March 23, 2007

The S&L Crisis cost US taxpayers $125 Billion. How much will the Housing Debacle cost us?

Here we go again...


Folks, if US politicians spend one single fu*king American taxpayer dollar bailing out the subprime / Alt-A / Housing Bubble mess, either from a consumer or business end, then you know the system is corrupt, the game is rigged, and any confidence you may have had in your blowhard government or your fiat currency is completely misplaced.

Not one single fu*king dollar should be spent on this disaster. The market will take care of itself, even if it gets ugly (which it must if we're to cleanse this mess). So why do I have the nagging fear we may potentially be talking over $1 Trillion in taxpayer dollar support before we're done? Fannie & Freddie? Foreclosure support? Bank bailouts?

The Neil Bush S&L Crisis will be child's play after this Housing Debacle is over. And both could be subtitled "While Congress Slept"...

The Federal Reserve helped create a "perfect storm" in the US subprime mortgage market that could expose up to 2.2m more Americans to the threat of home repossession, Chris Dodd, chairman of the Senate Banking committee, said on Thursday.

Mr Dodd, who is also a Democratic party candidate for the 2008 presidential nomination, alleged that the Fed had failed in its oversight role at a time when the growth in high-risk "adjustable rate mortgages (ARM)" to risky borrowers was exploding.

Mr Dodd said that US regulators had relaxed guidelines on mortgage lending at precisely the point in 2004 and 2005 when the riskiest ARM loans – which impose initially light monthly payments that escalate rapidly at a later date – were growing most rapidly. This also coincided with the start of the Fed's consecutive 17-stage rise in US interest rates.

"Despite those warning signals . . . the leadership of the Federal Reserve seemed to encourage the development and use of ARMs that, today, are defaulting and going into foreclosure at record rates," he said.

29 comments:

tim73 said...

I think US government will try to bailout major banks (if anyway possible). There is actually a modern day example of government bailing out major banks.

Finland (and Sweden but not as much) suffered Great Depression like economic recession in the early 90's after very similar real-estate crash.

All the "non-performing" loans were eventually put to one big "junk bank" and that saved major banks going under.

There was only one BUT. It created moral hazard for bankers because government was paying everything. All kinds of loans were declared as non-performing for just minor payment difficulties because "government pays anyway". Public debt of Finland skyrocketed from under 20 percent of GDP to over 70 percent in mere four years!

That saved the system but with huge costs. Interest rates were over 15 percent back in 1992 and unemployment reached almost 20 percent. Luckily, the public debt was so low before the crash and government could afford this.

The US real-estate crash is going to be much much worse because lending standards have been even worse and debt levels are very high already (consumer, states, cities and government). Where is the money for bailouts? I just do not see it anywhere.

You guys are going to need trillions of dollars in order to save the system when TAX REVENUES are collapsing. This is downright scary.

USA defaulting is very likely just a couple of years from now. The other possibility is the dollar collapse and diluting of debt via hyperinflation. Helicopter Ben is probably going to do just that.

jmf said...

here is more on this topic

Regulators Scrutinized
In Mortgage Meltdown / wsj
http://immobilienblasen.blogspot.com/2007/03/regulators-scrutinized-in-mortgage.html

Anonymous said...

There goes Jeb's chance of every getting his hands on the most powerful job in the world. When your family's got form, including the S&L scandal and a major hand in the GDII (second great depression), no one will vote for you.

Anonymous said...

The only way to solve this is inflation, as a tax people would not buy it, but inflation *is something we can't control*, it happens, just like rain.

Jayman1957 said...

President Dodd connect the dots......Federal Reserve....Low rates.....Bubble....Arms....disaster.......Who is to Blame????

FlyingMonkeyWarrior said...

Keith,

That pic looks like an ugly Bride and Groom.

FlyingMonkeyWarrior said...

No seriously, how will the Gov. 'Bail Out Team' tell the people who got in over their head for lack of due diligence, ignorance or misplaced trust from the KC Serin fliptards and the crooks? How will they tell the honest lenders form the liars and theifs?

I see this as another case of the laws that are on the books not being enforced, with the resulting message, "Let's forgive the scam artists that got rich, they should not be punished".

This is worse than amnesty for illegals, and cut of the same cloth.

I say, "Let them refi."

Anonymous said...

I'm suprised that Dodd wants to look so stupid instead of saying: "it's their own damn fault!"

How can we have "choice driven healthcare" if people can even choose the right mortgages or choose to rent vs. "rent money" rationally...

