San Diego Housing Bubble News and Analysis

NO! This is the worst thing you can do. Some of the new FHA loans require you to have made payments on time and current.

Call you bank and renegotiate.

Peter would love people to do this as it would make him lots of money on the downside and prove his big ego correct. He's not a disinterested party. If you have assets and income there are ways out by working with your lenders.

I certainly do not get the impression that Peter Schiff is endorsing or encouraging non-payment, he is merely pointing out how strong the incentive for non-payment is. He is saying, "Here are the unintended consequences, plan as day." There is no refuting his logic that there will be blowback for this bailout. Incidentally, Rich has been making the same arguments. I hold these truths (that the bailout will not work as advertised) to be self-evident. What never ceases to astonish me is how almost no members of congress are able to grasp these truths, even after they have been spelled out so clearly.

I wouldn't do this now. Mortgage servicers will still foreclose on your ars. Wait till gov't starts buying these loans from banks and then renegotiate (again).

I'm not contemplating defaulting on a mortgage. I don't have one. My point is that I am sickened that, because I didn't make a huge financial mistake by buying overpriced real estate, I'm going to punished for being prudent. I think the point of this article is that when you find yourself in a hole, the first thing you need to do is to stop digging. Currently the government is looking for a bigger shovel.

"Economic history is a never-ending series of episodes based on falsehoods and lies, not truths. It represents the path to big money. The object is to recognize the trend whose premise is false, ride that trend, and step off before it is discredited." (George Soros)

You owe the bank $50K, it's your problem. If you owe the bank $500M, it's the banks problem. He's just pointing our how scared the banks are and should be. People negotiate when they're scared. Doesnt mean you'll get a good deal, though.

Arraya's quote from Soro's is for the ages!!! Dead on!! It certainly has worked for me.

Peterb- The question I think everybody needs to ask is not whose fault it was but why it was mandated by our political and financial system? The precision at which all mechanisms were greased to allow it to happen is staggering when you think about it. As Soros points out "episodes based on falsehoods" are created. Do we think these falsehoods created themselves? Is it just natural human delusion, irrational exuberance as "The Maestro" points out or possibly are those delusional tendencies stoked by people who know better for a purpose? If you answer 'NO' to the "Do we think these falsehoods create themselves", you find yourself in the ranks of the babbling paranoid, which is where I dwell these days.

IMO, All you need to do is follow the money right to China along with Paulson's 60 or so trips in the last year. Ironically, this is the guy who lobbied (behind the scenes) so hard to rid the banking industry of the pesky Glass-Segall act and who sold toxic investment vehicles to government pension funds for years. But we love coincidences and incompetence and hate conspiracies because conspiracies are ridiculous. Or maybe just coincidences and incompetence are "created falsehoods" as Soros puts it. If so, they need to be discredited.

arraya,

I only post late at night, so I apologize if this response to your post is repetitive - I can't recall the last late-night 'conversation' I had with you.

Picking on Paulson or some other financial intermediaries as the root cause of this mess is probably not correct. I think history will show that it was millions upon millions of homeowners who wanted to 'save' for retirement using a free lunch method - borrowing other people's money and using it to buy assets that only increase in price - that drove the madness of the last 5 years.

In truth, I think baby boomers looking for the free lunch way to save for retirement are the root cause of our repeated asset price bubbles in the last 10 years. Unfortunately, they are a big enough group to vote the Congress that accommodates them, and the Administration that accommodates them. All the other groups (mortgage brokers, investment bankers, regulators, real estate agents, stockbrokers etc.) are just following the money incentives to please the boomers.

I could be wrong, but I think we'll only know for sure when history is written 20 or more years from now.

In truth, I think baby boomers looking for the free lunch way to save for retirement are the root cause of our repeated asset price bubbles in the last 10 years.
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IMHO, there's cause and effect. Which is the cause and which the effect?

The Boomers (and plenty of Gen X and Y who joined them) could not have done this if the road wasn't paved for them already.

If people were required to have 20% down; 30-yr, fully-amortized fixed rate mortgages; and max DTI ratios of 28/33% on **proven** income; plus six months' reserves, etc., we would not have had this bubble.

Over the past twenty+ years, the answer to every problem in our economy has been to inflate our way out via credit/debt expansion, thanks to Greenspan.

