When IS it time to walk away from your mortgage?

The amazing thing to me is that our morning news shows are devoting time to stories like this. They're usually on top of any kind of story with which they can sow panic among the middle class. Stories involving dangerous products from China, airlines stranding passengers, Hollywood movies being too violent, or whatever- but when it comes to the financial industry they tread cautiously. Or they're just tired of covering the story and assume the government is taking care of it. (which, unfortunately, isn't). I'm not familiar with the entirety of what the government is doing here, but it seems like the attitude is just that the political system is so gridlocked it's not even worth raising the issue.

The more I read on the subject, the more I am convinced that the best course for the nation and the world would have been to force the biggest banks into conservitorship, wipe out the shareholders, fire the lot of their executives, and start anew. Unfortunately, doing so would make the mouth breathers scream that Obama was "nationalizing" the banks.

Funkenpants wrote:

The amazing thing to me is that our morning news shows are devoting time to stories like this. They're usually on top of any kind of story with which they can sow panic among the middle class. Stories involving dangerous products from China, airlines stranding passengers, Hollywood movies being too violent, or whatever- but when it comes to the financial industry they tread cautiously. Or they're just tired of covering the story and assume the government is taking care of it. (which, unfortunately, isn't). I'm not familiar with the entirety of what the government is doing here, but it seems like the attitude is just that the political system is so gridlocked it's not even worth raising the issue.

Or they're worried about having Visa or Mastercard (or any of the big banks) stop their credit and close their accounts, withholding their assets.....

Oh, man. I'm laughing bitterly because it's so true.

The one thing I always here from the bankers is, "If you restrict our ability to gouge customers and basically run rampant over everyone, we'll have to stop lending money and then the economy will come to a halt."

Nobody in the press ever asks them how we managed to build a giant economy before the banks got credit card interest rates at 29% and protection against creditors declaring bankruptcy and had to actually, you know, make sure their paperwork was correct before foreclosing on people.

Funkenpants wrote:

The one thing I always here from the bankers is, "If you restrict our ability to gouge customers and basically run rampant over everyone, we'll have to stop lending money and then the economy will come to a halt."

AKA: "It's a nice looking economy you got there. It would be a shame if something happened to it. You know. Like.... things."

This is precisely why I am never doing business with banks again. I am a member of a credit union, and I handle everything through them. They don't sell their mortgages, they don't bundle things off to be sold as securities, they don't take stupid risks.

However, these stories always bring up a train of thought (that probably deserves a thread at some point) on why we haven't seen more people rise up against these con-men. I am eternally surprised that some of these guys aren't being jumped in darkened parking lots or alleys with a variety of baseball bat-related injuries. There have to be a good number of people with either poor impulse control or little left to lose that have been screwed over in all of this.

Paleocon wrote:

The more I read on the subject, the more I am convinced that the best course for the nation and the world would have been to force the biggest banks into conservitorship, wipe out the shareholders, fire the lot of their executives, and start anew. Unfortunately, doing so would make the mouth breathers scream that Obama was "nationalizing" the banks.

The only joy I can take in all of this insanity is tha Obama is already being called a socialist. The least he could have done was actually earn that title (keeping in mind that unwinding a giant bank failure is even considered socialism in this day and age).

Obama got what he deserved he doesn't deserve another term. We absolutely should have taken the banks into receivership and wound them down. The Fed is already taking toxic assets as collateral for low interest loans. That's like reverse unwinding. That bankers cry over being complained about burns me. Many of them should have been perp walked. At the very least they should have been financially wiped out.

Hey I don't want to make a new thread but I can't find the old thread about the 2008 economic depression:

How's the USA economy doing? In 2008 people were saying the USA was heading to Zimbabwe-ville, but it looks like everything turned out ok. Anyone from around that time seen things change?

the US is always 5-10 years away from Zimbabwe.

I just ate my neighbor.

MaverickDago wrote:

I just ate my neighbor.

Keep that kind of thing in the boogle threads.

NathanialG wrote:
MaverickDago wrote:

I just ate my neighbor.

Keep that kind of thing in the boogle threads.

Or perhaps a cooking thread.

Mex wrote:

Hey I don't want to make a new thread but I can't find the old thread about the 2008 economic depression:

How's the USA economy doing? In 2008 people were saying the USA was heading to Zimbabwe-ville, but it looks like everything turned out ok. Anyone from around that time seen things change?

A large factor that I didn't realize in 2008 was that the rest of the world's economies went to hell at the same time as ours... and those countries are also fighting inflation battles. Since a strong dollar is key to keeping the US an net importer and China/parts of Europe as net exporters, a lot of financial/monetary policy outside of the US is geared towards inflating those currencies against the dollar. The end result has been only mild inflation so far. It still scares me that we're all balancing on a knife's edge, but I'm growing increasingly impressed at the leaders of the world economies to keep us at that balance.

