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Iceland and Debt Forgiveness

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

  1. da_juice

    da_juice Member

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    I agree. I think I read somewhere that if we took all the money we gave to the banks, we could have given it to the homeowners and pay off almost all of the country's mortgage debt and it would still be cheaper.

    But, we can't do it because that would be "socialism".
     
  2. Dubious

    Dubious Contributing Member

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    The problem arose when regulation was reduced. Bad loans were made because unscrupulous unregulated capitalist could make massive amounts of personal profit from fees. The economy, housing market and viability of the loans were never a consideration. More regulation, and more government involvement and oversight is actually called for. A public option for home finance makes sense like a public mandate for health care. But like every government program you need a comprehensive monitoring system to combat abuse.


    The Icelandic proposition actually would help a broad swath of average Americans because it would stabilize prices in the housing markets. Most Americans largest investment and retirement vehicle is their home. Maybe the way to do it would be for the government to buy up the toxic mortgages from the big banks for pennies on the dollar, negotiate workable payment plans and reset loan amounts.
     
  3. DaDakota

    DaDakota If you want to know, just ask!

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    How so? You basically use the same $$$ for the bailouts, but only allocate it for people to pay down their mortgages, thus increasing liquidity in the banks, and keeping interest rates very low because they would still need to churn some new business.

    And it would keep people from losing their houses as the market crashed and folks got upside down on their mortgages.

    What am I missing?

    DD
     
  4. juicystream

    juicystream Contributing Member

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    Because they were loans from the government that the banks for the most part paid back. Of course there was also stock ownership for some of the money.
     
  5. Major

    Major Member

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    You're missing that the banks paid back all the money and it had total cost to taxpayers of $0.
     
  6. Deckard

    Deckard Blade Runner
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    So the huge banks get saved with "loans" from the Federal government, which they then (hopefully, we'll see) pay back, with interest. What about the ruined share holders? Victims of the reckless acts of those banks? What of the home owners who were, in many cases, sold mortgage packages they didn't walk into the bank to get, but were talked into purchasing by aggressive enployees following the lending policies set from "on high?" Where is their huge bailout? Where is their "forgiveness" for making a mistake often urged on them by people they assumed knew what they were talking about? Mouth pieces of gigantic banking institutions that the public assumed had to be on the level? Are they prevented from going under for the "greater good?"

    Who really gives a damn about them?
     
  7. bnb

    bnb Contributing Member

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    best I could find from not quite so radical sites (as inept as our world press might be...they would simply be ALL over this, no? Funny how it's only the agenda'd blogs who noticed an apparent model to a financial crisis being faced world wide. I'm a strong believer in bias, laziness, and distortion in the news media. Conspiracy -- not so much).

    http://www.ft.com/cms/s/0/289c1214-.../world_us_economy/feed//product#axzz1uCNhHnJh
    http://wizbangblog.com/2012/04/14/did-iceland-forgive-the-majority-of-its-citizens-mortgage-debt/

    a quote:

    seems it's a structured reduction of debt based on assets and income.

    Possibly less 'friendly' to consumers than some US states in which mortgage debt is simply non recourse. Sadly, Kevin Martin might have had to ante up in Iceland, whereas he got a taxpayer bailout in California.

    Our proletariat utopia eludes us. We must continue to serve our financial overlords. Pity.
     
  8. Northside Storm

    Northside Storm Contributing Member

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    They were all rewarded with liquidity that ensured their survival. The final point you made here is blatantly false in the context of a collapse that already happened; almost no one was willing to give the banks liquidity on the private side. Look at the credit risk premiums in 2008-2009! People were making a run on Goldman and Morgan and withdrawing mad amounts of cash. Even if guys like Buffett were there to stem the worse of things because they thought they could get a good deal, that doesn't wipe away the fact that a lot of of money was saying f*** you to the investment bank model, as they should have. Buffett also required some hand-holding from Treasury; Paulson making a few calls did not hurt. All in all, just because he was willing to make a capital injection at an absurdly good premium from the best name in investment banking, does not mean people were by and large willing to buy into the model.

    This is why Goldman and Morgan have become bank holding companies. They did it explicitly to access Fed discount window money, and there is no way they would have done anything this desperate if they could have gotten the money through private sources.

    The shadow banking model was not a fly. it was a system that threatened to bring down all of America, and damn nearly did. The amount of collateral damage would be, in this case, an unease in certain banks. However, by slowing the slide of real estate prices, one can reasonably see how many of the worst-afflicted banks would have been more attractive to private-sector solutions/buyouts. The government could have stepped back, and not had to guarantee billions in bad debt, and let private banks figure it out. They couldn't with the system threatening to collapse at any moment, but this would buy them the same time as capital injections did, and not be nearly as fraught with moral hazard.

    Nobody said we should forgive $13 trillion in loans. Just forgive the subprime (which Treasury estimated clearly at about $700 billion, as per their TARP requirements) or some of the subprime loans. That sends a clear message---the banks who were originating to distribute and ended up with all the s*** they were trying to securitize away would be exposed. The good banks who didn't would not be punished by a slide in the good real estate.
     
  9. Air Langhi

    Air Langhi Contributing Member

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    Well as a bank you are trying to maximize your profits by taking in terrible risk why should you be rewarded. Anyways the bailout will end up costing 100billion dollars plus to the tax payer.

    http://www.sigtarp.gov/frate2abAt2a/tre9uPrUvAst.pdf
     
  10. Northside Storm

    Northside Storm Contributing Member

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    Well, unless you're a taxpayer who owns a home.
     
