Home Affordable Refinance Program (HARP) Changes <abandoned>

[Hawker]

...snip...

If you go for the former, you destroy more savings in the economy and in the long-term end up with more homeless in the streets. There's no good solution.

I'm genuinely not an expert here but what would you say to people that say that the money is lost anyway, that the long slow process of foreclosures is making the rest of the economy worse and that there are advantages to taking all the losses at once?

I think only individual banks can know what's most cost-effective in terms of foreclosers and loans. The banks obviously would not rationally give these people new loans because they'll never be paid back. It won't be sustainable and the only solution will be to inevitably bail out the banks and out comes the printing press. This destroys the economy even further because money is inflated and thus savings are destroyed. Savings are what fuels innovation and so forth...

That's my view on it albeit not that comprehensive. My knowledge is very limited as well hence why I am here to have a conversation. : )

Sorry but that is not correct.  Banks are as irrational as any other human institution.  When there is a bubble, they lend exuberantly.  When the bubble pops, they withdraw credit excessively.  To say that you will allow the banks to decide the fate of the economy because they are rational is simply incorrect.  The banks got into this mess because they are not rational.

http://www.msnbc.msn.com/id/29827248/ns/dateline_nbc-the_hansen_files_with_chris_hansen/t/if-you-had-pulse-we-gave-you-loan/#.TqXBu7KyC2Y

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[Red]

Sorry but that is not correct.  Banks are as irrational as any other human institution.  When there is a bubble, they lend exuberantly.  When the bubble pops, they withdraw credit excessively.  To say that you will allow the banks to decide the fate of the economy because they are rational is simply incorrect.  The banks got into this mess because they are not rational.
http://www.msnbc.msn.com/id/29827248/ns/dateline_nbc-the_hansen_files_with_chris_hansen/t/if-you-had-pulse-we-gave-you-loan/#.TqXBu7KyC2Y

Banks gave loans because they could do so without taking risk. I'd give loans if I could do so without taking risk.

Some banks bought loans because they thought they were getting interest with low risk. However, the first group lied to them. Doh, imagine that.

Now I made a suggestion but y'all were busy trolling each other so you missed it.

Clearly, I could write a function to describe who I think should be bailed out and who I think shouldn't. It is a function of how much cash you put in, how much interest you have payed in, the size of the loan you are asking for, and how likely you are to pay it back. It is really not that hard.

[SgtSpike]

Hawker - the banks lended irrationally because they knew they would be backed by Freddie Mac and Fannie May (or are those names the other way around?).  The government offered to take on the risk of subprime mortgages in an effort to get more "diverse and low-income" people into home ownership, and it backfired, exactly the way that any reasonable economist could have told you it would.

To anyone who says that there are not opportunities to buy houses at a discount today - you're blind.  Both of my sisters bought a house this year, and I bought mine in 2008.  Their houses are VASTLY better than the one I purchased, even though we all purchased at around the same price.

FWIW, I'm doing what any responsible person would do - looking into refinance options to get a lower interest rate.  Am I underwater with my mortgage?  Probably.  Do I regret buying a house when I did?  Definitely.  Am I going to cry and whine about it like everyone else?  Absolutely not.  Would I cry and whine about it if I lost my job?  Nope - I'd file for bankruptcy, give the house back to the bank, live with family until I found a new place to live once I found a new job, and move on with my life.

And THAT is exactly why I get upset about stuff like this.  EVERYONE has the options I just listed above.  But some choose to cry and whine instead of hunker down and do what needs to be done to survive.  It is no one's fault but your own if you can't pay your mortgage, or bought a house at the wrong time and are now underwater on it.

[Hawker]

Hawker - the banks lended irrationally because they knew they would be backed by Freddie Mac and Fannie May (or are those names the other way around?).  The government offered to take on the risk of subprime mortgages in an effort to get more "diverse and low-income" people into home ownership, and it backfired, exactly the way that any reasonable economist could have told you it would.

