Re: Blindly Into the Bubble
- From: "Jean Paul" <jobbahut@xxxxxxxxxxx>
- Date: Tue, 1 Jan 2008 10:16:23 -0600
"Rita" <Rita@xxxxxxxxxxx> wrote in message news:oh3in3p5nna8tbvnn40cqmsqie1bqbe39i@xxxxxxxxxx
On Mon, 31 Dec 2007 07:55:57 -0500, Alan Lichtenstein <arl@xxxxxxxxxx>Rita, I didn't read your post before I posted mine. But to add to yours, Bush's tax cuts have shifted some of the public services funding onto the States who have had to raise property taxes or other fees to help make up the shortage.
wrote:
Nothing is wrong with what you say, Olly. My circumstances were exactly
the same. but the operative words in your post are: "We COULD afford
the monthly payments..." Many people who took out these mortgages could
NOT afford the monthly payments after the reset date. And whose fault
is that? In no instance AFAIR, were the reset terms not disclosed. Not
recognizing what that meant is not the fault of the mortgagee, but
rather the mortgagor. If they didn't ask, again, that's not the fault
of the mortgagee.
The subprime mortgage crisis is so widespread and its impact so very
broad that blaming those who took out the adjustable rate mortgages
is not particularly helpful in preventing a repeat of this kind of
financing in the future.
When most of us bought our homes lending rules were far more strict
and the less savvy among us were saved from this kind of thing.
Since for most of us our income did increase gradually over the life
of the mortgage making the payments was not a huge hardship. We were
not allowed to borrow more than we could reasonably afford by
conservative financial calculations.
But my objection is that these instruments were offered in the first
place. If there were other outlets for lending money and making money
for banks, they would not have to resort to theses creative instruments.
My whole thesis is that the decline of manufacturing in the United
States left banks with no outlet for lending capital at a reasonable
profit at reasonable risk. Banks don't make money if they don't lend
out the money. The sub-prime field gave them that opportunity.
The LA Times has a good article today about how the subprime mortgage
crisis is having its impact felt deeply on state and local finances.
Just a bit from the article:
The mortgage crisis cuts into tax revenue in several ways.
The most obvious victim is property tax collection. Homeowners in
foreclosure don't pay taxes on time. And as foreclosures spread,
property values drop -- dragging down assessments and collections.
To take one example: In wealthy Fairfax County, Va., property values
were jumping 20% a year. Now values are flat or falling. The number of
foreclosures has exploded, from fewer than 200 two years ago to about
4,000 this year. The resulting $220-million budget shortfall has
officials warning of significant cuts in services, including spending
on public schools.
"Instead of having a soft landing, we've crashed," said Edward L. Long
Jr., a deputy county executive.
When the housing market is flat, governments also lose out on the many
transaction fees tacked onto real estate sales. This revenue stream is
down in several states, in a few cases by 20% or more.
Even more distressing to budget planners is the decline in sales tax
revenue. If people aren't buying homes, they're not buying
refrigerators and washing machines to furnish them. Nationwide, orders
for durable goods have been flat for the last four months. (November
saw the first slight uptick: 0.1%. Economists had been hoping for
2.2%.)
On average, states receive about a third of their revenue from sales
taxes. So it hurts -- deeply -- when families don't have reason to
splurge on the new sofa and coffee table that will make a
just-purchased house look like home.
Jacqueline Byers, director of research for the National Assn. of
Counties, said she had taken to wondering, as she drove past yet
another vacant house: "Does that translate into the library's going to
close at 6 p.m. instead of 9? Little things like that are all
affected. It's a phenomenal impact."
The fallout has been most severe in California, where officials are
grappling with a $14-billion gap. Gov. Arnold Schwarzenegger has
ordered agencies to immediately trim spending by 10%.In Florida, the
Legislature recently took emergency steps to close a budget shortfall
estimated at $2.5 billion over the next 18 months. Lawmakers raised
tuition at state universities by 5%, sliced money for long-term
nursing home care for the indigent, and requested that state law
enforcement officers take their uniforms to be cleaned less
frequently.
And so on across the nation.
You talk about banks resorting to "these creative instruments"
to bring in revenue. Seems they turned out to be instruments
of a very destructive nature.
JP
.
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