The Gaming Den

cthulhu wrote:The customers on the other hand much less so...

...If the customers get fucked the entire thing is going to turn turtle, so it is vital that the government prevents that. If the bondholders lose a bunch of money thats a problem, but not a super big problem. Sure we'll have a 1984 style recession, but meh.

Actually. The customers of these larger institutions that primarily lent between other large institutions are largely complicit in the economic mishandling and criminal looting.

Further the customers are largely similar non productive institutions and rich criminals that are the best targets for eating the bad debt.

And really, we don't NEED them. None of them. There are still some good banks out there.

Allowing the institutions with bad debt to break is the aim of an FDIC style strategy. Once they are removed from the system good banks will remain and they WILL take up the slack, more if some portion of the funds intended to be wasted on bad institutions are instead funnelled into the economy through good ones.

There are only two types of customers who either deserve to be protected or should be for the good of the economy.

1) All us little guys with out bank accounts. We didn't make these decisions and if we get wiped the economy is screwed. And we aren't the major complicit customers of AIG, more often the little guys are the customers of their customers, and in this case basically covered by FDIC already.

2) Larger productive organisations including various government bodies that were conned into investing in the big shit pile. These guys were cheated, admittedly many are criminally incompetent and should be fired, but the various local, state and international governments, various government agencies and funds, and even productive industries cannot be allowed to fail. Criminal proceedings should be made against the conmen that took in these suckers and all expenses should fall to them and theirs instead.

The other thing that I think needs to be done here is some way to let consumers restructure their debt so they can actually make their homeloan payments.

Though such measures should probably exist to somehow reduce human suffering and to prevent outright defaults this is not entirely a great strategy.

The size of the loans they have taken compared to the assets they bought with them is the problem. The asset just plain isn't worth that much, by taking measures to support the existing bad valuation you damage the market and encourage further bubble like behaviour.

And how well CAN you support the bad valuation? How many additional decades will it take to pay these loans off? How will that effect the value of the bad assets made from these loans? Even if you just strip predatory interest rates, loan structures and fees, how will THAT effect the value of these bad assets?

You might save a few (or many) individuals (or rather put them into extra decades of crippling debt instead of immediate fatal debt). But the bad assets still massively devalue and bring down giant chunks of fake economy and the individuals still labour under much larger debts and smaller assets than they had planned for and depress our economy further.

With the banks thing, General motors and the people that lend them money are major customers of CDOs. While I'm in favour of GMs shitty business practices making them go bust, not so much in favour of them letting them go bust if AIG does.

But anyway.

With the valuations thing, the logical thing to me is:

Scenario: Bank lent 500k against a 500k house. Now house is worth 300k. Bank is going to lose 200k if it forecloses, so any situation better than 'lose 200k' is worth it for the bank.

Also if the person can have a house to live in, but still only have to pay down an affordable 300k of debt rather than an unaffordable 500k that would be a good outcome.

So what I'd suggest is the bankrupcy judge makes the loan 300k, lets the person keep their house, and adds a lien to the property of something to the tune for 'if house sells for more than 300k, the bank gets 80 cents on the dollar (for every dollar over 300k) until it gets its 200k back.

Thats advantageous for the bank (they get 300k now and the possibility of future money if property prices increase, which they will), and the person gets a loan they can deal with.

If of course they have no hope of paying off 300k they probably will get kicked the curb but thats just a tough beat.

That avoids many of the problems you state:

1) The size of the loans they have taken compared to the assets they bought with them is the problem. The asset just plain isn't worth that much, by taking measures to support the existing bad valuation you damage the market and encourage further bubble like behaviour.

Yup, we've tanked the value of the asset and the size of the loan, and in return the bank has a property appreciate right (PAR). We've actually decreased the long term value of the land somewhat, because it will keep this PAR which may (hopefully) actually discourage further bubble like behaviour, because real estate speculators will actually be unable to cash in on it.

2) And how well CAN you support the bad valuation? How many additional decades will it take to pay these loans off? How will that effect the value of the bad assets made from these loans? Even if you just strip predatory interest rates, loan structures and fees, how will THAT effect the value of these bad assets?

