Saturday, September 1, 2007

Sub-Prime Saga

Honesty on this subject requires courage, I've decided. And we have seen some of that from a few. First off we must absolutely and positively give credit to the Daily Show [and it's funny, too.] I'll let you watch it without comment.


Amongst bloggers, without that editorial control, I had hoped for more. Of course I couldn't do an exhaustive search. The below was a good one, though. I especially noted:

*Lenders were supported by politicians and "community leaders" eager to promote minority home ownership.

*When Illinois (Cook Co.) tried to establish credit counseling programs for new minority buyers by targeting ZIP codes, the program was pulled as being "racist".

*this is America, where nothing happens if it isn't about poverty, race, gender or disability.


And lastly, Ben Stein weighs in to give us some perspective. Something we didn't get from TV's Jim "Mad Money" Cramer.



Marsha said...

Can't get the links to work.

I agree with you that there should be no bail out. It is not rocket science to know whether or not you can afford a loan.

I have no doubt that some of it was spurred by the noise that lenders needed to be looser with money for minority borrowers. I would say that it was easier to be looser with money when, as you noted, there was so much cash flying around that a few bad loans was not going to be a big deal.

But I think that is is more likely predatory in nature. These loans were pushed because lenders were bundling these loans and selling them and the mortgage officers were also getting commission for every loan they made. So the more folks they could qualify, the better. And if that meant giving loans to folks who should not have qualified, well, so what. The loan was going to be packaged and sold anyway. A default would be someone else's problem. That does not mean there should be a bail out.

The fact is that perfectly sensible people took out these loans and were sucked in apparently made to believe that the market was never going to go down.

We actually had to talk a friend of ours out of doing an interest only loan. And on top of that, someone was going to lend him the money for the down payment too! I sold my condo to a couple who had taken out an interest only loan. God only knows what happened to them but I know at the time I thought it was stupid. The woman buyer was a real estate agent!

If we bail out the sub-primes or the sub sub primes, the people who are prime borrowers will squawk that they need help too. In fact, the Bush proposal is only going to help the prime folks. Now the squawking is that if you are going to help them, you have to also help the sub-prime.

Just as the Iraq war however, we can argue about why it happened from now until next Sunday, but if we do not want to go off into a complete economic downturn, something is going to have to be done or the market is going to be flooded with foreclosures, unsold homes, and a lot of bad debt. If the free marketers are true to their word, then only limited actions will be taken. The market needs a good shake out and if it happens, this won't happen again.

Alan Greenspan is partially to blame. He used the housing bubble to prop up the economy, keeping interest rates low, and now it is coming back to haunt us.

Carl W said...

I'll check those links, and maybe replace them with tiny urls. Be *sure* to see the daily show one!

Sue says I need to learn to imbed the links. I know how to do that in Wikipedia, so maybe it is similar here. I'll work on that.

Interesting personal stories. As far as the real estate agent, I'm sure she bought a book that told her that's how you get rich. If you like to gamble, maybe so, some people do get rich with real estate. It is about the only form of investment you can do and get that kind of *leverage*


Carl W said...

Links changed to imbedded type - just click!

Matt said...

I think one issue from this is the fact that a lot of these loans weren't being made by banks at all. It had morphed into an unregulated market. If the banks had done all these loans, I don't think we'd be looking at the same practices. When you have unregulated companies being judged by their shareholders on the amount of loans that they are making, packaging, and reselling, it is a recipe for disaster. I think the whole practice lends itself toward sweeping up more minorities in its net because it is set up to sell more loans. By definition, in order to do that, you have to widen your reach. I disagree with the idea that it is social engineering. I think it is greed on the part of the industry and unscrupulous salespeople. Your point about the guy buying the truck illustrates my point. However, I don't have much sympathy for the people who took out these loans. I have even less sympathy for the companies giving them. Let the chips fall where they may. No bailout.

Good topic.

Louise said...

I would be interested to see actual data on this subject, in a unbiased study. In other words, how many Asian Americans or Hispanic Americans take out sub prime loans? How does the percentage of minorities who take out sub prime loans compare to the percentage of minorities who fall in a certain economic category?

I agree that there should be no bail out. However, I do think that lenders should stop unethical practices. Also, I believe that most of our country is in dire need of some financial counseling. You wouldn't believe the number of people I know who are in serious debt because they can't live without their new plasma (or whatever)!

Also, re: the newspaper article. As someone who has been interviewed /known others who've been interviewed, I have lost a lot of respect for the media. I cannot tell you the number of times I've read things that have been misquoted or taken out of context. So these days, I take anything I read/hear with a grain of salt.

Carl W said...

>I have lost a lot of respect for the media.

just going for the sensational stuff seems to be the deal with media. And you won't get the kind of analysis you are looking for above except rarely, even when it is available.

>I think one issue from this is the fact that a lot of these loans weren't being made by banks at all...

One of the unsavory things that evolved was these sleazy outfits that somehow got to be considered "non-profit." Sue and I watched in disbelief commercials that were in the worst vein ... having, what for me as a salesman anyway, easily spotted unmistakeably dubious features... then to claim at the end they were "non profit". If you will remember, something like a year ago, these outfits finally got called out and things changed. IMO that was the real beginning to the current situation.

Seemed to be something to do with the idea that companies that were keeping people from claiming bankcruptcy were to be helped.

Wonder how certain politicians kept their noses clean on this matter of dubious "non-profit" lenders? I certainly don't remember any of them getting quizzed on the matter. If you want my opinion, that's the sort of thing bloggers can make happen and the media won't... not if it doesnt fit some agenda.