Iceland and Debt Forgiveness

Discussion in 'BBS Hangout: Debate & Discussion' started by RedRedemption, May 6, 2012.

  1. Major

    Major Member

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    The banks are being punished too. Their owners got absolutely destroyed in the stock market and the banks themselves suffered huge losses. Citibank and Bank of America's owners took something like 80-90% losses in their ownership value. The banks themselves still exist only because destroying them would be even more destructive for mainstreet America. There is no socialism for the rich here.
     
  2. Major

    Major Member

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    But a big part of the securitization problem is that these subprime loans were being repackaged into AAA securities.
     
  3. Northside Storm

    Northside Storm Contributing Member

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    Also, the banks who originate still technically hold the liability of the original mortgage, in that they are responsible for cash flows directly borne from either mortgage payments or the sell-off of collateral. This is why small mortgage companies first failed in 2008, and then the big banks started going belly-up.
     
  4. Northside Storm

    Northside Storm Contributing Member

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    The stock owners got punished. Most of the agents didn't. Last I checked, Blankfien and Dimon were still getting nice little cheques just for existing.
     
  5. Northside Storm

    Northside Storm Contributing Member

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    The way it works is that if you're rated AAA, you get first dibs on the cash flows. BBB and below are like the pan that holds whatever excess you have leftover.

    Theoretically, if cash flows stop coming from subprime, but other healthy mortgages aren't affected, people who bought the AAA side would not be affected.
     
  6. Major

    Major Member

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    If the owners were smart, they'd fire the employees that don't do a good job and cost them money, but that's ultimately their choice. Like with any company, the owners *should* be the ones to pay the biggest price because they choose the direction of the company through the people they hire.
     
  7. Northside Storm

    Northside Storm Contributing Member

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    Most of the "owners" are little guys who bought a few shares in GS, or were part of an institutional investor who did so. Should they have been more wary? Yes. Would they have any way of changing the direction of the company? No.

    I don't have any sympathy for the guy who is on the Board of Directors, but average Americans who bought shares in well, any company, can tell you there was a cost that year that went well beyond "bailout money."

    Hell, even up here in frigid Canada, I know people whose retirement plans went down 50%+, and they're strictly invested in blue chip companies. Why should they have to suffer this without any explicit support if those that caused the failure are getting so much?
     
  8. Dubious

    Dubious Contributing Member

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    And, no one has gone to jail. :rolleyes:
     
  9. Major

    Major Member

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    Certainly - but that's the nature of investing. If you invest in companies that you're not too familiar with, you take those risk. If you don't want company specific risk, there are mutual funds or ETFs that allow you to avoid that. People who invest in Goldman or the other banks did so because they wanted to make lots of money - they were part of the risk-taking behavior.
     
  10. Dubious

    Dubious Contributing Member

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    No one is familiar with any stock when the upper management lies, cheats and subverts the law.

    But we need to get regulation off their backs.
     
  11. Major

    Major Member

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    From the SIG TARP report posted earlier:


    SIGTARP is a highly sophisticated white-collar law enforcement agency. As of April 12, 2012, SIGTARP had more than 150 ongoing criminal and civil investigations, many in partnership with other law enforcement agencies in order to leverage resources throughout the Government. SIGTARP takes its law enforcement mandate 8 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM seriously, working hard to deliver the accountability the American people demand and deserve. SIGTARP’s investigations have delivered substantial results, including:

    • criminal charges against 78 individuals, including 55 senior officers (CEOs, owners, founders, or senior executives) of their organizations
    • criminal convictions of 50 defendants, of whom 23 have been sentenced to prison (others are awaiting sentencing)
    • civil cases against 51 individuals (including 37 senior officers) and 25 entities (in some instances an individual will face both criminal and civil charges)
    • restitution orders entered for $3.6 billion, forfeiture orders entered for $126.8 million, and civil judgments entered for $165 million. Although the ultimate recovery of these amounts is not known, SIGTARP has already assisted in the recovery of $151.6 million
    • savings of $553 million in TARP funds that SIGTARP prevented from going to the now-failed Colonial Bank

    Although much of SIGTARP’s investigative activity remains confidential, over the past quarter there have been significant public developments in several of SIGTARP’s investigations. See Section 1 of this report, “The Office of the Special Inspector General for the Troubled Asset Relief Program,” for a description of recent developments, including those involving Colonial BancGroup, Inc./Taylor, Bean & Whitaker; United Commercial Bank/UCBH Holdings, Inc.; Orion Bank; Reginald R. Harper (First Community Bank) and Troy A. Fouquet; and others.
     
  12. juicystream

    juicystream Contributing Member

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    I wanted the banks to go under. If anything, TARP helped bailout some shareholders as it prevented their investments from going bankrupt.

    Alternatively, they could pay off the taxpayers mortgage and ask for the money back from the taxpayer, but that really wouldn't be different, except now you wouldn't be able to pay Uncle Sam instead of the bank, and you could now be subject to levies and garnishments.
     
  13. Dubious

    Dubious Contributing Member

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    Yes the Great Depression II would have fixed things.

    Then again, the first did eventually yield FDR.
     
  14. juicystream

    juicystream Contributing Member

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    My theory was to break apart the banks and sell them off to other banks.

