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Data Centers Crucial To Lehman Sale
miller60 writes "What assets retain value in the midst of a financial panic? Data centers. When assets of bankrupt Lehman Brothers were sold to Barclays Tuesday for $1.75 billion, Lehman's data centers and headquarters accounted for $1.5 billion of the value in the deal. That echoes the JPMorgan-Bear Stearns fire sale, in which Bear's two data centers and HQ represented much of the sale price. Amidst financial turmoil, Wall Street's high-tech data centers become the crown jewels for buyers of distressed assets."
Hi! I'm a programmer for Lehman brothers and I'm looking for work. I was the designer of Assett Manager 1.0, a powerful tool that allowed our brokers to get values of our contracts....it's not a bad program, but it had a couple of bugs in it that I would like to have fixed.
This is my sig.
I guess this is one 'disaster' Lehman Bros couldn't failover?
Programs come and go. Information is timeless and valuable.
putting the 'B' in LGBTQ+
Your towel and your thumb.
Use your head, can't you, use your head,
You're on earth, there's no cure for that - S. Beckett
Banks and financial firms are fairly notorious for being 5-10-15 years behind on modern data retention because it's so expensive to convert over from paper to electronic systems. Having modern systems is a true boon because you're set up to scan, store, and do everything electronically and go paperless. Catching up with past accounts and paperwork is partly ignored by some banks as well - there's lots of paperwork that is lucky to get scanned in, and may sit in boxes in warehouses, particularly in older distressed debt.
You know what else retains value in the midst of a financial panic? Skyscrapers.
Anytime you have physical assets, you have value. Especially if those physical assets are in continuing demand. (Which data centers are in particular, because the Technology sector is doing quite well right now.)
The only difference is that companies rarely own their own spaces anymore. They sold them off to realty companies long ago, because they didn't want to be in the real-estate business. This sort of sell/lease arrangement is almost certain to become common with data centers in the future. CoLos are already the standard of the industry, and are going to take over increasing amounts of large corporate business in the future.
Javascript + Nintendo DSi = DSiCade
Using Linux could have saved millions. ;) :P
Is it any surprise that the most valuable assets in a company that is going down the tubes would be its physical assets, real estate, etc? The summary itself says data centers AND HEADQUARTERS. What a shock that "datacenterknowledge.com" is telling us how valuable and important data centers are. I'm almost tempted to say this is spam, but I can't be bothered to go to the website to learn more about it.
Which is it? The datacenters (infrastructure), or the data they contain, that has the value?
"It's the height of ridiculousness to say for those 9 lines you get hundreds of millions."
Real estate: billions
Data centers: couple million
I was just thinking how I needed some more drive space.
As the data which is stored on those servers. Don't you think the financial data for tens of thousands of customers is worth something? Also, physical facilities, HVAC, network infrastructure, etc. Also, a lot of the value of a data center, I suppose (I'm no expert in this field) might be less about the hardware itself, as the engineering that went into building up the data center as a cohesive, integrated system.
Here's an industry that isn't ready to farm out its work to cloud computing. Internally, they operate their own clouds.
Bruce Perens.
Cash
Data Centers
Canned Goods
Do I hear the sound of four horseman in the distance?
Schroedinger's Brexit: The UK is both in and out of the EU at the same time!
Data is timeless and valuable. Information has a limited shelf life. Lloyd's of London has data that goes back hundreds of years. Let's hope that many years in the future, someone will look at this data and decide not to drive off the same bridge again.
Why, without your clothes, you're naked, Miss Dudley!
People are born with compassion and empathy circuits in our brain for a reason, and those that don't have them or can't use them are seriously handicapped.
you had me at #!
Also, a difference between 'dumb' and 'uneducated about financial matters.' Is there a class on ARMS in high school people can take? I don't think those are covered in home ec.
People can't be experts on every field. Add to that fact that finances bring up survival fears in most people, and fear shuts down the brain, and you will see that many people may be smart in many areas, but uneducated about finance.
So people have to trust the experts they hire to do right by them. When those experts say, "Hey, you can own a house now and save that money you were putting into rent. Don't read the fine print, it's boring and it doesn't matter," people trust those experts. And they were misled.
Finally, I know you probably agree with me but I have to point it out: dumb people do not DESERVE to be taken advantage of by smart people. Social Darwinism is an inherently fascist, evil, and anti-social philosophy that destroys societies and people's lives. Don't subscribe to it. Society works because of trust, and social Darwinism destroys that trust.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
First of all, these are unprecedented times in global financial markets. Once in 100 years is putting it mildly.
Second, a data center and a building are the only assets that can be valued with the shotgun marriages the Administration, Treasury, and Fed are making right **now.** By now, I mean no sleep, no one leaves until the deal is closed NOW.
BofA got a sweetheart deal with Countrywide, they are getting another sweetheart deal with whatever brokerage they acquire. The same holds true of JPMorgan Chase and Co.
The Fed has literally run out of money with the AIG nationalization and has asked the treasury to print more dollars NOW. http://www.ft.com/cms/s/0/271257f2-83f1-11dd-bf00-000077b07658.html
Once again, the losses are being socialized while the titans of financial executive management just walk away.
You would be wise to re-balance your asset pool to reflect coming inflation. And any pension holders out there should do your best to liquidate your pension today, that is, if your pension isn't underfunded already or if that is even possible.
http://www.maxineudall.com/2010/02/should-economists-be-sued-for-malpractice.html
agreed. their real-estate is among the most valuable and pricey properties in ny. They are trying to lump in the datacenters to make it seem like they are worth more (in monetary value). there was probably a waterfountain in the building - but waterfountain.com can't say the waterfountain is among the most valuable assets sold :)
No big surprise here to me. Data centers are very easy to turn around and use for a different purpose in a new company. Office space and other assets are much more difficult to reuse. In fact, there have been several very large (F500) tenants move around near my office. When they move out, they usually just throw away most of their assets instead of trying to re-use them.
Just because I can hook a shark from a boat, I do no offer to wrestle it in the water.
I have to point it out: dumb people do not DESERVE to be taken advantage of by smart people. Social Darwinism is an inherently fascist, evil, and anti-social philosophy that destroys societies and people's lives. Don't subscribe to it. Society works because of trust, and social Darwinism destroys that trust.
Quoted because it deserved to be posted twice.
No sig for the moment.
No, you're mixing two separate things up. If you don't understand ARMs that doesn't make you dumb. But if you then buy one and you don't understand them, that definitely makes you dumb. What the hell?! A mortgage is a huge commitment. You're going to be paying it back for a long, long time. If somebody commits to a huge thing, turns around and says "Oops! I guess I can't deal with this after all. It was scary and my brain shut down" then I don't see why they are deserving of much sympathy.
No, they were stupid. The risks involved with large debts are enormous. This is way different than being misled by a second hand car salesman and buying a SUV with poor mileage. This is a vast sum of money. If there's one time in your life you read the boring fine print and think about it really hard, it's when taking out a gigantic loan.
Now this I do agree with. However trust can cross a line into blindness. Somebody who does whatever they're told without considering the consequences eventually crosses the line from being a poor innocent misled person into something else - a liability to society.
Intellectual property. Why just last Friday I patented "A business process and related methods to leverage instability in financial markets and raid the US treasury."
I don't expect to deploy the process myself, but licensing should be worth a good bit.
Help stamp out iliturcy.
y = (1 + x)^N
It's the function which describes the growth of a debt due to interest.
Here's the function which describes the growth in the money created at exactly the same moment, when the loan is taken out.
y = x
You notice one is exponential, the other isn't in fact growing at all.
