Saturday, September 20, 2008

The mother of all bailouts

The housing bubble and its aftermath have gone from blogger speculation to established facts. Now we're on to the mother of all bailouts to try to fix its wreckage.

What will it mean, especially in the effects it may have on the larger economy and our local subject, Westside real estate prices? The earlier fixes had no lasting benefit; will this be different?

Cruising my regular blogs, I'd recommend starting with these two analyses today:

* Calculated Risk's Some Thoughts on the Bailout (with good links to Paul Krugman);

* Dr. Housing Bubble's We’re All Homeowners Now: 10 Reasons to be Cautious About This Housing Rescue Plan for Motherland USA.

Your thoughts?


dlp said...

I once posted that I worried many construction projects would be left abandoned for years, like Thailand after their stock market crash. I was told I was being ridiculous. I wonder what that poster would say today?

And the other thing: It wasn't like there weren't plenty of people warning of problems to come several years ago. So what did bankers do? They pushed the subprime market, ie. lured a larger pool of inexperienced, underfinanced individuals into making loans. It was as if the bankers doubled down. And lost.

But I am waiting for CR and others to offer another plan. Or are we just in for ten years of misery?

Pat said...

I want the bailout to be paid for by a tax increase on anyone making over $500,000 a year and a corporate tax increase on any company that was protected from short selling.

Anonymous said...

That's nice Pat.

I want the bailout to be paid for by a tax increase on anyone that took out a mortgage, home equite loan, or refinanced in the past 5 years.

While were at it I also want the government to prosecute anyone that lied about anything on their mortgage app for fraud.

BradleyB said...

360 at South Bay is a pretty large development (with a couple completed, unoccupied, demo units) hasn't had any construction for several months and isn't selling anything. On the other hand, Aerospace Corporation down the street has had a new office building under construction during that time that has had people working on it continuously.

Anonymous said...

I'm with pat on this one. Take the costs back incrementally from the industry that fostered the crisis itself.

Anonymous said...

I agree that the corporations who got us into this mess should pay for some of the bailout. But let's not forget the people who took out mortgages that they knew they could never afford. Why should more cautious taxpayers be paying for the stupidity and greed of corporate America and foolish individual financial decisions?

When this bailout goes through, there should be a cost imposed on both the banks and those people whose mortgages are being saved. Otherwise, a few people will get a windfall on the backs of the American population at large. However they structure it, those who benefit most from the bailout (i.e. the banks and those whose mortgages are bailed out) should pay more, whether it's through higher particularized taxes or a requirement that they share their profits (in the case of the homeowners, any gains from the eventual sales of the homes they were allowed to keep because of the government bailout) with the government. What has happened to the idea of accountability for one's own actions and decisions in American society?

Anonymous said...

Anonymous said...

Let's talk about what the effects will be on the West Side RE market. Since credit availability drives the RE market, one prediction is that only the high-value neighborhoods will continue to be supported by lenders, who may or may not be banks. Will this stabilize prices in those areas while other neighborhoods sink? Will the rich see it through, again?

Latesummer2009 said...

Credit Crunch is happening everywhere. What we really had was a Credit Bubble instead of a Housing Bubble. It has now popped and is working it's way up the $$$$ Food Chain. To think, high-end property will be saved is pure nonsense. look at the facts and see how many Mortgage Giants fell in the last 2 weeks.

Fannie Mae
Freddie Mac
Lehman Brothers
Merril Lynch

That's an impressive list. And those who got us into this mess are going to miraculously pull us out?

The definition of insanity is, doing the same thing over and over and expecting different results. I would say are financial system definitely qualifies.

I wonder what will happen, when Westsider's realize their home is not an assett but a huge liability and "jingle mail" the keys back in.

50% drop from the peak (2007) is my guess.

Anonymous said...

Add Indymac onto that list...

Its like Zimbabwe in the US now....better bring all cash if you want to buy a house.

Anonymous said...

Keep dreaming! That's all that home ownership will be in America, a dream.

"That was indeed the case for some of L.A.’s wealthiest, such as Eli Broad, who sold his financial company Sun America to AIG a decade ago in 1999 for $18 billion. As of June he had $800 million worth of AIG stock that would now be worth just $72 million. "

Anonymous said...

I really hate how they (Paulson and crew) are screaming that the system is broken and we have to fix it by adding liquidity. The fix they want to make is more easy money, so that more people can go farther into debt. The piper has to be paid at some point.

This will not end well!

Anonymous said...

here is the bottom line -

plenty of people borrowed to the hilt in 2002 and bought a house - each year since 2002 they have refinanced, taking cash out of the house. For many people, they have taken $500,000 tax free out of their houses over the years.

Then in the past year the value of the house has fallen and they have mailed the keys back to the bank.

The people who did this get to keep the $500k - no one is coming to take back the $500k

The losses on the subprime mess will be paid by all taxpayers - including renters

so if you rented all these years, you are paying to clean up the mess that the homeowners created

The people that cashed out the $500k are laughing all the way to the bank - the rest of us have subsidized their actions

who is the smarter one here ?

Anonymous said...

Supposedly housing is in the dumps and prices are plummeting and financial armageddon is coming . . . then why is a two-bedroom shack in Ocean Park still priced $1.5 million, still triple what it was worth 10 years ago?

Anonymous said...

"who is the smarter one here ?"

Well, if the result of their actions is a full blown recession/depression, which isn't beyond the realm of possibility, The laughing rich folks are gonna be uh... targets.

Anonymous said...

"The people who did this get to keep the $500k - no one is coming to take back the $500k"

That's assuming that they didn't spend it. I believe that's a wrong assumption. That $500k went back into the economy, with people spending like their home was an ATM filled with free money.

No more free money. Now, it will cost you 9.2% for a Jumbo at Wells Fargo. We'll probably be nearing 15% by next summer, unless prices have dropped another 40-50%.