Did we get into trouble thinking credit=money?

how many banks decided that healthy balance sheets depended on usorious interest rates amd free tax-payer lines of credit to lever? just something to ponder.

having your credit limits shrunk, even if you never intended to come close to maximizing their use, can severely damage a credit rating. something else to ponder.

and how many of us have depleted that rainy day fund? and how many of us couldn't raise a rainy day fund because incomes were so low compared to fixed costs? another thing to ponder. but only if you have any compassion for people, of course.

messed up situation, the public emulated the risky behavior of corporations. Similar to the public in pre-depression times borrowing on margin to play stocks like the big boys. only they weren't.

no, RS, SOME of the public emulated risky behavior. and not all corporations and businesses engaged in risky behavior also. many did, but many, particularly small businesses, were collateral damage in this mess as well.

quit overgeneralizing. i agree the situation is messed up.

yes...can we agree that the situation is definitely messed up and that while we need to search for solutions that take into account root causes (so as to at least avoid those in the future) that the endless recriminations absent a solution do nothing but sour everyone involved?

When one looks at trends in mortgage LTV, it suggests more than SOME. News today is that Fannie holds senior debt in Peter Cooper. Should be interesting what the POLITICIANS decide

lord you're obsessed. there are huge numbers of people who don't even HAVE mortgages who have credit card issues. there are people who bought in 1985 who do. open you're f'ng eyes. over 50% of children will be in families that receive food stamps before they are 20, 25% will be for at least five years of their childhood. and only 60% of the people who are eligible for them apply, largely because of the stigma in receiving aid. when one looks at trends in income distribution, it suggest more than just SOME problems. your unending sense of superiority is stunning.

where have you been? i've been talking about the fact that Fannie and Freddie own over 3/4s of the senior debt here for awhile now.

rs needs someone to blame for everything. blame is the key to salavation. of course, in the excitement of blame, there is never any time to fix or solve. which fundamentally is not as titillating as blame.

Riversider, money is what the government tells you it is. Lately credit has been the currency of the realm. 100% the government's responsibility although I'm sure there was significant pressure from business to do so.

In my opinion, real estate prices is the place where the credit=money effect is most easily seen.

three points,
1) if A.R. & CC are not the same person, they are clearly tag team wrestlers.
2) the worst written underwritten loans will turn out to be good loans if the price of the home
magically goes up
3) granting of mortgages to those that can't afford to purchase, was counter-intuitive to the stated
goal of home ownership affordability. It just made homes more expensive, by making buyers with
money compete against those buying with other people's money. The big push to increase home
ownership was sadly more about getting votes and lining the pockets of real estate interests than
anything else

RS, the goal of the credit boom was to get the economy moving by having the consumer spend. If people don't have money then how do you get them to spend? Theoretically, to increase money we should increase productivity, but that wasn't happening. What to do? Our government's answer was to extend credit. Then credit became money and suddenly everyone was rich, could afford a million dollar apartment in a new condo loaded with amenities. Once you start down this path you're future net worth is tied to your ability to resell you house for a profit (after taxes, fees and borrowing costs). You bought on credit and you're going to need to sell to someone else with credit. It doesn't matter if people default on their loans as long as new people keep coming in and borrowing. Some people fall of the wagon and get ground into the dust, so be it. Like in any casino, we blame the losers for their bad luck, bad strategy, improper bet management, not being as smart as we are, etc...

Basically, we've created a ponzi scheme economy where if everyone had to pay back all their bills tomorrow, the entire thing would collapse. Not sure if this was the case 50 years ago...

RS, we are not the same person, and what is your point? so what if we agree about your opinions?

you know so little about underwriting. is it the responsibility of the home buyer to assume the underwriter's responsibilities? no.

and the REALLY big push to increase home ownership (2003 forward) was because it was an easy way for many people to make a dollar, or make many of them. our economy was in the shitter, and bush and co. saw an easy way up. in the process a few homeowners did also, but the vast majority were screwed.

is it the responsibility of the home buyer to assume the underwriter's responsibilities? no.

