says:

    The bail out has already begun and it is called money printing. Infllation is the real bail out. Don’t know if you caught Cramer in his super freakout linking war financing with the mortgage and refi boom maybe it slipped.

  43. 43
    rose-colored-coolaid says:

    jcsc, spot on. Enough years of 10% inflation and the whole problem is solved. Of course, if we have a deflationary cycle instead…

  44. 44
    deepcgi says:

    the problem is, the bubble is world-wide but currencies are not equally valued. Inflation won’t solve the problem if the Chinese stop buying US T-bills.

  45. 45
    deepcgi says:

    and how will the Fed keep inflation at 10% per year? If they raise rates to slow it, home prices fall faster, liquidity dries up.
    Inflation will take off strong around Feb 08 when the ARM resets hit their high points for the year and the Fed will have to react. Plus, only 10% inflation per year is too late. Everyone’s ARMs will reset before they’ve got salaries high enough to pay the mortgage. I would say we’ll see a surge in inflation followed by interest rates rising followed by massive bail-out legislation by President Hillary Clinton.

  46. 46
    Old Ballard says:

    As of December 2006, there were 79.3 million active mortgages/home equity loans in the US, according to Fannie Mae…

    The Bush plan could save maybe 80,000 homes through the FHA.

    The national debt runs something like 8.9 trillion dollars.

    I’ve seen estimates that the housing market is leveraged at about 11 trillion dollars that would be about 95% of GDP.

    Lets say that only 2 trillion in mortgages fail in the next five years and the Irag war drags on for another 10 to fifteen years at 250 billion a year with gas in the near future hitting 4 to 5 dollars a gallon.

    It’s not just a housing market. No government bailout can fix a broken system. Everything is connected. If you print money all prices are inflated across the board not just home prices. Printing money will also mean raising taxs because it inflates prices for the cost of governing.

    At some point you have to start paying down this growing federal debt that in five years will top 12 to 15 trillion dollars turning the US dollar into another Peso.

    And the snowball gets bigger and bigger and bigger.

  47. 47
    rose-colored-coolaid says:

    The national debt is why I think we will inflate our way ‘out’ of problems. If you could make 20 trillion dollars (national debt + housing bubble) have a real value of $5 trillion, it helps. Yes, our gas would then cost $16 a gallon, and our pay will only be double what it is now, but suddenly everything is so complex nobody knows who to blame.

  48. 48
    Old Ballard says:

    Real wages have stagnated for the last 30 years. The mean household income is 47,500. In 1999 it was 49,500. The average Fortune 500 CEO makes that in one day. The inflation plan works great if you’re confortabe with 75% of the population renting and depending on a police state to keep all the unhappy renters under control. Of course that does sound a little like Bushs plan. Care to have your phone tapped without a warrent?

  49. 49
    Eleua says:

    America is a 300,000,000 person day-care.

  50. 50
    stephen says:

    sucks to be you can turn into sucks to be me very quickly :-)

  51. 51
    Mark L says:

    I guess I don’t understand the concept of an FHA bailout. From my recollection (things may have changed in 15 years), FHA loans have relatively low caps by today’s housing price standards. FHA insurance is expensive, and is generally paid upfront by the borrower (the small required “down payment” IS forked over as pre-paid insurance – with a partial refund when you sell or re-fi – and how many toxic loan deadbeats have even 3% for a down payment?) – plus an additional monthly insurance payment (in the early 1990’s it was about 0.5% per year) except for condos. The FHA program is self-funding/sustaining, meaning current FHA loan holders will get screwed (terms will be re-written, pro-rated refunds upon sale or re-fi will be much smaller – this happened in the mid-90’s) in order to cover the deadbeats, many of whom will default since their income ratios will still be extremely high by traditional standards (no way around that).

    Am I missing something here?