    I don't know how feasible it would have been, but if you are too big to fail, you are too big to exist.
     
  15. Major

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    Bank of America to give $11B or so in loan forgiveness.

    http://www.cnbc.com/id/47331680


    Bank of America Offers Principal Reductions to 200,000 Homeowners



    A select group of struggling mortgage borrowers are about to get an offer that sounds too good to be true. Executives at Bank of America say they will begin mailing 200,000 letters offering certain customers mortgage principal reduction.

    “If people get these things and toss them, they won’t be eligible,” says Ron Sturzenegger, the Bank of America executive charged with providing solutions to borrowers in need of mortgage assistance.

    But the offer is real, and eligible borrowers could get as much as $150,000 knocked off the balance of their mortgages. It is all part of the $25 billion settlement reached this year between federal and state agencies and the nation’s five largest mortgage servicers over fraudulent foreclosure document processing (so-called “robo-signing”).

    Bank of America [BAC 7.7101 -0.2499 (-3.14%) ], in a deal with state attorneys general and the U.S. Department of Justice, committed $11 billion to mortgage principal reduction, but executives say they will go beyond that if enough borrowers respond to their offer. Five thousand borrowers have already received a collective $700 million in principal reduction through a pilot program for those already in a modification negotiation. The 200,000 borrowers being targeted now may have already exhausted modification options or may have yet to contact the lender.

    Executives say borrowers receiving the letters are eligible, but they still have to prove they qualify. In order to be eligible, a borrower must be 60 days late on the mortgage payment as of Jan. 31, 2012. The borrower has to owe more on the mortgage than the home is currently worth, commonly known as being “underwater” on the mortgage, and the borrower’s loan must either be owned by Bank of America or serviced by Bank of America for an investor who is allowing the modifications.

    In order to qualify for the modification, the borrower must answer the letter with full documentation of income, showing that under the terms of the modification they can still make the monthly payment. A borrower with no income would therefore not qualify. A borrower’s current monthly payment must be more than 25 percent of gross income, and the borrower must show they are unable to afford that.

    “If you can afford to make your monthly payment and are choosing not to, you will not get this principal modification,” says Sturzenegger.

    If the borrower qualifies, Bank of America will bring the monthly mortgage payment down to 25 percent of the borrower’s gross income. That could mean principal forgiveness well over $100,000, as there is no limit to the amount of the mortgage. If enough borrowers respond, it could cost Bank of America far more than it committed to in the settlement.

    “Yes, we have the capability to go well beyond the $11 billion,” adds Sturzenegger.

    Bank executives say that before choosing which borrowers will get the offer, they performed a net present value test on each loan, making sure that the principal reduction modification would net Bank of America or the investor who owns the loan more than foreclosing on the home. “It has to be fair to the investor as well,” says Sturzenegger.

    Not all of the 200,000 borrowers who receive the letters are expected to respond. Executives say there is a level of fatigue among delinquent borrowers who have already received several notices or who may have gone through a failed modification process already. Some borrowers simply don’t want to stay in their homes, while others may think the offer is a scam.

    “They have been contacted by a lot of other people, and this offer may appear too good to be true,” says Sturzenegger.

    That’s why Bank of America is sending the letters by certified mail and trying to make the language as simple as possible. A sample letter obtained by CNBC shows a bring red box in the top corner labeled, “IMPORTANT” and simple language stating, “Qualifying customers may reduce their monthly payment by an average of 35 percent.”

    Some 6,500 letters should be arriving in mailboxes across the country this week, with a wave of new letters going out every week until the end of the summer, when all 200,000 should have been mailed. Bank of America is staggering the mailings in order to handle the expected response. The bank has staffed up to handle the task, with 50,000 employees manning servicing desks, but the process will clearly take a lot of time. That’s why Bank of America has suspended any foreclosure actions against these 200,000 borrowers until the process is complete.

    There are currently 5.59 million U.S. loans that are either delinquent or in the foreclosure process, according to Lender Processing Services. Bank of America services one million of those loans, but many of them are owned by Fannie Mae and Freddie Mac. Their regulator, Edward DeMarco of the Federal Housing Finance Agency, has yet to agree to principal reduction in loan modifications, despite harsh criticism from some lawmakers on Capitol Hill and increasing pressure from the White House.
     
  16. bobrek

    bobrek Vamos Los Astros

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    Too bad homeowners who have been responsible don't qualify:

    In order to be eligible, a borrower must be 60 days late on the mortgage payment as of Jan. 31, 2012....
     
  17. Major

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    Yup - this is the one of the huge problems with principal reduction: it penalizes those that have done everything right. There's also no limit on the size of the mortgage, so some idiot who bought a $2 million home that's now worth $1 million might just end up getting $1 million for free.
     
  18. Major

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    On the good side, this is all coming out of the pocket of BOA and the investors, so it's not taxpayer funded.
     
  19. juicystream

    juicystream Contributing Member

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    So at least it doesn't harm the responsible owners.
     
  20. rhadamanthus

    rhadamanthus Contributing Member

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    Probably not intentional - but it's not as altruistic as the post above implies. It's part of a settlement associated with the fact they committed large-scale fraud.
     

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