Wednesday, August 22, 2007

I feel compassion for those caught up in the subprime debacle but....


The Democrats want to bailout the borrowers from their bad decisions. Hillary Clinton wants the government to issue a $1 billion federal bailout to avoid foreclosures. New York Senator Chuck Schumer and other Democratic senators have joined her. John Edwards has also recently attacked subprime lenders until it was discovered he had 16 million dollars invested in Fortress Investment Group, a firm involved in the foreclosure of more than 30 homes. This is just another reason not to vote Democrat.

I tend to be very conservative in my approach to life. I worked hard to obtain my BS, and my MBA. I paid my own way through college. I did the apartment thing. I worked, I saved, I bought a house with a substantial downpayment. I made sure my income far exceeded the amount of the mortgage. I invested; I diversified because I did not want to find myself in a financial bind. In 15 years I paid off my house, and I continue to build my portfolio. I did all this with a neurological disorder that has impeded my way to the top and which has made me have to make several compromises along the way. I don't presume to be full of braggadocio, but my intent is to point out the anger I feel when I see the liberals wanting the government to take care of everyone from cradle to grave.

I have heard all the excuses for people not being able to get a college education from I can't afford it to its just too hard. To this I say - "Bull Pucky!." Statistics show that people with college educations earn far more than people without college educations. I have known a lot of people whom I thought could never earn a college degree, and time and time again these people have proved me wrong. If you have a child out of wedlock, if you end up in a gang, if you get kicked out of your house - those are your choices. Regardless, even if you have made mistakes, it only toughens the odds; you can still earn that degree. In America, there is always a way.

Try Central or South America. The only way to get ahead in those countries is through political connections or owning a business. People all over the world are clamoring to enter the United States, yet we keep hearing the liberals complain. How about this for an immigration solution. For everyone who wants to hug Hugo Chavez or blame America first, I say we should exchange him/her for one person in another country south of the border who wants to come here and work hard, get an education and be a part of the U.S..

Everyone wants the American dream. We live in a world of immediacy. We want everything now. Saving for tomorrow is just putting off the inevitable, so college students rack up average credit card debts of 10,000 dollars at a time when their parents pay for everything. Savings rates are at all time lows. If we can't afford to pay for vacation, we will just put it on the credit card. I can't help all the bad decisions people make.

During the dot-com craze, instead of starting businesses in garages like Hewlitt Packard and Intel, venture capitalists poured money into so-called full-fledged business with no proven model or record. It was a recipe for disaster.

People can make all the bad decisions they want until it starts affecting me.

So, now let me get this straight.

Joe wants to buy a house. He walks into a lender. The lender gives him some forms to fill out. Joe inflates his income to make sure he will get the loan. The lender understanding that Joe (even with his inflated income) doesn't make a lot of money and has not been at his job very long still lends him the money. He just ups the interest rate but not for the first twelve months. The first twelve months, Joe will be on easy street, but then his payment doubles. 12 months pass, and Joe can no longer afford the mortgage, and the lender is forced to foreclose on his home. In addition, from the time Joe bought his house to the time he is forced to foreclose, his house has devalued so he now owes more than he borrowed. The Democrats want me and you to pay for his mistake by bailing him out.

Joe is a man who lives beyond his means like so many others in this subprime debacle. He should rent but wants to buy. Houses continued to appreciate due to the plethora of these shaky loans, but it was an artificial appreciation since people who should not have been buying houses continued to buy. Under normal circumstances, these borrowers would not have been able to make such loans. Both lenders and borrowers alike were caught up in this subprime world hoping that when the inevitable crash occurred, it would be the other guy who would be caught with his pants down.

"We will raise your taxes" should be the Democrats motto. You can't afford health insurance, don't worry, we will raise taxes, and give everyone health insurance. You can't afford to pay your mortgage, don't worry we will raise taxes, and everyone will pay your mortgage. You can't afford to pay for Global Warming (you know that hoax everyone is talking about), don't worry we will raise your taxes. You don't have any money but you had six kids out of wedlock, don't worry we will raise taxes, and everyone will pay for your kids. You can't afford to pay your taxes, don't worry we will take the money away from the ones who busted their butts garnering the necessary tools to become successful and they will pay your taxes.

The only people I want to bail out are my kids and at my discretion.

There are certain things I don't mind giving to:

Joe for short term assistance
The disabled
Certain medical research, etc

but do not force me to give to every bad decision made by every Tom Dick and Harry!

Yet, the Democrats are poised for a comeback - go figure!

Read Michelle Malkin's piece on it
http://michellemalkin.com/2007/08/24/the-democrat-clamor-for-a-housing-bailout/

6 comments:

sims said...

The Democrats want to bailout the borrowers from their bad decisions.

I'll read the rest later, but this was as far as I got before needing a clarification.

http://business.bostonherald.com/businessNews/view.bg?articleid=1017838&srvc=biz

The Federal Reserve dumps $7 billion dollars into the banking system, and you have a problem with homeowners perhaps getting some relief and not ending up on the street?

What level of wealth does one need to attain before you see a taxpayer-funded government handout to megabanks as an "investment" and not corporate welfare?

Why is the little guy always the bad guy? I'm often aked why "liberals hate America" but someone needs to ask, "Why do hypocritical so-called conservatives hate Americans?

Help me understand why corporations matter more than people. And if it is simply a net worth issue, square that with Christian tenets. Go.

Thoughts of a genius mind said...