  52. 52
    david losh says:

    Thank you Old Ballard. It’s a voice of reason that all things are connected.
    A bail out was Enron, and a couple of guys went to jail and stock holders, employees, and the American people lost a ton of money. The thing is that money, like housing, doesn’t really go anywhere. It’s circular.
    What Bush is actually proposing is propping up the banking industry, more correctly the Institutional lenders.
    The Fed created this easy money atmosphere and encouraged Lenders to make the loans to build the construction projects that gave jobs to the workers who bought houses and filled them with washers dryers refrigerators then put a Hybrid car in the garage like responsible people do.
    Here on this blog, the same as at the Rain City Guide, the Post and Comments are blaming the consumer. How dare people for one time in a short life have stuff. That stuff is our economy. The American way is to have stuff, like 401Ks, and gold!!!! What’s the difference, we’re all consumers. Our money is some where.
    Now as has been pointed out to me this is a Real Estate blog. Real Estate means Real Estate not fantasy pink pony housing. I’ve talked about the condos and ticky tacky town houses that people bought for a half a million dollars. Town houses, in my opinion are not Real Estate. Converting an apartment building that was built to last fourteen years, a formula us old timey guys remember from back in the day, and turning it into condos, again, is not Real Estate.
    National or personal debt can be a good thing depending on the assets.

  53. 53
    johnnybigspenda says:

    speaking of pink ponies… check out this news video from Yahoo. (pay attention at the 1:02 mark)… the “Pink Pony Strip Club”… HA!

  54. 54
    johnnybigspenda says:

    speaking of Pink Ponies… check out this news video about winning the lottery from Yahoo. (pay attention at the 1:02 mark)… HA!

    http://cosmos.bcst.yahoo.com/up/player/popup/?rn=49750&cl=3918722&ch=68276&src=news

  55. 55
    Sen says:

    I wrote to my senators and congressman saying no to any bailouts. I urge everyone to do it.

  56. 56
    CCG says:

    To get an idea how effective this is going to be, read “Freedom From Fear” by David Kennedy. It tells the story of Herbert Hoover, a brilliant man, trained as an engineer, and self-made wealthy at a young age. After the Crash of 29, Hoover became a human whirlwind in trying to stop the onset of depression. He convinced businesses to delay laying people off or cutting wages. He convinced banks to delay foreclosing on delinquent mortgages. He convinced other nations to put a moratorium on Germany’s WWI reparations debt. Many of FDR’s “New Deal” programs actually had their origins in the Hoover Administration, though your school history textbook tells you otherwise because it wants you to believe that massive government intervention is a good thing.

    The sad results of Hoover’s efforts are of course history. Businesses, since they couldn’t cut wages, simply stopped hiring people. Banks, since they couldn’t foreclose on delinquent loans, simply stopped making new loans. Hoover exhausted himself in the age-old folly of trying to bypass the laws of economics, which are the laws of human nature.

    Now consider that this same Sisyphean task, which has proven too much for people of (albeit flawed) genius throughout the ages, from John Law to Marx to Hoover, is to be taken up by the guy who brought you the Iraq war and the Katrina bailout, and ask yourself how much better he’s likely to do.

  57. 57
    Old Ballard says:

    “Thank you Old Ballard. It’s a voice of reason that all things are connected”, and thank you for the nice word, but I’m that reasonable. The system is corrupted, tainted, dishonest, bankrupt, and needs not to be cleaned out, put out of business, and replaced with a system that benefits everyone. Take this example:

    “The number of millionaires around the world has almost doubled in the past 10 years to 8.7 million, according to the World Wealth Report, compiled by the Wall Street firm Merrill Lynch. Their combined financial wealth is $33.3 trillion–more than the value of all the goods and services produced last year in every economy in the world except the U.S. Their wealth dwarfs–by 10 times at least–the annual income of half the world’s population, which lives on $2 a day or less”.

    According to the Economic Policy Institute, http://www.epinet.org/, since 2001, real hourly wages in the U.S. rose only 3% for the middle-income worker, with none of this historically small progress occurring after 2003.