That is the Fractional Reserve Banking based monetary system. I'll let you work out the implications.
Deleted
I was thinking the exact same thing. I don't know how many people work in their headquarters, but it's quite possible that all the technology (PCs, projectors, printers, etc.) OUTSIDE the datacenter was worth more than the servers, routers, etc. inside (plus the infrastructure, which is also quite valuable).
Of course, in either case, the real estate is probably worth the most. And, real estate won't depreciate as quickly as the data center will - in a few years, the servers and routers will be too slow and not have enough capacity; the cooling capabilities will probably not be enough to match the power density of new servers; and the power distribution network might not be up to the task of feeding all the servers that could fill that data center.
Yes but if you are about to make one of the biggest purchases of your life and take out a multi-thousand dollar loan, I wouldn't expect you to become an expert on the subject but at least educate yourself a little.
I am an investment banker and can say with confidence that the datacenters were an afterthought in this deal. Important? Certainly. The most important? a joke. Bob Diamond and Barclays have wanted to extend its US investment banking business for several years, and found an opportunity to grab one at a fire sale. But the true value of the deal is enormously larger than listed, as it involves taking on assets estimated (with confidence, I'm sure)at $72 billion and liabilities of $68 billion. I'd recommend reading http://www.ft.com/cms/s/0/5c9dcc26-83f1-11dd-bf00-000077b07658.html?nclick_check=1 to inform yourselves about the transaction.
As to the Bear Stearns datacenters comprising the bulk of the value - that is about as wrong as you can get. The breakup fee (the fee paid to JP Morgan if the deal did not go through) was the building. JPM could have walked from the deal and gotten the builing, so to argue that the deal was for the building/datacenter is absurd. Let's not forget that the Federal Reserve alone lent $29 billion for the transaction. Datacenters are valuable, but not worth that amount of money.
Here's the real problem. Everything the banks have lent money to people to buy are kinda valueless because they are obsolete. Technology keeps advancing such that there is no such thing as collateral any more and thus all the banks are worthless...
I was under the impression that houses were the main cause of the problem- and with the possible exception of some ludicrously techie piles built by multi-billionaires, they aren't really "tech" items and they certainly don't go obsolete within four or five years.
Even though cars (which I'd guess are probably second in terms of loan-spending) only last a few years, it's generally not because the tech goes obsolete, it's because they wear out and/or fall apart. (I'm sure that my parents first car (built in the late 1970s) would still be going today with some engine adjustments for unleaded petrol, except that its rusting to pieces by 1986 precludes this possibility!)
Granted, I'm sure that people take out more (and less justifiable) loans to spend on tech crap than they should- along with home decorating and expensive holidays- but I doubt it's the driving force behind the current economic mess. In fact, moderately cutting-edge tech is *dirt cheap* compared to what it used to be twenty- and even in some areas ten- years ago. People can fill their new homes with techie crap which will generally still be worth a small fraction of what they paid for the house itself. Yeah, the house will last longer and can be considered an "investment" in the way that electronics technology almost never can. But the value and losses involved when that "investment" goes wrong dwarfs the cost of most peoples' boxes of flashy boys' toys.
"Slashdot - News and Chat Sites Deviant". (Click "homepage" link above for details).
How's that attitude any different than say consumers not shopping at their local mom and pop business and then when they goes out of business buying everything?
Shai Schticks:"You don't make peace with friends, you make peace with enemies"
Actually, their earlier post about Bear Stearns was right on the mark. In this case they are way off, see the calculations here: http://securityandthe.net/2008/09/17/how-much-is-a-data-center-worth/
Why did they even need such a huge datacenter? I guess things can get out of hand when you play with other people's money.
Much of the lehmans data centers in London, are hosted in the East India Docks. I can Tell you that every thing has been switched of. Power, Water, Cooling. Equipment Like that AHU's Chillers, and Underfloor Cooling Units dont like starting up. Looks like i have a fun day tommrow.
I agree with your general point:
they were misled. ... dumb people do not DESERVE to be taken advantage of by smart people.
But I still should point out that:
-Any taken-advantage-of borrower requires an even-more-taken-advantage-of lender. The borrower gets to walk away, at least having a gained some time in a home they shouldn't have moved into, while the lender suffers a huge loss. (Of course what actually happened here was the immediate lender, a broker, pocketed a huge gain and dumped it on other investors.)
-The problems were by and large not with the fine print. They were problems like, "I didn't know that adjustable rate mortgages adjust" and "I can't actually afford the monthly payments".
Btw, I think a large part of the problem could have been avoided with a very light regulation: label as "dangerous" any mortgage other than a fixed rate, 20% down, 30-year, fully-amortizing, non-recourse, no-prepayment penalty. Then, require it to be authorize by a rubber-stamp government agency that approves everything it gets, but after taking three weeks to get back to you. That adds a huge psychological barrier to non-savvy buyers, effectively steering them away from unsafe mortgages, while not making much of a difference to people who know what they're doing.
Information theory is life. The rest is just the KL divergence.
Um no. Though houses, businesses and commercial real estate are worth less due to market conditions, they are certainly not valueless.
:)
If you think your house isn't worth anything I'd be happy to buy it for twice that price
If you can read this... 01110101 01110010 00100000 01100001 00100000 01100111 01100101 01100101 01101011
I've heard this allegation from other sources too, but no one seems to be able to show any sources for it. It could be true, and it wouldn't be the only dumb thing Clinton did (NAFTA, for instance), but unless someone can show me the actual text of the law Clinton supposedly signed, I'm going to have to chalk this one up to more right wing lies.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
Those aren't "experts," they're "salespeople." An expert would be someone you pay to read the fine print and explain it to you. They work for you. A sales person works for the place that is trying to tell you something. This is not specific to the financial arena.
Quoted because it deserved to be posted three times.
Well.. maybe. Or Maybe not. But Definitely not sort of.
I'd say that this is more of a case of wishful thinking. People who are struggling get told that they are safe with an ARM because the housing market is so good and the good times are never going to end. So, they either believe, or they continue to rent from slumlords, in crime ridden neighborhoods. They are kind of screwed either way, just because they are poor and can be taken advantage of. It's a sad fact that humans often believe what they want to believe, not what the facts support. They may still be smart about many other things.
I think your suggestion would go a long way towards helping people like that see the truth, not what they want to believe is true.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
Regarding ARMs, I think it's very easy for non-experts to get confused about the terms on loans with 3/1 hybrid ARMs, and the like. Especially if your loan officer fails to explain it clearly (and why would they? It's in their best interest to sell you the biggest loan possible).
Customer: Is the interest rate fixed?
LO: Yes! (mumble mumble... for 3 years, followed by a 1 year rate adjustment, followed by 26 years of variable rates, limited to an annual adjustment of +/- 2%...) Just sign here!
A post a day keeps productivity at bay.
-Any taken-advantage-of borrower requires an even-more-taken-advantage-of lender. The borrower gets to walk away, at least having a gained some time in a home they shouldn't have moved into, while the lender suffers a huge loss. (Of course what actually happened here was the immediate lender, a broker, pocketed a huge gain and dumped it on other investors.)
