Reflect for a Moment…

Reflection — Christina Aguilera

Reflect for a moment on the history we are witnessing. Congress is going to pass a $700,000,000,000 bailout of the banking industry.

In presidential election years, legislation rarely gets through Congress. Everyone is too busy playing partisan politics and posturing for the election to pass laws. Late in the election cycle, Congress goes home to campaign, and nothing gets done. We are at that moment, and yet, despite 90% or more of the electorate being against the bailout, Congress is going to pass it, and President Bush is going to sign it into law. The bill is going to pass with bi-partisan support. This is no small spending bill. We are talking about $700,000,000,000! And we are spending this money when the government is already running huge budget deficits. Amazing!

That kind of bi-partisan support, in the face of overwhelming public opposition, on a bill that large is unprecedented. We really do live in interesting times.

The reason for needing this bill is actually quite simple: our entire banking system is insolvent. The losses hidden in off-balance-sheet investments exceeds the total capitalization of our banking system. If banks were to take write downs of these securities to their true market value (essentially zero,) we would not have a functioning banking system. It is bankrupt.

Imagine a life without banking: no loans, no credit, no commerce, no economic activity other than all-cash transactions. This would not put us into the Great Depression; it would put us into the Middle Ages. This is what Bernanke and Paulson told Congress behind closed doors, and the ramifications of this reality scared them $hitless. As it should. Congress had to act. It ticks me off, just like it does everyone else, but they had to act.

Now, we the taxpayers of the United States of America are going to have to pay for the reckless irresponsibility of those greedy and sometimes clueless individuals who were in charge of our financial system. This is the end game all of us writing about the housing bubble feared most. The responsible are going to pay for the irresponsible. Actually, it is worse than that — the responsible and the children and grandchildren of the responsible are going to be paying for the Great Housing Bubble. It is a reality we are going to have to accept. What is done is done.

Unfortunately, this will probably not be the end of the bailouts. Today, WAMU is being taken over by the JP Morgan. If the deal had not been reached, it would have been the biggest banking failure in history. It would have bankrupted the FDIC which would also have been looking for a federal bailout. Perhaps this bill will prevent other bank failures, or perhaps not. We dodged the WAMU bullet, but I wonder what back-door bailout prompted JP Morgan to buy an insolvent bank? The US auto industry will probably also get a bailout.

I want my bailout too. I wonder when they will be sending out the next round of stimulus checks…

For today’s featured property, we are going to look at another Turtle Ridge Dreamer. With all the discussion about a housing bubble, a massive government bailout, a severe recession and the utter collapse of our banking industry, it sure seems like a good time to sell a house. And although this house was purchased in 2004, it surely must have appreciated 60% since then. WTF!

48 Cezanne Outside 48 Cezanne Inside

Asking Price: $2,395,000IrvineRenter

Income Requirement: $598,750

Downpayment Needed: $479,000

Monthly Equity Burn: $19,958

Purchase Price: $1,487,500

Purchase Date: 4/21/2004

Address: 48 Cezanne, Irvine, CA 92603

Beds: 3
Baths: 4
Sq. Ft.: 3,887
$/Sq. Ft.: $616
Lot Size: 9,500

Sq. Ft.

Property Type: Single Family Residence
Style: Mediterranean
Year Built: 2004
Stories: 2 Levels
View: Hills, Mountain
Area: Turtle Ridge
County: Orange
MLS#: L27578
Source: SoCalMLS
Status: Active
On Redfin: 2 days

Lush Tuscan villa retreat is the finest residence in Turtle Ridge. With
privacy and mountain views show this home to your most sophisticated
clients. Venetian plaster in each room gives this amazing home the
appeal of the old world with 6 fireplaces inside and out perfection in
every detail. Enjoy beautifully designed gardens with tasteful
fountains. other highlights include a master retreat with grand walk-in
closet, piazza-style backyard with outdoor kitchen, outdoor formal
dining, surround sound, in-wall TV, and luxurious pool and spa.

This is a beautiful home, but that description is a bit over-the-top.

These sellers must be living in an alternate universe, or are they…

This house was purchased on 4/21/2004 for $1,487,500. The owners used a $966,650 first mortgage, a $148,700 second mortgage and a $372,150 downpayment. On 11/15/2004 they opened a $250,000 HELOC. On 12/8/2005, they refinanced with an Option ARM for $1,400,000. On 1/23/2006, they opened a $100,000 HELOC. The paid $1,487,500, and they have $1,500,000 in debt, so they have extracted their downpayment. At this point, they have nothing to lose.