    My opposition to a bailout come’s form the conviction that inflation hurts the poor more than the rich. The rich are just less rich. The poor and middle income worker suffers. Bill Gates could give a shit if we inflate our way out of the housing crises, but the hundred of millions of people with household incomes less than 50,000 a year do. If the economy tanks today many people will suffer. If we inflate are way to the economic benefit of a few the future will be far hard on the people least able to deal with it.

    Better to pay the bill today.

  58. 58
    nitsuj says:

    Andrew, nice letter. I wrote something similar, glad to see everyone putting their $.02 in.

  59. 59
    Old Ballard says:

    Woops, should have said, “I’m NOT that reasonable.”

  60. 60
    John says:

    Both sides of the political spectrum will want to bail homeowners out. I am afraid you will have to have your own counter-measures. Bet against the US Dollar. Put your money in foreign currencies and buy stocks in strong foreign companies.

  61. 61
    Toby Barnett says:

    From my understanding the government wouldn’t be their to bail out homeowner or the lending istitutions but provide an option for refiancing if a homeowner could qualify for the FHA Secure program. Also isn’t there legislation being reviewing to improve the current FHA lending program?

    The government is venturing into territory that can become slippery since the US is a mostly free market society. I see this as a positve, could be the optimist i me, and just hope that is not some political ploy to get the republicans on the publics good graces entering election year.

  62. 62
    Don says:

    I agree with you. Neither the banks nor the people should be bailed out. I’m with you in that I was responsible during the whole bubble. Why should we have to bail out anyone. Let them suffer the consequences of their actions. If they lower interest rates they are going to collapse the dollar. I would say, get your money out of the stock market on any strength. Lots of experts are now saying we are heading for a full blown depression.

  63. 63
    david losh says:

    Oh My God, not the dollar!!! It says in God We Trust right on it!
    I’ve been thinking about this for days now. What does being responsible mean to you. Living in a rental, working your job, saving your money, and not buying things you can not afford? Is that what I keep reading? Is that responsiblility? Is going to college, getting a degree, and working for a company the makings of a responsible citizen?
    When the federal government does anything that you disagree with do you vote for change, take to the streets to protest, or demand accountability? Is that what you are all doing here today?
    Tim, I admire the fact you have created one of the best forums I have found on the internet. Your research and perspectives are top notch. You have uncovered, as you or some one put it, the biggest Ponzi Scheme in history.
    You want data and research in an area that those things have no place in. We are talking about wealth, conspiracy, and mass hysteria. Data has no place here.
    Remember the conspiracy theory from the Kennedy era that thirteen wealthy men controled the world economies? How many of you here today would agree that this theory may not be to far fetched?
    Housing Bubble, Stock Market, Free market, Dollar Valuation; does any one think there’s a possiblity any one of these economic factors can be manipulated by duly elected politicians on any given day in history?
    That’s right this is a Real Estate blog. Here’s some reality, the data makes no difference. We want home ownership.

  64. 64
    uptown says:

    We want home ownership.

    Except when we don’t.
    In the late 90’s, during the dot.com boom when salaries and stock options were booming, I was only able to convince one couple to buy in CA. When I went back in the spring, all the others (that I had tried to convince before) had bought within the last 2 years.

  65. 65
    rose-colored-coolaid says:

    Uptown,

    That’s madness. Are you suggesting…no it can’t be true. Well, maybe.

    are you suggesting that during bubbles people do things just because everyone else is? It’s crazy, but maybe, just maybe it might be true.