I love how you gloss over this statement in parenthesis as if it's a minor point. The situation that occurred is that predatory lenders issued ARM mortgages to people that they knew would be unable to pay for them. Keep in mind, the issuing bank has a full financial report of the borrower's income, debts, and credit history. These bankers then offered deals such as "you can have a fixed rate mortgage, but you'll need a $10k down payment, but if you get an ARM, we can do it without a down payment!" I live in Tennessee, and by and far this state is not as hard hit as some others. One of the reasons is that we have protective lending laws. In this state, you cannot get a mortgage without a 10% (IIRC) down payment. That may seem unfair to those who cannot afford the down payment, but it's for their own good; if they can't afford the 10% down, odds are they cannot afford the mortgage, and a bank should be prevented from signing them into a contract they cannot afford to pay off.
The actual servers in the racks are the LEAST valuable part of a good data center. They're also the highest depreciating.
No doubt, you can pick up used Sun equipment CHEAP. For instance, I love to window shop AnySystem, one of their current "Ugly Duckling Special" (scratched boxes, missing face plates, etc.) had a list price of $21,000 - you can get it now for $1200 (yeah - a 6GB RAM, 6 CPU SPARC box for a grand). You can get this stuff second-hand for 5% of what they cost less than a decade ago. With the storage rigs, the drives cost more than the rackmount/backplane. Unfortunately, drives don't usually live long enough to make it to the second hand market, and you don't want the ones that do.
If I mod you up, it doesn't necessarily mean I agree with what you've said, sorry.
Picking up the spoils of a catastrophe they were instrumental in causing. What a bunch of dicks.
They weren't instrumental in causing it. They just chose not to rescue them out of fear of the damage that lehman's debt could cause barclays. And they had good reason. There was no way to evaluate the risk level or value of lehman's toxic debt. Their actions were just good business.
Disconnect your television. Do your own research. Draw your own conclusions. They're probably lying. Don't be a sheep.
What a bunch of dicks.
I think you mean, what a bunch of capitalists. Yay unfettered free market! Right?
You make the risk/reward ratio sound so lopsided towards risk that only stupid people would enter into one of these agreements. However, the fact is that for many years many people had ARMs and did not have a problem. Those people wound up with a house, probably worth far more than they paid for it.
So why did it work then, and not now? Because when the rate went up, they could either afford it because their income had also risen, or their property value went up and they could refinance.
And who says they did not understand ARMs or the implications thereof? They may have talked to many friends and family, read magazines, asked a financial advisor, etc, and they probably got the same information from all of them. Buy now or you will never be able to afford it, you're being stupid by paying rent and not building any equity, and don't worry about the rate - when it goes up you can always refi.
So to get to the current situation two things had to happen: income stopped rising for whatever reason, and property values fell because so many people were in the same position. If those two things were as easy to predict as you suggest, there must have been risk models at financial institutions with giant red lights flashing 'danger!'. But those institutions also missed those red lights, or we wouldn't be in the current mess. Gigantic financial institutions filled with MBAs and financial wizards didn't see this coming, but you think it is perfectly reasonable to expect homebuyers to see it?
The fact is, if people see their dream of homeownership vanishing, because prices are skyrocketing, and they are presented with an opportunity to own a home before it is too late, they are going to take it. That does not make them stupid, greedy, or any other derogatory term. It makes them human.
You can be a capitalist without being a prick. Barclays just don't care. These are the same cunts who did business in Apartheid-era South Africa, and still do in Zimbabwe.
I write bullshit
Actually, Barclays was in talks with the Treasury Department. When the Treasury Department declined to cover Lehman's liabilities, Barclays decided that Lehman's liabilities exceeded the value of its assets.
There is nothing disgusting about that. That is just business. Lets use a car analogy. Last month you were talking to someone about buying their car. It was worth $5000 but they still owed $6000 on it. They offered to let you have it if you took over the loan payments. You declined. Today the bank has repossessed the car and is offering it for $3000. There is nothing disgusting about you buying the car at that $3000. This just happened faster.
The truth is that all men having power ought to be mistrusted. James Madison
Take the infamous NINJA loan: No Income, No Job, No Assets. That is, you're given a mortgage based on nothing but good looks and your credit score. Nothing else is verified
Thanks to these NINJA Loans this month it will be 5 years since I live in my own house. I may have never gotten out of renting without them since I wasn't good with money, my credit score sucked and had no assets besides my computers and car (following George Carlin's leadership, the rest of my paychecks went to pussy and beer)
The best call I made was buying the cheapest decent house ($124k) I could afford so my mortgage ended up just $100 more than what I was paying for rent. The builder told me I could qualify for a big ol' house twice that amount but I resisted. I am glad I did, I have been able to comfortably pay all my bills even on rainy days.
HTML is obsolete. It's time for a new, simpler and richer markup language.
In an unfettered free market, failing businesses are not bailed out by the government.
"They dropped out, Lehman went under, people lost their jobs, a company was destroyed."
Barclays had no moral obligation to save an enemy firm when it could stand clear then buy the useful bits of the wreckage.
Lehman deserved to die because it failed.
"This post is an artistic work of fiction and falsehood. Only a fool would take anything posted here as fact."
Pull your head out of the sand -- humans are animals and are slaves to the animal urges. Predation(and higher-level instincts on top of it such as competition and greed) is a part of life as much as sex is. If that's too much for you, then there's always the monastery, and why not? It's not like humans need nice cars and fancy houses to be happy.
And this is why we always need to have good regulations in place, instead of deregulation, because the ones who fight the way to the top are inherently the top predators.
I'd evolve wings and fly away. Got any more imaginary scenarios you'd like an imaginary answer to?
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
So are you saying that the blame for the mortgage mess is on the shoulders of those who were suckered into ARM'? Maybe they deserve a small amount of the blame but only a small amount. Most of the blame goes to those greedy individuals who created and "sold" them and then packaged the bad loans. If there is a place in hell for these cretins, I hope it is very hot if you are a Milton fan or very cold if you prefer Dante's vision.
So..."100 year incident"? I don't think so. "10 or 20?" Um...sure.
Thank you. I seem to recall that 20 years ago financial firms were flopping left and right. Why, we had one called Shearson Lehman Hutton. Lehman got into trouble and was bought; so did Hutton. Lehman eventually went independent again after Amex couldn't digest them...Hutton was dropped.
Advice: on VPS providers
Fool me once, shame on... shame on you. Fool me... you fool me can't get fooled again!
Is it too off-topic to say that I deeply and sincerely wish Dick Fold and crew wouldn't keep their accumulated stash but would actually suffer the consequences of their bad decisions? Y'know, it'd just be nice for once.
I mean, look at the guy. He just needs a cuddly fluffy cat and a drinking womanising British spy held at gunpoint by his henchmen.
http://rocknerd.co.uk
I have to point it out: dumb people do not DESERVE to be taken advantage of by smart people. Social Darwinism is an inherently fascist, evil, and anti-social philosophy that destroys societies and people's lives. Don't subscribe to it. Society works because of trust, and social Darwinism destroys that trust.
As long as they're not dishonest or risk-taking too, then yes. I have sympathy for good people who lose their home and savings, I have no sympathy for those that thought they would scam dirty money out of Nigeria or cash in big on stock speculation. That kind of naive just makes me wish they'd given the money to ME instead.
Live today, because you never know what tomorrow brings
In an unfettered free market, failing businesses are not bailed out by the government.
No, instead the entire economy is allowed to collapse. Oh yeah, that's way better.
Unfettered free market economics created this problem. Government intervention is the only thing stopping it from spiraling out of control.
You can be a capitalist without being a prick.
I never said you couldn't be. It just isn't as profitable (as Barclay's is now illustrating).
Also, a difference between 'dumb' and 'uneducated about financial matters.' Is there a class on ARMS in high school people can take? I don't think those are covered in home ec.