WRONG!! it's the responsibility of the entity/person LENDING the money. The idea that the borrower is underwriting the loan communicates a sensse of "entitlement" on the part of the borrower.

But if you tell the public they can borrow without risk(no skin in the game), it's totally understandable they acted.

do you have any proposed solutions?

The least worst solution is to let the markets reach their new natural equilibrium. Banks that hold the mortgages may be inclined to modify to the lower of market value considering the prospect of foreclosure. For buyers who took on too much debt, renting may be a better option, especially if the rent is lower than the mortgage+tax+cost of ownership.

they had risk. it's called losing one's home.

of course they went ahead. all these experts, economists, media, governmental officials, were telling them that there was no bubble, that in a worst-case scenario they'd be able to sell for a profit. banks were telling them it was a rational lending scenario. society was telling them it was superior to own. and fear was telling them they were getting priced out.

aboutready's first comment is ridiculous. Like most people don't have any choice or control over their "fixed costs"?? That is just another view from someone with an entitlement attitude.

This statistic is incredible, AR do you have a source?

"over 50% of children will be in families that receive food stamps before they are 20, 25% will be for at least five years of their childhood. and only 60% of the people who are eligible for them apply"

http://economistsview.typepad.com/economistsview/2009/11/half-of-us-children-and-most-black-children-will-use-food-stamps.html

licc, you're an idiot. i did NOT buy. i sold and sat out the second surge of the bubble. i have zero entitlement attitude. i consider myself extremely lucky. how are those LIC values holding up for you? maybe the gov't will do something to ensure the neighborhood remains viable.

Legally, you do not have title to your home, until you extinguish your debt.

LIC is doing fine aboutready. Lots of great people and places there. How are things in your Peter Cooper Village apartment?

The mortgeages that are most in trouble were done in 05,06,07 and even though house prices have gone down in some cases as much as say 40% the properties/borrowers that were most in trouble were the ones that either put nothing down, or kept doing equity take-out refinancing. It's difficult to make the argument that socieety needs to bail these people out. The best argument I heard was that on a foreclosed block every house loses value.

The real estate market is almost entirely built on credit. The high cost of homes essentially requires the deferment of payment over 10 to 30 years. The cost is not the price of the home, but the monthly payment. This contributes greatly to the "bubble" mentality. When looking for a home/apartment, a buyer should shop as if this was a cash deal. How many times have I heard - don't worry, the extra $50,000 is translated into only x dollars per month. It is time that we return to a cash only society - it will be rough at first, but the road we are on now (as individuals and a nation) will lead to disaster.

yep, the adopted solution to the real estate bubble was lowering down payments and coming up with new methods of letting the borrowers make payments that didn't even cover interest. The banks call that innovation and credit based pricing of mortgages. The sensible thing would've been for the to step back, let prices drop to the point that buyers could step in.

sjtmd, that's exactly the point. Credit has replaced cash as the coin of the realm. Cash is what you hold in your hand. Credit is what people THINK you will have in your hand at some point in the future. One thing Americans are good at is buying and selling dreams. So life has been pretty good times for most people living in our credit-based world. You should realize that America is theoretically bankrupt financially. If we stop borrowing and lending then we're like Brazil in the 80's or Argentina in the 90's. The world doesn't come to an end, things just really, really suck for a long, long time.

The whole thing is Kafaesque: funny and sad at the same time.

When I purchased, I did not think "now I own a home", I thought "now I have a mortgage". When it got paid off, then I owned a home. Nobody thinks that way anymore.

"Hearing more stories about angry bank customers having their credit limits shrunk and the rates increased. How many of us decided that we didn't need a rainy day fund but could instead rely on a line of credit... Just something to ponder."

This notion was actually trumpeted by all the experts in recent years, most notably Suze Orman.

Suzie Orman also hawed FICO scores. Her preaching have done the public a dis-service. I know more than a few who actually believed they were rich based on having a food FICO score.