  66. 66
    SLTO says:

    It’s not about homeownership…

    most people bought (at least the 2/28 arms) because they envied their friends who made globs of equity…

    it’s pure greed and keeping up with the Jones’s that got people into the trap…

    My wife kept asking why we couldn’t get twice the house when her friend who makes half we do did…

    I showed her this blog and that helped… this was 14 mos ago…

    There should be a bailout, in that all arms should reset to the LIBOR rate with no index margin… that I can support…

    but no debt should be forgiven… you borrowed it, you’re responsible..

    you go to a casino and if you lose they don’t give your money back…

    Bush’s current plan actually sounds good… help people refi and investigate fraud… I want to see appraisers and LO’s see the inside of a jail cell…

    Bush should send a strong signal by building a new detention facility in every state… and fill it with mortgage cheats…. I can support my taxes going to that purpose…

  67. 67
    Chief Sealth says:

    Read this for the full story about the economy —
    http://www.financialsense.com/fsu/editorials/deepcaster/2007/0831.html

  68. 68
    Chief Sealth says:

    What most Americans don’t yet understand is that in order for the North American Union to begin integration in 2010, with the new Amero currency, the US dollar must (and all of the debt that goes with it) be phased out through massive devaluation. No American would willfully accept a plan for integration with Canada and Mexico, with a new currency, and the loss of American sovereignty to the United Nations, unless the US economy were intentionally crashed, first.

    This USD devaluation is happening through massive war spending and now also through mortgage lender bailouts. Those who have been voting for pro-war politicians who are members of the Council on Foreign Relations (CFR) have been effectively brainwashed by the mainstream media. The CFR is pro-North American Union and pro-war spending for corporate profit.

    Nearly all of the 2008 presidential candidates are active CFR members. Party lines are a fabricated illusion to keep you distracted. If you still believe there’s a different between dems and repubs, you have been brainwashed. Ron Paul and Dennis Kucinich are not CFR members, however. Ron Paul is publicly against the North American Union and the Fed’s intentional crash of the US dollar.

    Vote for Ron Paul in 2008!!! Get rid of the pro-CFR anti-American politicians who seek to profit from corporate fascism and the loss of US Constitutional power via a new UN constitution (just like what’s happening now in the European Union, where the UN has successfully come into power).

    You did know what you were voting for, when the Bush’s were talking about the New World Order, didn’t you?

    The US housing bubble was planned and is necessary for the crash of the US dollar.

  69. 69

    YOU’VE GOT A POINT CHIEF SEALTH

    There’s one anomaly to your thinking or SSP’s irrational planning?

    The foreigners have been buying American equities (mortgages too) like crazy lately…if the dollar crashes, we stop buying Honda and Mercedes too…that would hit them like a quick punch in the stomache.

    If the foreigners sell all the Hedge Hog funds, same result. Dollar crashes.

    Another thing the brainless SPP board failed to consider about themselves, these folks have no backbone, they just go after short-term profit, greed and they’re afraid of good old Yankee confrontation [that’s why they’re secret and ambiguous] by loyal Americans, police and soldiers.

    If there was ever a NAU, believe me, there’s gonna be uncontrolled masses of pitch forks and torches in Canada and America.

    Mexico has all the debt and they’re more repressed by their gun-toting drug Mafia government too, so they’ll cower with the SPP chickens too, when all Hades breaks loose in Canada/America, if this NAU nightmare becomes a reality!

  70. 70
    Chief Sealth says:

    Hi softwareengineer:

    The NAU will be much like the EU in flavour. There were people protesting in Europe, and there still are, but you don’t see it on the mainstream news, for a reason. Most Americans still trust the mainstream media, and as long as that’s the case, the USA will be part of the NAU.

    Some will want to start a civil war, but it will fail because there will be no press coverage and the coverage that does exist will make the protesters look like “domestic terrorists.”

    The crash will be what Catherine Austin Fitts (see http://www.solari.com ) calls a “slow burn.” Inflation will slowly and progressively eat away at the US middle class until they are poor and powerless. All the while, the NAU will be taking away their Constitutional rights.

    Rockefeller himself has publicly stated that the takeover by the international corporate banking families (aka, the UN) needs to be slow and steady, as to not raise any alarms. The mainstream press has been part of the secretive Bilderberg meetings for a couple of decades now. They will never report on what happens at those meetings of the global elites who plan our future for us, and give us the illusion of democracy.