Anonymous said...

did you see what the british fed head said:

The Belfast Telegraph reports this week that former Bank of England governor Eddie George has spilt publicly what we've been pointing too all along:
Lord George, who headed the Bank for a decade from 1993, revealed to MPs on the Treasury Select Committee that he knew the approach was not sustainable. "In the environment of global economic weakness at the beginning of this decade... external demand was declining and related to that, business investment was declining," he said. "We only had two alternative ways of sustaining demand and keeping the economy moving forward - one was public spending and the other was consumption.

"We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term. But for the time being, if we had not done that, the UK economy would have gone into recession just as the United States did." [emphasis added]

fish said...

Anonymous said...

There goes Jeb's chance of every getting his hands on the most powerful job in the world. When your family's got form, including the S&L scandal and a major hand in the GDII (second great depression), no one will vote for you.


Why do you think the bush clan bought all that property in Paraguay.....they'll need a place to hide!

The Bushes should have run the smarter one first...then the retarded one!

Anonymous said...

FU Dodd

Anonymous said...

I have known for a long time that the system was corrupt. So what is the Greenspan debacle going to cost me this time around?

bubly said...

Anon said:
*So what is the Greenspan debacle going to cost me this time around?*

A whole lot less then OPEC is costing you..

Anonymous said...

I like a free market as much as the next guy, but what do you guys think of legislating that all future mortages be fixed rate with 20% cash down? It would slow down ownership growth for generations, but that ownership growth would be concrete solid.
jbwvegas

Anonymous said...

In my lifetime I have purchased six homes and in each case deposited 20% down which has always been the standard with S&L'S for years.
Mortgage co.'s operated outside the F.D.I.C. thru private lending sources with no oversight.
HELLO recession!

Anonymous said...

Here's why the government will bail out the subprime borrowers. Votes. 2008 is right around the corner, and the Dems and Reps will be tripping over eachother for votes.

Meanwhile, people that play by the rules will be fu*ked again.

As painful as this may be, the government needs to let the housing correction play out.

me said...

" The S&L Crisis cost US taxpayers $125 Billion."

Come on now! It was closer to $600 billion, and that was in contemporary dollars. In current dollars, it would be way higher.

The taxpayers are likely to get screwed this time, just like they did last time. Don't expect our lying corporate media to point that out to anyone.

Paula said...

Signs of the times are definitely in the NY Times--today. Local government is already getting stuck with part of it:

"Foreclosures Force Suburbs to Fight Blight

By ERIK ECKHOLM
Published: March 23, 2007

SHAKER HEIGHTS, Ohio — In a sign of the spreading economic fallout of mortgage foreclosures, several suburbs of Cleveland, one of the nation’s hardest-hit cities, are spending millions of dollars to maintain vacant houses as they try to contain blight and real-estate panic. "

read the rest (free subscription)

Anonymous said...

No bailout!!! This is the year of responsibility. This is the year that people are held accountable for there decisions.

Anonymous said...

"I like a free market as much as the next guy, but what do you guys think of legislating that all future mortages be fixed rate with 20% cash down? It would slow down ownership growth for generations, but that ownership growth would be concrete solid.
jbwvegas"

Although I am also all for free, market, I think that concept has merit. Due to the fact that banks and lenders have not exercised due diligence on their parts, legislation might need to be brought in to provide a cap to the issue.

But its too little too late. Remember that it was the government created mechanisms like Freddie and Fannie that played a large role in this debacle. The good old days saw banks scrutinize every loan they issued. Nowadays, banks simply repackage all their mortgage debt and pass it off to Fannie and Freddie thereby passing off the risk. So where is the accountability?

In my personal opinion, there will be no bailout in this matter. At least, not for Joe Sixpack. The government already took some preemptive measures when the bankruptcy laws were changed. That will help offset some of the bank losses. But when it comes to families who watch their livelihoods seriously damaged, I don't think too many fingers will be raised to help. The system just simply cannot absort trillions of dollars in bad debt. This isn't some $3 billion airline bailout.

Bernake's job will be to protect the banks at all costs. He is a student of the great depression and he knows down well what would happen if major banks started tanking. It would be the death throws for the system. So it comes down to the lesser of two evils theory. Either you step in with a massive bailout for the sections of the country in bubble land, or you let them self correct. I think it will be the latter. Do you think some farmer in rural Arkansas is going to want to see his paycheck reduced to cover some elitist Californian's interest only option ARM? I think not.

Shakster said...

The recession nobody(sheeps,dildoes,FBs,etc),ever heard about.Just keep em listening to ABCBSNBC and the FOKKT news.

Anonymous said...

Here's the fix:

1) Get rid of Fannie and Freddie.

2) 20% downpayments. MINIMUM.