This method doesn't support the bad valuation, and makes the loan reasonable sized. Now, it may take a VERY long time to get rid of the PAR, but as that just sits around and isn't a burden on the customer, that is not so bad.

3) You might save a few (or many) individuals (or rather put them into extra decades of crippling debt instead of immediate fatal debt). But the bad assets still massively devalue and bring down giant chunks of fake economy and the individuals still labour under much larger debts and smaller assets than they had planned for and depress our economy further.

Thats the great thing - by making the bank effectively an equity owner rather than a bondholder in the house, you've avoided the extra decades of debt.

The problem might arise is if people are banking on their houses as ATM in the future, but that is exactly the sort of behaviour we want to prevent from happening again. But you are right, education would be required for this people to make them understand the risks of the PAR for their retirement savings.

cthulhu wrote:Scenario: Bank lent 500k against a 500k house. Now house is worth 300k. Bank is going to lose 200k if it forecloses, so any situation better than 'lose 200k' is worth it for the bank.

And if they renegotiate so the person can eventually pay the 500k the person loses 200k. (which is what I understand "renegotiation" to be, I didn't think the plan was to just say "hey, pay back whatever total amount you can dude!")

Regardless of what happens the economy has basically shrunk 200k. Someone somewhere has to effectively either lose or spend 200k on something not actually worth that extra 200k. This is where part of the whole depression thing comes in.

More because the loan and the decisions made by the stupid bank and the stupid debtor were based on the asset being worth more than the 500k at a not much later date.

Even more because of all the leveraging the banks and others then did with the questionable asset of a loan riding on property values rising at a rapid rate forever.

Also if the person can have a house to live in, but still only have to pay down an affordable 300k of debt rather than an unaffordable 500k that would be a good outcome.

Then you go back to the bank losing a bunch of money, their assets go bad, their leveraged assets go worse, they collapse, everyone they sold to, or insured, or were insured by collapses, and again, depression.

But at least someone keeps a house. Of course large volumes of these properties were actually investment (bad investment) properties. So you'd really want to make this primary residence only.

So what I'd suggest is the bankrupcy judge makes the loan 300k, lets the person keep their house, and adds a lien to the property of something to the tune for 'if house sells for more than 300k, the bank gets 80 cents on the dollar (for every dollar over 300k) until it gets its 200k back.

Nice enough but again the loan holder has loan assets worth much less than expected.

These things were going south if their value as an asset failed to grow or even if it slowed in growth, how do you think about a third of value lost will effect them?

Banking on the value of the lien paying off in future and keeping the assets and institutions solvent relies on massive property value increases. And if we could rely on them then this whole thing wouldn't be happening in the first place.

Thats advantageous for the bank (they get 300k now and the possibility of future money if property prices increase, which they will), and the person gets a loan they can deal with.

At that point of loss it is probably more advantageous for the creditors of the now insolvent bank.

But also it is not a given that property prices will increase. Indeed they probably STILL haven't hit bottom. And even once they stabilise property values are actually relatively stable when the market isn't spiralling into crazy town just prior to a death dive.

Yup, we've tanked the value of the asset and the size of the loan, and in return the bank has a property appreciate right (PAR). We've actually decreased the long term value of the land somewhat, because it will keep this PAR which may (hopefully) actually discourage further bubble like behaviour, because real estate speculators will actually be unable to cash in on it.

Are you actually suggesting this lien should cover ALL future re-sales of the asset? That is a pretty damn hefty lien. I would be concerned about artificially depressing the value at that point.

Anyway. Give it five minutes and the fact the original Loan provider will almost certainly collapse or be bought out multiple times during the chaos and you just end up with people speculating in the value of owning whoever holds the lien.

The problem might arise is if people are banking on their houses as ATM in the future, but that is exactly the sort of behaviour we want to prevent from happening again.

You now have the holding of rights to this lien as an asset. It's value probably nearly worthless, but it is more than possibly to speculate in that value and see another bubble in property value through that speculation. And if an individual doesn't exploit this uncertain asset to leverage further loans then the financial institution that holds it WILL.