Also, don't forget that Alan Greenspan was going around the country telling us that Hey, ARMs are a great deal. It's so easy to blame the victim.
Wall Street's high-tech data centers become the crown jewels for buyers of distressed assets
This is like calling the van-loads of Herman-Miller chairs that were the only marketable assets of so many dot-com fiascos the "crown jewels".
Humans are social animals. Most of us are born with mirror circuitry in our brains that gives us empathy, the ability to feel what others are feeling. It hurts most people to take advantage of others. Our genes are selfish, and it is in their self interest that we do not normally act in ours. Our collective gene-pool strives towards species wide, not individual survival.
We are born not with a desire to out-compete all other humans, but with a desire to uphold fairness and reciprocity, and to punish selfishness. It is only when we find ourselves in a society that does the opposite that most people resort to selfishness, and the 'all people are inherently selfish' meme becomes self-fulfilling.
This has been proven through modern economic research. People do not act solely in their own self interest. They will act against their own self interest to punish unfairness. Look up the ultimatum game for an example of one such experiment.
Only sociopaths and psychopaths act entirely in their own self interest, because they are born without mirror circuitry.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
For people who are still struggling to understand what's going on with the whole financial crisis, here's a great primer I was directed to: Subprime Primer.
It's a very simplified explanation of what's happened. From what I understand, it all comes down to everyone believing that real-estate value wouldn't stop rising.
This space up for sale.
Just as a correction, AIG was *not* nationalized. It was provided a bridge loan while it's slowly dismantled. The US will then, in theory, be paid back through funds generated by the selloff of assets and subsidiaries. It's effectively a controlled liquidation of the company.
He who controls the majority of shares controls the company.
In return for the Fed's $85 billion, 2 year, 11.4% bridge loan, the Federal Government took a 79.9% stake in the insurer while AIG sells off assets to repay the loan. If a bank were the lender, they'd demand the same. So, while AIG's staff isn't going to be paid with checks drawn on the Treasury, the corporate entity is for now controlled by the Federal Government. This is what nationalization looks like in western countries.
Luke, help me take this mask off
No, you're mixing two separate things up. If you don't understand ARMs that doesn't make you dumb. But if you then buy one and you don't understand them, that definitely makes you dumb. What the hell?!
Which is why we shouldn't be bailing them out..... oh wait you didn't mean the multi-millionare college educated investment bankers, you meant that guy driving a garbage truck for a living. The thing is that most Americans buy their first home knowing that they can just barely make the payments. The assumption has always been that you'll work hard, get raises, maybe move up in the company. Unfortunately it doesn't seem to work that way anymore, you're more likely to have your job shipped to China and end up working at some service job with no benefits. When my wife broke her collar bone it ended up costing us thousands out of pocket and that was with decent insurance. Without insurance we would have been looking at $10k+. How many people can actually afford to take that kind of hit?
You say:
"""
A mortgage is a huge commitment.
"""
But what happens when you have the very nice bank salesman saying no, it's not a big commitment - we just have you refinance out of it in 2 years, we promise.
Older people do believe what bankers tell them because, well, bankers are nice men in shiny suits who are supposed to help them out. Is someone really a liability if they are following the advice of someone they're supposed to be able to trust?
Ever made an investment? Ever put money in a bank? Are you *sure* your bank is FDIC insured, or maybe they just bought a plaque third-hand claiming they are? We all have our levels of trust or distrust; some folks were making a decision based on historical facts (i.e., bankers won't give you a loan you can't afford because it puts them out of business). Well, that fact certainly has changed...
Lots of people probably followed bankers' advice as much or more than their pastor. On the other hand, I currently rate bankers up there with sleezeball used car salesmen.
From what I understand, it all comes down to everyone believing that real-estate value wouldn't stop rising.
Which, of course, is absurd nonsense. Not only is it not true that "everyone" believed that -- nobody did. The housing bubble was always and by everybody recognized as a bubble. It was never called anything other than a bubble. Starting in '02 or there abouts, people were talking about "the housing bubble" and I've never seen or heard anybody refer to it any other way.
Why people would put their future economic well-being on top of something that was always clearly labelled as a bubble is beyon me.
We're all born with nothing.
If you die in debt, you're ahead.
To what problem do you refer? Banks failing, low housing values, too much credit, too much inflation, something else?
I think the problem is that perverse incentives created by law led to inappropriate lending, packaging of loans into financial instruments that were bought and sold, and overrated trustworthiness of those packages. The inappropriate lending contributed to a housing bubble which, when it popped, caused those financial packages to drop in value so much that over-exposed banks fail. Some hedged against that risk by insuring themselves with companies like AIG. (Oops.)
It's an incredibly complex situation that nobody understands fully, governed by a spaghetti code of laws and regulations worldwide. How does "unfettered free market economics" describe things at all? Or by "unfettered free market economics" did you mean "the desire of bankers to make money"?
From what I understand, it all comes down to everyone believing that real-estate value wouldn't stop rising.
That's a pretty good summation for parts of the country (e.g. the Washington D.C. area, probably areas like California too). Essentially, in W.D.C, people said "Well, the gov't is here, and so jobs are guaranteed. So housing will always go up." The problem is when it goes beyond where the base market can buy.
There's also another issue though - there were a lot of banks, etc. that issued bad mortgages outright. For example - the high school graduate students that moved into my parent's neighborhood - no jobs, but they got a mortgage, and eventually ended up in foreclosure. Of course, the city of Columbus, OH had some issues too politically as they tried to "clean up" downtown by moving the "poor" out into new housing (helping to get the qualified for loans they shouldn't have had) elsewhere in the state - e.g. by my parents, and other places in the Greater Columbus, OH area. For them, the politics work out good - their constituents are happy, and those people are now "someone else's problem" (literally), so it is hard to hold them accountable (their district was improved while someone else's was deteriorated).
Another good example - my wife and I were looking at buying a house in 2006. In getting pre-qualified, we looked at Washington Mutual and several others. Because we did not have a large-enough down-payment available (we had closing costs) at that time, WaMu was going to give us a double loan so we didn't have to have PMI (mortgage insurance). The first loan would be the mortgage itself, and the second was to become the down payment. We didn't really like it; but they were going to let us do that. We ended up not buying that year, and have since moved and bought a house through BB&T, with a better loan - only one loan too.
All-in-all, it was not just one issue that caused the problem.
Truth is like the sun. You can shut it out for a time, but it ain't goin' away. - Elvis Presley (source: imdb.com)
The problem is that something is only worth what someone will pay for it... and nobody is buying. Lack of liquidity is the real driver of the problems many of these banks and investment houses are seeing.
What good is a data center if you don't have any business to run on it? Data centers suck resources like crazy: energy, staff, maintainance, network connections, etc.
-- Sig down
There's a third option - house prices had entered an unsustainable speculative bubble. Contrary to what you suggest, a lot of normal non-wizards did see a housing bubble coming. There was talk in the mainstream media of a house price bubble three years ago in the UK.
Now here's the thing. About two and a half years ago my parents sat down with me and said son, you just got your first job. Now it's time to think about buying a house. I seriously couldn't believe it. WTF? I haven't even paid off my student debt yet and they want me to take out a loan many times the size?
Yes! they said. Everybody sensible buys a house. It's just what people do! Why is that, I asked? Because house prices always rise, and you can always sell it, so it's guaranteed to make you money. I said uh huh. That sounds real interesting. Weren't you the same people who taught me as a little kid that money doesn't grow on trees? That schemes where you get rich quick are scams designed to play into peoples dreams and mislead them? But houses are magic and different?