    Historically speaking, you have to remove the middle class in order to remove the power of the dissenters in a dictatorship. Make the middle class part of the poor, in other words. Turn them into serfs.

    A mortgage is simply paying rent to the government or the international bankers, afterall.

    If you want to understand home ownership and long-term, you now have to understand politics and global power plans that have been in the works for decades, starting with the Trilateral Commission and the Bilderberg meetings in the 1950s.

    You may make money in flipping property, but you will still be transacting in US dollars that will be devaluing at an ever-increasing rate. War with Iran will step up the pace of USD inflation quite a bit, all the while the US economy will come to grinding halt.

    HSBC international bank will allow you to transfer your IRA and your cash holdings into Chinese yuan currency. The yuan has been increasing in value against the USD for some time and should continue to do so as China becomes the new world superpower.

  71. 71
    jim says:

    Some information on real estate from out side the Seattle area. Boise Idaho has a glut of new homes for sale. Most are high end homes that require jumbo loans. There was a huge run up of prices (45% in one year) when investors bought into the market a few years ago and now those two year flips are hitting the market also. Existing home owners got their tax statements reflecting the new tax and have decided they can no longer afford to keep up with mortgage payments, up keep and Real Estate tax since their wages and benifits are going no where. Many of the homes builders in Boise use Migrant Workers to paint, insulate, landscape, roof, and put up siding and frame the homes thus avoiding the expense of paying a decent wage and benefits to the american workers. The home price does not reflect the cheap labor. Boise thinks their home values should be on par with Seattle and Portland however a short distance out of the center of town are sprawling acreas of buildable land. (They are not land locked like Seattle). Huge delelopment sites are coming to a standstill as builders finallly see the glut they created. entire neghborhoods of unsold homes sit and have been sitting vacant for months. Layoffs are starting with companies like Micron. Home builders will be laying off their crews and many will move out to other areas. The housing slump in the rest of the nation is severely slowing down sales here as those who wanted to move here can not till they sell their homes.

    Idaho has a sales tax, state tax and vehicle licence tax based on value of vehicle along with a high real estate tax and tax assessors who are Johnney on the spot to value your home.

    Realtors here continue to price homes like nothing is wrong hoping to cash in on the few unsuspecting buyers coming into the state from outside. 6% is still the norm on brokerage fees. A few will actually do an open house for the sellers and most admit that they are lucky to get a tire kicker let alone a serious looker. none think they should lower the prices. Boise has been in a boom mode for years with homes and shopping malls and commercial buildings. The new schools, fire halls, goverment buildings and shopping malls are about done. Roads in the area are being improve at record rates. Its all coming to an end here this fall for the most part. Now everyone can sit back draw their unemployment and pay their taxes and give homage to their gods

    It sounds like we are no different then the rest of the country.

    Jim

  72. 72
    Derrick says:

    I wrote the securities and exchange commission about two years ago about my neighbor. I couldn’t get a response. My Neighbor bouth his 1600 sq.ft. home for $499,000. here in Southern California. He overpaid by about $50,000. He took out two loans, so he financed 100%. He speaks broken English and tells me he works at Jack-in-the-Box. He illegally over rents in our once nice suburban neighborhood. There are about 9 cars parked at his home every night, two of them are trucks that load up with construction laborers each morning. Though there is no sign out front, I saw his home for sale on the multiple listing service. It says he is doing a short sale. The tax records show me he is behind on his taxes, so he is probably in default on his loans. So, he is not paying his loan, yet he’s still renting to an illegal amount of people, who don’t speak English.

    Why should he be bailed out. He has put down no money. Though his mortgage was high, he paid less than rent because he over rented. Now he is living there for free during reposession and collecting rents.

    This is not an unusual story here in SoCal.

  73. 73

    […] I have made abundantly clear here in the past, I couldn’t be much more strongly against bailouts. The fallout from the […]

  74. 74

    […] to take action by contacting your Representatives and Senators.  I’ve made it clear before how I feel about government bailouts, so I definitely support what they’re trying to do […]

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