There was a time when loans over $1,000,000 were very uncommon. You don’t get a tax deduction for loans over this amount, and it was generally a sign of distress to see such an expensive home with little or no equity. The housing bubble changed all of that. So here we are standing on the edge looking into the abyss, and yet these owners think they can make a $900,000 profit on this home. Good luck with that.

I hope you have enjoyed this week at the Irvine Housing Blog. Come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.

🙂

.

Look at me
You may think you see
Who I really am
But you’ll never know me
Every day, is as if I play apart
Now I see
If I wear a mask
I can fool the world
But I can not fool
My heart
Who is that girl I see
Staring straight back at me?
When will my reflection show
Who I am inside?
I am now
In a world where I have to
Hide my heart
And what I believe in
But somehow
I will show the world
What’s inside my heart
And be loved for who I am
Who is that girl I see
Staring straight back at me?
Why is my reflection
Someone I don’t know?
Must I pretend that i’m
Someone else for all time?
When will my reflection show
Who I am inside?
There’s a heart that must
Be free to fly
That burns with a need
To know the reason why
Why must we all conceal
What we think
How we feel
Must there be a secret me
I’m forced to hide?
I won’t pretend that i’m
Someone else
For all time
When will my reflections show
Who I am inside?
When will my reflections show
Who I am inside?

Reflection — Christina Aguilera

89 thoughts on “Reflect for a Moment…

  1. IrvineRenter

    We have added a link to a PDF with a free look inside The Great Housing Bubble. It contains the table of contents, preface, introduction, the first two pages of all the chapters, the entire final chapter, the bibliography, index, and end notes.

    I am going through the final approval stage with the printer, and we are preparing the websites to accept orders. Within two weeks, the book will be available in both print and ebook formats.

    1. AZDavidPhx

      Your book is just in time with all of the fireworks going off within the last couple weeks.

      I think we are going to be seeing a lot of these types of books coming out over the next year or so and it looks like you will beat most of them to the finish line.

      I hope that you make some good money off of it – you have put in a lot of hard work to this blog and certainly deserve a good return for your efforts. I will buy a copy. Thanks.

    2. IrvineRenter

      This morning I also updated the analysis page. It now has updated links to the most pertinent analysis posts on this blog. You will find much of the book’s contents there.

    3. Walter

      Will there be a second book:
      The Great Housing Bubble: The Aftermath

      It would seem you book will be missing the last couple chapters of the story.

      1. IrvineRenter

        Yes, I will need to do an update in a couple of years. I am also planning to write a book focusing solely on the psychology of the housing bubble. Several of the people who have reviewed the book have told me they were most interested and engaged by the discussion of the psychological aspects of the bubble. Like all of us reading the HELOC abuse posts, it is interesting to ponder “What were they thinking?”

        1. Walter

          Cool. It would seem this situation holds all kinds of opportunity to study human behavior.

          I am wondering if this will grow so big it will be remembered hundreds of years from now. Something along the lines of tulipmania.

          1. Eric U

            very insightful comparison. I think it will probably have more impact than the tulip bubble. Not quite as crazy, but this is having world-wide effects of tremendous magnitude. And we probably are just at the beginning

        2. Schadendude

          IR, I think Steinbeck’s classic requires an 21st century update. You could call it “The HELOCs of Wrath.”

    4. caveat emptor

      IR,
      I was wondering, you frequently spoke in the past of waiting for the time when your reserve of shameful joy had been erased. Has it been erased yet?
      Mine personally is gone. A year and a half ago, I called the collapse of Indymac (1st), WAMU (2nd) and Downey (3rd). When Indymac crashed I screamed I told you so to anyone who would listen. I pounded my figurative pulpit and pointed out how right I was. This morning when I read about WAMU, I was SO VERY SAD. No pounding, no screaming, no joy (or even righteous anger)at all. I never thought I would get to a point where there was no more joy in the misery of the stupid and the greedy but here I am.
      I’m wondering, how about you?

      1. IrvineRenter

        I am getting there too. When nobody believed what I was saying, it made me angry, but now that the reality of the housing bubble is common knowledge, it’s all over but the crying. When you see the President of the United States get on national TV and sound like he is reading from a bubble blog, you know you are witnessing a moment of national acceptance.

