Quoting Unicus69:

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Who said anything about suddenly?  This happened after several years of making monthly payments.  Most people were assured that, while there was an adjustment clause in the contract, in this market it would never adjust...and if it did, they could refinance after a few years to a low fixed rate.

Should people have trusted the mortgage brokers?  In hindsight, no, they shouldn't have.  But to call them all fools is just a tad self-righteous.

First of all, the terms of an ARM are spelled out clearly as to exactly when the rates will increase.  Anyone who believed that no adjustment would be made..... well I won't even go into how naive believing that is!

Secondly, ARMs and other "gimmicky" mortgage terms (reverse mortgages) are used by people for one reason only and that is to allow them to purchase more house than they can actually afford if they were to use a standard 30-year fixed mortgage which protects you from ANY surprises.  They are betting on the fact that at some point in the future, either their income will support the increased payments they've signed up for, the house will appreciate enough so they can make a profit and move on or mortgage rates will be better and refinancing available when they need to "convert".

As so many have found out, this is a risky proposition.  They rolled the dice and lost and are now crying in their milk!  So sorry!  Gamblers in Las Vegas would love for the government to bail them out of their losses also!

Quoting Unicus69:

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I assume you are pissed at yourself then?  I mean, you were the fool to trust in the system right?  You made your bed and will have to live with the consequences, right?

In many ways, yes, I am pissed at myself for having invested in the stock market instead of something more secure, BUT, unlike others, I am not whining or asking the government to bail me out so that I can retire when I wanted to.  I will take my lumps, redo my plans and move on.

Quoting Sugar Joe,

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This cannot be a prime example since there is no benchmark. Maybe the death toll under a private system would have been 150.000? Who knows...

That is simply not a valid point. The United States has suffered numerous major heat waves over the years and has never suffered anything remotely like the French debacle. Any US hospital that had negligence to this degree would be sued out of existence -- in a state run system that can't happen and little real accountability can be had when the government itself is to blame. The government can't go out of business and you can't go elsewhere for treatment.

The lack of AC in medical facilities in France was a direct result of cost decisions by the French government. The notion that buildings designed to house sick and vulnerable people (many of them elderly) would not have proper climate control is a travesty. Obviously people who are sick are quite vulnerable to things that healthy people can normally deal with -- that is why hospitals are so thoroughly disinfected. Taking precautions costs money and the French system did not take those precautions.

The notion that a private system would have had such a systemic lack of AC is ludicrous -- a couple of poorly run hospitals or nursing homes with broken or non-existent AC maybe but not thousands dead throughout the whole system.

Brian

Here is an editorial from NRO that explains the government interference issue I mentioned:

October 1, 2008 7:00 AM

There She Goes, Speaker ‘Anything Goes’By the Editors

Shortly before the House rejected the $700-billion “bailout” of the U.S. financial system, Speaker Nancy Pelosi accused Republicans of causing the problem. She said, “They claim to be free-market advocates, when it’s really an ‘anything goes’ mentality: no regulation, no supervision, no discipline.” The timing of Pelosi’s remarks was curious: One would think the moments before a tense vote in which Republican support is essential would be a time to avoid partisan attacks. Not our Nancy.

Pelosi’s timing was off, but we agree in part with her assessment. An “anything goes” mentality toward two firms in particular contributed substantially to the financial meltdown. “No regulation, no supervision, no discipline” is definitely the right way to describe the attitude that allowed Fannie Mae and Freddie Mac to grow into unstable behemoths that helped inflate the housing bubble and left taxpayers holding a mountain of bad debt.

Of course, the “free-market advocates” pilloried by Pelosi long ago recognized the risks Fannie and Freddie posed to the financial system. Fannie and Freddie are government-sponsored enterprises (GSEs). As long as they’ve been around, investors have assumed that the U.S. government would never let them fail. Their implied taxpayer backing allowed them to borrow at low rates and maintain debt-to-equity ratios that would have caused concern at other firms.

Direct and indirect government subsidies allowed the GSEs to grow huge. Starting in 1970, they doubled the amount of mortgage debt on their books every five years — from $15 billion in 1970 to over $5 trillion when they finally collapsed. Free-market advocates warned that Fannie and Freddie’s heedless growth was, to quote Alan Greenspan, “placing the total financial system of the future at a substantial risk.” But the GSEs built an impressive lobbying machine to keep would-be regulators at bay.

