Deadbeat nation
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From: dagmargoodboat on 4 Jun 2010 23:35 On Jun 4, 9:47 pm, "Paul Hovnanian P.E." <P...(a)Hovnanian.com> wrote: > dagmargoodb...(a)yahoo.com wrote: > > > On Jun 4, 12:05 pm, "Paul Hovnanian P.E." <p...(a)hovnanian.com> wrote: > > [snip] > > > > > > They > > > come out the other side of the process with a nod and a wink from Wall > > > Street. And a clean credit rating. > > > That's not a "nod and a wink" in the sense of moral approval or > > endorsing the behavior, just a rational, cold appraisal--the entity > > without the obligation load is, obviously, a much better risk. > > This doesn't sound like the same Wall Street that screams 'moral hazard' > when people want to renegotiate their mortgages. It seems consistent to me. In valuing companies, they're worth more unburdened. In valuing mortgages and mortgage-backed securities, they're almost worthless if people don't pay as promised. (If everyone defaults on their mortgages we just won't have mortgages any more.) Both cases seem like rational appraisals, as best as can be. And, if people think they can bail without consequence, that's truly a textbook example of 'moral hazard,' of being insulated from the true cost of your behavior. But let's be clear about what "renegotiate their mortgage" means. It means the buyer wants the bank to take the loss. That's wrong. It's unfair. But, banks are willing, because Mr. Obama wants them to, and Freddie and Fannie and FHA--aka the taxpayers, via Barney Frank--make them whole. So, that's yet another example of 'moral hazard.' Or, put more simply, most people are more careful with their own money than with someone else's. Banks too. -- Cheers, James Arthur
From: dagmargoodboat on 5 Jun 2010 11:21 On Jun 4, 10:35 pm, dagmargoodb...(a)yahoo.com wrote: > But let's be clear about what "renegotiate their mortgage" means. It > means the buyer wants the bank to take the loss. > > That's wrong. It's unfair.[*] [*] That is, the bank didn't cheat you. If you think you paid too much, who got that money? The seller. Go sue _him_. James Arthur > But, banks are willing, because Mr. Obama > wants them to, and Freddie and Fannie and FHA--aka the taxpayers, via > Barney Frank--make them whole. So, that's yet another example of > 'moral hazard.' Or, put more simply, most people are more careful > with their own money than with someone else's. Banks too. > > -- > Cheers, > James Arthur
From: Paul Hovnanian P.E. on 5 Jun 2010 22:06 dagmargoodboat(a)yahoo.com wrote: > [snip] > > It seems consistent to me. In valuing companies, they're worth more > unburdened. If you are the creditor of a company, I don't think you want them to unburden themselves of your loan. If you are a shareholder, you don't want them unburdening themselves by declaring bankruptcy > In valuing mortgages and mortgage-backed securities, > they're almost worthless if people don't pay as promised. (If > everyone defaults on their mortgages we just won't have mortgages any > more.) As are corporate loans or stock. > Both cases seem like rational appraisals, as best as can be. And, if > people think they can bail without consequence, that's truly a > textbook example of 'moral hazard,' of being insulated from the true > cost of your behavior. > > But let's be clear about what "renegotiate their mortgage" means. It > means the buyer wants the bank to take the loss. In part, yes. It means the buyer is thinking of mailing back their keys. In a bad real estate market, that means the house will sit on the banks books as an unperforming asset for months. Or years. While the neigborhhood thieves strip it of copper wiring and plumbing. Or the banks and buyer can negotiate a deal which will keep some money coming in. > That's wrong. It's unfair. The next time an airline defaults on a loan, 'fair' would be the creditor seizing its assets and padlocking them. > But, banks are willing, because Mr. Obama > wants them to, and Freddie and Fannie and FHA--aka the taxpayers, via > Barney Frank--make them whole. So, that's yet another example of > 'moral hazard.' Or, put more simply, most people are more careful > with their own money than with someone else's. Banks too. > > -- > Cheers, > James Arthur -- Paul Hovnanian mailto:Paul(a)Hovnanian.com ------------------------------------------------------------------ RAM disk is *not* an installation procedure.
