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+--- Thread: Mortgages for a Brave New World (Sarcasm) (/showthread.php?tid=66666)
Mortgages for a Brave New World (Sarcasm) - Stizzealth - 11-21-2008
Our new Dear Leader has recently put his enormous cranial power to work and come up with a plan to deliver Americans who are underwater from evil and predatory lenders. It is a plan worthy of adulation the world over. Ladies and gentlemen, I present to you the '90 Day Foreclosure Freeze'!
To give you a background on just why this is such a bad idea, allow me to give you a bit of background on the mortgage crisis. It all started in the subprime mortgage market. Joe Six-Pack wants to buy a $500,000 house, but he only has $50,000 on hand. So he takes out a $450,000 dollar mortgage. This mortgage is backed by his house. All of a sudden, the housing market collapses and his new house is only worth $350,000. So now Joe is paying a $450,000 in mortgage payments for a house that's only worth $350,000. Because Joe is reasonably intelligent, he sees that he's getting hosed and walks away from the loan. The bank repossesses his house. They loaned Joe $450,000 and in return, they got a house worth $350,000. And now the bank has debts to pay- to other banks, to the Federal Reserve, and to people who want loans. Now say Joe's situation happens 100 times to the same bank. Now the bank has 100 worthless houses because the market is flooded with foreclosed houses. And the bank has to pay the other banks in the area and the Federal Reserve, from whom they borrowed the money to give Joe the mortgage. Now, the bank has a liquidity crisis. They have worthless houses that are hard to sell and no capital and they have to pay back those to whom they are indebted. This is the basis of the credit crunch. There's no capital to go around because it's all locked up in houses in a collapsing housing market. Thus, the banks can't make new mortgages or loan to each other.
This is a cancer that spreads to the whole system. Freddie Mac and Fannie Mae were essentially mortgage aggregate corporations. They bought mortgages from banks in packages known as mortgage-backed securities and used them as capital. When the mortgages are suddenly worth nothing, Freddie and Fannie go broke. Their situation was not helped by having subprime mortgages foisted upon them by people like Bill Clinton and Barney Frank. The basis of this crisis is that there's simply no capital to go around. Our 21st century economy is based on growth and the free flow of lending capital.
Our Dear Leader's plan entails freezing foreclosure seizures for 90 days. Supposedly, this will allow people to pay back their mortgages. But the fact of the matter is that in the subprime market, many people took out loans they could never pay back. So at the end of 90 days, the bank seizes all the foreclosures that have accumulated. All these houses hit the market. Remember Joe's house? It was worth $350,000, but the huge influx of supply in the market created by the sudden seizure of hundreds of foreclosed homes in his neighborhood drive the price down to $150,000. So now the bank is getting hosed for $300,000 and there's even less capital to go around. The vicious circle continues to drive down home prices and elongate the credit crunch.
Liberals used to espouse Keynesian economics. Whether that was right or wrong, at least it was a rational economic theory. This is not a rational economic theory, but rather populist election year pandering. An Obama presidency might just be disastrous for the credit market.
-Stizzealth
ageofpericles.blogspot.com
Re: Mortgages for a Brave New World (Sarcasm) - swampy - 11-21-2008
Makes sense to me, Sitzzealth.
BTW... I've not seen your name before so welcome to the forum.
Re: Mortgages for a Brave New World (Sarcasm) - Greg the dogsitter - 11-21-2008
I did not know this was sarcastic.
Re: Mortgages for a Brave New World (Sarcasm) - Stizzealth - 11-21-2008
The topic is sarcastic, but the message is not.
Re: Mortgages for a Brave New World (Sarcasm) - Greg the dogsitter - 11-21-2008
"Dear Leader" is not sarcastic. I see.
Re: Mortgages for a Brave New World (Sarcasm) - lafinfil - 11-21-2008
>
> An Obama presidency might just be disastrous for the credit market.
>
and the few years of Bush wasn't ?
The guy isn't even in office for another 60 days so maybe you should bookmark this for later
and give him a week or so after the inauguration to settle in and then blame him for the collapse
of the this years economy.
Re: Mortgages for a Brave New World (Sarcasm) - Stizzealth - 11-21-2008
Please read and digest the post before attacking the message. It is silly to point fingers at Bush at this point in time. We must look forward to prevent mistakes from happening.
Re: Mortgages for a Brave New World (Sarcasm) - Greg the dogsitter - 11-21-2008
lafinfil wrote:
>
> An Obama presidency might just be disastrous for the credit market.
>
and the few years of Bush wasn't ?
The guy isn't even in office for another 60 days so maybe you should bookmark this for later
and give him a week or so after the inauguration to settle in and then blame him for the collapse
of the this years economy.
You know who else settled down and waited to blame Obama for the collapse of this year's economy?
Hitler.
Re: Mortgages for a Brave New World (Sarcasm) - lafinfil - 11-21-2008
Hitler ? That's a surprise.
I thought you were going to say Bush ... you know - because it collapsed on his watch
Re: Mortgages for a Brave New World (Sarcasm) - swampy - 11-21-2008
My personal feeling is the market is reacting to the Obama "spread the weatlh", raise the taxes campaign promise.