Over the past ten years, Fannie and Freddie spent over $200 million on lobbying and campaign contributions. Democrats Chris Dodd, John Kerry, and Barack Obama — the top recipients of Fannie and Freddie largesse — have all broken the $100,000 mark. It should come as no surprise that Senate Democrats were the key obstacle to reforming Fannie and Freddie when Congress had a chance in 2005, before the mortgage crisis spiraled out of control.

Fannie and Freddie’s defenders in the House were no better. Massachusetts Democrat Barney Frank maintained that Fannie and Freddie did not pose a risk to the financial system, even as they helped inflate the housing bubble by subsidizing mortgage debt. Then, when the bubble finally burst, Frank tried to loosen Fannie and Freddie’s constraints so they could reinflate it. They might have succeeded if they hadn’t collapsed, requiring a bailout from taxpayers that could cost as much as $200 billion.

Fannie and Freddie were not the only irresponsible players whose behavior led to the mortgage meltdown. The Federal Reserve held interest rates too low for too long, making mortgage debt look like a better investment than it was. The Community Reinvestment Act, championed by Democrats, coerced banks into lowering their credit standards to meet diversity targets. And certainly, Wall Street deluded itself into thinking that relentless securitization could make risk disappear. But Fannie and Freddie were definitely the biggest players, and the Democrats’ “anything goes” mentality allowed their worst excesses to go unregulated, unsupervised, and undisciplined.

Quoting bbursiek:

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I guess my response to this would be we don't have anything close to a "pure free market" economic system in this country and haven't since at least the Great Depression. This crisis has all kinds of causes and blame can be fairly pointed in a number of different directions.

You are certainly correct that greed played a significant role in this debacle but unfortunately that will always be a problem when people are involved. More regulation and oversight are needed in some areas but it also is clear that government interference (driven by politics) played a important role in causing this mess. Government pressure on lenders as far back as the 1970's played a role in reducing the credit worthiness required for a mortgage over the last few decades. Quasi-governmental mortgage giants Fannie Mae and Freddie Mac played a key role in creating the market for these morgage backed securities that are the main source of all this mess.

Putting the government in even more control of the market is not a solution that will produce prosperity and economic growth. I agree that "pure" free market economics doesn't work but we don't haver that in the US anyhow. We also know that heavily state controlled economies produce only misery and despair. This leaves us somewhere in the middle which is where we ought to be. The main issue is how to curb abuses and greed to prevent major systemic problems without gutting the poweful free market based system's ability to generate prosperity.

By the way as a government employee I can assure you that greed is not a quality limited to Wall Street -- public employees can develop a strong sense of entitlement to their jobs and in some cases very generous benefits (which are in most cases better than what you can get in the private sector) and always want more and more at the taxpayers expense.

Brian

I absolutely agree that politics played a big part in this.  Doors were opened that should have remained shut and it gave encouragment to the greedy.

Regulation should be minimal, and only where necessary to stablize institutions that have reached the point where their performance has the ability to seriously affect the economy at large.  It doesn't need to be state controlled anymore than we need the police to tell us when to cook dinner.  As long as certain lines are not crossed there is no reason for intervention. But when the line is crossed it it time for the authorities to step in and hold those responsible accountible.

And I agree that greed is universal.  I live in a state whose economy was ravaged by out of control unions.  (Along with out of control management of course) But individually they are unable to wreak the sheer havoc that CEOs of corporations like Enron can. 

When someone robs a corner store they're likely to spend a greater portion of their life in prsion than someone who rips off hundreads of millions of dollars, causing disproportionate damage to thousands of people. 

The government should not run the economy, but they should be looking for impending disaster and acting early to stave it off.  And when disaster comes due to the dishonesty of individuals they should pay a proportionate price. It won't be a deterrrent any more than the death penalty is.  Greed is stronger than that.  But it wll show justice to be done and that is an important thing in a society like ours where the (reletively) few "haves" are so better off than the vast majority of "nots".

Quoting bbursiek:

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However some of the responsibility and the blame for their current predicament has to belong to the borrowers themselves for not remembering if it is too good to be true it probably is. Their certainly is plenty blame to go around so I'm not singling out the borrowers exclusively but they were a significant part of the problem.