Anonymous said...

These guys are looking at the tip and think they are seeing the iceberg.

No one even explained to the illustrious Washington morons that the easy money made house prices double, triple, quadruple and more in some areas like Los Angeles. They're all going to be swept away in the next election. If I'd been talking in front of them I'd have waved my hand over everything and said, "You see this? All of this will soon be gone".

Our military strategies are outdated. Our military technology is being undermined ( http://tinyurl.com/2h77x3 )

Our economy has been hijacked by financial gamblers. The Federal Reserve has been asleep at the wheel.

This is the real deal people. It isn't some whacko white supremacists now. It isn't minutemen keeping a few illegal aliens from crossing the border. It isn't drug dealers, hookers and pimps annoying a few stuck up white middle class people. It isn't nudie pictures on the Internet. This is rot right to the core. While you're all worried about what Jesus would think, your future is being plundered by Wall Street.

Our leaders are morons.

"Bailing" people out just means keeping them holding an asset that is losing value. It's going to be worse if they keep the house.

Best to just let the foreclosures happen.

All this is fundamentally caused by paper money. This would not have happened if REAL money were involved. No one would be giving out gold to high risk borrowers, hoping they'd pay it back.

Until paper money is removed from the economy we are going to go from one bubble crash to the next, each one bigger than the last until the paper money becomes worthless.

And folks, this may be that last bubble that breaks the dollars back.

Anonymous said...

The problem wasn't just the no money down. The easy money raised the house prices so that possibly affordable houses become unaffordable.

That's what that idiot Mozilla refuses to see when he talks about minotories and young people being closed out of the market.

If the prices hadn't been inflated by speculators, we'd probably have no problem at all right now.

Anonymous said...

If the gubmint is going to bail out drowning home buyers, wouldn't it be then financially beneficial to go out and buy a bunch of houses for no money down (with my incredibly good credit) then go a begging to congress? Hmmm?

LauraVella said...

Paula said: "SHAKER HEIGHTS, Ohio — In a sign of the spreading economic fallout of mortgage foreclosures, several suburbs of Cleveland, one of the nation’s hardest-hit cities, are spending millions of dollars to maintain vacant houses as they try to contain blight and real-estate panic. "

Thanks for posting this Paula!
This is the same story my husband heard on the radio yesterday, he called me to tell me about it.

I never heard of this kind of effort from a city before. I can only imagine...after awhile, authorities will just give up and let the weeds take over when the houses start to look run down...decrepitness coming to a city nearest you.

Anonymous said...

You guys are crazy. This isnt a housing bubble per se. What is collapsing is the $700 trillion derivatives bubble. There is no way governments of the world can bail out this monster.
The proper response by governments is to put the entire banking system through bankruptcy re organization, wiping out the $700 trillion in ficticious derivatives debt obligations.

Then "regulate" the economy.

People who state "I believe in free markets" are crazy. ENRON, the housing debacle and the derivatives mess are all the result of free trade!

Would you say "I believe in venereal disease, we just need to get the right penicilin"?

Anonymous said...

In the future they will need to do 10% down loans but they will need to be insured (which will raise the cost for money ). A person who puts 20% or more down with good credit should get a lower rate and a benefit for this lower risk loan .

The reason why the sub-prime low/no down loan was high risk was because lenders priced in the rate with the adjusted up payment which was impossible for the sub-prime buyer to pay . Wallstreet would of been better off charging 10points up front for those crap loans rather than expecting they were going to get it in yield down the road .Of course that would of stopped alot of sub-prime buyers from gambling and that is exactly what you don't want is a bunch of gamblers in the market driving up the prices .The other approach would of been requiring a high down-payment on high-risk loans (which is what lender did in the past to offset risk )
When you look back on the bubble it's so silly to think that the investors thought that a never-ending source of "Greater Fools " would be available to take a over-priced house/condo off their hands. For this we can say thank you to the realtors,loan agents and builders for spreading those myths about never-ending buyers as well as the myth that real estate never goes down .
When the real estate market should of contracted in 2002 ,it didn't ,and a mania took over that got absurb as the months rolled by. Appraisal rubber stamping was also a big factor in this run-up and should be looked at to prevent future false run-ups . Any home prices that are over what normal inflation would of been in the last 10 years was speculation driven and will fall based on true affordability .

There will be so many good buy foreclosures coming up that I don't think anyone should worry about being priced out now but the cost for that loan will be higher and will require a higher down payment .

Anonymous said...

I wouldn't write off Neal Bush as a Republican presidential candidate just yet. America's ruling elite have a way of making the things they want happen.