        1. desi dude

          I watched the decider speak on TV with my son.
          As we are listening my son (15) tells me , ” Dad,He saying everything you have been saying”

          I can guarantee that he is one well educated (in bubbles/housing/economy) not only amongst his peers, probably adults as well. Hey what I can do, for past 4 yaers when I did not have any audience, I talked to him about, some times my wife too .. about the bubbles

        2. no_vaseline

          You writen that, and then you post some donkey who’s got an unsaleable property in TR with a WTF price.

          “National acceptance”? Maybe with “cases of local ignorance”.

          1. Lisa

            If even ordinary guys like you knew this will happen years ago, why AG, Ben, Paulson, Bush they don’t know? And why Leman Brothers, Bear Streams they don’t know?

            Just a few weeks ago, Bush et al still praise how sound is economics. Either you guys are super smart (maybe like God) or some one is lying.

          2. BHC

            my thought:
            by definition, the politicians are lying.

            if they had admitted defeat early, it would have caused (they think) a bigger panic. So they lie through their teeth, hoping something would bail them out.

  2. Texas Triffid Ranch

    You know, every ER doctor and nurse will tell you that they’re on the hunt for “Some Guy”. All day and all night long, they hear the stories of how the patient was just minding his own business when Some Guy came up and shot/stabbed/sodomized the patient without provocation. Some Guy moved into offering business advice back in the Nineties (I worked briefly for a magazine where the publisher decided to sell it for $70,000, ten times what it was worth, because Some Guy told him that it was worth five times that), and most of us worked for companies during the dotcom years that were formed because Some Guy told the CEO that he could make a fortune by flipping businesses with no strategy and no product.

    Well, it looks as if Some Guy moved into real estate, because you know perfectly well that the owners didn’t come up with that insane price on their own. I’ll bet you $10, right now, that the owner will tell you, to your face, “I would have been happy getting back what I paid for this, but Some Guy convinced me that I could go even higher.” I think it’s time for someone to put about thirty caps in Some Guy’s ass, before the next boom starts.

      1. SeattleDave

        I have worked in the medical field for several decades, and I can tell you that Some Guy gets around. He’s everywhere! I don’t know how many times an ER patient told me “Some Guy…blah…blah…blah…

  3. r€nato

    haven’t you heard, IR, the real cause of the mortgage meltdown? It’s all the fault of the Dhimmicrats, the ni&&ers;and the CRA.

    See, the Dhimmicrats committed financial Affirmative Action by forcing banks to loan to poor colored folks, and once the credit standards had loosened then, why, all those upper middle class white folks in OC just couldn’t help but make the shitpile higher.

    It’s not a good week unless a wingnut can blame the colored folks for something.

    1. shiny

      That is a good one, I work with a number of rightwingers who have jumped on that bandwagon: that our entire financial system is jeopardized not because of Bush and his ilk but because Janet Reno forced the financials to lend money to illegals and other unter-menschen. They don’t have to worry, caribou barbie is riding into DC with a shotgun and her whoring kids to save us.

      1. WaitingToBuyByAndBy

        And remember kids, when anybody resorts to name-calling or stereotypes, they probably don’t have a very logical argument to begin with.

      2. Ed Dunkle

        Isn’t Irvine overwhelmingly Republican? And I bet despite all this they keep drinking the Limbaugh Kool Aid and think McCain is just peachy. How am I supposed to have any sympathy for them?

        1. AZDavidPhx

          I have not listened to Rush Limbaugh in years, but I certainly remember that when I did used to listen – he detested McCain; often called him a Democrat.

          All of a sudden he thinks McCain is a great candidate for president? WTF?

      3. shinyADnauseam

        For those of you that have a political agenda and have political glaucoma, which prevents you from seeing the whole picture, it is unfortunate that you can’t get a grip on how pervasive the economic and moral problems truly are. There is enough blame to go around.

        The problem is not politics – it is GREED. If you are greedy and buy things that you can’t afford or think that you are entitled to certain things and you act on your whims, YOU are the problem. The only people that are not to blame are the INDIVIDUALS that buy things with cash, don’t overuse credit cards, save their money, and live WITHIN their means.

        If you think that these economic problems are caused by one person, one party, one administration, one reason, or one anything, then … well that’s unfortunate (and it is a good reflection on your wisdom, or lack thereof). If there are things to point at, they are greed, feeling of entitlement, compassion, dishonesty, pride and other character flaws. These character flaws afflict all kinds of people, even good people.