To anyone who says that there are not opportunities to buy houses at a discount today - you're blind.  Both of my sisters bought a house this year, and I bought mine in 2008.  Their houses are VASTLY better than the one I purchased, even though we all purchased at around the same price.

FWIW, I'm doing what any responsible person would do - looking into refinance options to get a lower interest rate.  Am I underwater with my mortgage?  Probably.  Do I regret buying a house when I did?  Definitely.  Am I going to cry and whine about it like everyone else?  Absolutely not.  Would I cry and whine about it if I lost my job?  Nope - I'd file for bankruptcy, give the house back to the bank, live with family until I found a new place to live once I found a new job, and move on with my life.

And THAT is exactly why I get upset about stuff like this.  EVERYONE has the options I just listed above.  But some choose to cry and whine instead of hunker down and do what needs to be done to survive.  It is no one's fault but your own if you can't pay your mortgage, or bought a house at the wrong time and are now underwater on it.

There is a good book called the "Big Short" by Michael Lewis.  In it he describes the banks being wiped out as a result of the bad loans.  Their shareholders were screwed.  To me, that suggests that they were irrational in making the loans.  Perhaps the individual loan officers who got commission for loans were rational but the banks destroyed their owners capital.  They behaved irrationally.

If it helps, here in the UK we have no Fanny or Freddy things and our banks behaved just as irrationally.  It was a bubble - thats what happens in bubbles.

My point was that if we know banks were irrational in getting into the mess, why should we assume they will make rational steps to get us out of the mess? 

[I.Goldstein]

Hawker, you're right. They won't act rationally because they act under the direction of the central banks. They like bubbles like this because it enables them to manipulate monetary policy to their benefit through the printing press. The problem lies with the central banks and their shareholders.

[Hawker]

Hawker, you're right. They won't act rationally because they act under the direction of the central banks. They like bubbles like this because it enables them to manipulate monetary policy to their benefit through the printing press. The problem lies with the central banks and their shareholders.

Maybe yours are.  Here banks are not.  They have to meet the Basle standards but they are very free apart from that.

Why do you stuggle with the idea of irrational behaviour being a natural part of human life?  Its been well documented since the Tulip bubble that markets misfire from time to time.  Yet people always look for someone to blame, be it the government, the Jews, the 1% or whoever.  The very idea that irrational behaviour is a normal part of life in a free market economy seems to be treated as sacrilege.

[I.Goldstein]

Hawker, you're right. They won't act rationally because they act under the direction of the central banks. They like bubbles like this because it enables them to manipulate monetary policy to their benefit through the printing press. The problem lies with the central banks and their shareholders.

Maybe yours are.  Here banks are not.  They have to meet the Basle standards but they are very free apart from that.

Why do you stuggle with the idea of irrational behaviour being a natural part of human life?  Its been well documented since the Tulip bubble that markets misfire from time to time.  Yet people always look for someone to blame, be it the government, the Jews, the 1% or whoever.  The very idea that irrational behaviour is a normal part of life in a free market economy seems to be treated as sacrilege.

Irrational behavior happens but it doesn't exist for very long. An irrational business is a dead business.

[Hawker]

Hawker, you're right. They won't act rationally because they act under the direction of the central banks. They like bubbles like this because it enables them to manipulate monetary policy to their benefit through the printing press. The problem lies with the central banks and their shareholders.

Maybe yours are.  Here banks are not.  They have to meet the Basle standards but they are very free apart from that.

Why do you stuggle with the idea of irrational behaviour being a natural part of human life?  Its been well documented since the Tulip bubble that markets misfire from time to time.  Yet people always look for someone to blame, be it the government, the Jews, the 1% or whoever.  The very idea that irrational behaviour is a normal part of life in a free market economy seems to be treated as sacrilege.

