[markl]

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So the solution is denial.

Uh, no, the answer is not to panic. It was a panic on Wall Street that caused the Great Depression.

 

[Wodgy]

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Originally Posted by markl /img/forum/go_quote.gif Uh, no, the answer is not to panic. It was a panic on Wall Street that caused the Great Depression.

Realism might be better than either optimism or panic. No one can see into the future, and the fabric of American society has always been fundamentally optimistic, but at the same time, it's worth being a little cautious.

I've spoken to a couple of Boomers who are taking money out of their 401ks to try to save their investment homes. This is very unwise. As hard as it is to accept, it's probably wiser for a lot of these people to stop paying the mortgages and just walk away from their homes rather than double-down on leverage and risk their 401ks as well in the hopes of a property value recovery.

One of the strengths of the US system is that in the majority of states, people can just walk away from underwater mortgages with nothing more than a hit to their credit rating. (As opposed to the UK, where all normal mortgages are recourse; the bank can chase you forever for the missing money.) The banks will hate it, but people need to realize that this is a better alternative than losing their retirement savings too.

We're really seeing a very significant social shift here, and it's going to be very painful for a lot of people. For a lot of Boomers, perhaps the majority, the possibility of retirement is slipping away. They were depending on home equity and thought they were wealthier than they were. I empathize with these people... it must be hard emotionally to accept the reality that the retirement they've been expecting all their lives just isn't going to be realistic any more, but there doesn't seem to be any solution either.

It's been a hard decade for the Boomers nearing retirement... they've seen their pre-retirement investments underperform for the last decade (the S&P 500 is back at the same level it was 9 years ago, and it's down 21% over that period if you adjust for inflation; many Boomers shifted to real estate after the tech bust because it seemed more "real" and are now seeing those investments melt down too, etc.) and the outlook doesn't look all that rosy for the next couple years. Their savings rate has been near zero because they were depending on asset appreciation that never happened, and less than a third of them have pensions. Must hurt.

 

[oicdn]

That article is a little skewed, considering Michigans situation is self imposed as they have the highest unemployment rate and is uninviting to new industry due to the higher tax base on new corporations. The American made car isn't selling, thus having no jobs due to layoffs and strikes.

Of course if you grab the smelliest crap in the bag, you automatically assume the rest is just as smelly, when it's not the case.

Ofcourse, the economy isn't doing great, but I think saying another depression is a bit extreme. And who's fault is it? People who spend more than they make. All these forclosures and whatnot...and Congress' solution? Government assistance to pay all them off. Excuse me, it's not my fault that person bought a house they couldn't afford, and it's not the governments place to repay anything....it's nobody's place except the person who got themselves into that garbage to begin with...

 

[roadtonowhere08]

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Originally Posted by oicdn /img/forum/go_quote.gif Ofcourse, the economy isn't doing great, but I think saying another depression is a bit extreme. And who's fault is it? People who spend more than they make. All these forclosures and whatnot...and Congress' solution? Government assistance to pay all them off. Excuse me, it's not my fault that person bought a house they couldn't afford, and it's not the governments place to repay anything....it's nobody's place except the person who got themselves into that garbage to begin with...

As insensitive as some might view this (I do not), this is 100% true. Do a little research on loans before investing in a home. The more money involved, the more research is needed. Common sense...

 

[AlanY]

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Originally Posted by roadtonowhere08 /img/forum/go_quote.gif As insensitive as some might view this (I do not), this is 100% true. Do a little research on loans before investing in a home. The more money involved, the more research is needed. Common sense...

Even though the current bust was triggered by the subprime problem, it really wasn't caused by it. As fashionable as it is to blame these people, the blame is much, much wider than a few clueless people who got mortgages they couldn't afford.

If it wasn't housing, it would have been another asset class (probably commodities, perhaps international stocks) that would have caused a similar meltdown in the financial system. Had derivative and credit swaps been deregulated five years earlier, the tech bubble collapse would have triggered the same generalized financial meltdown we're seeing now. The LTCM collapse in the late '90s was just a much smaller version of what's happening now, and housing wasn't involved.

 

[Jaw007]

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Originally Posted by FallenAngel /img/forum/go_quote.gif Yep, US is screwed, glad to be Canadian visiting US!

I think you have this backward.No depression here in the US.
Living well in the USA.

 

[sejarzo]

I think what FallenAngel implied is that even when $1 CDN only bought $0.75 USD, a lot of stuff was still cheaper in the US than in Canada. My wife's brother lived in Burlington, VT through the mid-1990's and the motels there were full of Canadians staying the requisite 48 hrs before returning with goods. Her relatives outside of Vancouver, BC can't believe the deals they get in the US now with the US and Canadian dollars about even.

