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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: Gary Mohilner who wrote (14895)	11/24/2008 3:17:09 AM
From: Don Earl	2 Recommendations Read Replies (1) \| Respond to of 71475

RE: "I believe the lower interest, and the fact that for the 3 to 5 years period the loan became interest only, to a great extent foreclosures would drop tremendously." This is essentially a big part of what triggered the meltdown in the first place. Many home loans were sold with low introductory rates and/or interest only payments for a set period of time. When the rate triggers kicked in, the people couldn't make the payments. I posted a graph awhile back that showed the number of these kind of loans that were sold, and when the triggers kicked in, but didn't save a bookmark, so I don't have it handy to repost. It gave a nice, at a glance view of how much and when those kind of payment triggers contributed to the crisis. What you suggest is the cause of the problem, not the solution. It would only serve to delay the problem for a bigger and worse blowup down the road. Plus, it still doesn't deal with the issue that people owe more than they can sell the house for, and that people without jobs can't make even reduced payments. A friend of mine bought a condo in Alaska during the pipeline boom in the 80s. When real estate prices crashed, he was so far upside down on the loan to value, it took over 20 years before he was able to sell it at break even. He was gainfully employed during that time, but even so, he talked about all the times he was tempted to toss the house keys to the bank and walk away from it. In a lot of ways, a big part of the problem is the welfare kind of mindset that has become popular in this country, where people figure they have a "right" to things they aren't willing to work for. If someone walked up to you and said, "Hey buddy, loan me a couple hundred grand so I can buy a house. I don't have a down payment. I don't have any money to pay closing costs. I've only been at my current job for six months. I can't afford to pay more than a fraction of the going interest rate, can't afford to put anything toward the principal, and have lousy credit.". Would you fork over the dough? Or tell them to go stuff themselves with mud? If you wouldn't make that kind of loan to someone directly, why would you be in favor of your bank using your money to do the same? Especially when, as you can see from recent events, your bank figures you should get stuck with the tab on the resulting loses. So, start with the basic premise, that "everyone has a "right" to own a home" and give some thought to the notion it may be a false premise. Owning a home, or being able to borrow money, is a big responsibility. It is a privilege one earns through a demonstrated pattern of being responsible. If someone wants to loan irresponsible people money out of the goodness of their hearts, that's fine --- right up until costs for transactions I had no part in start showing up on my balance sheet. Among other things that need to be done, the biggest one is a massive crack down on lending practices. It isn't a quick fix, unfortunately, but it's the only one that is sustainable in the long run.