Irrational behavior happens but it doesn't exist for very long. An irrational business is a dead business.

http://www.amazon.co.uk/This-Time-Different-Centuries-Financial/dp/0691152640/ref=sr_1_1?ie=UTF8&qid=1319487835&sr=8-1

I actually read that - the last 200 pages is as dull as watching grass grow but having got that far I soldiered through it.

The interesting thing is that the irrational behaviour that bankrupts countries lasts centuries.  Greece has been in default for more than 100 of the last 200 years and it still is able to borrow money.  Same for Spain for the last 520 years.  And that ignores the irrational behaviour within economies like the huge depressions of the 1800s.

Irrational behaviour is close to permanent in my opinion. 

[I.Goldstein]

All these depressions were caused irrational behavior on a government level. Yes, that is permanent because government's can't be held accountable by failure when what they do doesn't work. Instead of dying they turn into cancer and consume society. A business just dies when it doesn't meet consumer desires.

[SgtSpike]

Hawker, you're right. They won't act rationally because they act under the direction of the central banks. They like bubbles like this because it enables them to manipulate monetary policy to their benefit through the printing press. The problem lies with the central banks and their shareholders.

Maybe yours are.  Here banks are not.  They have to meet the Basle standards but they are very free apart from that.

Why do you stuggle with the idea of irrational behaviour being a natural part of human life?  Its been well documented since the Tulip bubble that markets misfire from time to time.  Yet people always look for someone to blame, be it the government, the Jews, the 1% or whoever.  The very idea that irrational behaviour is a normal part of life in a free market economy seems to be treated as sacrilege.

If irrational decisions are made, then the consequences of those irrational decisions should be realized.  The problem is, the government isn't allowing consequences to be realized, thus allowing more and more irrational behavior.

From the perspective of the banks, it was irrational to hold so many subprime loans.  They should have felt the consequences of their irrational decisions by being allowed to fail, but the government bailed (some of) them out, encouraging further irrational behavior down the road.

From the perspective of the shareholders, it was irrational to invest in banks with such irrational lending behaviors.  Those that lost money on their investments deserved it (though hopefully, they protected themselves from too much loss by diversification), and those that did not lose much money because of the government bailing out the banks they invested in are encouraged to continue making irrational decisions.

From the perspective of the homeowners, it was irrational to purchase a house they could not expect to pay for if they lost their job.  Those that lost their house because of it deserved it, and those that did not lose their house because the government bailed them out through various incentive and welfare programs will continue making irrational decisions.

I still stand by my statement that government encouraged too much subprime lending through their Freddie Mac/Fannie May programs, but I do agree with you that irrational decisions on the part of various banking institutions also helped "crash" the economy.  It certainly wouldn't have been as bad if the government hadn't helped inflate demand with their subprime incentives though - I hope people learn from that.

[Hawker]

All these depressions were caused irrational behavior on a government level. Yes, that is permanent because government's can't be held accountable by failure when what they do doesn't work. Instead of dying they turn into cancer and consume society. A business just dies when it doesn't meet consumer desires.

What ?  Even the Tulip mania ?  I don't think so.

Saying a business dies when it fails to meet consumer desires doesn't change the fact that sometimes people get hurt when the market misfires.  Trying to blame government for everything implies that you don't accept bubbles are a natural part of the market economy.  

[I.Goldstein]

All these depressions were caused irrational behavior on a government level. Yes, that is permanent because government's can't be held accountable by failure when what they do doesn't work. Instead of dying they turn into cancer and consume society. A business just dies when it doesn't meet consumer desires.

What ?  Even the Tulip mania ?  I don't think so.

Saying a business dies when it fails to meet consumer desires doesn't change the fact that sometimes people get hurt when the market misfires.  Trying to blame government for everything implies that you don't accept bubbles are a natural part of the market economy.  