Sims,

It's called personal responsibility. Whatever happened to that? The article you directed me to was just the Fed adding liquidity into the market. That is not a bailout. The Fed did exactly what it was suppose to do. That is what the central bank does. It did not want a credit crunch which would have been worse on the economy. In fact More than a dozen lenders have already filed for bankruptcy http://blogs.wsj.com/economics/2007/08/12/how-does-the-fed-inject-money-into-the-economy-a-primer/

In addition, Bernanke should never have raised the discount rate so high 6.25. So, he had no alternative but to lower the discount rate - again, that provides liquidity too. He will most likely lower it again at the next Fed meeting.

Individuals need to make to be responsible for their own bad decisions, and the taxpayer should not have to pay for their mistakes.

sims said...

But again I ask, what is the difference between the Fed doing it's job with taxpayer money to help keep banks afloat, and using the same money to help homeowners?

I understand about personal responsibility, but it's easier for me to say so since I have a job with health insurance. If your house burns down, and your insurance company goes bankrupt, will that just be tough luck for you? And if they get bailed out by taxpayer money (like the airlines after 9/11) and still refuse to rebuild your home, will you chalk it up to a poor decision on your part to use insurance company X? Will you refuse any government assistance on principle? And will you also resist the tax-exempt teat of any religious organizations that attempt to assist you?

I'll be honest, empathy is not my strong suit, but the utter lack of it coming from those who claim to follow the teachings of old beardy-what's-his-name is mind boggling.

Thoughts of a genius mind said...

The Fed is not doing it with tax payer money, they use reserves the banks are required to deposit with the federal reserve. Its how the central bank works. The central bank is a complicated process, but it does not use tax money, and it was set up to control the liquidity of money. It can be inflationary if the Fed has to print more money which I suppose in effect is a tax. Printing money can also devalue our currency. http://www.uri.edu/artsci/newecn/Classes/Art/INT1/Mac/1970s/Money.supply.html

If my house burns down, and the Insurance company goes bankrupt, that is different. That is an unforseen circumstance that rarely happens. Quality Insurance companies, however, are setup so that doesn't happen. My wife is an underwriter for an Insurance company in commercial insurance. After a company loses so much money, they go to a reinsurance company which is also complicated. But if a calamity did occur such as you suggest, I would not be adverse to some sort of assistance from the government. The borrowers on these, however, loans were gambling like one would do in Vegas, gambling that their equity would rise enough they could sell the house in time, or refinance the house later. The rates were so low, they could only go up. I am also not adverse to the Government flood program, but I am adverse to it encouraging to having citizens keep rebuilding on flood plains.

I did not agree with the bailout of the airlines not because of 9/11 but what was happening to the airline industry. Before 9/11 most airlines were on the verge of bankruptcy anyway except for Southwest and Jet Blue. So why bailout failing companies to begin with. They were over leveraged, they were mismanaged, the unions were breaking them, etc. What would have happened is they would have been reorganized and come out better than before.

I did not say I would refuse any government assistance. I agree with having progams such as FEMA (if they are run right). If a natural disaster occurs such as an earthquake, I agree with help. I live in an earthquake area, I have earthquake insurance (with a deductible of about $30,000), but most people don't. If an earthquake happened, I would still probably agree to help with government assistance.

I am not sure what you mean by the tax-exempt treatment of religious organizations, I do believe religious organizations should get tax exemption, but I am not for Bush's faith based initiatives because I do not believe the government should be involved with the church. Jesus said, "render to Ceasar what is Ceasar's and to God what is God's" So Church and state should be separate. I also believe there should be more accountability of church organizations. Churchs should have their tax-exempt status removed in they engage in political activity, espouse Radical Islam (our enemy), if they engage in for profit enterprises, or if it can be proven the money is going to the pastor to enrich himself like some tele-evangelists.

As I said at the bottom of my post I believe in helping the disabled, short-term assistance for people to get on their feet and there are other things.

But, both lender and borrower were culpable in this Subprime debacle. The lender knew he should not be making the loans and the borrower knew he shouldn't be making the loan. You don't use t government to encourage bad behavior.

You do however have to inject liquidity into the markets to maintain consumer confidence in the markets. If the economy were to go down because of illiquid markets more people would be hurt because once you start that downward spiral, and people's confidence is shaken, they stop buying things. companies would start to falter and then they begin to layoff. The Fed's job is to prevent this, and there are two ways they do it, injecting money into the system and lowering the discount rate. They did both, and it wasn't just our government. Governments in Europe did the same.

Thoughts of a genius mind said...

Sims,

one other tidbit. You had made the comment that these psople would be homeless. I doubt that would be the case. They would just go back to renting. The vast majority of these people would have PMI insurance that would cover any loss, so neither the borrower nor the lender would be out any money. And, even on those rare cases where the borrower did not have PMI insurance, the bank would be on the hook. The mortgagee just hands in his keys and walks away. And, he would have several months before he the bank could actually evict him.

Whatever the borrower was paying for his house he could now use for an apartment, and he would have no insurance nor property taxes to worry about.

Of course, it's a gurantee that rents will go up because of an increase in demand.

So, I am not sure why you would think anyone would be homeless.

Rybu said...

I agree with your post. Why must we pay for the bail out. sims, you raised some interesting points but I think they are separate issues.

I don't want another progam that robs from the smart and gives to the financially inept.

My thoughts are different though on predatory lenders. Lets go after them instead of bailing out subprime borrowers. They made the CHOICE to take out a loan.

Let me know what you thnk of my thoughts in my subprime post.

http://councilofnicea.blogspot.com/2007/08/busting-predatory-lending-myth.html

 
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