Sub-prime Bail Out

[ZenGum]

Originally Posted by Radar

There are only 2 choices.

1) Free-Market capitalism which does not require force to exist.

2) Everything else.

I am imagining Radar's childhood colouring books ... no colours, just black and white. And not one scribble over the lines.

Seriously:
Force is inherent in a capitalist system. Robbery is the most extreme form of capitalism. Either a system allows robbery (with force) or forbids it (by threat of punitive force). Some force is inescapable.

No market can exist without some kind of government intervention in the form of the regulatory environment that creates the conditions for the market to exist, such as banning fraud, stipulating accounting standards, and so on.
I acknowledge that you were denying the appropriateness of bailing out sub-prime borrowers, presumably with buckets of cash, which is a very different kind of intervention from this regulatory framework intervention. But there is a wide spectrum of possible interventions that fall in between (eg. cutting interest rates, injecting cash for liquidity, etc) and your (EDIT) zero intervention approach doesn't cope with this reality.

You say that markets always take care of themselves. Markets can be manipulated; they can swing wildly and irrationally, and real people get badly hurt by these swings.
Here, I think, is the root of our difference. Maybe markets do always take care of themselves. I don't care about the welfare of the market per se. Markets don't have feelings, interests, needs, in anything but a metaphorical sense. They have no value in the giant moral or utilitarian calculation. They are only of interest insofar as they serve to advance human interests.
It doesn't matter if the market can take care of itself. I care about taking care of the people. And I mean all people, not just brokers or investors or foolish mortgagees.

BUT! I agree that most interventions, like price limits, quotas, subsidies, tariffs, and such, usually provide temporary relief at the cost of making the problem worse in the long term. Bite the bullet, get it over with.
I am also opposed to middle-class welfare. I am opposed to rewarding greed and foolishness (it will just encourage more). And I don't have a solution to the sub-prime crisis that won't involve a lot of people loosing homes they can't afford. This is very rough on them, but ... in this case ... I don't support a buckets-of-cash bailout.

[Radar]

That is pure bullshit.

Robbery has absolutely NOTHING to do with capitalism. Capitalism is the free and voluntary exchange of goods and/or money on a value-for-value basis.

Any form of crime (robbery, fraud, etc) is not capitalism.

Markets can EASILY exist without any kind of government regulations or intervention. In fact they thrive without such intervention.

[Radar]

Originally Posted by Flint

If it can't exist without being defended by force, then it requires force to exist.

It can exist without being defended by force as long as force isn't used to intervene on the markets.

Capitalism = Freedom. Freedom is to be defended by force, but if there were no force, freedom and capitalism would still exist, while no form of socialism or communism could.

[tw]

Originally Posted by Radar

Markets can EASILY exist without any kind of government regulations or intervention. In fact they thrive without such intervention.

The stock markets could not exist without that regulation. To make it work - to establish rules so that trades are fair and equitable - only people trained in those laws and regulations can perform that trading. A free market as described would only subvert free market stock trading into a corrupt and avoided market. What makes stock markets so useful? They are safe and regulated places to conduct free market trading.

There is no way around some government regulations in all free markets.

[Aliantha]

I was watching 'world news' (a bit like the world series because it's all about one country) on the weekend and they had a segment about the effects of forclosures in Cleveland. There are 1000 repo homes in 1 zip code. The area is basically becoming a slum now because the empty houses are now home to crack houses and squatters or they're simply being defaced and pulled apart little bit by little bit.

This of course has meant that the people who have paid their mortgages now live in an area where the value of houses has slumped which in turn means their major asset is on the verge of becoming a liability.

While I was watching, the first thought that came to my mind was; where are all those people living now? What kind of stress is this causing in other neighbourhoods?

I got to thinking about this situation and thought of a way the government could step in but benefit all parties concerned, including themselves.

Rather than subsidise the mortgages, they should simply buy the house from the bank, then 'rent to buy' the house to the foreclosee on a long term deal (say 25 years). This benefits the community by not having empty houses prone to vandalism thus maintaining property values in the area. It gives the people somewhere to live with minimal disruption to children etc (which was a big concern from my perspective). It means the government has an asset which is also 'making money' for them. It means long term, the foreclosee either ends up owning the house anyway, or alternatively, the government can sell the house in the future when the market is in a more stable position.

