Save yourselves, Wall Street
If you’ve been reading my tweets, you’ve seen that I’m pissed about this proposed bailout. Really, really pissed.
I’ve been watching the coverage, and I’ve been impressed by the bipartisan criticism of the package and the events that led up to it. I’ve also listened closely to the various economists’ commentary.
I’m pissed for a multitude of reasons. Read what I wrote at The Parental is Political more than a year ago:
…large investment firms such as Goldman Sachs and UBS purchased bundles of these loans as investment securities, primarily in hedge funds. The demise of the lenders has had a ripple effect through these firms and other banks such as Chase and Citifinancial.
Well, well, well. The ripple effect has become a veritable tsunami, hasn’t it?
Where did it start? And whose fault was it?
The lenders made poor business decisions by taking these risks, but the borrowers also made poor business decisions by accepting terms that they could not comfortably fulfill, particularly in the long-term when their rates would inevitably rise. Mortgage brokers have an obligation to act in good faith, but home buyers must take responsibility for educating themselves and assessing the level of risk they’re willing to accept.
I’ve got secondhand personal insight into this mess via Kyle. Back east, he underwrote personal portfolio loans for UBS clients. Here in Colorado, he was a mortgage broker at two boutique firms.
I like to refer to him as one of the only honest mortgage brokers in the state. He helped many people out of terrible positions that other brokers at other firms had convinced them were in their best interest. He pushed back hard against his management on multiple occasions when he believed they were acting unethically. One night, on the phone with the firm’s COO, I thought he’d get himself fired for sure. I was proud of him anyway.
But there were some people he couldn’t help. People who had ARMs with pre-payment penalties and credit that was still in such bad shape that they had no wiggle room.
Subprime lenders took a gamble that their credit-impaired borrowers would be able to make the low monthly payments at the initial rate, and then get out before the rates went up — either by refinancing (with a lower fixed rate, having improved their credit score by making all of those payments on time) or by selling at a profit.
Some borrowers defaulted before the initial rate expired, in spite of the low monthly payments. And some borrowers defaulted when the rates went up, and they could neither refinance (certainly not at a fixed rate they could afford) nor could they sell at a profit. Either way, as the defaults accumulated, the lenders were left with rising debt. They couldn’t finance more loans, and they couldn’t collect on the ones they already had. Bankruptcy was the logical next step.
Those lenders were just the middlemen. The big financial institutions saw an opportunity to further capitalize on these loans by investing in them - and they’ve taken a monumental loss. The bankruptcies have been rolling uphill - from homeowners to intermediary lenders, and now to once-formidable financial institutions like Merrill Lynch and Lehman Brothers.
I remember the dot com bubble. I remember being offered pre-IPO shares in lieu of salary. I remember chatting with co-workers who were moving money from stock to stock every day. And I remember when almost all of that ethereal money disappeared in a puff of smoke - because it was never really there.
Nobody bailed out those companies or their individual investors. Even the venture capitalists had to take their losses. Personally, we had a few thousand dollars worth of Enron stock that was suddenly totally worthless. The class-action lawsuit hasn’t yielded a penny to us.
All individual investors - whether they’re day-traders or factory line workers with a pension - take a risk when they put money in the stock market. I’ve been contributing to my IRAs and a 401(k) for nearly 15 years - careful, calculated investments. The red type and downward-pointing arrows all over my portfolio are frightening.
It doesn’t matter that I’ve got a mortgage payment that I can afford and a comfortable chunk of equity in my home. Under this proposal, I’m expected to outlay more money in order to SAVE MYSELF. Not just to save the people who made poor decisions - from the credit-impaired buyers who took on loans and homes above their means, to the corporate executives who looked at those buyers with dollar signs in their eyes - but the people who made good decisions all along the way.
I support fiscal conservatism and personal responsibility. I shouldn’t have to save myself from this mess that other people created.
Save yourselves, Wall Street. Leave me out of it.
September 24th, 2008 at 12:51 pm
I think I’m falling in love with you. I’ve been saying the same thing for years. Let them fail, the world won’t stop turning and maybe, just maybe, someone will learn a lesson. I feel the same way about the airline industry. And, well, any industry that f-cks itself up.
Aprils last blog post..Some Things I <3
September 24th, 2008 at 12:54 pm
I agree. I’m living 13 1/2 hours away from my husband. He got orders and we put the house on the market and that’s where we still are. He went to his new job and I’m paying the price for other people’s bad loans. My neighborhood is older but nice. Lots of people paid way too much for their homes a few years ago and most definitely did not have the means to make these payments. The large number of these went into foreclosure and were pretty much given away.
This has screwed me over. I’m a good homeowner, like you. I can afford my mortgage, have good credit and pay all of my bills on time. I cannot afford to drop the price to foreclosure prices as I do not want to lose all of our savings and declare bankruptcy.
I know it’s a buyers market and I’ll give them that but people want a great house for a foreclosure price. Think about it, if a house is in foreclosure, people weren’t paying their mortgage. If they couldn’t afford to pay their mortgage, do you really think they were able to make normal repairs and keep the house up as it should be? You get what you pay for.