From: dagmargoodboat on 6 Jun 2010 00:08 On Jun 5, 9:06 pm, "Paul Hovnanian P.E." <P...(a)Hovnanian.com> wrote: > dagmargoodb...(a)yahoo.com wrote: [snip] > > But let's be clear about what "renegotiate their mortgage" means. It > > means the buyer wants the bank to take the loss. > > In part, yes. It means the buyer is thinking of mailing back their keys. > In a bad real estate market, that means the house will sit on the banks > books as an unperforming asset for months. Or years. While the > neigborhhood thieves strip it of copper wiring and plumbing. Or the > banks and buyer can negotiate a deal which will keep some money coming > in. Blackmail, basically. Pay, or I'll make you lose even more. And we're back to your original question of creating moral hazard. With any given case it may indeed be cheaper for the lender to pay $150k rather than fight. But overall, if this financial reward, plus society not just removing any stigma and penalty from default, but actively promoting it--like the NY Times--encourages a stampede of defaults, the system collapses. "When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that justifies it." -Frederic Bastiat Or it would, except the taxpayer's backstopping all this anyhow. The whole thing turns into a tragedy of the commons: it's in each citizen's interest to grab what he can from the kitty, but in so doing, the kitty is busted. "Everyone wants to live at the expense of the state. They forget that the state wants to live at the expense of everyone." - ibid > > That's wrong. It's unfair. > > The next time an airline defaults on a loan, 'fair' would be the > creditor seizing its assets and padlocking them. The difference is we're talking about a quarter of America voluntarily defaulting as a financial strategy, and isolating them as a matter of policy from the customary consequences. Basically, we're talking about making robbing banks legal, accepted, to the point of telling people they're actually crusaders, heroes somehow righting a wrong. I'd say let borrowers default, let them bear the usual consequences, and let the lenders go bust too, if they loaned foolishly. The problem is the lenders are insured through the GSEs, Freddie, Fannie, FHA, etc., so the burden's not theirs, it's ours. Again, moral hazard. The government did that. They made the whole mess. Anyway, it's a mess. I figure Mr. Obama will put it on the MasterCard, and that will damp the economy severely for a long, hard time. -- Cheers, James Arthur
From: Paul Hovnanian P.E. on 6 Jun 2010 20:13
dagmargoodboat(a)yahoo.com wrote: > > On Jun 5, 9:06 pm, "Paul Hovnanian P.E." <P...(a)Hovnanian.com> wrote: > > dagmargoodb...(a)yahoo.com wrote: > > [snip] > > > > But let's be clear about what "renegotiate their mortgage" means. It > > > means the buyer wants the bank to take the loss. > > > > In part, yes. It means the buyer is thinking of mailing back their keys. > > In a bad real estate market, that means the house will sit on the banks > > books as an unperforming asset for months. Or years. While the > > neigborhhood thieves strip it of copper wiring and plumbing. Or the > > banks and buyer can negotiate a deal which will keep some money coming > > in. > > Blackmail, basically. Pay, or I'll make you lose even more. > > And we're back to your original question of creating moral hazard. > With any given case it may indeed be cheaper for the lender to pay > $150k rather than fight. But overall, if this financial reward, plus > society not just removing any stigma and penalty from default, but > actively promoting it--like the NY Times--encourages a stampede of > defaults, the system collapses. > > "When plunder becomes a way of life for a group of men > living together in society, they create for themselves > in the course of time a legal system that authorizes it > and a moral code that justifies it." -Frederic Bastiat > > Or it would, except the taxpayer's backstopping all this anyhow. > > The whole thing turns into a tragedy of the commons: it's in each > citizen's interest to grab what he can from the kitty, but in so > doing, the kitty is busted. > > "Everyone wants to live at the expense of the state. > They forget that the state wants to live at the > expense of everyone." - ibid > > > > That's wrong. It's unfair. > > > > The next time an airline defaults on a loan, 'fair' would be the > > creditor seizing its assets and padlocking them. > > The difference is we're talking about a quarter of America voluntarily > defaulting as a financial strategy, and isolating them as a matter of > policy from the customary consequences. That's a bit of an exaggeration. Its more like 10% that are behind on payments. http://www.businessinsider.com/fha-mortgage-default-rate-soars-here-comes-another-tidal-wave-of-foreclosures-2010-2 > Basically, we're talking about making robbing banks legal, accepted, > to the point of telling people they're actually crusaders, heroes > somehow righting a wrong. Renegotiating terms is not robbing a bank if its a mutual agreement between the parties. > I'd say let borrowers default, let them bear the usual consequences, > and let the lenders go bust too, if they loaned foolishly. The > problem is the lenders are insured through the GSEs, Freddie, Fannie, > FHA, etc., so the burden's not theirs, it's ours. Again, moral > hazard. The government did that. They made the whole mess. Actually, there's quite a bit of evidence that investment bankers leaned on the government to keep the flow of collateralizable debt flowing into the system. Once everyone had one house, the industry pushed to build houses for speculation. And its not the banks that will get screwed by loan renegotiations. Even with your assumption of a 25% default rate, the holders of the top CDO tranches, mainly very wealthy and influential people who set this whole mess up in the first place, will still see full income. Its the owners of the lower tranches that will get screwed. And that isn't the banks either. Most banks sell their mortgage paper off within months of writing the loans. The people with the low risk tranches will get buggered by a wave of early refinances (which is what these term renegotiations will effectively be). Because they'll get cashed out of really high interest rate paying paper and the market will have a smaller amount of lower interest paying paper available to replace it with. I weep for the coupon clipping trust fund babies. I really do. -- Paul Hovnanian mailto:Paul(a)Hovnanian.com ------------------------------------------------------------------ Error reading FAT record: Try the SKINNY one? (Y/N) |