What I think you don't get is that if someone is willing to declare bankruptcy and go before a judge, the bank is definitely going to lose its money. Once you get over that, the plan I just outlined is therefore a win/win because

A) It offers the hope to the bank it might lose slightly less money

B) It allows the person to have a bankruptcy judge forcibly restructure their debt to something they can manage.

Both the bank AND the person are straight up better off than they are under the foreclosure scenario.

You now have the holding of rights to this lien as an asset. It's value probably nearly worthless, but it is more than possibly to speculate in that value and see another bubble in property value through that speculation. And if an individual doesn't exploit this uncertain asset to leverage further loans then the financial institution that holds it WILL.

Who cares, you can speculate in tulips. No law against it. We know from studies of human psychology that speculative bubbles are actually inevitable in any market, so I think that is a lost cause unless you want to lobotomize everyone.

I seriously doubt the value would be worthless incidentally, over the last 100 years, property has appreciated at roughly 6% P.A. Given that, it is almost certain the value of the properties will appreciate (remember, we are pooling these PARs via a government broker) and thus the bank will (eventually) get all its money back.

There might be a long and variable lag though

At that point of loss it is probably more advantageous for the creditors of the now insolvent bank.

Maybe, but thats why you have bankruptcy judges. The lien should stay until it is paid off, and it should be a tradable asset, so the PARs could be given to creditors or sold on the market.

cthulhu wrote:A) It offers the hope to the bank it might lose slightly less money

B) It allows the person to have a bankruptcy judge forcibly restructure their debt to something they can manage.

Both the bank AND the person are straight up better off than they are under the foreclosure scenario.

No they aren't. The people in the foreclosure scenario lose all their possessions and walk away with no debts. That's bad. But in your solution, the courts saddle them with debts that they will spend the rest of their lives repaying. Yes, you've left them with some material possessions, but you've also made them into indentured servants who can't ever escape their debt slavery.

The 500k house example of PL is especially astute. The house is not worth 500k! They can't sell it for 500k. If they sold it, they would not pay off all of their debt. Then they would have no possessions and they would still have negative money.

The amount of real estate value loss is not going to go away just because you have judges turning humans into serfs. All that's going to happen is that you'll transfer more of the losses from the big banks to the home owners. I would rather have the banks go bust and have a bunch of people start over than to have the banks exist as vampiric landholders who own all future earnings from a new generation of peasants.

-Username17

Frank, you have that backwards. Currently, the only debt that someone in bankruptcy cannot request the court force the bank to make new terms on, is the house they're living in. You can force down terms on the bank for credit card debt, a car loan, your vacation home...

You've got this totally backwards. This isn't the court forcing terms on a borrower, it's the court forcing terms on the lender.

Currently, the people in the foreclosure scenario lose nothing but the house they're living in, and anything else they opt to lose. They can ask the court to renegotiate terms on every debt but one backed by the house they live in.

-Crissa

cthulhu wrote:Who cares, you can speculate in tulips. No law against it.

You... are aware there were laws against speculating in debt, they were removed and that is largely where this economic crisis so big that threatens to bring down fucking capitalism itself came from?

Right?

I seriously doubt the value would be worthless incidentally, over the last 100 years, property has appreciated at roughly 6% P.A. Given that, it is almost certain the value of the properties will appreciate

Property prices compared to income are normally relatively stable with only minor fluctuations. check out this graph

Now looking at the first half you see the lack of general growth and how closely it ties to other key indicators like income and construction expense.

See that tiny peak in the 1980s? That was then considered a disastrous housing bubble. See the ridiculous climb ever since. that is atypical behaviour indeed, the very "bubble" that is currently collapsing. It won't be done until we hit back down near income, rental and construction costs again.

At which point the "growth" in property values will be so close to inflation it will take a god damn century to "regain" the extra value.

Barring another bubble big enough to destroy the economy that is...

Maybe, but thats why you have bankruptcy judges. The lien should stay until it is paid off, and it should be a tradable asset, so the PARs could be given to creditors or sold on the market.

Once again, you understand that it was debt trading that caused the financial sector to bloat to double its size, manufacture false assets, increase its risk load to unacceptable levels and then trade that risk around until the entire thing got brought down simply by the slow down in rising land values before the peak of the bubble?