Bah. Knew a religion when I saw one, that's for sure, and home ownership in the UK has been a religion for longer than I've been alive. 18 months later and suddenly it's all house price crisis. Negative equity is everywhere. Foreclosures are everywhere. A whole lotta people that were playing the system got burned. I'm sure it'll recover in time but any system based on passing on ever larger debts will eventually stop, like a horrible game of pass the parcel.
Home ownership isn't a requirement of living. The very idea that normal people owned their own homes is a modern one. People who are willing to do anything regardless of whether it makes sense to "live the dream" and own a house aren't rational anymore. There are a really tiny number of situations where doing completely irrational stuff tends to be forgiven or at least understood, like for love. But a house isn't one of them - it's just a pile of bricks.
Um no. Though houses, businesses and commercial real estate are worth less due to market conditions, they are certainly not valueless.
Part of the problem is that the assets that have dropped to nothing are not the homes themselves. They are securitizations of the loans issued to buy these homes. If you own such a securitized loan, you can't go to the 1000 homeowners that back it and say "hey, let's work something out." You can either sell it for pennies on the dollar or hold on.
"Nature doesn't care how smart you are. You can still be wrong." - Richard Feynman
I'm not a mortgage broker, nor a banker, but this is how *I* approached buying a house:
- I spend $40 on a 'first-time homeowner's class'. Worth 10 times that. I learned about PITI, interest rates, amortization schedules, and had a memorable class (1 of 8) with a Realtor who warned us that real estate brokers were not our friends, and Realtors were the best of the bunch (something to do with the name and ethical promises that they broke less often than merely licensed brokers) and we should watch THEM just as carefully. He was right, except for my first broker.
- Assisted my GF in 2001 in buying her first house. Read the loan documents several times, and then explained to her in English what they meant. check the interest rate (fixed), the schedule of payments (all the same except for the last one, about $5 off) and the general terms (no balloons, no adjustments, nothing wierd). She still has the house, and is damned lucky. It didn't work out between us, but that's not the point of this little ditty. I easily spent 10-15 hours understanding the load, being my first, and focusing on much stuff that isn't important like state law regarding defaults, boilerplate about terms and conditions, etc.
- Assisted my wife in both selling 2 houses and buying another. The sales were painful, since one had to be completed after we moved cross-country. But done. Again, in buying, we got a NINJA loan, and again I read everything and explained it in English - fixed rate, level payments, no tricky stuff. The first loan we got presented to us was an 80/20, ARM, IO. this was in Phoenix in 2005, the height of the market here. We had plenty of down payment, didn't want an ARM, and didn't need interest-only, since we were buying an income property to hold. Told the broker the next time she pulled that we would be looking elsewhere. No problem, no more jokes, we got it. Probably spend 4 hours reading over the loan, now knowing what was important and what could be deferred.
- A year later, we refinanced, to change the interest rate. Again, going over the documents, same drill. This time, I paid extra-close attention, being a refi, and ti did take three tries to get various stuff right, like avoiding PMI since we had 30%+ equity, and still they screwed up the escrow afterwards.
I can see where a first-time buyer could easily look at a house, hear about deals, call a broker, get hooked up with their 'mortgage guy', and shown a loan for so little money that they have to buy, it's "cheaper than renting"! Never look at the details, never see a payment amount 3x what they thought it would be in a few years, and yeah, when the statemnet comes in and their $1150 payment turns into $3700, they probably soil themselves. And can't figure out how it happened. And call the bank and ask what error they made, and find out they were scammed. Do they hope for a handout from the government? I bet many do. By this standard, we would be spending a LOT of money bailing out people who were scammed. Sadly, while I sympathize, buying a house is the biggest transaction most people ever make in their lives. And many spend more time choosing their next party dress or table saw than they do checking their next mortgage.
My front tenant went through a different travail. He had an ARM, but expected to refi in plenty of time. That was in 2006 in Phoenix. In 2007, he found out the market was in the dumper, he owed 20% more than the house could be sold for, and wasn't going to get refinananced. His payment went from $1500 to $4200. He moved into my front unit and left the keys to his house with the bank. Timing on his part, and he just got caught in the grinder. Plenty of people did that too. He doesn't expect a handout from the government. he just hopes to be ok in 5-7 years.
Cruel to say they oughta pay the price? Somehow Darwin is celebrated but his theory is selectively applauded.
Now, if you look carefully, you will find that the FBI has 19 mortgage fraud investigations open, 3 in the las
deleting the extra space after periods so i can stay relevant, yeah.
Most of us are born with mirror circuitry in our brains that gives us empathy, the ability to feel what others are feeling.... Only sociopaths and psychopaths act entirely in their own self interest, because they are born without mirror circuitry.
Agreed... but "most of us" are not CEOs of banks and don't live on Wall Street. So it doesn't really matter what "most of us" have, when it only takes a small population who doesn't to fool the rest & build a big house of cards.
Sorry, that is nonsense.
The companies that go bankrupt are normal instrumental only themselves, you can blame Barclays for a last ditch attempt to save Lehmans that did not work.
Beggars can't be choosers, so they should have taken pretty much any deal offered to them by Barclays ....
IANAL but write like a drunk one.
The problem was not ARMs per se. The problem was teaser ARMs where the original interest rate did not match the long term interest rate. These were a horrible idea.
The worst part of this is how banks were allowed to loan federally insured deposit money against securities (in this case, securitized mortgages). Bear Stearns is an investment bank. Why couldn't they raise their own capital? Why did they have to borrow it from FDIC insured banks?
We should do two things:
In terms of the immediate crisis, we should take fewer steps to stabilize home prices at the current level and more steps to encourage them to go to a sustainable level. For example, we could allow bankruptcy judges to adjust the principle level of the mortgage down to the current value of the property. Later, once home prices are back down to the equivalent rental value, we can start doing things to stabilize home prices (like bailing out banks and mortgage companies).
That's why housing starts are so low. We're artificially propping up prices. If prices return to their correct levels, people would be able to afford to buy houses with regular mortgages again.
I suppose your parents are saying "Now's the time to buy when things are cheap". Home ownership isn't a requirement for living, but it does make sense financially if you keep your head and don't go overboard. Eventually the mortgage will be paid off, it will be considered an asset, and you can invest the funds that would otherwise be spent on the loan. While renting doesn't have the commitment, you will never stop having to cough up the periodic rent payment.
the good ground has been paved over by suicidal maniacs
They can be a great deal as long as the interest rates have a downward trend or don't go back above the rate when you got it. Personally, I'd rather have a fixed rate so at least that expense can be consistent. I find it odd that there are some countries where you have to get an ARM in order to get anything other than a short term loan.
the good ground has been paved over by suicidal maniacs
Exactly. But that's still not "valueless". Even if you sell a CDO for 22 cents on the dollar (which is the lowest I've seen quoted), it's still not valueless.
OP's original comment seemed to imply that tech somehow managed to make tangible and paper assets irrelevant. That is not the case.
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The problem is that something is only worth what someone will pay for it... and almost nobody is buying, and when they do, it is at substantially lower prices. Lack of liquidity is the real driver of the problems many of these banks and investment houses are seeing.
There now, I completely agree with you. If OP's point was that we're in the toilet financially speaking, I'd be more inclined to agree with that than the assertion that tech had somehow made all collateral banks hold obsolete.
If you can read this... 01110101 01110010 00100000 01100001 00100000 01100111 01100101 01100101 01101011
Exactly. But that's still not "valueless". Even if you sell a CDO for 22 cents on the dollar (which is the lowest I've seen quoted), it's still not valueless.