Everyone wins.

[tw]

Originally Posted by Aliantha

Rather than subsidise the mortgages, they should simply buy the house from the bank, then 'rent to buy' the house to the foreclosee on a long term deal (say 25 years).

That is what banks (et al) do. They resell these homes to companies specializing in refurbishing and refinancing homes to new qualified buyers. The problem is that American incomes in those price categories have been falling for the past seven years (relative to inflation). Interest rates are rising. Economic downturn is a real possibility.

All that means there are not enough companies to move these homes off the banks hands fast enough. Furthermore, many of these defaults are to large financial institutions who are not setup to handle so much defaulted real estate.

The system is swamped with too many homes, and liquidity shortages. A problem made worse because the market was inventing liquidity where it did not exist with money games.

Those homes lie on a fault line; an earthquake only in that part of the economy. It will take years to resolve. That neighborhood is the risk everyone takes when buying a home.

Meanwhile, this same problem has long been ongoing in some areas such as Detroit. Your report only cited a different area. But the same problem has long existed.

Americans are spending 10% more per year than they are earning. As Cheney said, "Reagan proved deficits don't matter." Welcome to the reality of what has not mattered for many years now. It could be ignored for many years by playing money games such as sub-prime mortgages. Sooner or later, the economy takes revenge - takes back what it is due. The problem existed many years previous. So we played money games to ignore it. Sooner or later, we have to stop playing money games and acknowledge the economic problem created by too much money migrating up to the top 1% - and too many lower incoming falling for the past seven years.

[Kitsune]

Originally Posted by Radar

In fact they thrive without such intervention.

...and unchecked they do it to the point of completely and dangerously exhausting resources in a mad frenzy and permit wild, uncontrolled fluctuations that lead to disastrous boom/bust cycles.

Originally Posted by Radar

The more people who lose their houses, the more affordable houses become and others who act more responsibly and don't have as much money will be able to buy them at the lower price.

I absolutely do not want a government bailout, but some regulation in the loan industry would have prevented this mess from happening in the first place.

[Aliantha]

TW said: That is what banks (et al) do. They resell these homes to companies specializing in refurbishing and refinancing homes to new qualified buyers. The problem is that American incomes in those price categories have been falling for the past seven years (relative to inflation). Interest rates are rising. Economic downturn is a real possibility.

I said government. Not private industry. There's a huge difference there. Also, I didn't say refinance, I said 'rent to buy' which means the person has no ownership claim over the house until such time as they've paid the value of the mortgage off, say 25yrs. If they move out prior to that, then that's their own tough titty. They're viewed as tennants rather than owners.

There's a big difference between what I suggested and what is currently happening tw. That's why there's a problem.

As to the rest of your post, I'm aware of all that. I'm not sure why you felt the need to explain it all over again.

[Radar]

Originally Posted by tw

The stock markets could not exist without that regulation. To make it work - to establish rules so that trades are fair and equitable - only people trained in those laws and regulations can perform that trading. A free market as described would only subvert free market stock trading into a corrupt and avoided market. What makes stock markets so useful? They are safe and regulated places to conduct free market trading.

There is no way around some government regulations in all free markets.

The stock market...and ALL markets could easily exist and would thrive without any government intervention or regulation and would make sure that all trades were fair and equitable because they would be voluntary.

Without government involvement in markets, we'd still have laws against fraud, theft, endangering others, etc.

Free-markets do not lead to corruption or to criminal activity. Government regulations do lead to corruption and criminal activity especially when it comes to the markets.

[Radar]

Originally Posted by Kitsune

...and unchecked they do it to the point of completely and dangerously exhausting resources in a mad frenzy and permit wild, uncontrolled fluctuations that lead to disastrous boom/bust cycles.



I absolutely do not want a government bailout, but some regulation in the loan industry would have prevented this mess from happening in the first place.

There is a ton of regulation in the loan industry and it didn't prevent this from happening because no amount of government regulation can prevent people from doing stupid things like buying more house than they can afford. The loan companies didn't do anything wrong. Let me repeat that...

THE LOAN COMPANIES DIDN'T DO ANYTHING WRONG!