Trading the debt is NOT a good thing, the financial sector's old song was better than it's new one.

The 500k house example of PL is especially astute. The house is not worth 500k! They can't sell it for 500k. If they sold it, they would not pay off all of their debt. Then they would have no possessions and they would still have negative money.

What? In the example above, the bankruptcy judge repacks their debt to 300k, and puts a property appreciation right on the house. The next day, they decide to sell.

The house is worth 300k, they sell it, they pay off the 300k loan on the house and walk away. The house is left with a PAR on future appreciation.

I guess if they want the foreclose scenario should be availble to them from the get go, so lets assume the debt repacking would be option. I'd expect many would strongly consider it despite the PAR.

The amount of real estate value loss is not going to go away just because you have judges turning humans into serfs. All that's going to happen is that you'll transfer more of the losses from the big banks to the home owners. I would rather have the banks go bust and have a bunch of people start over than to have the banks exist as vampiric landholders who own all future earnings from a new generation of peasants.

-Username17

I don't see how thats transforming the guys into serfs, any more than getting a homeloan normally does.

Actually, who gives a shit about my idea at this point. The real underpinning point is that this crisis has two halves:

Banks that have made shit decisions

People that have made shit decisions

If you want to 'bail out' the economy, both of them need a helping hand. If my idea is crap, it needs a different idea - but they need an idea!

Someone somewhere has to eat the 200k loss. If you just foreclose on the house and wipe out the debt, then the bank eats the 200k loss. If you restructure the payment plans so that the property owner can and will eventually pay off the principal, then the home owner eats the 200k loss.

And yeah, you could send in a judge and force the bank to eat the 200k loss and then reloan 300k to the person in the house so that they stay in the home. But seriously, why bother? How is that better than just wiping everything out and having the bankrupt people go get houses for a more reasonable price? If you make the bank eat the 200k loss on all the houses they'll collapse, so there really won't be anyone there for the mortgage holder to pay the remaining 300k back to.

-Username17

Because individuals won't be able to get a new loan after they've declared bankruptcy. Assuming that we want people to stay in houses, and assuming that we're not going to have the Department of Home Loans (which I suppose you could have, but I don't think is within the Overton Window of realistic options at this time) you probably need to repack the current loan.

And yeah, the bank has to eat the 200k initially. The idea behind the PAR is that yup, the homeowner will, when he sells forgo some potential profit, which the bank will get. If there is no profit, he loses nothing.

But seriously, people need to be able to restructure their debt now, and something has to be done to make that happen. If you don't like my plan, thats fine, I'm not a finance major but it needs a plan.

cthulhu wrote:Banks that have made shit decisions

People that have made shit decisions

Actually.

Conservative governments overturned laws preventing banks from trading in debt. And then removed most regulation and supervision on that trading.

See it was a "Private industry does it better, markets solve all ills, self regulation" kind of jizz ticket.

The financial sector in the US among other regions DOUBLED in size. Yes, double the amount of the economy was tied up in... doing the same thing it used to do.

Only it wasn't the same because they created ridiculous credit risk and spread it like a killer STD in their free love festival of financial mutually profitable back patting.

And those, weren't stupid decisions. They were reckless, criminal decisions but they earned massive short term profits for individuals and organisations involved. And though the organisations would eventually pay the price the individuals would be unlikely to even lose their multi million dollar bonuses.

And don't let these fuckers tell you "no one could have predicted", it was predicted, experts, and non experts, even those NOT in the loop, knew it and predicted it. I god damn predicted it And I'm just some chatty guy on the internet. These were the guys who SHAPED the crisis at every step, that designed the bogus schemes and trades and numbers, they damn well knew. If they didn't know, why is it they walk away from the burning city of Rome with billions stuffed in their violins?

Anyway, it wasn't stupid decisions it was criminal decisions supported by Conservative legislators eager to either look the other way or actively cheer lead from the side lines.

As for people making stupid decisions. They were advised to, by massive swathes of "experts". Experts who were largely right. Right up until they were suddenly massively wrong. Experts who made a fortune off it in the mean time.