Please don't get me wrong.  I am not saying that the borrowers have clean hands.  I am simply saying that the blame should be proportional to the amount of knowledge and experience in the field.  The mortgage broker, the one's who have their hands out now, should have known better because they are payed to know better.

Quoting hal9g:

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Quoting Snark:

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There are plenty of innocents in this massive screw job.  1/4 of the US population is under 18.  Many of the remainder have never had a credit card.  (I've never had or wanted one.)

You'd be amazed at how many of that group do have credit cards.  Hopefully, they will learn from the mistakes of their parents.

You're right. I'd be surprised if that was a significant number.  I would be truly amazed if there were any 12 year olds wandering around waving plastic.  Not to mention the 11 year olds, 10, etc... 

And why you think to claim they should "learn from the mistakes of their parents" is beyond me.  You haven't established that they've made mistakes.  The cost of this will be borne by all Americans regardless of culpability.

Quoting hal9g:

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Quoting Snark:

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What we're looking at is the failure of pure free market economics.  The seeds were definately planted years ago, but the removal of any meaningful oversight has let the problem spiral completely out of control with the current administration. 

Sorry, but the really damaging changes were made during the Clinton administration.  I don't remember anyone complaining while the dotcom bubble was being inflated.  I also don't remember the government bailing out anyone when the dotcom bubble burst and hundreds of companies went down in flames.  We all survived.

Sorry Hal, but I disagree.  The seeds have been planted over a lot of years, but the complete removal of any form of meaningful oversight in the current administration really got them to bloom.

In any case, the dotcom bubble is a completely different situation.  The dotcoms were never as near the core of the economy as the failing banks are.  When people lost money in the dotcom burst it was at least honest loss by speculating in a new industry. 

Quoting hal9g:

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Quoting Snark:

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The market cannot self correct because those making the decisions for the corporations in question do not suffer in any meaningful way for their failure.

This is nothing but a "feel good" issue and has absolutely nothing to do with fixing the problem.  We'd all feel better if some poeple went to jail, but that will not fix the underlying problems.  People from Enron went to jail....it did not change the behaviors of the people involved here.

It's not "feel good".  It's justice.

The death penalty doesn't deter murder or bring the dead back to life but we still punish murderers.  Criminals should not be excused simply due to the dramatic scale of their crime.  Part of any society must be the appearance that justice is done or that society will fail. 

Quoting hal9g:

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Quoting Snark:

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They're rewarded for their greed and escape the consequences.  And meaningful consequences cannot be imposed by the free market.  There needs to be judicious oversight of corporations that are large enough to impact the economy at large and severe (read BRUTAL) penalties must be laid on those whose greed leads them into the depth of fraud we're seeing of late.

Yes, the government is so efficient at performing its own core services and functions, I have no doubt they will have stellar success in overseeing corporations of which they have absolutely no understanding!

Frankly I'd take the word of an enthusaistic idiot over a genius who has a dog in the hunt.

Quoting hal9g:

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Quoting Snark:

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Unfortunately this time around it's the innocent (Read: The children, like my son) that will end up bearing the financial burden for the greed of a reletive few.

Yes, unfortunately, the sins of the father will be visited upon the son.  That's life!

It's not life, it's a cute quote taking the place of an actual argument.  Why should the kids (who have no responsibility here) of those (who might or might not have a small measure of responsibility) end up paying the price for those who bear a large measure of responsibility?  THEIR kids will certainly not pay any price, but will instead stand to inherit millions.

Quoting Unicus69:

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Being naive doesn't make someone a fool. There are a lot of things I don't know anything about, so I pay people who work in that field for their expertise.  Unless you know everything there is to know about everything, you are going to have to put your trust in someone eventually.

When it comes to purchasing the most expensive asset you will ever buy, signing a contract without fully understanding the terms fully, is foolish.  Trusting the person who is trying to sell something to you (and gets a commission for same)...very foolish!

Quoting Unicus69:

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Sorry, but that simply isn't true.  There are other factors that would disqualify people from a standard loan.  Being self employed is one of them.  I know because my sister-in-law had to get an ARM for that very reason.