They lent money to people who promised they would pay back loans and who said they understood that when the fed raises interest rates, their payments would rise. But greedy people bought houses they couldn't afford and flipped them or bought more of them without thinking that the bubble would eventually burst.

Government meddling in the markets is what created this problem. If we got rid of the unconstitutional federal reserve, they wouldn't control the money supply and we might have something to back up our money rather than the promises of government.

[Radar]

Originally Posted by Aliantha

I said government. Not private industry. There's a huge difference there. Also, I didn't say refinance, I said 'rent to buy' which means the person has no ownership claim over the house until such time as they've paid the value of the mortgage off, say 25yrs. If they move out prior to that, then that's their own tough titty. They're viewed as tennants rather than owners.

There's a big difference between what I suggested and what is currently happening tw. That's why there's a problem.

As to the rest of your post, I'm aware of all that. I'm not sure why you felt the need to explain it all over again.

People like you are exactly what is wrong in America. They think we should look to government to solve every problem or social ill. They think government should be all things to all people. They think government should provide, food, shelter, clothing, charity, retirement, education, etc... when the federal government should not be doing anything other than protecting America from invasion, settling disputes among the states, and staying out of our daily lives.

Charity, education, retirement, food, shelter, clothing, etc. don't fit within the valid role of government at any level.

[Aliantha]

Well lucky I'm not an American isn't it? For both of us when there's people like you about.

The long term effects of leaving vast numbers of houses untenanted is obviously too much for you to consider with your close minded view of the world.

If you don't like the idea fine. Either suggest something alternative, or at the least point out the flaw, but for fucks sake, find some other way to express your point of view other than spewing your capitalist bullshit all over the place and making a mess for everyone else to clean up!

[Radar]

The houses won't be empty long. When the prices drop low enough, they will be bought. The time period in question is a period of months.

My view of the world is most certainly not closed-minded. It's wide, expansive, and accurate.

I have never spewed capitalist bullshit. I have espoused the virtues and the truth of capitalism. No part of anything I've said is bullshit.

[Kitsune]

Originally Posted by Radar

But greedy people bought houses they couldn't afford and flipped them or bought more of them without thinking that the bubble would eventually burst.

...and pure, unrestricted capitalism would change this, how? I tend to think an unchecked market would be a lot worse and the fluctuations would be extremely violent, far reaching, and long lasting. The actions of the stupid and irresponsible will never change and aren't going to go away, regardless what market they're placed into.

Originally Posted by Radar

If we got rid of the unconstitutional federal reserve, they wouldn't control the money supply and we might have something to back up our money rather than the promises of government.

...and go to what, gold? Tell me how we should go about that transition without the market being instantly, dangerously cornered.

[Radar]

Originally Posted by Kitsune

...and pure, unrestricted capitalism would change this, how? I tend to think an unchecked market would be a lot worse and the fluctuations would be extremely violent, far reaching, and long lasting. The actions of the stupid and irresponsible will never change and aren't going to go away, regardless what market they're placed into.

The exact opposite is true. Without government meddling, corrections in the market wouldn't be huge like they are right now. The government tries to prevent corrections and eventually the dam bursts and the money floods out of the market. An unhampered, free-market capitalist market without government interference wouldn't let the pressure build that high. Changes, fluctuations, and corrections would be more slight and more frequent.

The actions of the stupid and irresponsible won't change. The actions of the government to stop people from making stupid decisions for themselves should. Those who make poor decisions should have to live with the consequences of those decisions. This is how we learn to make better choices and to choose our actions more wisely.

It also opens the door for others to benefit by being able to buy a house. Why should those who work hard, save their money, and think carefully about what they will do be forced to pay the bill of others who acted irresponsibly? When those people lose their houses...as they should...the others who saved and acted wisely can move in and buy a house at a more reasonable price.

It's nature. In order for the lion to eat, the gazelle who wanders from the group must die. It also teaches the others to stay close

Originally Posted by Kitsune

...and go to what, gold? Tell me how we should go about that transition without the market being instantly, dangerously cornered.

It doesn't have to be gold. It can be any hard asset or commodity with a limited supply like Diamonds...Platinum...oil....etc.