The more gullible public was conned "Credit is cheap, land values rise at 10% a year forever, you are an IDIOT if you don't re-mortgage your home, buy a rental property so expensive the rent can't pay the interest and then sell it at a massive profit in three years time!"

That's what they were telling people, and you know, if you caught the right side of the bubble and then STOPPED listening to the advice the advice actually worked. It's just the advisors, the credit suppliers, no one wanted to inform anyone of the massive risks involved, no one wanted to inform the public that actually there was a property bubble going on.

Some honest experts tried, but frankly the whole economics field is dominated by mad men and greedy sociopaths.

Governments certainly didn't want to admit what was going on, it was largely their own fault to varying degrees and plenty of them were riding the housing/credit bubble to pretend they were good economic managers managing a real permanent and sound economic boom.

Anyway all along the way the motivation for bad decision making wasn't stupidity, it was criminal misconduct and greed.

If you want to 'bail out' the economy, both of them need a helping hand.

We don't need to save the bad banks, it would help if we could help them die slowly but die they can, and must.

Then we need to regulate some shit.

Current plan though? "Save the bad banks, bubble reinflates with magic pixie dust and a bizzillion trillion tax payer loans, nothing needs regulating, return to business as usual, gravy train to cocaine city is back on the rails my wall street bitches!"

Frank: There is no 'loss' until a sale is realized at a number below what was previously paid.

1. People usually want to pay their debts
2. losing their house is more traumatic than say, losing a car
3. The law, as currently written, allows the court to find that the loan practices were onerous on every single debt except the house you live in.

Do you have a problem with #3? Because you keep dancing around saying it's okay for people to have a loan on their home and then lose the house - but nothing else - due to unforeseen circumstance. This damages the neighborhood, this damages families, and it's just not good.

-Crissa

The point is that the money for the house is paid. It's gone to some real estate speculator somewhere who is far away now. The bank is sitting on a 500k loan, and the resident is sitting on a 500k loan. Neither of them actually have 500 thousand dollars.

And the equity is not worth 500 thousand dollars. The bank took half a million dollars in loans to be able to make the 500 thousand dollar loan to the resident. If 500 thousand dollars don't appear, the bank and the resident both go bankrupt. And the house cannot be sold for 500k because it's not fucking worth 500k!

If the resident paid back 500k even at no interest at all they'd be ripped off. They'd be being ripped off of 200 thousand dollars. They would have toiled and saved and had 500k pass through their hands and at the end they'd have 300k in equity to show for it. That's fucked.

It would actually be better completely and objectively for them to go bankrupt and then go get themselves another house somewhere else with whatever money they worked for in the interim. It wouldn't be the best solution imaginable of course, but it would be a heck of a lot better than actually forcing these people to work for 200 thousand dollars worth of wages for absolutely nothing.

I mean seriously, you're talking about having a family earning fifty grand a year and literally enslaving them for four years of their actual lives in order to try to sweep this crisis under the rug. Fuck that sideways.

-Username17

So what about the bank? Should it also declare bankruptcy, close its doors, and start over again somewhere else?

But the house might be worth 500K again later. The actual value of the house does not matter: It matters only that the fees sent to the bank are worth the housing.

You're totally wrong on this, Frank, because you don't understand bankruptcy or cramdowns.

In a bankruptcy you don't just give up all your stuff - you tell all your creditors that you cannot pay them, and they go away crying. If they have a secured loan - like for your car, or a house, or a boat - they take it to pay for the loss.

However, in bankruptcy, you can also say 'I can pay you, but it'll take longer' - and in this case you get to keep all your stuff and pay at the rate the court decides you can afford (which is usually what you asked for). However, while you get to keep your car, the court has no authority to let you keep the house you live in.

So you can keep your car, your vacation home, and get out of your medical bills and credit cards... But you lose your home.

I've said this several times already, I'm sorry that you don't actually understand this minor distinction that in bankruptcy you don't actually have to lose your stuff.

Generally, people buy houses to live in because they want to live there. Why should we give the house to the bank and force that family to rent when they could pay down a reasonable loan?

-Crissa

Crissa wrote:But the house might be worth 500K again later.