        1. anon

          Of course you would say that. Republicans across the country are trying to cast a wide net of responsibility. “It wasn’t just us! Everybody was doing it!”
          Except for it was the Republicans that encouraged it through policy and lack of regulation. And I’d bet my left nut that 80% of managers at Countrywide, Downey, et al are Republicans. White, middle, aged, male Republicans.
          I’ll bet that Iraq is “everybody’s fault” too, right? In fact anywhere things have gone wrong, there’s “enough blame to go around”.
          Come on. Do you really think W isn’t completely beholden to his Wall Street masters? Even a high functioning moron can see that much. If you can’t understand who’s at the bottom of these troubles, then…well that’s unfortunate. And it’s a good reflection on your wisdom, or lack thereof.

          1. shinyADnauseam

            Mimicry is the sincerest form of flattery, so thank you for copying my prose.

            Bet your left nut? Bet them both and just castrate yourself.

            Lack of regulation? Do you think that republicans were the only ones in favor of making housing more “affordable?”
            Do you understand why we need regulations? It’s b/c some people have no self-control and do bad things. I hope you are not the kind of person that needs regulations to show some self-control. Obviously, some people need laws and regulations more than others. So, I believe my point about character flaws is still valid.

            Iraq, wtf? How does Iraq relate to the housing bubble? Get it together.

            “Do you really think W isn’t completely beholden to his Wall Street masters?”
            You are absolutely brilliant. You know so much about politics and economics.
            I blame the character flaws of irresponsible people, who were making and taking bad loans.
            You blame Bush.
            Do you teach poli-sci? If you don’t, you should, you would fit right in. Do you blame Bush for how you turned out, or do you still blame your parents?

            Your careful and thoughtful analysis shines with deep considerations. I guess I can’t hang with high functioning morons.

          2. anon

            White. Republican. Female. Bitter. Divorced. Over 40. Am I getting warm? Children can’t stand you? But you feel warm and accepted at your church? It’s okay, your kind will overcome. You’ll rise up and become…the losers in this big came called life.
            I don’t even live in the States, lady. Get over yourself and start taking some personal responsibility for the choices you’ve made and the people you’ve voted for.

          3. shinyADnauseam

            Seriously. I dunt hate on u or nuthin like dat. mebbe we can even have some coffee together, i dun kno, but i just wish u da best. no hard feelings. i dunt wanna be condescendin on ya either, but please read up, and dunt believe everythin ya read. just use it to increase ya kna-ledge knee-grow. peace, and luck. cause ya kneed a bit a luck is dis game called life. yah man!!! holla at ur boiiiiiiiiiiiiiiiiiii!!!!!!!!

    1. Walter

      Cost of the pretty pictures of 48 Cezanne: $400,000 over Zillow.

      Cost of uncooperative tenant at 58 Cezanne: $100,000 under Zillow.

      Loosing your ass on either purchase a year from now: priceless.

  4. DAve

    YES!!!

    How about a WINDFALL PROFITS TAX on Big Finance???

    Way to play the race card renato pobresito I’ve been all over the blogosphere about this and I haven’t seen what you’ve described anywhere. Must be horrible to living in such oppression.

    I guess your point is that the CRA had nothing to do with this???? Good luck with that-

    1. IrvineRenter

      Renato and Dave,

      Let’s not turn this thread into partisan bickering. Each side will seek some way to blame the other in order to avoid taking responsibility at the polls come November, and no partisan is ever going to see the logic in the other sides argument.

      1. ph

        This is sensible logic and, strangely, emotional as well. My reaction to all these politicians putting on a show is this: business as usual. Does anyone really think that the majority of the politicians have any common decency to uphold the will of the majority any more? If anyone wants to play the party line game, well, they all have committed acts, with their votes or lack of will, to add fuel to the supposedly crisis.

        I just don’t see how it would be bad for America’s future if we let the ‘institutions’ that should fail and let the ones that have managed themselves well to lead this country. Just suck it up for awhile! Take responsibility which just might change the socialized welfare culture of this nation! Enough is enough!

        You, IrvineRenter, put it best when you voiced Plato’s views on democracy a few days ago. We are all doomed! Or we can add ‘academics’ as the 4th branch of our government to counter balance the irrational exuberance of our current system.

  5. The Moar You Know

    I always forget that Christina Aguilera is, in fact, an amazingly talented singer.

    I will try to carry the memory of her wonderful voice in my head as I wonder through the broken, empty neighborhoods of post-banking-meltdown Southern California, shooting pets and vermin for food.