Agreed, but the CDO might be worth 22 cents whereas the actual homes might be worth 75 cents. You just might have the sucky tranche.
"Nature doesn't care how smart you are. You can still be wrong." - Richard Feynman
I think the problem is that perverse incentives created by law
Ummm, what the hell incentives are you talking about?
How does "unfettered free market economics" describe things at all?
Simple. These problems were enabled by a *de*regulation of the mortgage market, allowing companies to "innovate" and create complex derivative securities based on mortgages. The result was an obfuscation and misjudgment of risk, so investors looked at these MBSs as low-risk, high-return AAA-rated securities and pumped massive amounts of credit into the market. The banks then took this glut of cheap credit and issued shitty mortgages, again building them up into complex investment vehicles, and so the cycle continued.
Had the government a) disallowed these complex financial constructs, or b) forced better loan standards on banks, or c) scrutinized the investment ratings agencies, odds are, we wouldn't be where we are now. But the US government, under Greenspan, backed away from the market and let it run away on it's own, and voila, we find ourselves where we are today.
He is wrong when he goes on about how no normal people get hurt and he is wrong when he suggests people have compassion.
Now if you'll forgive me i have to go kick a nun and her dog.
If Google really cared they would fix Android Chrome to reflow text, instead of discriminating
"... dumb people do not DESERVE to be taken advantage of by smart people. "
True, but they often deserve a spanking!
If Google really cared they would fix Android Chrome to reflow text, instead of discriminating
...and what I tell you three times is true!
Repton.
They say that only an experienced wizard can do the tengu shuffle.
Blindly trusting anyone that's trying to sell you something is foolish. Salesmen are the catalyst in the equation involving fools and money.
How is that predatory?
If they end up not being able to pay them, it's the lender who takes the hit (since they don't get paid back).
The borrower gets a free house while the foreclosure process slowly trundles forwards.
Sure it's not sustainable and will end up with the loans all defaulting and the financial system collapsing, but again why does the borrower care about that again?
Ah, sweet knowledge!
Well.. maybe. Or Maybe not. But Definitely not sort of.
Barclays came into the game a lot later. JP Morgan had been dangling a bridge loan under Lehman's nose for the last 2 weeks and pulled out at the end. Also Merrill Lynch wasnt so pure either. They were there at the talks to convince Bank of America or Barclays to buy Lehman so Lehman doesnt default on them. At the last moment when Barclays walked away from a bad deal all hopes were on BofA but Merrill instead of helping Lehman chose that moment to pitch themselves to BofA . Of course BofA had the capacity to buy only one failing Investment Banker a day so Lehman was screwed. Its all about whether Merrill paid more to lobying firms who give vacations to Paulson or Lehman. it seems Lehman tried to be cheap and didnt bribe Paulson enough.
**Life is too short to be serious**
I live in Tennessee, and by and far this state is not as hard hit as some others. One of the reasons is that we have protective lending laws. In this state, you cannot get a mortgage without a 10% (IIRC) down payment.
I'm in WV and to get a loan that isn't through the Federal Housing Administration (an FHA loan) you have to have 5% down but you pay PMI. You have to put down 20% to not pay PMI. If you *do* get an FHA loan then you only need 10% down to get out of PMI but around here (north-central WV) I got info last year about this time on minimum down payments for a mortgage and as of that time no one was changing their lending practices in the area: they still were only requiring 5% down. I haven't looked into it lately despite still being in the market to buy a house just because I haven't yet got far enough into the process of buying one to find out the mortgage requirements in-depth.
this nation, under God, shall have a new birth of freedom. -- Lincoln, Gettysburg Address
...the CDO might be worth 22 cents whereas the actual homes might be worth 75 cents
Yep, that's why I wish I could buy my own mortgage. I've looked into it, and most (maybe all) banks don't want to plink around with a single loan. But damn, imagine being able to buy your $100K loan (for example) for $22K. Jebus!
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Why?
You could basically do that, if you can arrange a sham short sale.
E.g. have a friend buy your house for something roughly like the current market value while simultaneously selling you a call option on the property (since you're considering asking to buy back the loan for cash, it's assumed that you have sufficient cash on hand) for some desultory amount.
$100k loan balance... you could probably do a short sale for $80k to a friend with you renting the house for long enough (the call option premium basically being the rent) to make it look semi-kosher and then buying it from them for say $82k in cash you had lying around.
Also, a difference between 'dumb' and 'uneducated about financial matters.' Is there a class on ARMS in high school people can take? I don't think those are covered in home ec.
People can't be experts on every field. Add to that fact that finances bring up survival fears in most people, and fear shuts down the brain, and you will see that many people may be smart in many areas, but uneducated about finance.
These two paragraphs made me think of this video: Money as debt.
I think perhaps that if people were taught about the current financial system it at an early age they'd be open minded enough to see it for the pyramid scheme it really is and maybe think about other possibilities.
You and I however, mortgaged, with x loans, and carrying y credit cards think it's perfectly normal.
Blind trust is indeed dumb.
However, it doesn't excuse the avaricious attitude of the people who exploit it.
Stealing and lying are still as wrong now as they ever were. Just because you can get away with it doesn't make it right.
I wager that anyone who would be sleazy enough to exploit a naive client would also be dastardly enough to use social engineering, forgery, and outright deception to get the same ends.
If it were ok to do things just becuase you wouldn't get caught, I dare say that bank robbers would be even more brazen than they already are.
I have *got* to reply to this.
I'm sorry, I have owned several houses using an ARM.
I recognized that it was one of the largest decisions I had ever made, and probably EVER would make.
Taking an hour to go online or to the library to check out what exactly it is that you are signing...
OMFG.
If that is "too complicated".... fuck me. Then they deserve it.
Is there a class on ARMS in high school people can take? I don't think those are covered in home ec.
GAAAHHHHHHh!!!! What a sick and demented view of the world!!!
People do not have a RIGHT to be spoon-fed everything they know. Just because it isn't force fed to idiots in remedial math class, doesn't mean it shouldn't be a prerequisite to signing a massive, quarter million dollar contract with a term of almost half of your adult life.
If you are too dense to take an hour to read and understand such a massive contract then YOU DO NOT "DESERVE" to be singing that contract. Rental agreements are much simpler.
It's society's fault for making them think that it is OWED to them. People forget that it is something they earn and should take a FEW MINUTES to understand what they're doing.
Is there any other decision someone makes that affects more than half of their adult life that you would regard an hour or two of remedial study TOO MUCH EFFORT to undertake?
WTF?
I'm at a loss for words at how you can develop a level headed viewpoint with this conclusion..... sigh
The problem is that, when someone signs a contract, society expects them to understand that contract.
The trust of society is built on such agreements. If someone signs a contract without the slightest clue what they are signing, they are at fault for undermining society's system of trust, not the person who drafted the contract.
So, completely throwing out the idea of social-darwinism and going back to the basics of this discussion...
a number of people signed massive contracts for amounts of money many times their net worth, with terms of almost half their adult life..... without the slightest clue what they were signing..... and you...... want me to feel sorry for them?????????
I'm sorry, you actually want me to GIVE THEM MONEY?? Because I actually took an hour to google "Ajustable Rate Mortgages" before I signed my contract. It wasn't exactly rocket science.
It's not a matter of being dumb, but rather being willfully ignorant.
So while you don't believe that dumb people should be taken advantage of by smart people.... I would contend that willful ignorance removes you from the protections of this flowery equality and puts you squarely in the area of "should probably have his ass handed to him".
Seriously.... gah...
ZOMG!