No it won't. It never was worth 500k. It never should be worth 500k. The only way it will ever be worth 500k is if we have another economy ruining disastrous housing bubble where speculators throw everything out of whack bidding up the price of real estate.

You're leaving people with a bunch of fucking tulip bulbs and speculating that it might be OK because if people hold onto their tulips long enough they may be worth the amount they pad for them during the bubble. Do I have to tell you how fucking insane that is? How brutally repressive on the people actually stuck with the property? You want to trap them in debt prison that they can't even escape from by selling their equity on the off chance that the recession may end some day and that another bubble will start afterwards based on the same damn asset and that then, and only then, the home "owners" will be able to trade their houses out for a now similarly over valued property elsewhere.

What the fuck? How about instead you clean them out, let them take a ew mortgage on a rationally valued home, and then if something retarded happens like another housing bubble then they can trade their new home for a now similarly overvalued property elsewhere. And here's the real kicker: if they don't experience a housing bubble they can still trade their rationally priced property for another rationally priced property elsewhere.

Because your plan of taking all the home owners and binding them to the land until they pay off years of indentured servitude or the lords of Wallstreet declare a land holiday is 11th century thinking. It was shitty then, and it's shitty now.

Crissa wrote:Generally, people buy houses to live in because they want to live there. Why should we give the house to the bank and force that family to rent when they could pay down a reasonable loan?

There is no reasonable loan. Our example family has 500k in land debts to pay for 300k in real property. That's not reasonable, that's 200k in actual wages from actual work that will go to nothing at all. Not only is that bad for the people, it's something that our economy cannot afford. We need people who work for money to spend that money. Having them pour it into a big dark hole with no assets coming out is incredibly bad.

Frankly, you genuinely could just tell the banks that they can eat shit pie, arbitrarily lower the value of the mortgage down to the real value of the home, and then just watch the banks collapse. That would probably be fine, because the banks are assholes and I don't care if they live or die. But stop pretending that just putting people on a payment plan to pay for the home debts they currently have is in any way fair or acceptable. It's not and it's not. It's slavery.

-Username17

Crissa wrote:But the house might be worth 500K again later.

Here is the return of this remarkable theory from the Super Funds Aren't Losing Money debate.

That IF you can MAYBE (and in this case maybe in a very long term with a very big maybe) make back money that has been lost then no money has really been lost!

Wow, I guess it is impossible for anyone to ever really lose money then isn't it?

We should inform the governments of the world immediately. There is no financial crisis, it's all a commie lie, nothing has really been lost because it MAY be regained!

In a bankruptcy you don't just give up all your stuff - you tell all your creditors that you cannot pay them, and they go away crying.

So then they gave you 500k. And you gave them back less than that and they lost money

If they have a secured loan - like for your car, or a house, or a boat - they take it to pay for the loss.

And because the house is worth less than the 500k and they sell it to make back what they can, because they aren't really in the real estate business, they lost money

And if you arrange to actually meet your obligations but do so over a longer period... then YOU lose the money because at the end you get full ownership of an asset worth less than what you paid AND the entity that gave you the loan loses money because the way you repaid the loan was LESS profitable than it originally was. And you BOTH have lost money

And if your bankruptcy judge says "dude, pay what you can, house is yours for its now lower value" the body that gave you the loan AGAIN eats the difference and they have lost money.

The only guy in this who gained money is the person who SOLD the property way back in the first place, and if you are lucky he spent it on cocaine, sports cars and expensive hookers, more likely it went into rich guy savings and left the productive economy (like the purchaser and the body giving them the loan) short the difference.

That wouldn't be THAT great a tragedy if it weren't for the fact all the institutions making the loans then went and used them as collateral to take out bigger loans to then loan more money to more fools to escalate the bubble until it was so vast that a return to sane housing prices would be more than a mere inconvenience and actually see people under enough stress to domino into a major crisis.

Generally, people buy houses to live in because they want to live there.

Only a lot of this crisis was forced by property speculators not by actual home owners, they just got caught up in it because people don't just stop wanting to own homes because some fuckers are bloating the price into crazy town.