That's a new one on me.  I have never heard of a bank qualifying someone for an ARM but not a conventional loan.  The bank simply qualifies you on your ability to re-pay the loan.  Soemone would qulify just as equally on a SMALLER conventional loan as they would on a LARGER ARM loan.  Self-Employed people (and I've been there) are typically disqualified for lack of income history.  Such a disqualification is across the board, not restricted to just conventional loans.

Quoting Unicus69:

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How many people, who have lost their homes, do you see whining or asking the government to bail them out?  It is the morgage companies, the ones who made these loans and should have known better, that are doing the crying and begging.

Of course it's the mortgage companies.  They're the ones who are stuck with the houses which have been foreclosed after the people who signed the "bad" mortgages walked away.  Heck, if I could just walk away from my debts, what would I have to complain about.  The mortgage companies cannot just walk away!

Quoting Unicus69:

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As I said earlier, had they simply bit the bullet and refrained from adjusting the interest rate, they wouldn't be in this situation.  A positive rate of return, even at a lower interest rate, would have been better than what they have now.

Are you suggesting that the mortgage companies should have just unilaterally decided not to enforce the terms of the mortgage agreement?  Are you aware of the fact that a large percentage of people who default on their loans NEVER contact the bank (mortgage company) to try to work out a mutual agreement, many of whom in this case were illegal immigrants who just went home.  They simply quit making payments and allow the house to go into foreclosure.  Many states do not force people into bankruptcy in these cases.  They simply walk away.

As a public company it would be just as irresponsible and have virtually the same effect on the viability of the company if they had simply "refrained from adjusting the interest rates".  Their financials  and their ability to borrow is based on their forecasted revenue stream.  Failing to raise the rates on hundreds of thousands (perhaps millions) of loans would have driven them immediately to bankruptcy ...even more quickly than what we've seen.

Quoting hal9g:

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When it comes to purchasing the most expensive asset you will ever buy, signing a contract without fully understanding the terms fully, is foolish.

That is your opinion, and you are welcome to it.  But I see people everyday that do not understand loan documents...and I don't expect them to as they are not written with the layman in mind.  That is why I reccomend that they hire an attorney to go over it with them.

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That's a new one on me.  I have never heard of a bank qualifying someone for an ARM but not a conventional loan.  The bank simply qualifies you on your ability to re-pay the loan.  Soemone would qulify just as equally on a SMALLER conventional loan as they would on a LARGER ARM loan.  Self-Employed people (and I've been there) are typically disqualified for lack of income history.  Such a disqualification is across the board, not restricted to just conventional loans.

I can only go by what I have seen with my own eyes and I have seen people who did not qualify for a standard loan, because they were self employed, get approved for an ARM.

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Of course it's the mortgage companies.  They're the ones who are stuck with the houses which have been foreclosed after the people who signed the "bad" mortgages walked away.  Heck, if I could just walk away from my debts, what would I have to complain about.  The mortgage companies cannot just walk away!

You are correct, they can't.  But this is their business.  This is how they make a living.  They should have known better.

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Are you suggesting that the mortgage companies should have just unilaterally decided not to enforce the terms of the mortgage agreement?  Are you aware of the fact that a large percentage of people who default on their loans NEVER contact the bank (mortgage company) to try to work out a mutual agreement, many of whom in this case were illegal immigrants who just went home.

Do you have some data to back up these claims?  I am aware of the fact that ALL of the people I know, who lost their homes, tried to work out a deal with the lenders.  Not a single one got a favorable response.  They were simply told to pay or go into foreclosure.  They couldn't pay, so they chose foreclosure.

As to the illegal immigrants part, if that is even true, who is to blame?

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As a public company it would be just as irresponsible and have virtually the same effect on the viability of the company if they had simply "refrained from adjusting the interest rates".  Their financials  and their ability to borrow is based on their forecasted revenue stream.  Failing to raise the rates on hundreds of thousands (perhaps millions) of loans would have driven them immediately to bankruptcy ...even more quickly than what we've seen.

Sorry, but I am not buying that.  A smaller return on investment is much better than a negative asset on their books.  I know how financials and borrowing work.  What affect do you think having all these homes, that they can't sell or will have to sell at a loss, is doing to their financials and ability to borrow?  And it isn't just the devalued property that is the problem.  They must also carry, at the very least, liability insurance on these homes.  Add to that the cost of maintaning and marketing these homes and..yea...I can see how opting not to up the interest rate was the wrong way to go.