The Tulip Mania was caused by public officials and legal manipulation.

http://www.econ.ucla.edu/thompson/Document97.pdf

[Hawker]

All these depressions were caused irrational behavior on a government level. Yes, that is permanent because government's can't be held accountable by failure when what they do doesn't work. Instead of dying they turn into cancer and consume society. A business just dies when it doesn't meet consumer desires.

What ?  Even the Tulip mania ?  I don't think so.

Saying a business dies when it fails to meet consumer desires doesn't change the fact that sometimes people get hurt when the market misfires.  Trying to blame government for everything implies that you don't accept bubbles are a natural part of the market economy.  

The Tulip Mania was partially caused by public officials.

http://www.econ.ucla.edu/thompson/Document97.pdf

Read the first paragraph - that is a very poor piece of work!

You are beginning to appear deluded.  Blaming government for everything that people do wrong is silly.  People are perfectly capable of making mistakes without the help of the state.

[I.Goldstein]

All these depressions were caused irrational behavior on a government level. Yes, that is permanent because government's can't be held accountable by failure when what they do doesn't work. Instead of dying they turn into cancer and consume society. A business just dies when it doesn't meet consumer desires.

What ?  Even the Tulip mania ?  I don't think so.

Saying a business dies when it fails to meet consumer desires doesn't change the fact that sometimes people get hurt when the market misfires.  Trying to blame government for everything implies that you don't accept bubbles are a natural part of the market economy.  

The Tulip Mania was partially caused by public officials.

http://www.econ.ucla.edu/thompson/Document97.pdf

You are beginning to appear deluded.  Blaming government for everything that people do wrong is silly.  People are perfectly capable of making mistakes without the help of the state.

You didn't even read the paper. The courts modified previously defunct contracts. The prices were manipulated by government force. The truth is in plain sight and you're deluding yourself in favor of a convenient ad hominem.

People do make mistakes but they end swiftly. They don't take everyone down. When the state does wrong it isn't held accountable, continues to do wrong and it leads to cancerous turmoil.

The tulip prices are even misreported. They had several declines before they reached their all-time high. All the evidence is in the paper. Tulip Mania is not a free market phenomenon.  

[Hawker]

I read the first paragraph.  It's bad enough that there is no need to read the rest.  He argues that valuing a tulip higher than a house is not evidence of a bubble.  If that is true, then there has never been a bubble in any market anywhere.  Saying there was government involvement is a truism.  Wherever you have people you have government and laws of some kind - that doesn't mean that irrational behaviour is caused by government.  That confuses correlation and causation.

[I.Goldstein]

I read the first paragraph.  It's bad enough that there is no need to read the rest.  He argues that valuing a tulip higher than a house is not evidence of a bubble.  If that is true, then there has never been a bubble in any market anywhere.  Saying there was government involvement is a truism.  Wherever you have people you have government and laws of some kind - that doesn't mean that irrational behaviour is caused by government.  That confuses correlation and causation.

If the courts were competitive and were held accountable to bad judgements, it would of never happened. All I am calling for is competition in services that are usually government monopolies. I am only blaming monopolies. That's all. 

[Hawker]

I read the first paragraph.  It's bad enough that there is no need to read the rest.  He argues that valuing a tulip higher than a house is not evidence of a bubble.  If that is true, then there has never been a bubble in any market anywhere.  Saying there was government involvement is a truism.  Wherever you have people you have government and laws of some kind - that doesn't mean that irrational behaviour is caused by government.  That confuses correlation and causation.

If the courts were competitive and were held accountable to bad judgements, it would of never happened. All I am calling for is competition in services that are usually government monopolies. I am only blaming monopolies. That's all. 

Competition in courts is only possible for a short while - in a free market, you end up with a monopoly court system.  The reason is simple - each time 2 courts offer different opinions, there will be a conflict and only 1of them can win.  The loser loses its entire legitimacy as what use is a court that can't enforce its judgements.

That's a specific point.  Bubbles do happen and its not sensible to argue that they are products of government or of courts.  Government, law and bubbles are all natural aspects of a free market society.