    1. pmd

      I remember when my kids were watching the Mulan DVD, I thought: Wow! the pipes on the kid doing the singing parts could rival Streisand (no offense to any Babs diehards) – imagine my disappointment in the years to come… well, I guess there’s not much left to the imagination. But still, she’s young and hasn’t seriously abused her singing ability, so who cares if she’s 300 pounds by the time she’s 40, all that matters is when she belts out a tune 🙂

  6. former_irvine_resident

    This article has a comparison of the current crisis with the Titanic. An excellent read:

    “I can’t help but compare our country’s situation to the maiden voyage of the Titanic. Everyone has seen the movie, so can relate to the story. The captain (Alan Greenspan) has been handed the greatest ship (United States) ever made. It is unsinkable. The initial voyage across the Atlantic Ocean has drawn the rich elite ruling class (financers & bankers) onboard. But, the lower decks are filled with lowly peasants (Working Class) who are sneered at by those in the upper decks.”

    http://seekingalpha.com/article/97517-on-board-the-u-s-s-titanic?source=email

    1. Food

      The government is taken over by a bunch of criminals. Is any general reading this blog? It is time to do your soldierly duty and execute a coup in this country. Arrest them all.

      1. Major Schadenfreude

        Well, I’m not a General, but a Major!

        I look forward to doing my citizenry duty by voting ALL elected officials out of office this November.

        1. nefron

          Agreed! I think we need a new political party – the overriding tenant of which is ‘responsibility by and for all.’ Period.

    1. houseonlegs

      I would say no, especially for this home, the comps would not support this WTF asking price. I would be surprised if a bank would loan 65% and you better have A+ credit and over a million in liquid assets.

  7. Craig

    $616 per square foot? Try dividing that in half, guys, and then hope that someone is still making loans that large, and someone else is smart enough to qualify and dumb enough to buy it right now.

  8. Quail Hill Tony

    700 billion dollars … you could offset 7 million short sales with up to $100,000 each.

    That’s what I think we should do.

    Then, the bail out package directly helps the little guy. Thus, you would be helping people buy/sell their homes, without supporting the Wall Street fat cats directly.

    A retail bail out package 🙂

    1. h

      But then the little guy will go max out his credit cards yet again. (Not that the fat cats would be any more responsible.)

  9. SnowKat

    “Late in the election cycle, Congress goes home to campaign, and nothing gets done. We are at that moment, and yet, despite 90% or more of the electorate being against the bailout, Congress is going to pass it, and President Bush is going to sign it into law.”

    This scares me. What will happen next?

    I wonder if people who have money in WAMU will go running to withdraw all their hard earned cash… Who goes belly up next? BofA?

    1. Blueberry Pie

      My Wamu account has about $500 in it. I think I’ll leave it in there to do my part to prevent a run. lol

  10. Ice

    “Way to play the race card renato pobresito I’ve been all over the blogosphere about this and I haven’t seen what you’ve described anywhere. Must be horrible to living in such oppression. ”

    You need to look a little better. The National Review is not exactly unknown…

    National Review explaining that minorities are to blame

    Perhaps you owe renato an apology.

    1. WaitingToBuyByAndBy

      Perhaps you should re-read the original message.

      He’s saying some blame the housing bubble on the push for affordable housing.

  11. Blueberry Pie

    Has anybody seen a reasonable assessment of what might happen with our economy if the government does not spend all this money on bailouts? I’m very much against this bailout in principal, but if the alternative is a complete meltdown of our financial system, then I think it needs to be done.

    My hunch is that we can avoid meltdown without spending $700B. The government can look at each individual institution as it runs out of rope and see if it needs to be bailed, and what the minimum cost would be to save what needs to be saved.

    I’m very worried that this bailout isn’t going to teach any lessons. Is anybody really going to pay a price for what has gone on the last 5-10 years? I’m sure most of the top-level executives aren’t going to feel any pain. Only taxpayers will eat it.

    I’d really like to see some laws that allow the government to get money back from some of the executives that cashed out of these companies.

    Does anybody know any websites that provide a nice summary of how members of Congress vote on this bailout plan (and other voting issues)? I think I want to vote against everybody who votes in favor of this thing.

    1. Matt

      Roll call vote data are available on the Clerk of the House (or Senate) website, usually within a day or so of the vote. Of course, you won’t have the option of voting against everyone who votes for this: you have one representative, two senators, and two presidential candidates who happen to be in the Senate for a grand total of 5. Of course, if you’re a Californian, you’ll have to wait until 2010 to vote on one of those Senators, and 2012 to vote on the other one.

