From struggling owners to stable renters

[groovedaddy]

THERE are many factors behind the mortgage crisis, but there is only one simple explanation for why we have failed to solve it. Any effort to help homeowners by forgiving some of their loans is said to create a moral hazard, rendering it politically toxic. But without help, homeowners continue to struggle, foreclosures continue to mount and the housing industry continues to drag down the economy.

Fortunately, there is a way around this problem, and it’s similar to one we’ve already used for the American automobile industry. If structured bankruptcies could save General Motors and Chrysler, why couldn’t “structured foreclosures” save the American family — and stabilize a banking system that remains dangerously undermined by bad mortgage debt?

After all, foreclosures and bankruptcies are similar. Both are legal processes that allow primary lenders to wipe out subordinate claims and gain clear ownership of an asset, then sell it to recoup whatever value they can.

But it’s one thing for a bank to take ownership of a manufacturing plant or inventory; in a foreclosure, the asset in question is also someone’s home.

http://www.nytimes.com/2011/01/20/opinion/20kapell.html?nl=todaysheadlines&emc=tha212

[rfranklin]

1. where's the part about the horses?

I thought it was going to have some info about people who rent stable space for their horses.

[groovedaddy]

2. Ha ha! n.t

[FBaggins]

3. Federal rent control and further declines in home prices is the answer?

That certainly doesn't seem right.

The author doesn't seem to have followed his plan to its natural conclusion. Rent control obviously means rents that are below what the market would otherwise dictate (and, of course, it injects politics into the mix). When there's a mandated figure that says "this is what a 3BR home rents for", you better believe that other (non-distressed) rentals will end up with similar pricing.

Combine lower rentals with dramatically lower multiples for the sale price of homes... and you're talking about a further dramatic decline in home values.

Which, of course, leads to more defaults and more foreclosures. Leading to even more homes owned by banks and rented to people who could have owned a home.

Mr. Potter would be so pleased.

[KansDem]

4. "...create a moral hazard?"

:spray:

Since when are we in this country concerned about "moral hazard?" :rofl:

Perhaps the NY Times should review its coverage of the lead-up to the war...

Judith Miller: Duped?

Did the New York Times swallow Saddam's disinformation?

By Jack Shafer
Posted Friday, Aug. 29, 2003, at 5:38 PM ET

No reporter was more go-go on the prospect of finding caches of unconventional weapons in Iraq than New York Times correspondent Judith Miller, who published numerous stories during the 18 months leading up to the war that supported allegations that Saddam Hussein was illegally developing, building, and storing chemical, biological, and nuclear weapons. Miller's stories relied in great part on the testimony of Iraqi defectors, some of whom were provided to her by Iraqi National Congress leader Amad Chalabi and government officials such as Deputy Secretary of Defense Paul D. Wolfowitz and Secretary of State Colin L. Powell, who believed their claims.

--more--
Slate

This is only one article of many chronicling the "Saddam has WMDs!!!" liars at the NY Times...

[FBaggins]

5. Immoral behavior and "moral hazard" aren't the same thing. n/t

[jtuck004]

6. Wtf does this person think $23 trillion dollars was to the investment banks?

Other than someone asserting a political agenda, I have real trouble with someone that would equate the two moral hazards. Then again, he wouldn't have had a lead to his article if he hadn't.

Investment bankers created a terrible financial document bubble, a huge Ponzi scheme that, with the help of their friends in the government, leveraged perhaps as much as $700 trillion in phony assets on top of the $13 trillion mortgage market. Blew that up and disappeared not only their bubble but $40 trillion in real wealth. They destroyed millions of lives and are continuing to disrupt the lives of tens of millions of unemployed people, those who will have to leave their homes during a record number of foreclosures in 2011. They are the direct cause of many of the 15 million additional people added to those who can't afford health insurance since the Affordable Health Care Act was passed, and perhaps a fair number of the new high in the 40 million food stamp recipients we saw last years.

Oh, I know, it could have been some portion of the people whose incomes barely allowed them to live in a mobile home park or in shared housing, some part of the whole $1.3 trillion of subprime buyers, many of whom were victims of fraud and lies in the scheme of the same investment bankers we just left.

But it mostly wasn't. Actually it wasn't people with incomes which average $15,000 a year at all. It was people's whose incomes ranged from $600,000 a year to millions, and few in the billions. Yes, that is their income. More than your state is short this year, eh? And they did it without adding ONE CENT of value to the whole ball of wax. They didn't get income for a company to invest, they didn't facilitate the merger of companies for greater profits, they didn't even expand housing to make it more affordable.

They created products which they sold and bought, profiting off both of the transactions. They backed up their reserves with this worthless paper and when the value didn't increase (housing didn't have to drop - they were so leveraged that it just had to stop increasing) the whole thing became a cost to the taxpayer. And when all Ponzi scheme was exposed we lost 8 1/2 million jobs. Then it got worse - unemployment is a full 2% points higher than it was after the loss of those jobs, despite the feeble attempts to affect it.

He has it wrong. We don't need subsidized housing, we need jobs. We can buy our own damn housing, especially if we go back to the rules established during the other Depression, rules which protected the important housing market from exactly the same sort of foolish and reckless behavior for over 40 years. Until people from Wall Street who infiltrated the government in the guise of Democrats - Democrats mind you - rid us of the onerous protection and allowed the creation of "off-the-books" banking which the greedy investment banks on wall street then took full advantage of.

People who learn to live in a Globalized world will do ok, but that's mostly the wealthy at this point in this country. Though it seems the wealthy are intent on keeping it that way, I have yet to see any evidence that convinces me that if people would just work together they they couldn't change it. We could teach everyone that wealth creation has to start at home, teach polysilicone fabrication and solar synthesis - the things our greatest competitors are doing. Make physics 60% of the curriculum, some parts liberal arts, economics and politics (enough to understand when even people in suits are lying to your face). Maybe add in debate and courses on the use of violence and cooperation.

He needs to figure out where people are going to get the money to "pay"

- "...paying fair rent...pay fair market rents..."

With what money? They are frikkin' unemployed, dude. (I'm assuming you're a dude - that might be a pseudonym).

So let's say they lose their GM line job, and get a job at Dollar General (they are expanding - some 500+ stores in 2011, I read). Now the person can live in an apartment or a subsidized house. But that's about it. What are you going to do about the majority of states that are insolvent, or the $2.something trillion in pension underfunding that we face? Can't pay more taxes and rent on Dollar General salaries for very long, or your economy just falls off a cliff.

More vision and we could make it through, however. Of all the countries out there, I would think this one could figure out that the growth of wealth creation is the least painful way out of all this, and we have a pretty good history of that to draw on. It can start with grassroots orgs, and they can then work on getting their people into positions of power just like the banks have.

But I don't see it yet.

Spellcheck didn't flag "wee". Who uses that?