U.S. Debt discussion

[Flash Walken]

Originally Posted by VladtheImpaler

Seriously? So, no personal responsibility as a consumer at all? "Can I afford it?" is not a question one should ask oneself?

The whole point is that the banks and lenders were telling people they COULD.

"I don't know if we can afford this."

"But it's ZERO down. You can absolutely afford it."

[afc wimbledon]

Originally Posted by VladtheImpaler

Seriously? So, no personal responsibility as a consumer at all? "Can I afford it?" is not a question one should ask oneself?

While I would agree it is a sensible question, it isn't the fault of a buyer if they choose to think they will get a job before the ballon payment comes up etc etc.

Not only that but for alot of the worst purchasers it was a good decision even if they defaulted, they had nothing to start out with, they got to live in a cheap house for a year or two and now have gone back to nothing, we are the ones that got screwed, not the broke assed schmoes that have defaulted.

If someone offered you several hundred thousand dollars to invest in the stock market that you don't have to pay back if you lose it all wouldn't you take it?

There is no difference between these mortgages and the many here that live paycheck to paycheck with a leased car they don't need and several maxed out Visa's, in the end it is the banks job to watch out for their money.

[seattleflamer]

Originally Posted by afc wimbledon

While I would agree it is a sensible question, it isn't the fault of a buyer if they choose to think they will get a job before the ballon payment comes up etc etc.

Not only that but for alot of the worst purchasers it was a good decision even if they defaulted, they had nothing to start out with, they got to live in a cheap house for a year or two and now have gone back to nothing, we are the ones that got screwed, not the broke assed schmoes that have defaulted.

If someone offered you several hundred thousand dollars to invest in the stock market that you don't have to pay back if you lose it all wouldn't you take it?

There is no difference between these mortgages and the many here that live paycheck to paycheck with a leased car they don't need and several maxed out Visa's, in the end it is the banks job to watch out for their money.

I understand that the banks need to do their due dilegence before they lend their money and they are responsible to whom they lend.

It is myth to think that if you had a pulse, you qualified for loan though. It was a relatively small percentage of buyers who fit within that category of obtaining a mortgage with little to no assets, little to no income and having nothing in the end either.

Of course, it necessarily isn't that simple as walking away and wiping the slate clean. Was the mortgage origination a recourse or non-recourse, or did the loan orginate in a state that even allows a recourse loan?

Even if you live in a non-recourse state and the money isn't a purchase money loan, then they come after all your other assets to make up the difference and you don't just lose the house you're walking a way from or just destroy your credit score, you have a deficency judgment to contend with.

Try walking away from your mortgage in BC and see what your creditors do about the house that goes down 30% that you walk away from (that is rhetorical).

Alberta is a little different in that respect. Growing up, I remember one of my parent's friends in Calgary during the NEP in the early 80s encouraged my parents to follow their example by walking away. My dad thought that was plain silly of course since they were gainfully employed.

The friends just dropped keys in the mailbox and left their home to the bank. They banged up their credit score but bought another house by the early 90s.

[MarchHare]

It was a relatively small percentage of buyers who fit within that category of obtaining a mortgage with little to no assets, little to no income and having nothing in the end either.

Does anyone have any stats regarding what percentage of mortgage defaulters during the housing bubble were low income versus middle class? I can't say for certain either way, but I seem to recall reading a story a few years ago that indicated that the bulk of the people walking away from their homes were middle class Americans with jobs who foolishly bought homes beyond their means (after the low introductory interest rate was jacked up).

[Azure]

A few months ago when the media reported on countries with 'sovereign debt woes' they mainly talked about Greece. Now the US is suddenly included as well.

Sad that it has come that far.

[afc wimbledon]

Originally Posted by MarchHare

Does anyone have any stats regarding what percentage of mortgage defaulters during the housing bubble were low income versus middle class? I can't say for certain either way, but I seem to recall reading a story a few years ago that indicated that the bulk of the people walking away from their homes were middle class Americans with jobs who foolishly bought homes beyond their means (after the low introductory interest rate was jacked up).

People arn't walking away from the houses because they are beyond their means, they are walking away from them because they have a mortgage of 250,000 on a house now worth 50,000.

Most of them can make the mortgage payments but what's the point.

[Calgaryborn]

Originally Posted by Tinordi

This is directly from S&P:

The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy … [This] weakens the government’s ability to manage public finances …

So yeah, pretty much exactly what I said.

So when you talk about political brinksmanship do you mean Obama telling the elderly that they might not get checks if the debt ceiling isn't raised or do you me Obama saying the America would default on their debt on Aug 2 if he didn't get his debt ceiling raised? Perhaps your refering to Obama saying he would veto the bill everytime the House came up with a budget?

