Thanks for the shoutout. I can’t argue with your logic either–forcing mortgage lenders to hold on to those loans would make them much more accountable. I was just approaching it from the consumer perspective.

It’s a testament to the scope of how awesomely awful the problem is that all of these solutions are necessary.

“The best way to combat these tactics is with clear, comprehensive disclosures of the terms and conditions of every loan and abolition of punitive or unnecessary fees, points, and costs attached to a loan–but even mild voluntary guidelines like what the Fed has proposed are violently opposed by the mortgage and finance industries. As long as the people who predicated this financial crisis refuse to take even the slightest step to police themselves and behave ethically and responsibly, then yes, a bailout may be necessary. People shouldn’t be punished simply for trying to fulfill the American Dream of home ownership.”

The best way is to make it so that if you sell the loan you have to keep it on your books, so you’re responsible for it forever. Knowing that they aren’t offloading it would make lending standards go way up, way fast.

Just have a stupid tax… Just tax the stupid people :-0

I didn’t know that (I was five at the time), but it doesn’t surprise me at all. Plain, honest language is always the enemy of hucksters and shysters.

When he came into office Jimmy Carter signed the Plain English Executive Order as his first E.O. which would have eventually forced almost everybody to put legal documents into language that an ordinary citizen could read and understand. As you might guess, the financial industry was up in arms…Had Carter’s E.O. remained in force, lots of innocent people might have been aware of the danger into which they were putting themselves – and avoided it. The idea was to make it possible for the consumer to protect him/herself.

Carter’s post WH legacy – building houses for the disadvantaged.

When he came into office Ronald Reagan’s first E. O. was a rescinding of Carter’s Plain English E.O. Back to the legal mumbo jumbo that effectively made lenders the only ones who knew what those documents meant. Reagan made sure that banks and mortgage companies (among others in the Republicans’ favorite groups – the “haves” and “have mores”) were able to prey upon citizens and hide their conniving in legalese….The idea was to protect the corporation from liability, culpability, – or, as they interpreted his actions (with his tacit blessing), responsibility to the citizenry.

Reagan’s post WH legacy – giving speeches at a million bucks a pop to companies who benefited from his economic policies.

Once again, watch where the money trail leads and who benefits.

Those guaranteed Chrysler loans were paid off really early due to good management.. I remember the 30 year Chrysler commercial paper with a 9% coupon was going for 32 cents on the dollar. My dad bought a lot of that paper right after the guarantee at somewhere around 43. That paper eventually went past par. Those were the days..

While overzealous mortgage commission sales people, shady companies, the government, and Wall Street have complicity in the natural real estate cycles, so do the actual buyers and sellers. Real estate is a market, just like any other financial or commodity market. Since there’s less liquidity in the real estate market, corrections generally last a long time. I knew the market was overblown when I saw mortgage loan offers of 130% equity. Signals like that always signal a top of a market.

I’m not a fan of Bush’s bail out, and wonder how the investors are going to get full pay-out of on their securities. I hope Merrill takes it on the chin on this one, and the lawyers get rich. Meanwhile, there’s a huge float of ineligible sub-prime paper out there that could offer good returns, with substantial risk to the buyer. I think the risk is priced into the paper, as it’s so cheap. However, buying distressed paper isn’t my gig, but it might fit into someone’s portfolio.

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Mr Churchill said:

“I find it interesting how not even the blogosphere seems to see the obvious solution to this whole mess.
If the housing prices of homes in US were lowered 30 to 40% now, instead of going through years of reccession to achieve the same result, the whole crisis of value would evaporate.
The losses would be squarely borne by the mortgage industry, and Wall Street, which is where the blame belongs.
This whole crisis is one of value, not of credit. Until this is aknowleged, the depression is inevitable.”

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Real estate is a market, and it would be hard to put a mechanism in place to whack the real estate prices 30-40% immediately. A gradual price decline over a prolonged time frame is much better for the economy, as it gives the whole market time to adjust. A 30-40% immediate reduction would ruin the bond market, ruin the insurance industry, cripple the banks, evaporate the credit markets, melt your 401-K’s and other retirement accounts, and would cause at least 50% of the banks in the country to close because of the runs that would follow such a foolish move.
Since most housing is the source of most people’s net worth, the negative equity would make immediate paupers out of millions of people. You are right, that the issue is of value, ont of credit. That being said, for everyone that sells at the top of the market, there has to be someone buying at the top. Real estate is a risk,just like any other market.

Long live Chrysler via federal loan guarantees (I guess I’m dating myself now …)!