If someone offered you a chance to make a million bucks, risk-free, would you take it? That's how this was seen (and they're being proven correct with all the bailouts to save the over-extended idiots). A free call option on housing. You win, and walk away with all the dough. You lose, and since borrowers didn't have to put a single cent of their own money into it, they lose absolutely nothing. Maybe we're the fools for not doing it, too.

I am so pissed that the system is rewarding greed, at one end of the spectrum, and stupidity (and greed) at the other end! While the frugal and sensible are F*&$ED AGAIN!

PR-No doubt that every American that took part was in some way, shape or form and to some degree is culpable. That I think is indisputable and you won't get an argument from me. And we will pay collectively for everybody's sins. My point is that we had mechanisms in place and supposedly responsible people in charge. Not people that feed and encourage peoples greed and fill their head full of fairy tails such as home prices never go down and all that other nonsense. It was a mass delusion put forth by the financial industry and Fed, amplified by the media and allowed to happen by certain politicians, people in the financial industry and orchestrated by the FED , IMO.

What I am specifically looking at is who benefited the most. Hank Paulson made about 700 million while in charge of Goldman Sachs. We sent China 700-800 billion a year during boom times. With that fake wealth the built up their manufacturing base and stockpiled commodities as we hollowed out our economy. In other words turned it into something real when Americans went shopping. Heck, even after tragedy GWB was telling us to send money overseas.

I think maybe we just have been a little naive to call our leaders incompetent, that narrative also makes us feel superior because many of us saw this coming and we get to say "I told you so, look at me I'm smarter than Alan Greenspan". But just maybe they are extremely competently but they just have different goals than us. Or maybe I'm wrong and Paulson's trips to China and China being the inadvertent biggest beneficiary of the housing bubble is just coincidence. Either way I think it is something to ponder.

I wish I have bought a house few years back; be financially irresponsible; risk taker and be rewarded by banks/govt..

I am sure Banks/Govt would definitely go to great lengths to keep existing homeowners stay put

If you become too analytical in everything you do, you get screwed..

arraya and CA Renter, in response to my pointing my finger at the unwashed masses, you both correctly point out that there are supposed to be leaders who save those unwashed masses from their worst vices.

But the problem is that powerful investment bankers and central bankers and regulators really don't have a lot of power. Maybe some smart people in power saw that a housing/debt bubble needed to be popped in 2005. And maybe some even tried, gingerly at first. But people in positions like Treasury Secretary and Fed Reserve Chairman and so on are cut to shreds by Congress if they threaten populist voters' interests championed by politicians (regardless of party).

That's why I think the real root problem is not poor leadership. It's greedy voters.

Could I be persuaded otherwise? Maybe. For example, a lot of us respect Paul Volcker. But I honestly don't know if he would have been allowed to cut off Fannie and Freddie, for example, in 2004 or 2005. I just don't know if our political system permits us to have strong enough economic leadership to proactively avoid these "free lunch" schemes.

And, yes, arraya, most of these people in leadership positions were 'playing dumb'. They didn't know if there was a bubble or not, but they knew there was no percentage in questioning it too hard, and there was more gain (money and promotions etc) in going along.

Failure is in the design.

http://www.augustreview.com/news_comment...

The marginal productivity of debt is an unimaginative taskmaster. It insists that new debt be justified by a minimum increase in the GDP. Otherwise capital destruction follows, a most vicious process. At first, there are no signs of trouble. If anything the picture looks rosier than ever. But the seeds of destruction inevitably, if invisibly, have sprouted and will at one point paralyze further growth and production. To deny this is tantamount to denying the most fundamental law of the universe: the Law of Conservation of Energy and Matter.

The captains of the banking system in effect deny and defy that basic law. They are leading a blind crowd of mesmerized people to the brink where momentum may sweep most of them into the abyss to their financial destruction. Yet not one university in the world has issued a warning, and not one court of justice allowed indictments to be heard from individuals and institutions charging that the issuance of irredeemable debt is a crude form of fraud, calling for the punishment of the swindlers issuing it, whether they are in the Treasury or in the central bank. The behavior of universities and courts in this regard could not be more reprehensible. Rather than acting to protect the weak, they act to cover up plundering by the mighty.

Interesting that you mention China. I heard this on the BBC. Give a listen to Tues, Oct 14.

World Service