  11. Major

    Major Member

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    The shareholders were the owners of companies that did stupid things. Why wouldn't they lose money? That's how it's supposed to work.

    And there's no "hopefully" involved. The vast majority of the loans have already been paid back, at substantial profit to the government and the taxpayer. The banks will end up paying for the auto bailout as well.

    It sucks for them. But not everyone was innocent victim here. A lot of financially educated people participated in this mess. A lot of people wanted more house than they knew they could afford and sought out these things. A lot of people were greedy and thought they could flip their new expensive home in a few years for a huge profit. But regardless, whatever the reason that people got stuck in bad mortgages, the assistance for them is called the HAMP program, though it's been pretty inefficiently run by the government. It's directly designed to help assist these mortgage owners and write down principal and lower their interest rates to help get them out of this mess.

    No one is being forgiven here. Everyone who participated in the mortgage mess pays part of the price. Many people who got caught in these mortgages came out with a nice profit if they bought in 2000 instead of 2006 and got a ton of appreciation in the process.
     
  12. DaDakota

    DaDakota If you want to know, just ask!

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    Wait, is your position that all of the bailout money was paid back, or has been?

    Maybe some of the banks have paid it back but more than just them got the bailout.

    It was a credit crunch, putting money in the banks and getting the people out of their debt would have solved it without all the other nonsense.

    DD
     
  13. Major

    Major Member

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    Actually, that's exactly what the original article claimed Ireland did and what you agreed with as a good solution.

    Why subprime? There's nothing inherently wrong with subprime lending. It's higher risk and higher reward. It opens doors for people who haven't had the best luck in life in exchange for a higher interest rate. The way it was done in some cases was certainly wrong.

    But let's take your solution - which loans do you suggest we forgive, and how do we determine that? All subprime? Certain ones? If so, which ones?

    A chunk of subprime loans went to wealthy people funding houseflipping operations or other short-term lending needs. Others were given by local credit unions on a perfectly rational basis - higher risk, higher interest rate. Many weren't done unfairly or unreasonably. Which do you want to forgive?
     
  14. Major

    Major Member

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    Who's rewarding the bank? :confused: They took the risk and if the customer can't pay, the bank gets stuck with a non-performing loan. That's their penalty. You want to add an additional penalty and take away their performing loan too. A bank could have done everything right and you think they should suffer for it. Why would a bank even exist under those terms?


    Disagree. First of all, that link says the current cost estimate is $60B. CBO is around $40B. And that includes the auto bailout - which we know is going to lose a good amount of money. But the bank portion of the bailout (I should have clarified that this is what I've been referring to) will be profitable. Every time these reports come out, the cost number goes down. At the end of the day when all the accounting is done, the bank portion will be profitable, the auto portion will have a cost, and the net will likely be somewhere fairly close to $0.
     
  15. Northside Storm

    Northside Storm Contributing Member

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    I said pumping in money to homeowners instead of banks was an idea that showed some promise, I never said we should do exactly what Iceland did. I just said it was a solution that if done right (i.e the right mortgages were forgiven), showed some promise.

    Because private subprime mortgages directly arose as a result of firms looking to package whatever s*** they could to resell in disguised bundles. GSE-sponsered subprime mortgages had standards. Private ones ended up not having them at one point; as long as you had a beating heart, you could qualify, since the point wasn't to get a good mortgage; it was to get a mortgage to repackage to some dumb money. The GSEs couldn't compete either incidentally, which meant that this led to the near-bankruptcy of Freddie and Fannie, and a bailout that wasn't cost-free.

    I would choose every subprime mortgage that was selected by a firm that was originating to distribute to place it in a securitized tranche of a misleadingly AAA-rated Wall Street security, and forgive it, because all of those mortgages were not made in good faith.
     
  16. Major

    Major Member

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    If you own a home, you haven't lost any money. When you purchased your home, you paid a price you felt it was worth to you. If you want to sell it, it might not be worth that much now, but if you bought it assuming you could turn a profit, you were making an investment. And investments can lose money.
     
  17. Major

    Major Member

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    Have you even paid any attention to how TARP worked? :confused:

    EXCEPT IT WOULD HAVE COST THE TAXPAYERS LOTS OF MONEY. If you don't even know how TARP worked, why on earth are you even discussing this issue? :confused:
     
  18. Northside Storm

    Northside Storm Contributing Member

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    Why should homeowners be punished if the banks who caused the failure in the first place are being supported?

    Socialism for the rich and capitalism for the poor?
     
  19. Major

    Major Member

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    The bolded part is simply not true, but we'll ignore that for now. So your solution would basically be not to punish the banks that originated all those mortgages (they have already sold them off), but to punish the investors that bought these things reasonably assuming that the rating agencies and the banks were providing proper information about the quality and risk associated with these things. Basically, you'd destroy the savings of million of Americans in pension and retirement funds while leaving the originating banks untouched?
     
  20. Northside Storm

    Northside Storm Contributing Member

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    The investors who you're talking about would be in the AAA side, and unlikely to be affected if a general side in real estate does not happen, and there is no panic.

    As for those poor bastards in BBB and below, well---

    With that said, you've hit on an obvious issue, which is that the issuer pays system of rating agencies has to end. That's another thing I'd look to reform.
     

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