 

[roadtonowhere08]

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Originally Posted by AlanY /img/forum/go_quote.gif Even though the current bust was triggered by the subprime problem, it really wasn't caused by it. As fashionable as it is to blame these people, the blame is much, much wider than a few clueless people who got mortgages they couldn't afford. If it wasn't housing, it would have been another asset class (probably commodities, perhaps international stocks) that would have caused a similar meltdown in the financial system. Had derivative and credit swaps been deregulated five years earlier, the tech bubble collapse would have triggered the same generalized financial meltdown we're seeing now. The LTCM collapse in the late '90s was just a much smaller version of what's happening now, and housing wasn't involved.

Oh no, I completely agree. That is what I was getting at with my post before last. I think it is silly to think that the housing situation is alone to blame for where we are. I just do not have a ton of sympathy for people who bought more house than they could afford. People get into all sorts of trouble for tech purchases and investments, and nobody cares, why should this be any different? Because it hurts the economy a bit more? The proposed solutions hurt it much more in the long run. Bailouts pass on the cost to the taxpayers or add it to the debt we already have. Either way, not good.

 

[Roam]

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Originally Posted by Wodgy /img/forum/go_quote.gif One of the strengths of the US system is that in the majority of states, people can just walk away from underwater mortgages with nothing more than a hit to their credit rating. (As opposed to the UK, where all normal mortgages are recourse; the bank can chase you forever for the missing money.) The banks will hate it, but people need to realize that this is a better alternative than losing their retirement savings too.

The interesting part to note is that under most of the plans being proposed to help homeowners keep their heads above water, those non-recourse mortgages become partial or full recourse mortgages. The banks & mortgage companies agree to reduce rates and/or knock a chunk off the amount owing, but buried in the fine print will be a clause to convert the mortgage to one with full recourse. In other words, the banks will now own the borrower and can hound him to the ends of the world should he choose to default and walk away. A lot of people are going to receive a nasty surprise if they default after reworking their mortgages.

 

[Wodgy]

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Originally Posted by Roam /img/forum/go_quote.gif The interesting part to note is that under most of the plans being proposed to help homeowners keep their heads above water, those non-recourse mortgages become partial or full recourse mortgages. The banks & mortgage companies agree to reduce rates and/or knock a chunk off the amount owing, but buried in the fine print will be a clause to convert the mortgage to one with full recourse.

I don't have a problem with cram-downs becoming recourse. If someone accepts a cram-down, they should be signalling they intend to pay for the home at the reduced price. Both parties need to have skin in the game, otherwise it can't really work. There would be too many requests and no incentive for the other side.

On the other hand, I'd rather not see any housing bailouts at all -- not because I'm a heartless person but because it would just create a Japan-style slow burn situation that would go on for years, and ultimately couldn't be large enough to work -- but I'm realistic too. People with homes vote at a much higher rate than young people and the financial industry has great lobbyists. It'll be too hard to resist at least some half-hearted scheme.

Either way, the Boomers are still in a world of hurt, and it's important to get the word out that people with negative equity can in most states just walk away.

 

[frozenice]

If the young people ever decide en masse not to buy houses (especially for a reason like full recourse) the mortgage industries gig will be up.

 

[Konig]

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Originally Posted by markl /img/forum/go_quote.gif Uh, no, the answer is not to panic. It was a panic on Wall Street that caused the Great Depression.

panic is what triggered the depression, it isnt the sole factor that caused it

telling people not to panic only buys time to sort out the problem, but it doesnt mean you can solve it

 

[Uncle Erik]

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Originally Posted by Konig /img/forum/go_quote.gif panic is what triggered the depression, it isnt the sole factor that caused it telling people not to panic only buys time to sort out the problem, but it doesnt mean you can solve it

Wasn't so much Wall Street as it was a run on the banks. That's why we ended up with the FDIC, etc.

 

[Uncle Erik]

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Originally Posted by Konig /img/forum/go_quote.gif panic is what triggered the depression, it isnt the sole factor that caused it telling people not to panic only buys time to sort out the problem, but it doesnt mean you can solve it

Wasn't so much Wall Street as it was a run on the banks. That's why we ended up with the FDIC, etc.

 

[frozenice]

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Originally Posted by Uncle Erik /img/forum/go_quote.gif Wasn't so much Wall Street as it was a run on the banks. That's why we ended up with the FDIC, etc.

Was it a run on the banks or was it a run on some of the banks?

If that was so, were some banks approved by the U.S. Fed and others perhaps that were trying to muscle into what the U.S. Fed considered its domain ? Ah, details, details.