When you are signing a contract that binds you to a sum of money an order of magnitude larger than your income, for a term of almost half your adult life..........
"saying uhm i don't understand, but ok" IS NOT A CORRECT ANSWER. In fact, it's not even a reasonable answer.
In fact, it's downright stupid on the order of "uhm, so you promise if i lay here in the street i won't get run over?"
That is willful ignorance and should be illegal. It's wrong... and someone with that level of willful ignorance shouldn't be ALLOWED to sign contracts. Shit. Their credit getting fucked to hell and back is a GOOD THING. Damn...
They should be run over by a galloping horse and then dragged through town square (not really, but SHIT?!?!?!)
And FYI, I just did a google search with the text "What is a 3/1 ARM?" and the very first result was a very simple explanation of a 3/1 ARM with links to more information about ARMS if you're still confused.
How can you POSSIBLY believe this is too difficult for someone to do on the eve of the biggest decision of their ENTIRE life.
Sigh.... This willful ignorance is a serious social problem...
why does the borrower care about that again?
The foreclosure does not magically make the loan disappear.
We had similar situation in Finland (back in -89), they were then called "foreign currency loans". The idea was that FMK (Finnish markka) had a huge interest (almost 20%) and dollar had maybe 7%.
Then the government devalued the FMK once again (the last time, btw).
Now people (and companies) had much more loan than they had assets ... then the banks took advantage of that, they seized the assets (the currency loans were usually "bullet" type).
Some still pay the loans or loans of others (as a "backer" of the loan).
OK.... so I guess that most of my friends are not human because they said "nahh, I'll wait until the cycle declines again.
And now those people, who have been paying rent all along, are paying higher taxes to fund the idiots who took a mortgage that was too big?
The decline in home values on a fairly regular, predictable schedule is not a new concept. It happens approximately every 18 years, and has been happening in roughly that cycle since around the mid 1600s. There have been only TWO 18 year periods that didn't experience this boom/bust cycle in the entire history of American land ownership.
It may not make them stupid, nor greedy, but it does require a bit of willful ignorance, which we are all too happy to accept these days... after all.. they don't teach "what is a 3/1 ARM in highschool", do they?
Sigh... idiots... i still say they're idiots.
Unfortunately it doesn't seem to work that way anymore, you're more likely to have your job shipped to China and end up working at some service job with no benefits. When my wife broke her collar bone it ended up costing us thousands out of pocket and that was with decent insurance. Without insurance we would have been looking at $10k+. How many people can actually afford to take that kind of hit?
While I have sympathy for your situation, it has almost zero relation to the concept of people becoming trapped by the "ZOMG, what's this ARM thing and when did I buy one?" scenario.
There have always been foreclosures and always will be. But the number is up sharply because a lot of people were signing loans they obviously couldn't afford, plain and simple.
I have much less sympathy for someone who bought and ARM and is finding that he can't afford it today.
This is one of the reasons why medical expenses are counted less and often overlooked completely when doing a credit check... some expenses can't be anticipated.... others can. Which is the point being made.
Older people do believe what bankers tell them because, well, bankers are nice men in shiny suits who are supposed to help them out.
OK, some stereotypically ignorant older people might believe that, but I personally don't know any.
Is someone really a liability if they are following the advice of someone they're supposed to be able to trust?
Yes, yes, in fact they are.
Ever put money in a bank? Are you *sure* your bank is FDIC insured,
Yes, I'm sure they are and I wouldn't even CONSIDER keeping an essential stash of money in a bank that was not.
Lots of people probably followed bankers' advice as much or more than their pastor.
I would put religious leaders slightly below investment bankers and used car salesmen on my scale of trust, but regardless, if a person I have known and trusted my whole life told me to sign a legal contract that was:
I MIGHT READ IT FIRST
holy fuck...
The fact that you REASONABLY think someone would do otherwise is really really really disturbing to me.
So, they either believe, or they continue to rent from slumlords, in crime ridden neighborhoods.
This is a classic FALSE DILEMMA.
The real choice is:
1) Rent in the ghetto for cheap
2) Buy in the ghetto for cheap+$50
3) Rent in a nice neighborhood for expensive
4) Buy in a nice neighborhood for expensive+$100
I'm sorry, but I can rent a house in the ghetto for $600. I can buy a house in the ghetto and pay a $650 mortgage.
I can rent in the "safe" suburbs for $1200. I can buy in the "safe" suburbs with a mortgage that equates to $1300/mo.
Your analogy is dishonest and ridiculous.
Thanks for playing.
I have to point it out: dumb people do not DESERVE to be taken advantage of by smart people. Social Darwinism is an inherently fascist, evil, and anti-social philosophy that destroys societies and people's lives. Don't subscribe to it. Society works because of trust, and social Darwinism destroys that trust.
One more time, for the dummies.
These posts express my own personal views, not those of my employer
Your valuation of social Darwinism is purely subjective and out of place in this discussion.
"Politicians and diapers must be changed often, and for the same reason."
Nobody believed the bubble wouldn't burst. I bet very few people ever thought "I'll stop, because it might burst tomorrow". Ultimately, that's what matters: "Nobody" believed the value would stop rising (tomorrow).
That might be how it works in Finland, but a mortgage in the US is just a secured loan. Bank gets to keep the house. Borrower gets their credit history/score trashed, and the difference in amount owed and what the property is worth counts as taxable income under the "Cancellation of Debt" category.
That tax is the killer, but if you are insolvent you avoid it, and the Mortgage Forgiveness Debt Relief Act of 2007 removes it in some cases - since I don't have a mortgage to default on I've never bothered looking exactly what cases.
A mortgage is just a call option on a house for the borrower. Why would you exercise the call if the market price is less than the strike price?
Because society is a complex interconnected web, not a heirarchy of superior and inferior people. It takes all kind of people, with all kinds of strengths and weaknesses to make society work. Social Darwinism posits that some people are inherently better than others, and deserve to survive while the inferior people should die.
A society is built on the idea that we don't fuck each other over, we cooperate. People are naturally cooperative, but when faced with such a society, will become competitive. A society built on social Darwinist principles creates the self-fulfilling meme that everyone is selfish, while one built on cooperative principles will be more efficient, and provide more benefit to all members.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
You've essentially restated my post using more correct terminology and reaching the opposite conclusion. The mortgage market was not "deregulated" it was "regulated differently", with unintended consequences galore. The US government monitored things closely, tweaking interest rates etc. and choosing to allow the market to continue, valuing economic growth over other factors. The US economy is not an unfettered free market.
Ooooh, I see, you're changing the definition of "deregulated" to mean something other than what everyone else in the world means, gotcha.
Sorry, talk to any economist and they'll tell you that the last 8 years have seen the financial markets deregulated. There were regulations in place, and those regulations were removed. That is the very definition of deregulation. That act gave the market more freedom to "innovate", and thus we are in the situation we're in today. That's the reality. The government chose to "allow the market to continue" (instead of imposing new regulations to curb bad practices) because the idiots in power were unwilling to believe that the markets were running off the edge of a cliff. They saw only growth, all the while blinding themselves to the enormous house of cards that was building up (must've been too busy prostrating themselves at the altar of Alan Greenspan).
Couldn't agree more with you.
An important question in all this is to ask WHY a lender would create such a high-risk situation. IN the olden-days, that didn't happen so much, becuase it was bad for the lender. I'm sure neither you nor I would lend someone money unless the risk was worth the benefit.
The loans were securitized and sold off.. and that's the problem - at some point the inherent risk in the securities was overlooked, and they somehow became rock-solid. Lenders would lend as much as they could legally get away with, so they could quickly sell it off.