The fact is that the Democrats hadn't tabled a budget since before the last election and were unwilling to work with the House's bills this spring and summer. They wanted a higher debt ceiling and higher taxes and were willing to only give promises of some future cuts which they would have no legal obligation to keep.

4 trillion dollars in cuts would have saved the credit rating. Their was 6 trillion in cuts in the House's April budget. It was rejected without debate and no alternative was offered by the Senate.

And for the record: The credit agency's 2 trillion dollar mistake was in the report they presented to the federal government. The mounds of data they looked at wasn't mistaken. The US government failed to even come close to the 4 trillion dollars in cuts they needed to come up with. Also most of the cuts they promised to make were after the next election. That makes them worthless promises.

[Azure]

They haven't come close to the cuts yet. Nobody knows what the Super Committee will do.

Just suddenly cutting $4 trillion is a bit rash and will often lead to problems. What you need is a group of smart people to sit down and find out where you can cut.

Also, if you eliminate the war in Iraq, war in Afghanistan, and the Bush tax cuts, you have $5 trillion right there.

The Bush tax cuts at the very least shouldn't have happened. There are better designed tax cuts, or better designed tax 'credits.'

[Caged Great]

There's waste and garbage all over the place in the government budget.

I'm sure that you could cut your way to a 10 trillion savings.

There's a ton of waste in the area of defense. Ending the wars in Iraq/Afghanistan would help. Plus take a bit from the R & D section when it's not really needed right now.

Crack down on waste/fraud in the medicare sector (billing for test not done, or ones that are unnecessary), as well as confront the pharm companies over the prices of their pills. For example, the same medications in Canada or even cuba are minuscule compared to the US

Cut out loopholes entirely from the tax code and have everyone pay the same rate (don't cut the rate)

Reduce/eliminate medicare/medicaid/SS benefits for people who have more than 5 million in the bank.

[Azure]

You HAVE to cut the corporate tax rate.

Or the US would be double what Canada is. And we're socialist whackjobs, remember?

[Calgaryborn]

Originally Posted by Azure

They haven't come close to the cuts yet. Nobody knows what the Super Committee will do.

Just suddenly cutting $4 trillion is a bit rash and will often lead to problems. What you need is a group of smart people to sit down and find out where you can cut.

Also, if you eliminate the war in Iraq, war in Afghanistan, and the Bush tax cuts, you have $5 trillion right there.

The Bush tax cuts at the very least shouldn't have happened. There are better designed tax cuts, or better designed tax 'credits.'

I don't think you can count the Bush tax cuts as they are already set to expire. They should be already counted. As for the wind down in of the wars am not sure they will amount to that much savings unless the army is downsized by quite a bit.

Everybody knows that Social Security and Medicare needs to be fixed if they are going to continue into the future. This seems like a perfect time and excuse to address these issues.

I would think that the government should look at cutting 400 billion out of existing programs this year with the view of continueing to do that for the 10 years. That is at least a little more honest. The savings from the wars ending and expiring tax cuts should be over and above. Really if you think about it the goal shouldn't be to reach S and P's standards but, rather work towards getting back in the black without hurting the economy.

Tax hikes will help the budget but, not the economy. I don't believe they will amount to much unless you effect those mid size businesses which America is counting on for job creation.

[SebC]

Originally Posted by Slava

Well that is all well and good except for a few things: (A) a credit rating is not really a comment on the political climate. Its supposed to be a rating on the likelihood that you can pay your debts. (B) and perhaps most importantly, the US can always print more money. In other words taking the hyper-inflation aspect out of the equation (which is not a concern in the least right now!) its virtually impossible for the US to actually default. They theoretically ought to be either "AAA" or "D" in theory because if they were that close to a default they could turn on the presses...

When you talking about an entity like the US, it's not just whether the country can pay it's debts, it's also whether it is willing to. It's not like you can repo the White House if they don't.

Originally Posted by Flash Walken

The whole point is that the banks and lenders were telling people they COULD.

"I don't know if we can afford this."

"But it's ZERO down. You can absolutely afford it."

That ScotiaBank kept "You're richer than you think" as their slogan after the whole subprime mortgage thing came to light still makes me laugh.

[afc wimbledon]

Originally Posted by Caged Great

There's waste and garbage all over the place in the government budget.

I'm sure that you could cut your way to a 10 trillion savings.

There's a ton of waste in the area of defense. Ending the wars in Iraq/Afghanistan would help. Plus take a bit from the R & D section when it's not really needed right now.