Why should we give the house to the bank and force that family to rent when they could pay down a reasonable loan?

NONE of the scenarios here are good for the economy.

Ones where families keep a house are good for them personally and would be nice, and are even slightly better for the economy.

But any scenario where the family eats the debt, no matter how you drag it out, is somewhat worse for the economy (and for that family personally) than if the BANK eats the debt.

As it stands in America at least (where I gather you can do something of the sort) walking away from these loans and starting fresh is the best answer for the family AND the economy. Because it makes the bank eat the debt and that is more important for quality of life and for the economy than keeping the exact same house and pretending it is worth twice its real value.

Frank you are of course forgetting interest payments on that loan. Assuming you're on a 5% mortgage, put 10% down and paid $30,000 a year, you'll have paid $870,000 for that house over 29 years. Now if you assume even that with the value of the house down to $300,000 at a 5% annual growth it would be worth about $1.3M by the time you've paid it off.

Which means you will have gotten 1.5% in average annual growth, and when even conservative inflation is 3%, it also means you've learned the lesson that you don't buy your primary resident as an investment.

A cramdown is what the banks call this. They are forced to renegotiate the loan at current values and interest that the other party can afford.

This means they don't pay the value that is remaining on the loan unless they want to.

And you know what? That's fine. People pay thousands of dollars to live places they don't own already. We paid $14K to live in our apartment, and there's no resale value to it, and we can't do maintenance or technology upgrades to the unit.

You forget this is only about the houses that people are living in. And it's only when people want to - this is not an option for the bank. And it's already an option for someone dealing with any other debt!

-Crissa

ckafrica wrote:Frank you are of course forgetting interest payments on that loan. Assuming you're on a 5% mortgage, put 10% down and paid $30,000 a year, you'll have paid $870,000 for that house over 29 years. Now if you assume even that with the value of the house down to $300,000 at a 5% annual growth it would be worth about $1.3M by the time you've paid it off.

I'm not sure how thats relevant, its trivially true that if I invested $500,000 in something actually worth that much I'd end up with more than $1.3M at the end. Thats PL's point.

At the end of the day, details of any proposals probably need to be worked out with a Crack Team, because it is very fucking hard because your playing with the entire economy.

But people need a way to restructure their debt. Their are two causes of 'uncertainty' in the financial environment at the moment, one is the health of the banks, but the other is the health of the assets the banks hold. But enabling a fast and effective restructuring of debt will help reduce uncertainty, and also enable those people who currently have debt problems (of which there are many), to solve their problems.

Draco_Argentum wrote: I'm not sure how thats relevant, its trivially true that if I invested $500,000 in something actually worth that much I'd end up with more than $1.3M at the end. Thats PL's point.

My point was that a 500k house does not actually cost you 500k it costs you 74% more than it was actually worth when you bought it. That's a lot of extra fucking money going to the bank.

I mean if I could get an interest free loan to buy my current apartment (all apartment buildings are essentially condos in vietnam) and pay down the principle at my current rent rate, it would take 20 years. If I got a mortgage from a vietnamese bank (12% down from 20% last year) It would take 3 times my current rent just to pay the interest. If I paid quadruple my current rent I could pay off the loan in 13 years.

If I continued to pay rent at the same rate and invested 3 times my rent over 13 years. Assuming both my investment and the property value increased at 5% annually, I'd do 15% better in investments than the property.

Now I could afford to pay the mortgage on my apartment because rent is only about 1/8th of my income but still it just doesn't make sense to do it other than it can help my wife get a visitors visa to Canada.

ckafrica wrote:My point was that a 500k house does not actually cost you 500k it costs you 74% more than it was actually worth when you bought it.

It's relatively immaterial massive changes in the value of the asset are massive changes in the value of the asset, the 500K figure was something someone in the thread picked out of their ass, certainly figures higher than that were common in this ludicrous bubble.

If you insist on screwing yourself you can STILL pay over half a milllion Australian dollars for a mere semi rural middle class quarter acre block in my area. And we aren't even prime real estate, hell we are basically smack bang in the middle of four or more different crime ridden, poverty stricken "underprivileged" districts out in hill billy country.