[mike777]

I am more concerned that about 145 billion and counting of our tax dollars poured into FMNA and Freddie MAC...

congress just voted to keep sending an endless supply of even more money....no end in sight.


If basically one million-two million people want to walk away from their homes in the USA when they can still pay the mortgage....they must be really unhappy to stay.....the faster they leave the faster the pain ends and the bottom in the housing market comes.....

In the 60 minutes piece I think one tiny home sold for around 400K and is valued at around 89K now.....

Keep in mind I think in Canada there may only be 5 banks in the whole country and almost zero offer 30 yr fixed mtg....

30 yr fixed mtg are pretty rare in rest of world. the reason is they are very risky to offer.

[mike777]

btw moral hazard played a big part in all of this..

In many cases the new owners never moved into these homes..homes that were called their primary residence.

I grant that most banks never figured that 1-2 million people would simply walk away but then most banks sold these mtg as fast as they could. so who cared....

It seemed the sellers did not and the buyers just looked at the AAA ratings..

[kenberg]

The situation:

At the high end we have Goldman-Sachs: Our job was to make money for ourselves and our shareholders, we did that, end of story.

At the other end of the scale we have people who handle money very badly. For reasons that are incomprehensible to me, they seem to be able to get loans and credit cards.

In the OP, we have people who could pay but see it as not in their best interest to do so.

To the extent that these are a few small scale individual cases, I am content to say "Looks nuts, but none of my business". But it is not a few individuals, it is pervasive, and it is causing some severe problems. They are, perhaps, following their own best interests. So perhaps we should take a tip from them, follow our own best interests, and screw these people to the wall.

[Phil]

kenberg, on May 18 2010, 06:54 AM, said:

They are, perhaps, following their own best interests.

Not a big Ayn Rand fan are you?

[luke warm]

jjbrr, on May 17 2010, 09:43 AM, said:

Everyone should be a homeowner?

What else do you think people should do? Have as many kids as they want?

it's hard to tell with the written word, but i think he was saying that tongue-in-cheek... some people say a lot of the problems were, in part, because of just such an attitude

[kenberg]

Phil, on May 18 2010, 10:07 AM, said:

kenberg, on May 18 2010, 06:54 AM, said:

They are, perhaps, following their own best interests.

Not a big Ayn Rand fan are you?

My wife made it through The Fountainhead, I didn't. I will leave it open as to whether this is my failing or Rand's.


But maybe there are some Randite echoes in my thinking. I think Rand saw defense of the state as a proper government activity. There are many ways for a state to come undone, and I place a high priority on the government's obligation to keep the economy from crashing. Maybe Rand would not agree with that, she seemed to have a faith I don't share that everything would right itself if the government just kept its hands off.

I guess my priories for gov intervention are something like this:
1. Keep the economic ship afloat.
2. Preserve opportunity.
3. Help people in need.


These goals are not necessarily irreconcilable. They all require some thought to do effectively. I don't think of myself as greatly cynical, but some people needing help are really difficult to effectively help.

As to GS and their cohorts, I don't mind them getting rich. I mind that they came close to screwing things up for everyone else.

And for the original topic, the walk-aways, I think it would be naive to think people will not do that if there are no consequences. Some won't, maybe I wouldn't, but many would. So if we want to discourage it, we need to put some consequences in place.

[blackshoe]

Rand said there are three legitimate functions of government:

1. Provide for the objective use of retaliatory force against citizens who initiate force against other citizens — the police function.
2. Provide for the objective use of retaliatory force against foreign nations or foreign nationals who initiate force against citizens — the military function.
3. Provide for the resolution of disputes between citizens, or between citizens and foreign nations or nationals — the court function.

As I understand her philosophy, nothing else is a legitimate function of government, and government should not be involved in it, whatever it is. So I think Rand would exclude your three priorities, Ken.

[hrothgar]

blackshoe, on May 19 2010, 03:33 AM, said:

Rand said there are three legitimate functions of government:

1. Provide for the objective use of retaliatory force against citizens who initiate force against other citizens — the police function.
2. Provide for the objective use of retaliatory force against foreign nations or foreign nationals who initiate force against citizens — the military function.
3. Provide for the resolution of disputes between citizens, or between citizens and foreign nations or nationals — the court function.