Crack down on waste/fraud in the medicare sector (billing for test not done, or ones that are unnecessary), as well as confront the pharm companies over the prices of their pills. For example, the same medications in Canada or even cuba are minuscule compared to the US

Cut out loopholes entirely from the tax code and have everyone pay the same rate (don't cut the rate)

Reduce/eliminate medicare/medicaid/SS benefits for people who have more than 5 million in the bank.

All of this requires taking money out of the pockets of the companies that own the US goverment, Pfizer, Boeing, Lockheed etc therefore it won't happen.

[bluejays]

Originally Posted by SebC

When you talking about an entity like the US, it's not just whether the country can pay it's debts, it's also whether it is willing to. It's not like you can repo the White House if they don't.

That ScotiaBank kept "You're richer than you think" as their slogan after the whole subprime mortgage thing came to light still makes me laugh.

I don't like the slogan to begin with, but Scotia is among the most conservative banks in lending and how much they lend out, so it's not like they're approving every John that comes in...quite the opposite. On a side note, they've come out with now 2 very nice cashback reward cards.

[pepper24]

Originally Posted by Calgaryborn

So when you talk about political brinksmanship do you mean Obama telling the elderly that they might not get checks if the debt ceiling isn't raised or do you me Obama saying the America would default on their debt on Aug 2 if he didn't get his debt ceiling raised? Perhaps your refering to Obama saying he would veto the bill everytime the House came up with a budget?

The fact is that the Democrats hadn't tabled a budget since before the last election and were unwilling to work with the House's bills this spring and summer. They wanted a higher debt ceiling and higher taxes and were willing to only give promises of some future cuts which they would have no legal obligation to keep.

The Democrats definitely have contributed to the mess but would argue that the Republicans are even more to blame. Cutting taxes while increasing spending for wars is the biggest culprit. This was under a Republican president, senate and congress. To correct this irresponsibility by so-called 'fiscal conservatives' you need to raise taxes and cut spending. Both are needed in such a big mess and this is coming from someone who feels strong about low taxes in normal times.

Originally Posted by Calgaryborn

4 trillion dollars in cuts would have saved the credit rating. Their was 6 trillion in cuts in the House's April budget. It was rejected without debate and no alternative was offered by the Senate.

Take away cutting taxes while increasing spending and you get those numbers.

[seattleflamer]

Originally Posted by MarchHare

Does anyone have any stats regarding what percentage of mortgage defaulters during the housing bubble were low income versus middle class? I can't say for certain either way, but I seem to recall reading a story a few years ago that indicated that the bulk of the people walking away from their homes were middle class Americans with jobs who foolishly bought homes beyond their means (after the low introductory interest rate was jacked up).

This article is from 2008 from housing wire which definitely has a mortgage banking industry perspective (bias). The article explains the results of a study of defaults from 07 to 08. The subprime defaults exceeded prime defaults (no news there). But among the subprime borrowers, income had little relation to foreclosure. The highest correlation to forclosure was the type of mortgage product. The more predatory the terms, the higher likelhood of foreclosure.

So AFC-W is correct in the sense that lax lending practices by the banks lead to more foreclosures which is the bank's fault. They lent money to risky people.

I still contend that signing a contract has rights and obligations which just don't disappear because you don't like how it is working out for you.


http://www.housingwire.com/2008/10/2...mes-study-says

[trew]

Originally Posted by seattleflamer

It is myth to think that if you had a pulse, you qualified for loan though. It was a relatively small percentage of buyers who fit within that category of obtaining a mortgage with little to no assets, little to no income and having nothing in the end either.

This is true, a pulse was optional.

Check out this transcript from NPR's "This American Life" #355 (hosted by their international Business and Economics coorespondant, Adam Davidson.)

http://www.scribd.com/doc/6033267/Th...NPR-Transcript

He really did a great job explaining how the CDO/Housing bubble came to be and how ridiculous the mortgage markets were:

And they sold so many mortgages that there came a point in 2003 where just about everybody who wanted a mortgage and was qualified to get one.... had gotten one. But the pool of money had just gotten started. They wanted more mortgage backed securities. So Wall Street had to find more people to take out mortgages. Which meant lending to people who never would’ve qualified before. And so Mike noticed that every month, the guidelines were getting a little looser. Something called a stated income, verified asset loan came out, which meant you didn't have to provide paycheck stubs and w-2 forms, as they had in the past. You could simply state your income, as long as you showed that you had money in the bank.

Mike Garner: Yeah, and loan officers would have an accountant they could call up and say “Can you write a statement saying a truck driver can make this much money?” Then the next one, came along, and it was no income, verified assets. So you don't have to tell the people what you do for a living. You don’t have to tell the people what you do for work. All you have to do is state you have a certain amount of money in your bank account. And then, the next one, is just no income, no asset. You don't have to state anything. Just have to have a credit score and a pulse.