Edit: I agree with others (including Malor) that this balance is unsustainable, but I'm growing more appreciative of the large gray area we are playing in before we reach catastrophic change.

Don't worry Malor, our kids will see a post apocalyptic world

In 2008 people were saying the USA was heading to Zimbabwe-ville,

We're seeing pretty strong producer inflation now, and of course healthcare and education both skyrocket every year, domestic industries that are tough to outsource. And the dollar has dropped substantially against many currencies that aren't explicitly pegged, and the prices of commodities (part of producer inflation) are really going nuts.

Insurance companies, especially healthcare-related ones, are getting absolutely killed, because their costs are going up 10% a year, and they can't make any money with their float because the Fed is holding interest rates down so hard. So they need to raise premiums, and that's really pissing people off.

It's a slow process. Zimbabwe is a tiny economy compared to ours, and it still took about a decade of mismanagement before they got to active implosion level.

Things are noticeably worse than they were last year... I think this year is when you'll start to see it reflected in at least some end-user pricing. You'll also see more and more domestic manufacturers going belly-up, as their input costs rise, but they can't raise prices to match, because of competition from extremely low-cost labor countries. This process will continue to accelerate until we stop printing money to monetize bad debt, and backstopping the Wall Street issuance of derivatives that trade like money.

The problem, Jolly Bill, is that now that we're on that path, we have no exit strategy. If we stop inflating, because all currency is debt, we'll immediately have a deflationary collapse. But as we continue to try to live beyond our means, the inflation we cause drives prices up. That requires even more inflation to maintain those expenditures, making prices go up even faster, requiring even more inflation to buy stuff we can't actually afford, and so on.

It can snowball quite quickly, once it goes critical. It can take a long time to get to that point, but it can blow up FAST once it does.

The only true exit strategy is accepting that a great number of the world's debts are simply bad and unpayable, and going through a catastrophic contraction. The longer we don't do this, the worse the problem becomes, and the more catastrophic the contraction will be when it finally comes about.

The solution to living beyond your means is not to live even FURTHER beyond your means.

What I'm curious about is how much net debt exists in the world. By that I mean this. With the Fed's printing press going they're taking out loans from individuals to fund buying bad debt from companies who issued bad loans to these same individuals. These individuals are all taxpayers to a govt. that implicitly and now explicitly guarantees the debts of these companies, the banks. So you have this circle of debt that no one really has a handle on.

What I'd like to see is someone run numbers on this. If everyone paid everyone they owed back, what would be the total outstanding net debt? In other words, how much money is the world borrowing from its future? Because economics, although it's treated this way by giant banks and hedge funds, isn't a game. It's not something where you figure out the rules and just play simulations with it. Money spent now represents real resources being used. Real minerals dug out of the ground. Real fuel burned to create widgets and food. Real water used. So relative to current prices (which makes it even scarier as scarcity will make these things more expensive in the future without some major breakthrough), how much in debt are we to the future?

DSGamer wrote:

What I'm curious about is how much net debt exists in the world. By that I mean this. With the Fed's printing press going they're taking out loans from individuals to fund buying bad debt from companies who issued bad loans to these same individuals. These individuals are all taxpayers to a govt. that implicitly and now explicitly guarantees the debts of these companies, the banks. So you have this circle of debt that no one really has a handle on.

What I'd like to see is someone run numbers on this. If everyone paid everyone they owed back, what would be the total outstanding net debt? In other words, how much money is the world borrowing from its future? Because economics, although it's treated this way by giant banks and hedge funds, isn't a game. It's not something where you figure out the rules and just play simulations with it. Money spent now represents real resources being used. Real minerals dug out of the ground. Real fuel burned to create widgets and food. Real water used. So relative to current prices (which makes it even scarier as scarcity will make these things more expensive in the future without some major breakthrough), how much in debt are we to the future?

Wow - what are hard question. You are really asking what is the future if we stay on the same path.

1. We won't stay on the same path.
2. We don't know the future.

Goman, we have no way off this path. At any time, if we even stop growing the debt at insane speed, the economy will crash. But if we don't stop, the economy will crash even worse. It'll just take longer.

Malor wrote:

Goman, we have no way off this path. At any time, if we even stop growing the debt at insane speed, the economy will crash. But if we don't stop, the economy will crash even worse. It'll just take longer.

I live in a city that had droughts in the 1990s. We now use less water and population has grown 10%.

If there is a will there is a way.

It would require a complete economic crash to even start paying the debt down, and nobody will be willing to accept that.

