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When you have a ton of people in default on mortgage loans, and you pay off the loans for them or otherwise help with their default then people don’t lose their

by CPLX 5y ago

When you have a ton of people in default on mortgage loans, and you pay off the loans for them or otherwise help with their default then people don’t lose their homes AND the banks are OK and the system doesn’t collapse. If you take the same amount of money and just give it to the banks and they foreclose on the homeowners the banks are also OK. But the homeowners are fucked. Guess which of those two options we chose following the 2008 financial crisis.

ImprobableTruth 5y ago
The money wasn't just 'given' to banks, it was a loan that they ended up paying back. Just paying off loans for homeowners with bad mortgages would also have been horrible - you're essentially rewarding bad quality loans. And how else would you bailout homeowners?
- CPLX 5y ago
  You could restructure the loans make the interest rate lower make the payment period longer prohibit the banks charging extortionate penalties and fees make the banks write down some of the principal or accumulated interest in arrears and lots of other stuff. It’s ridiculous to claim that there were no options here. And also it’s telling that you don’t even consider the idea that the homeowners could have gotten similar treatment, ie a favorable loan that enabled them to eventually pay the principal back. Also you’d have to explain how bailing out banks that made poor quality loans and are on the risk of insolvency isn’t “rewarding bad quality loans”.
  - ImprobableTruth 5y ago
    A lot of loans were restructured (both due to the government and because banks themselves don't want people defaulting on loans either), but for a lot of the really bad loans the slight help from restructuring wouldn't have been enough. That's also why giving homeowners a loan wouldn't have helped, which is essentially just restructuring. >Also you’d have to explain how bailing out banks that made poor quality loans and are on the risk of insolvency isn’t “rewarding bad quality loans”. It is, to an extent, but a loan is much less of a reward than someone paying off your debt. That's also why new regulations were introduced so that future behavior likes this from banks wasn't incentivized.
- neffy 5y ago
  The resulting inflation would also have been somewhat epic.
- mindslight 5y ago
  An artificially low interest loan is a gift. Banks could have raised the same funds on the open market - they would have just had to pay for it. But rather than conservative cash holders being rewarded for better preparation, the Fed stepped in and made the overextended investment banks the winners instead. It's correct to say it was a gift.
floor2 5y ago
Have you ever seen the movie "The Big Short", where they go to Florida and meet a stripper who owns 4 McMansions and a minimum-wage lawnmower who is buying a giant, expensive house? Those were realistic depictions of the fraud happening at the retail level which created the entire problem. The people defaulting on their mortgages were people who had committed fraud by lying about their incomes and assets in order to take out massive loans they could never repay, because they thought they could flip the house for a profit before paying any principal. Foreclosing on those people is the good and right thing to do, they were criminal fraudsters not victims. Of course, the ripple effect when half the market turns out to be fraudulent is that prices go down when the bubble bursts which also hurts legitimate buyers who bought at inflated prices, but that's secondary to what caused the wave of defaults.
- CPLX 5y ago
  > fraud happening at the retail level which created the entire problem Yeah no. Pretty sure that there were a few things happening inside the banks that helped create the problem.
- notreallyserio 5y ago
  You may have missed the part where they talked about Moodys (or was it S&P) rating the garbage MBSs higher than they should have, which led to institutional investors and many others buying garbage. I choose to assign blame to the parties with the most power and knowledge to have prevented the disaster.

by CPLX 5y ago

ImprobableTruth 5y ago

The money wasn't just 'given' to banks, it was a loan that they ended up paying back. Just paying off loans for homeowners with bad mortgages would also have been horrible - you're essentially rewarding bad quality loans. And how else would you bailout homeowners?

CPLX 5y ago
You could restructure the loans make the interest rate lower make the payment period longer prohibit the banks charging extortionate penalties and fees make the banks write down some of the principal or accumulated interest in arrears and lots of other stuff. It’s ridiculous to claim that there were no options here. And also it’s telling that you don’t even consider the idea that the homeowners could have gotten similar treatment, ie a favorable loan that enabled them to eventually pay the principal back. Also you’d have to explain how bailing out banks that made poor quality loans and are on the risk of insolvency isn’t “rewarding bad quality loans”.
- ImprobableTruth 5y ago
  A lot of loans were restructured (both due to the government and because banks themselves don't want people defaulting on loans either), but for a lot of the really bad loans the slight help from restructuring wouldn't have been enough. That's also why giving homeowners a loan wouldn't have helped, which is essentially just restructuring. >Also you’d have to explain how bailing out banks that made poor quality loans and are on the risk of insolvency isn’t “rewarding bad quality loans”. It is, to an extent, but a loan is much less of a reward than someone paying off your debt. That's also why new regulations were introduced so that future behavior likes this from banks wasn't incentivized.
neffy 5y ago
The resulting inflation would also have been somewhat epic.
mindslight 5y ago
An artificially low interest loan is a gift. Banks could have raised the same funds on the open market - they would have just had to pay for it. But rather than conservative cash holders being rewarded for better preparation, the Fed stepped in and made the overextended investment banks the winners instead. It's correct to say it was a gift.

floor2 5y ago

Have you ever seen the movie "The Big Short", where they go to Florida and meet a stripper who owns 4 McMansions and a minimum-wage lawnmower who is buying a giant, expensive house? Those were realistic depictions of the fraud happening at the retail level which created the entire problem. The people defaulting on their mortgages were people who had committed fraud by lying about their incomes and assets in order to take out massive loans they could never repay, because they thought they could flip the house for a profit before paying any principal. Foreclosing on those people is the good and right thing to do, they were criminal fraudsters not victims. Of course, the ripple effect when half the market turns out to be fraudulent is that prices go down when the bubble bursts which also hurts legitimate buyers who bought at inflated prices, but that's secondary to what caused the wave of defaults.

CPLX 5y ago
> fraud happening at the retail level which created the entire problem Yeah no. Pretty sure that there were a few things happening inside the banks that helped create the problem.
notreallyserio 5y ago
You may have missed the part where they talked about Moodys (or was it S&P) rating the garbage MBSs higher than they should have, which led to institutional investors and many others buying garbage. I choose to assign blame to the parties with the most power and knowledge to have prevented the disaster.