We need to see more of this

Discussion in 'Economics' started by ralph00, Dec 10, 2009.

  1. Actual elimination of debt. Write it down. Do away w/it. Move forward from a more rational level.


    Wells Fargo & Co., the bank that gained a portfolio of option adjustable-rate mortgages when it bought Wachovia Corp. last year, cut the principal for delinquent borrowers in some loans by as much as 30 percent.

    All of these other modification programs - cutting the interest rate, extending the amortization, ... - are destined for failure because they refuse to eliminate principal. As long as borrowers remain underwater, they will go delinquent as soon as trouble hits.

    Congrats to WFC for at least taking a step to recognizing the true problem and moving to deal with it.
  2. Maybe not.

    1. Lender has to take a big hit to its balance sheet, and

    2. The borrower has "forgiven debt"... which is a taxable event.

    What we REALLY need is for prices to "adjust to value".
  3. If I were a Wells Fargo shareholder, I am not sure I would want to see more of this...
  4. You miss the point. The value of the asset is already impaired. Not taking the hit to the balance sheet is a recipe for Japanification - zombie banks as well as zombie consumers.

    Bankruptcy is such an important and effective tool in a well-functioning economy because of what it does - it eliminates debt and allows all parties to move forward from a reasonable level. I don't wish it on anyone, but when debt levels are so high that it inhibits all other functions, its an effective tool for restoring growth for an individual, company, or economy.

    As for the ghoul's comment, its beyond silly. Would keeping 10's of billions of $'s of non-performing loans hidden on their balance sheet be better in the long run for WFC's shareholders? Of course not. Recognizing the loss and moving forward will cause short term pain, but will be better in the long term. As for your sudden need to stalk me on this board and disagree w/everything I post ... I would say whatever floats your boat, my friend.:cool:
  5. 12 months ago they would get crushed for it, but this means they keep the cash flow longer because they aren't just kicking people out. Also the houses get kept up because people are living in them, even if they do eventually default. This is full of win in so many ways. I'm not going to lie - a move like this reeks of curve engineering.
  6. There is no easy solution here.

    Garbage is garbage.... Bury it, contaminate the water we drink. Burn it, contaminate the air we breathe. Dump it in the ocean, contaminate the fish we eat.

    It doesn't disappear. So who smells this garbage the most? The shareholders? The homeowners? The Federal Reserve? The US taxpayer?

    What I see happeneing is that this garbage will be dissipated over a broad range of society so it affects everyone all at once, and thus, its noxiousness is dispersed amongst the many so it's impact is lessened on the individual level.

    i.e. the taxpayers

    (Banksters keep their bonuses though... any self respecting plutocratic society knows that!)
  7. "I MISSED THE POINT?"... not likely, Buckeroo.
  8. "Stalk you"? I don't even know who the FUCK you are? You aint' that important. Try deflating your head!

  9. Me stalking you, disagreeing w/everything you post? You have lost me... What the heck are you referring to? Methinks you're being paranoid here, mon ami...

    All I am suggesting is that, by default, I am not going to celebrate when I am forced to take a haircut just because someone decides to forgive some debt on my behalf. Personally, I wouldn't want to be the one suffering short-term pain for the sake of a lofty long-term goal.

    EDIT: I am not sure who's stalking you here. Seems lots of confusion is going on...
  10. Holy cow. Did someone pee in your oatmeal this morning? Read the post. I wasn't even referring to you.:confused:

    As far as the point of the thread - the debt and the assets WILL be written down. Would rather have it eke out over a period of a decade or more, thus paralyzing all entities involved, or would you rather take a big haircut down to a reasonable level right away and move on.

    Here's a bet - which program will have a better success rate? The gov't's stupid HAMP or WFC's principal writedowns? We already know that HAMP is a 100% failure. There is no doubt that WFC will have much greater success.
    #10     Dec 10, 2009