Yes, there is a way out -- accepting that a lot of the debt in the world is simply no good. But there is not enough will to live through the extreme pain that will result. Instead, we'll take the even more destructive path of continuing to run the debt up, and playing games with the money to pretend we aren't.

It's easier to keep digging than to fill in the hole, so we will dig until it collapses.

Malor wrote:

It's easier to keep digging than to fill in the hole, so we will dig until it collapses.

I love when you bring the solutions.

The solution is right there, staring us in the face, but we don't have the courage to take short-term pain for long-term prosperity. It is extraordinarily selfish to willingly put our grandchildren into crushing debt so that we can have our toys in the present.

Malor wrote:

The solution is right there, staring us in the face, but we don't have the courage to take short-term pain for long-term prosperity. It is extraordinarily selfish to willingly put our grandchildren into crushing debt so that we can have our toys in the present.

What about those of us not having kids?

(please don't crucify me, I'm injecting humor!)

Malor wrote:

It would require a complete economic crash to even start paying the debt down, and nobody will be willing to accept that.

Yes, there is a way out -- accepting that a lot of the debt in the world is simply no good. But there is not enough will to live through the extreme pain that will result. Instead, we'll take the even more destructive path of continuing to run the debt up, and playing games with the money to pretend we aren't.

It's easier to keep digging than to fill in the hole, so we will dig until it collapses.

No, no, dig UP, stupid!

Here's a solution/prediction: Once a catastrophic collapse is closing in on inevitable, we'll see a new version of the Marshall Plan. Debts around the world, at staggering levels, will be forgiven in a largely equilateral fashion (with a few exceptions for concessions to rising economic powers outside of Europe and North America). Government debt held by other Governments being forgiven. Government bondholders taking cuts (probably between 20-50% of the value of the debt) as the collective solvency of the world economies is resolved. The G20 will be crucial to this agreement, although several of it's members will fail economically or to revolution before the rest seriously come to the table. Some personal or private debt will be forgiven or erased during power struggle, but much less than you'd think. Expect to see a rise in small pro-national groups as individuals fight back. The remaining Government, private, and personal debt will be brought back in line by large but manageable inflation. For some this will seem like the collapse Malor mentions, but for most it will continue to feel like living in the present.

Jolly Bill wrote:

Here's a solution/prediction: Once a catastrophic collapse is closing in on inevitable, we'll see a new version of the Marshall Plan. Debts around the world, at staggering levels, will be forgiven in a largely equilateral fashion (with a few exceptions for concessions to rising economic powers outside of Europe and North America). Government debt held by other Governments being forgiven. Government bondholders taking cuts (probably between 20-50% of the value of the debt) as the collective solvency of the world economies is resolved. The G20 will be crucial to this agreement, although several of it's members will fail economically or to revolution before the rest seriously come to the table. Some personal or private debt will be forgiven or erased during power struggle, but much less than you'd think. Expect to see a rise in small pro-national groups as individuals fight back. The remaining Government, private, and personal debt will be brought back in line by large but manageable inflation. For some this will seem like the collapse Malor mentions, but for most it will continue to feel like living in the present.

Right because debt is a human construct not a physical one.

You know what is nuts about our current system? This. Kicking someone out of their home and then just abandoning it in legal limbo is perhaps one of the most wasteful byproducts of our screwed up financial system that I've seen in my life.

If I was Obama, I would be all over a problem like this. But it would require changing laws and going against the industry, and he's all about sucking up to the industry right now.

NPR's Fresh Air had a very sad / disgusting podcast recently. They interviewed this reporter who was following a story about banks buying tax liens. Apparently banks are purchasing liens against homeowners who are behind on property taxes. Because US tax law is f***ed, it's possible to take someone's home, even if they own it free and clear, no mortgage. So now banks, the same banks that took the economy to the brink of collapse and require taxpayer dollars to survive, are using their hedge fund arms to buy up these tax liens. In some cases they just collect on the tax liens. In some cases they actually try and take over the property. That's mind-blowlingly evil. You couldn't make up something that evil.

Step 1 - Lobby the govt. to lower interest rates and lending standards so you can give mortgages to people who can't pay.

Step 2 - Bundle those mortgages into securities and sell them to pensions and state and city governments as safe investments. AAA bonds.

Step 3 - The economy starts to unravel, start foreclosing on those bad loans.

Step 4 - As the economy stalls due to housing prices collapsing, take a bailout from the taxpayers to cover the incredibly bad bets you made and cover the counter-parties whose bad securities you own in turn.

Step 5 - Take the bailout money and use it to buy tax liens of people who own their homes and have no mortgage so you can foreclose on them.

You couldn't devise a plan that evil if you tried. The lesson, I think, is that home-owning is a terribly idea in the era of the banksters.

And who does Obama appoint as his new chief of staff? A guy whose last job was in a top slot at JP Morgan.