Re: Blindly Into the Bubble
- From: Alan Lichtenstein <arl@xxxxxxxxxx>
- Date: Tue, 01 Jan 2008 21:34:59 -0500
Jean Paul wrote:
"Rita" <Rita@xxxxxxxxxxx> wrote in message news:724ln35am7eoe0v8ik7ngpqe8imei70vdr@xxxxxxxxxx
On Tue, 01 Jan 2008 14:05:15 -0500, Alan Lichtenstein <arl@xxxxxxxxxx>
wrote:
Jean Paul wrote:
"Alan Lichtenstein" <arl@xxxxxxxxxx> wrote in message
news:BoedneiuL8aTeuXanZ2dnUVZ_qiinZ2d@xxxxxxxxxx
Olly Mensch wrote:
Alan - - here is a simple story. When my husband and I were quite young,Nothing is wrong with what you say, Olly. My circumstances were
we wanted to buy a house - - for reasons of wanting our own "home', and
also for reasons of good investment. We had next to no money at that
time. We took out a mortgage,since we certainly did not have the means
to pay for the house. We COULD afford the monthly payments, althougy it
was quite a stretch!! Needless to say, after so many years, the
mortgage was paid off, and we sold our house eventually, at a good
price, and bought another at the same price as we got for the first
house.
What is wrong with mortgages???? The mortgagee is entitled to profit
-otherwise they would not be able to extend mortgages to those people
who need them, and who were then able to own their own home only because
they were given a mortgage. The mortgage lender should make a good
profit on his transaction; why not ;this is his business. I read your
post carefully - am I being too simplistic??
Olly
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.
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.
Alan, isn't it also true that in some cases,the present day mortgage
crisis was made worse by rising property taxes, rapidly escalating
property values (California), unstable job security, inflation in the
energy sector to name just a few?
Those problems have always been with us, even when the majority of
mortgages were fixed rate. There has always been reasons why people
become delinquent in their mortgages. But the simple fact of the matter
is that too many mortgages were granted to too many people who should
not have received them simply because they could not afford them when
the rates reset. If property values had continued to escalate, these
people could have refinanced, perhaps into fixed rate mortgages which
might have stabilized their payments. But the bubble burst and when
their home values dropped, and they had zero equity in their homes, the
only choice they had was to either pay the increase, become delinquent,
or sell. The factors you name are not the cause of the current problem.
If you read the statistics, most of the people who are in trouble are
those who took cash out or purchased their homes with no money down at
low teaser rates that they could only barely afford then, and certainly
not when the rates reset.
Do you think the lenders did justice to their stockholders when they
ventured into these loans? While the people to took out the loans
most probably possessed a low level of financial acumen, surely the
designers of these loans and the lenders who offered them realized
what they were doing?
The lenders of these things returned a handsome dividend to their stockholders by bundling these loans into CBO's and selling them to other investors.
Hardly. By my unofficial tally, the large banks and brokerage houses suffered losses approaching 100 billion dollars, the full extent of that still unknown. That's hardly a handsome dividend. Citigroup stock which I happen to own, suffered a loss of around 46% of its value, all in the last few months, with the outlook for the coming year bleak. I hardly consider a loss of 46% of the value of my stock a 'handsome dividend.' I also own two other banks which suffered significant losses in stock value as well. I don't consider those circumstances a 'handsome dividend.' Perhaps your understanding of what is a 'handsome dividend' differs from mine.
.
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