Vader

The only way to fix this problem is to force lenders to be honest by ruining those who are dishonest.

We also need to outlaw adjustable rate loans and the associated small print bull**** that goes therewith.

Finally, the relief being offered by GWB needs to be increased to 20 years at least. This will allow the damage caused to the market by corrupt republican greedmongers to correct itself; it will also help home owners retain their homes.

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SFLRN

I can see the argument that individuals who were specifically dishonest should have lawsuits brought against them; however, to outlaw a loan format simply because our first experience with the format (as with many other products/financial tools) had a boom bust period. This downturn is needed to prevent excessive risk-taking. Investors and homeowners need to feel the consequences of their actions so they are more cautious in the future. (In the event that they were misled they then could compensate this loss through trial settlements). Bailing out homeowners would set an unhealthy precedent, and could encourage unnecessary risk-taking in the future.

Vader

The FED is responsible for being coroporate stooges. That is the truth.

Vader

Maybe it would but it would also make big business scum realize their days of sodomizing the American home owner are at an end.

Business MUST be forced to feel the sting of its misdeeds... even if that sting is the loss of all corporate profits for 1 to 5 years.

SFLRN

Most financial organizations that issued these loans are feeling the effects. Thousands of employees are being laid off from companies that relied on these securities too heavily. The American home owner wasn't sodomized. Many people chose to live beyond their means and did so using a loan format they knew would be expensive down the road. In the event that they were deliberately misled then they should have the right to go to trial; however, many of the individuals who took out these loans are just as responsible as the people who issued them. They could have chosen a a fixed rate format, instead many decided to live beyond what they could afford by having a low "teaser" rate.

metreon

Even as a non-homeowner, I have sympathy for people who got stuck, but there never has been, nor likely will be, a cure for irrational optimism. People need to understand that over the last 50 years there has been a dramatic decline in the affordability of homes.

Media hype of "stable" home ownership per capita implies stable affordability, but the hype leaves out: (1) dramatically larger numbers of multiple income buyers needed to make payments, (2) the number of owners who are simply investors has risen from 6% of the market 20 years ago to 25% of the market today, (3) banks continually introduce new financial products which deftly obscure rising inaffordability, allowing more and more people to get into homes who would otherwise not be able to buy. Ultimately, the basis of affordibility now is increasingly pegged to expected appreciation as well as the possibility of new financial instruments which can harness two or more incomes to both dilute the burden of the cost of home appreciation, and ironically, fuel the growth of that appreciation.

I view affordability as not just the ratio of monthly payment to monthly income, -- it makes more sense to look at the the total purchase price as a ratio to one's income and compare that to historical norms. If the median cost of homes in the 1950's is compared to median income then, homes were only about double the median income. Today, the median cost of homes is 4 times median income, and in major urban areas that difference has grown to a staggering 5-15 times median income.

Part of the problem probably grew from the increasing numbers of two-income buyers, based mostly on the natural coupling of people in matrimony, bidding up the market. In the 1950's, although matrimony was more common, two-income buyers were much rarer. Now, the cost of housing builds that statistical reality into the cost, making it nearly impossible for all but the wealthiest individuals to buy, or at least buy rationally. One has to ask though, now that two-income buyers are the new norm, where is the next step in "multiple incomes" to come from that will continue fueling housing appreciation? Polygamy perhaps? A joke of course, - more likely banks will devise yet more financial products allowing couples to partner with other investors, thereby insuring individuals are served smaller and smaller shares in equity and sense of ownership. In very expensive locations like New York City or San Francisco, such experiments already exist.

Here is a longitudinal example of the basic affordability problem: my father immigrated to the U.S. in 1950, and within three years bought a 4 brm, 2 bath, 3 level detached home with large yard for about $12,000 on an income of about $5500 (close to median) in a suburb of Washington, D.C. That same home now is estimated to be worth $640,000 in a suburb where the median income is only $53,000. The home is valued at 12, not 2, times the median income. I would argue that represents a large decline in affordability, despite the fact multiple incomes and financial instruments may create the illusion of affordability by keeping monthly payments within monthly income. It is not what one pays per month that counts, but what the total cost is to income. Home affordability has been steadily declining, not rising over the decades.

Bailing out buyers and banks to try and stabilize a bubble only delays the inevitiable.

Goldenboy219

Ive tried to make a cause about that same issue before, and all i got was grief from the communists and solipsistic finance buffs.

Believe you me, if the housing market took a turn for the worst, and wall street wasnt to be bothered by it, there would be no help on the horizion for these home owners.

All Bush's "bailout" really does is keep the SPMBS market from imploding. Most of the SP mortgage holders that are unable to be helped (people who were late in payment or in danger of foreclosure) are truly the ones who need it. Yet i am willing to bet the yields on these securities has gone through the roof, leaving little doubt that repayment isnt going to happen.

Anyone who truly thinks the fed is here to help the people need to get off the anti-depressants and come back to reality. Corporate America's plutocratic grip on this government is all to clear, and the fed is their way of protecting their wealth from more deserving individuals.

Instead of correcting mistakes, here is an idea!!! Lets devalue the currency

__________________
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SFLRN

By freezing the rates it is more likely that the legislation has lowered or made neutral the returns Wall Street receives for such securities (and bets based off of those securities). Freezing the rates either A. Lowers the expected returns for some investors and/or B. Many hedge funds who placed shorts on these securities (that they would go down) would lose money if those securities did increase their value as you suggest. Another possible scenario is that the freeze discourages future investment in these securities (because this kind of intervention might be seen as possible in the future) and would lower returns in the long-term. I myself am against this policy, but how large of a role Wall Street might have played in this is, or how much this actually benefits them is arguable at best.

Goldenboy219

Rates are expected to be cut another .25%, Wall Street rallied, and it is what it is.

The feds purpose is to keep WS looking all peachy. If they dont, what happens to the value of the $?

Goldenboy219

Say a set SPMBS was to be purchased for 100k. If 25% of this market is to be known for default, i would guess you could purchase these "notes" much less then what the face value is.

I understand the securities market differentiates slightly from that of the bond market, but I know that repayment is based on the face value of the "note".

I was unaware though that a short position could be taken in the form of debt. If it can, wouldnt it have already paid high returns???