The stupid and irresponsible "home owners" bail out is happaning

Discussion in 'Wall St. News' started by RedDuke, Nov 30, 2007.

  1. You must be a subprime borrower.
    #21     Nov 30, 2007
  2. weld1


    your right, these guys are not bailing out borrowers they are bailing out the lenders. thank god for rick santelli. he is the only reason i listen to cnbc sometimes. the rest of those guys are like rush limbaugh of the financial world.:mad:
    #22     Nov 30, 2007
  3. duffman


    Subprime Mess Produces Unqualified Victims: Michael Lewis

    2007-04-16 00:22 (New York)

    Commentary by Michael Lewis

    April 16 (Bloomberg) -- The story line of the newest

    American financial debacle is now clear:

    President Bill Clinton eased lending standards to encourage

    the rich people who run the mortgage market to embrace poor

    people with low credit ratings. Then these horrible rich people

    -- these unfeeling sharks -- went to work exploiting the poor.

    First, they talked poor people into borrowing money they

    should never have borrowed. Then they brought in some other

    sharks to package the loans as bonds, who in turn talked some

    other only slightly less poor people into buying the bonds. The

    rich middlemen took their fees and left the poor borrowers and

    slightly less poor lenders holding the bag.

    The moral of the story is also clear: No matter how much

    the government might try to help the poor, the rich people who

    run financial markets will find a way to screw them.

    At any rate, that's how it reads to me in the many scandal-

    tinged accounts of the subprime loan-market collapse. And on its

    surface the moral is appealing: the story is always better, and

    easier to write, when the rich guys are the crooks. But this

    interpretation of current events does raise a few questions. To


    1) If the subprime home-loan market was a cynical

    conspiracy, why did so many of the putative conspirators wind up

    taking so much of the risk?

    The single biggest collapse in the market has been that of

    New Century Financial Corp., the second-biggest subprime

    mortgage lender. When New Century collapsed it owed money to

    many, but the single biggest creditor, according to the London

    Times, was...Goldman Sachs Group Inc., followed by Morgan

    Stanley, Lehman Brothers Holdings Inc., etc., etc.

    Out $1 Billion

    Interestingly, New Century's 10th-largest creditor --

    again, according to the Times -- was another subprime lender,

    Countrywide Financial Corp. (Barclays Plc, out $1 billion, was a

    mere 15th on the list, which gives you an idea of the sums

    involved.) Given this, you just know that it's a matter of time

    before we learn of some hedge fund that's on the verge of

    collapse as a result of its investments in subprime mortgages.

    2) Why does the most financially obsessed and presumably

    well-informed character on earth, the American Investor, insist

    on playing the fool?

    Amazingly, in the wake of the Internet boom and bust, some

    meaningful number of American investors fails to ask why they

    are being offered fantastic returns on their investments. Paid

    six times the risk-free rate on the notes and bonds of a

    subprime lender called American Business Financial Services (a

    name that's a sign of bad things to come, if ever there was

    one), they don't wonder why it is that their investments yield

    such spectacular returns. Instead, they become outraged when

    American Business Financial Services collapses, then sue the

    Wall Street investment banks who sold them the bonds.

    Tell Your Story

    Then they go to the media. From Bloomberg News we learn the

    sad story of a small investor named Buck Meyer who lost $300,000

    when American Business Financial Services tanks. The man has two

    children! He planned to use the amazingly high interest rates he

    earned on his American Business Financial Services bonds to pay

    the mortgage on his own new house in Chattanooga, Tennessee! How

    could they possibly fail to pay off?

    No one suggests that Buck Meyer, in effect, gambled his

    savings away -- that he might as well have grabbed the special

    offer of a free hotel room and flown to Las Vegas, groped his

    way to the roulette table, plopped his life savings down on 00,

    and then sued the casino for losing his money. Then again, the

    Vegas gambler can't expect journalists and juries to take his

    case seriously.

    Cheap Insurance

    Which raises yet another question: Did the knowledge that

    he could count on journalists and juries for sympathy embolden

    Buck Meyer to gamble his savings away? Even if Buck Meyer didn't

    consciously think ``If they don't give me my money back, I'll

    just sue 'em,'' was he not subconsciously aware that these

    lucrative if risky bonds came with a loose social insurance

    policy? Are the journalists and juries, therefore, partly to

    blame for his losses?

    3) Why in this new drama is it so easy to imagine borrowers

    in a different role, other than the one in which they are

    currently cast: The Victim?

    Moving is never pleasant or cheap, but that is the main

    cost to the subprime defaulter: He hands back the house, whose

    value has presumably plummeted, to the people who lent the money

    to buy it, and walks away. He rents. (Shrewdly!) In effect he

    bought a very cheap call option on the U.S. housing market.

    While he waited to see if his call option made him richer, he

    lived in a much nicer house than he could otherwise afford and

    probably wondered why rich people had become so recklessly open-

    handed. His behavior was irresponsible, but the markets let him

    do it and so it's hard to blame him for taking a flier.

    Am I the only one who wonders how a person who borrows

    money he can't repay, buys a house he can't afford, and then

    stiffs his creditors, is allowed to play the victim?

    A more convincing victim, I would have thought, is the

    person with weak credit but strong resolve who stood to benefit

    from a subprime loan -- and who now can't get one because the

    market is scared of his shadow.

    (Michael Lewis, the author, most recently, of ``The Blind

    Side,'' is a columnist for Bloomberg News. The views he

    expresses are his own.)
    #23     Nov 30, 2007
  4. if this bailout happens, every future homeowner will likely have to pay a fee at closing for "reset insurance" in case the mortgage issuer is forced to reneg. sometime in the future....

    this is nuts...
    #24     Nov 30, 2007
  5. That's what I was thinking, frankly. I just didn't want to hurt his feelings.
    #25     Nov 30, 2007
  6. Why weren't people complaining back in August when I was. That's cos nobody was short.

    #26     Nov 30, 2007
  7. Outstanding post.
    #27     Nov 30, 2007
  8. heh heh now not only will they pay PMI, but also MRI (mortgage reset insurance). LOL
    #28     Nov 30, 2007
  9. Every economic, social, and security problem we faced in the last 8 years can be directly attributed to the Clinton admin. I'm digressing.
    #29     Nov 30, 2007
  10. poyayan


    What a cock of sh*t? I want teaser rate for my mortgage too, or I want higher CD rate for my saving.

    How come only losers get the benefits? I don't get it.
    #30     Nov 30, 2007