As I understand her philosophy, nothing else is a legitimate function of government, and government should not be involved in it, whatever it is. So I think Rand would exclude your three priorities, Ken.

Pity, I always thought that traffic regulations were a good idea...

[kenberg]

blackshoe, on May 18 2010, 07:33 PM, said:

So I think Rand would exclude your three priorities, Ken.

I can live with that. Like most people I sometimes think the government could do the most good by butting out. But all in all, I would not choose to scale it back on any Randian scale. Maybe I lack imagination, but I can't think of anything recently that I really wanted to do but couldn't because of our oppressive government. Ride my bike without a helmet, maybe. But then I do it anyway.

[Phil]

kenberg, on May 18 2010, 08:27 PM, said:

Maybe I lack imagination, but I can't think of anything recently that I really wanted to do but couldn't because of our oppressive government. Ride my bike without a helmet, maybe. But then I do it anyway.

In what I am working on currently (building a country-club style racetrack) I am confronted with government intervention on a daily basis.

Curiously, perhaps the area where the government should be most involved with in the project - permitting to ensure the track is safe - they aren't. However, obtaining insurance is a non-starter so we need to build it right, and use the right people.

[y66]

cherdanno, on May 17 2010, 04:42 PM, said:

I am a little surprised about the opinions expressed in this thread.
Let's assume for the sake of the argument that the borrower is someone who is well-informed and bought a house he could afford and still can afford. I assume the mortgage contract doesn't say the "borrower can choose between continuing his payments and going into default". Rather it spells out an obligation how to repay the loan, and what will happen in case the borrower is unable to keep his obligation. I would also claim that this ethical obligation is also priced into the original loan.
A business that starts a subcompany which later defaults has to pay higher interest for the loans it obtains.

I don't think people who walk away from underwater mortgages get to claim a clear conscience.

Ditto for tax dodgers in Greece, Spain, Portugal as well as Amsterdam, Dublin, Berlin, Oslo and even Copenhagen. And Icelanders who blow up their Range Rovers. I don't blame them either.

Humans do these things. Christ, look at Bono.

Maybe the problem is expecting something else and standing by while others build huge unstable systems that depend too much on unrealistic assumptions and too little on common sense and enforceable safeguards.

[kenberg]

Phil, on May 18 2010, 09:04 PM, said:

kenberg, on May 18 2010, 08:27 PM, said:

Maybe I lack imagination, but I can't think of anything recently that I really wanted to do but couldn't because of our oppressive government. Ride my bike without a helmet, maybe. But then I do it anyway.

In what I am working on currently (building a country-club style racetrack) I am confronted with government intervention on a daily basis.

Curiously, perhaps the area where the government should be most involved with in the project - permitting to ensure the track is safe - they aren't. However, obtaining insurance is a non-starter so we need to build it right, and use the right people.

After I wrote it, I realized that my life has become cery simple. Otoh, even so I overstated the simplicity. Mostly I am retired but for teh past couple of summers I have been running a undergraduate research experience for students from historically black colleges and universities. I enoy it and I think it worthwhile. At any rate. I employ some graduate assistants and I was just reminded that I must check to make sure they have taken the required short course in ethics. There was also some thought that maybe the students themselves had to take a course in ethics. The consensus is that only the grad students have to do it. Ok, I suppose I see the point. but there was a time when it was assumed that I, as the guy in charge, would make sure everything was on the up and up. I am not a crook. Oh, someone else said that once.

I can see a pattern. Income tax rules are very easy if you lead a simple life. Anything off the beaten track, it gets complicated fast. Health insurance is easy, as long as you are healthy. Get sick and it gets complicated. Everything is simple providing you are lucky.

Bottom line: I can see where my current simple lifestyle could lead me to underestimate the complexity of gov regs.


Anyway, I am straying from the OP. But maybe not entirely. It all involves the extent to which government should butt in.