Alex Blumberg: Actually that pulse thing. Also optional. Like the case in Ohio where 23 dead people were approved for mortgages.

(...)

Adam Davidson: An interesting fact, here. Mike Garner's bank did not care how risky these mortgages were. This was the new era: banks didn't have to hold on to these mortgages for 30 years. They didn’t have to wait and see if they’d be paid back. Bank's like Garner's just owned them for a month or two and then sold them on to Wall Street. Wall Street would sell them on to the global pool of money.

Alex Blumberg: Which is how we get half-million dollar, no income, no asset loans.

Adam Davidson: And loans to dead people.

The fact that the whole CDO scheme sailed under the banner of "AAA" credit, and now it is the same people in charge of the same agencies who are now downgrading the US credit rating... it's just beyond ridiculous.

[afc wimbledon]

Originally Posted by seattleflamer

This article is from 2008 from housing wire which definitely has a mortgage banking industry perspective (bias). The article explains the results of a study of defaults from 07 to 08. The subprime defaults exceeded prime defaults (no news there). But among the subprime borrowers, income had little relation to foreclosure. The highest correlation to forclosure was the type of mortgage product. The more predatory the terms, the higher likelhood of foreclosure.

So AFC-W is correct in the sense that lax lending practices by the banks lead to more foreclosures which is the bank's fault. They lent money to risky people.

I still contend that signing a contract has rights and obligations which just don't disappear because you don't like how it is working out for you.


www.housingwire.com/2008/10/29/foreclosure-rates-comparable-across-incomes-study-says

My mortgage in essense says if I don't make the payments then the bank gets my house, ultimately I, as a home owner have only 2 obligations, pay the mortgage or vacate the house.
The Bank assumes my house's value will cover the mortgage, but I have no obligation to ensure that.

Banks used to ensure this by asking for a substantial downpayment, the idea for a downpayment isn't just to see if you can save money, it also adds a level of insurance for them to the deal, chances are even in a falling housing market they will be able to make up any losses if the price drops with part or all of the 20 or 25 percent you have put down. It used to be when the bank foreclosed you'd get 5 or 10 percent of the price back after the dust had settled that was left over from the deposit.

Banks decided to stop asking for a deposit to drum up more business though, by that one act they made this their mess and no one elses.

[VladtheImpaler]

Originally Posted by Azure

They haven't come close to the cuts yet. Nobody knows what the Super Committee will do.

Just suddenly cutting $4 trillion is a bit rash and will often lead to problems. What you need is a group of smart people to sit down and find out where you can cut.

Also, if you eliminate the war in Iraq, war in Afghanistan, and the Bush tax cuts, you have $5 trillion right there.

The Bush tax cuts at the very least shouldn't have happened. There are better designed tax cuts, or better designed tax 'credits.'

There were already two (I believe it was two) bi-partisan/non-political commissions that reported and made recommendations around the turn of the year. Their recommendations were, of course, largely ignored by both sides at the time. I would not be surprised if their ideas were suddenly "re-discovered"...

[Azure]

Originally Posted by Calgaryborn

I don't think you can count the Bush tax cuts as they are already set to expire. They should be already counted. As for the wind down in of the wars am not sure they will amount to that much savings unless the army is downsized by quite a bit.

Everybody knows that Social Security and Medicare needs to be fixed if they are going to continue into the future. This seems like a perfect time and excuse to address these issues.

I would think that the government should look at cutting 400 billion out of existing programs this year with the view of continueing to do that for the 10 years. That is at least a little more honest. The savings from the wars ending and expiring tax cuts should be over and above. Really if you think about it the goal shouldn't be to reach S and P's standards but, rather work towards getting back in the black without hurting the economy.

Tax hikes will help the budget but, not the economy. I don't believe they will amount to much unless you effect those mid size businesses which America is counting on for job creation.

No, my point was that if you eliminate the Bush tax cuts you can add $5 trillion more to government revenue over the past 10 years. Suddenly your debt load is a lot less. Although knowing the US, they would have just spent that money elsewhere and the debt load would be exactly the same.

The only way the US could cut taxes to help job growth is to lower the overall corporate rate. Small businesses that can't afford the money to exploit loopholes are suffering because of the high rate. Creating a level playing field for everyone would drive job growth.

Tax cuts for the rich are pointless, and should only be considered if you have a very low debt/deficit. Instead, if you WANT to cut taxes, you do it in the form of cuts specifically aimed at the middle/lower classes. The US already has a very low personal tax rate, so cutting taxes for the wealthy is short-sighted unless you actually cut spending too.

They didn't cut spending and now you're stuck with a imbalance between revenue and government expenditures.