I feel that I was totally screwed over by this disaster and nobody is bailing me out. My kids and I miss their dad terribly. This is not how a marriage should be.
I concur. Leave me out of it, unless they are going to figure out how to get my house to sell without me declaring bankruptcy.
Sorry for the novel…
September 24th, 2008 at 1:10 pm
I couldn’t agree more. Thank you for saying so articulately what has been spinning around in my head.
MPPs Moms last blog post..Some Firsts
September 24th, 2008 at 1:42 pm
I completely agree with you. Free markets don’t work unless they are free. There is no example of the government bailing out an industry or company that things didn’t end badly. Keep the government out. Period. On an individual level, people must be held responsible for their actions and the debts they incurred. If the bank lied to them, then press charges. Don’t expect me to pay because you bit off more than you can chew.
Caras last blog post..The Battle of Wounded Thumb
September 24th, 2008 at 2:14 pm
Very well said. And I agree with Cara - it’s not really a free market unless it’s free, and government manipulation on top of banker manipulation is not the answer.
I have (now) shoddy credit from living hand-to-mouth and then having to live on credit cards. There’s no way I could afford a mortgage and I KNOW this, so I don’t apply for one. I will take responsibility for my own debt and the mess I got myself into, I don’t need Washington and Wall Street pushing me into the abyss to cover their mistakes, too. This accomplishes nothing but making it that much harder for me to dig myself out of my own hole - some dit throwing more dirt on top of me.
I see people harp and moan about how we need to let the government do this so we aren’t MORE dependent on them in the future, but I don’t agree with that at all. They call it a crisis we can’t allow to happen. NEWS FLASH: It’s already happened. And it’s not really that much of a crisis, if you really think about it. We’ve been in a leaky boat before and had the chance to go sit in a shiny new boat - then someone decided to drill holes in that one, too.
Talk about cutting off your nose to spite your face.
Angies last blog post..Hooo-leeee Shi-i-i-i-i-it
September 24th, 2008 at 5:14 pm
The huz and I were just talking about this last night at dinner, and he’s pretty damn pissed about it two.
Although April, I’m not certain I get your airline reference. 9/11 pretty much fucked the airlines in the ass.
And the ridiculous price of oil hasn’t helped either. We can certainly find alternate fuels for cars, pricey as they may be, but without planes. We’ll all be walking around like we just got it hard in the ass.
Motherhood Uncensoreds last blog post..Tribond Anyone?
September 24th, 2008 at 5:31 pm
amen to that. when we started our foray into homeownership last spring, a lender pre-approved my husband for a sizable loan based on his salary alone–the monthly payment would have been more than 3/4 his monthly salary. luckily i was no property virgin and knew better–but too many people don’t and think “surely the bank wouldn’t loan me more than i could afford to pay, right?”
yeah. right.
Mitzis last blog post..And this post will prove it.*
September 24th, 2008 at 6:35 pm
It’s scary. I can’t believe the number of houses for sale on my street.
And the salaries of the Wall St. big shots. I can’t believe them either.
mayberrys last blog post..Pop, swap, sweet!
September 24th, 2008 at 6:43 pm
The whole situation is so frustrating. I agree with you and all of the other comments as well. Why is it our responsibility to bail these lenders and buyers out? We too have had our house on the market in an effort to move closer to family. However, with the way the market is, we are throwing in the towel until things get back on track. I can’t imagine how frustrating it must be for those who have to sell right now.
It is good to see Repubs and Dems agreeing that this bill has serious issues. I don’t know what the hell the Bush Admin is thinking. I hope they can keep this bill from reaching the floor of Congress. It is ridiculous.
Okay, I’ll get off my soapbox now. Great post.
HeatherYs last blog post..Wordless Wednesday
September 25th, 2008 at 7:55 am
Here-freaking-here.
Yet another reason people need to get out of debt and pay their homes/cars off; we did.
We’re debt free largely due to the fact that I worked nights, for years, and functioned without sleep, for years.
When did it become the norm to live beyond our means? It’s crazy.
September 25th, 2008 at 10:00 am
I’m pissed too. That is all.
September 25th, 2008 at 12:27 pm
I totally agree with you! So, why have we been paying down debt and making good financial decisions all this time? Only in the land of unaccountability…
September 25th, 2008 at 2:45 pm
Right on. I’ve just been sick about this, as I’m sure most people have lately.
September 26th, 2008 at 9:57 am
Couldn’t agree with you more.
Kendras last blog post..Just one little smile
September 26th, 2008 at 10:53 am
I read somewhere today that if the government wants to hand out fistfuls of money so that we can save ourselves, perhaps they should give it to us so that we can pay off our mortgages, credit card debt, etc. and skip the middle man altogether. Snarky, I know.
This who thing scares the cr*p out of me. Why wasn’t anyone listening in 2005 when the warning bell was sounded? And, why weren’t the proposed 2006 regulations passed? Holy cow — when I bought my first house in 1990, I had to prove everything. Not so a few years later. Scary, scary stuff.
midlife mommys last blog post..You Be The Parent
September 26th, 2008 at 11:24 am
MM, you make a good point about “stated income” vs. “full doc” loans.