Boy are you out to lunch on your info. Ok.. starting from some where in the middle…
I know most of you are bitter because you don’t own homes. Thus, the tenor of this forum, which is generally caustic. Watching others suffer makes you feel a bit better about your situation as a renter
Dude, wake up. Most of the people on this site are up to their neck in debt. I heard about this site from a handful of people, and all of them are bitter cash poor renters.
Silly boy. There are several long term posters that have been here since the wild real-estate days, who have the ability to buy but did not.. because the rent-buy weighting did not work out and we do not want to risk financial suicide and expect Uncle Sam to bail use out of our stupidity. The cash poor renters were continually thinking of how to get in on the RE Ponzi Scheme, the Piggs were yelling at the top of our voice “Stop the madness”. Some of the newer posters/viewers may be in the category of ‘bitter renter’, but most of us old timers either own or are quite happy renting right now. Myself, I am saving(and investing) at a rate greater than 30% of gross income, or greater than 50% of net income (net of taxes, 401K contribs(maxed)).
Here is why I am upset on the bailouts:
1) It rewards bad behavior in Mortgage lenders(honesty in lending), CDO structures(misrepresenting risks in securitized loans), RE agents(acting as investment advisors, inserting themselves into the middle of the transaction instead of being a broker.. stuff that would get you jailed by the SEC and your series 7 yanked for life), home owners(the home ATM) and new home buyers(Not making sure they can afford what they purchase) while at the same time punishing those that act with prudence and live under their means. If the players in the RE Ponzi Scheme don’t have a penalty, the next time will be worse (more RE Ponzi Scheme players).
2) It really does not bail out the homebuyers, but it does bail out the lenders. Purchase money loans are non-recourse in California. This means that the buyers can walk away from the 1st mortgage on the overpriced asset if they have to, and the bank has to eat the deficiency. Once homeowners avail themselves of the “bail out”, they are no longer dealing with a purchase money loan. The loan has now become recourse, which means the lender can pursue the homeowner should the loan eventually result in foreclosure. This last part is what makes it bad for homeowners. I would recommend that any homeowner having financial problems on a purchase money loan, not use the bail-out. They will be able to walk away from the property if they have to.
3) The bailout supports the present overpriced housing (for the time being), which causes problems for any new buyers trying to enter the market. Eventually things will correct.. the question becomes who is the last fool buying.
The underlying issue is that all things have to return to a norm. The overpriced assets can get devalued, or the all other assets can get inflated up to the price of the overpriced asset.
1) In the example of the overpriced assets getting devalued, the RE speculators and unwise purchases are the ones getting hit, but it will largely be isolated to them. 100% of the current housing did not change hands this time. Less than 20% of total housing did.
2) In the case of everything else getting inflated, this is the ‘bailout’ case. Your wages buy less, gas prices are higher, price of money for business development is higher, Fed can’t get their deficit spending funded through treasuries so they print money.. spurring even greater inflation.. etc
All that changes in these outcomes is: who gets stuck with the bill. The cost of the correction can not be avoided, all that can be done is adjust who takes the cost. I don’t think a 1930’s depression can occur. The 30’s depression was caused by speculating on businesses with no income(not like a house whose ‘income’ is the amount of rent it shields you from) with margin overhang above 100%(similar to 100%morgages). The key difference is the speculation on a tangible asset verses a paper asset. The former provides the floor.