Or to state it another way, two things happened, probably three or four:
1. Securitizing mortage loans distanced them from the 'underwriters'. They became the 'investors' problem. We are now seeing that the investors are realizing that these were oversold, are nearly worthless as investments, are not returning the yields they were promised, and so are bailing. Logical.
2. Securitizing mortgage loans also 'absolved' the originators etc from a sense of responsibility and most importantly from the usual vulnerability to failures. Meaning originators could write anything for a loan and sell it off to the poor schlubs known as 'investors'. And the originators got paid first, right after the home sellers of course. Recognize this? Part of the S&L scam was developers getting paid up front and letting everyone else take the fall. I know of several developments in the Northeast that bombed spectacularly, with the only units paid for belonging to the developer. And some of those ended up being auctioned off to - you guessed it - the developers.
3. Wall Street has indeed been working with a casino mentality for a while. Find the 'deal', get in quick, make the big $$$, bail out, on to the next 'deal'. We've allowed banks to skirt meaningful regulation, either by diluting it or outright deregulation, and this began in the first Clinton administration. The dot-com boom didn't help, and we saw there the synergy of:
- Startups without revenue being funded as the 'next big thing'.
- Their accounting firms (Big-8 every one of them) also becoming their IPO bankers
- Cooking the books to pump the IPO (this is still illegal, but how many got jail? just a few)
- Hype the investors into believing (oh, many 'journalists' were in on thus too)
- Stock falling to zero when reality hit and there was no more money
- Being absorbed into the 'next big thing'
- Repeat until a big investor gets stung
A similar cycle is at the root of the mortgage mess. Everyone lied about these weak loans until there was no place to hide. The numbers are just even more stupendous.
Martha Stewart deservedly got jail time for scamming some poor schlub for a few thousand dollars, the more remarkable because she didn't need that little money. Will the perps at the bottom of this mortgage mess see jail time? That might, just might, be the ultimate deterrent to future debacles like this.
Gone are the days of no-money-down home loans, probably. The equity requirement of a 10-20% down payment changes your perspective greatly. I know so many people that have bailed out of their mortages mostly because they have none of their own money invested. Why bother paying three times the payment when your house is also now worth $100k-$200k less than you owe? Not uncommon in Phoenix, and also in the worst markets. I hear this is a problem in the rustbelt, the numbers are just proportionally lower. It owuld be different if you had to put down $60k for that $600k house, which 2 years later is 'worth' $450k. You are still on the hook. And frankly, I suspect that if you had to put in $60k, you'd be examining that purchase price more carefully, and realize that the truth is the house was never worth that.
My wife and I avoided buying our own house apart from our income property, and are glad we did. We would have paid too much, the market was over-inflated. Today, we are looking at some of the homes we saw in 2006 for $300k-400k, and they are now listed for $220k and less. One we saw for $330k in 2006 is now in short sale for $86k. No takers.
A very painful adjustment we are in.
deleting the extra space after periods so i can stay relevant, yeah.
You are making the posters point:
"A mortgage is a huge commitment. You're going to be paying it back for a long, long time" means it is scary, because you can't foresee the long, long future you are making a commitment to.
Also, this argument was countered by clever sales people, saying, well you are taking a 30 year mortgage, but you are staying only (on average) for 5-7 years in the house. So what do you care about the interest rate for longer than that time period (balloon loan?). So average people got lured by false argumentation to they overcame their fear.
Busy helping non technical users of OpenOffice.org - http://plan-b-for-openoffice.org/
I realize that "deregulated" is an idiom. (When you de[verb] something, it means that you no longer [verb] it.) However, using the idiomatic definition of "deregulated" doesn't support your argument that these economic problems are due to an "unfettered free market", because changing some regulations didn't create one.
because changing some regulations didn't create one.
No, but it brought a previously heavily regulated market closer to a pure free market by removing existing regulation. Basically, the banks were given far more freedom to do as they wished (such as creating complex mortgage-backed derivatives), and the result is a financial meltdown. What that tells me is that giving them even *more* freedom is most definitely *not* the answer.
'course, a crazy libertarian might say that you should just unshackled the free market and the invisible hand will fix everything. Problem is, they're living in a fantasy world (kinda like the favorite whipping boy of the right, Karl Marx).
I guess I didn't explain my idea very well. (Really, it was poorly phrased.) I wasn't saying that those mortgages labled "dangerous" should be banned; rather, that would just trigger the requirement that you have to get approval, which takes three weeks, which I know is longer than the home-buying process. They would still be allowed, they would just have a psychological barrier that normal mortgages don't. Remember, the approval is guaranteed, it's just there to nudge you away, not stop you entirely if you know what you're doing. Peace out.
Information theory is life. The rest is just the KL divergence.
Creating complex mortgage-backed derivatives is fine; it's erroneously valuing them that caused the problems. If the loan risk had been accurately assessed, fewer bad loans would have been issued (because high risk loans wouldn't be able to be sold as low risk), the housing bubble wouldn't have been as big and banks wouldn't have liquidity problems when their "assets" turn out to be less valuable than they thought.
Creating complex mortgage-backed derivatives is fine; it's erroneously valuing them that caused the problems.
And allowing regular people to have nuclear weapons is fine, as long as they're trained properly.
Sorry, but the very nature of those derivatives makes it incredibly difficult to evaluate them effectively. Better to just disallow them entirely. Will that reduce the amount of credit available to the real estate industry? Yup. Tough. Better that than a financial meltdown.
The only other option is to regulate how those instruments are rated (as it appears the ratings agencies, at best, *massively* failed in their duties, and at worst, were in cahoots with the industry to pump up their ratings), but I'm not convinced it's worth the risk.
In either case, the industry has demonstrated that it can't be left to it's own devices. The free market failed. So the government needs to step in and do something, whatever that "something" is.
if you dont fix this situation with YOUR money, NOW, you WONT have any money to shove up your butt in near future. for, entire world economy is going to crash in another 1929, thanks to the idiots thinking like you ruling america for the last 8 years.
what is worse, you'll also take us, entire global economy down with you - so cut the crap, and FIX the shit you have made.
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no, no insult. there can be no other explanation.
for,
its irrelevant whether this is directly your fault or not. this issue stems from your country. if its not fixed, you WONT have any money left in your pocket very soon, and youll be int the streets singing bing crosby's 'brother can you spare a dime' song from 30s, because that will be what's happening.
we are talking about a global CRASH here, not a 'crisis' or etc that comes and goes in the news, while you are living your daily life.
we are talking about manufacturers not being able to find short term loans (because financial system went bust worldwide) to send their suppliers for the raw materials they are going to use for production tomorrow, and going bankrupt because they are not able to produce, DESPITE they are profitable, DESPITE they even have a lot of assets to show as assurance for their debts. this is called a liquidity crisis, in case you dont know, and it bankrupts EVERY kind of business.
technology companies, manufacturers, auto makers, your local ma and pa shops, shipping agencies, airlines - every one of them is going to go bankrupt unless this is fixed.
ant let me break it to you - global economic crash doesnt care whether you care about it or not - when it happens your life goes under the rug too, whether you try to insist being an ignorant tightfist or not.
read up on how 1929 crisis affected every goddamn soul on this world.
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before you even attempt to think about it, you wont be escaping the effect of the global crash, REGARDLESS of what field, job you work in.
even if you are a military personnel, a smuggler, a mafia mob, any other shit, it doesnt matter. you are going to feel its effect this or that way, and feel it badly.
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