      The larger point, though, is that major legislation like this will likely only end up passing by a supermajority, especially given public opinion on the issue. The deal that fell apart yesterday did so because House Republicans pulled out, which likely isn’t that big a problem is the Dems felt that they should just ram this through. But, neither party wants to be the only ones on the hook for this (and the whole system is really geared towards compromise, anyway) so their pullout meant it was time to go back to the drawing board. Eventually, something will pass, likely with around 70% of the votes in the House and 90% of the votes in the Senate, with the no votes likely coming from the far (fiscal) right in the House and from random people in the Senate.

    2. Joel

      Your best bet is to write Senator Shelby and other fiscal conservatives in the Senate and encorage them to fillibuster the $700,000,000,000 plan.

      The plan will not only take, on average, over $8,000 from every American household (probably mostly by devaluing the dollar; $20 a gallon gas anyone?), but will also lead to a decade or more of stagflation.

      Robert Reich has said what you said: let’s just use the bankruptcy system we have in place.

      I’m disappointed by the IHB post — as an occasional reader, I never thought this site would drink Paulson’s KOOL-AID, after seeming wise to such much for so long. I guess the Irving Housing Blog has finally jumped the shark.

      1. Alan

        “The plan will not only take, on average, over $8,000 from every American household …”

        I’ve seen vastly different estimates. If you divide $700,000,000,000 by every US resident regardless of age or situation, it is bad but not terrible. If you divide it by the number of actual taxpayers (not just everyone who files a tax return, but everyone who actually pays something) then doesn’t it go up to $70k and more each?

        That would make clear why the children, grandchildren and as-yet unborn will be paying off this thing. And since the Republicans have reduced the inheritance taxes (and want to abolish what remains), those who got rich off of this crap will be a long way towards assuring that their families and future generations stay rich.

        1. freedomCM

          Geez, the innumeracy is astounding:

          700,000 million dollars
          __________________
          100 million taxpayers (if only 1/3 of population)

          is $7k/taxpayer

          1. Joel

            My last reply got eaten by the spam filter, but here’s a link from where I’m getting ~8K a household. I’m only counting the 700B though.

      2. IrvineRenter

        Perhaps Paulson is full of crap, but the Congress and the President are apparently unwilling to call his bluff. You don’t get that kind of bipartisan support at this time in the election cycle unless there is some truth in what is being said. If this really is all BS, if it really is a tempest in a teapot, it is the greatest fraud ever perpetrated on the American people.

        1. Joel

          Or unless everyone is drinking the kool-aid.

          Or unless, say, everyone in the Senate is a millionaire (true) with millionaire friends who just want to be on the upside and don’t really have the health of the underlying economy at heart. Do millionaires really care how much a gallon of milk costs for the rest of us?

          And over the coming decade or two of stagflation, they’ll be patting themselves on the back and telling voters how lucky we are, and that it could have been worse without a bailout. O, lucky us!

        2. WaitingToBuyByAndBy

          As someone who previously accused IHB of “jumping the shark”, I want to publicly apologize.

          The readership does not hesitate to bring current events into these threads, so why should we accuse you of being off target when you express your opinion?

          P.S. You might want to ready a “jumping the shark” graphic to use for the next guy who calls you out. ;^)

          1. Joel

            OK, maybe I’m being a tad harsh on IR. The assumption that worst case scenario is actually pre-ordained isn’t out of tenor of pessimism around here. I just don’t believe this bailout is something that has to happen, and for once in this democracy, we’re not just powerless to have to sit back and watch it happen.

            I’m a renter too, and I don’t want to have to be a renter for another decade while my money I should be saving for a house instead goes to prop up the housing market so I can never afford to buy. This bailout screws me coming and going.

            Link related!

        3. lawyerliz

          How about allowing cramdowns?

          How about recompensing the lenders for half the amount crammed down?

          A bottom would form. Lenders would get some money, and an income stream.

          I bet there’s enough money for that.

        4. Food

          Paulson and other criminals were the same idiots who believed in 100% financial. His claim of bail out is total bullshit. It is personal for him. He owns something like $400M worth of Goldman Sachs stocks. Basically, he is planning a bank robbery.

          It is good to see these banks fail. Isn’t the Catholic owned bank such as Farmer and Merchant Bank still doing very well? These elitists are getting more and more daring and obvious in carrying out their agendas. I guess 911 gave them tremendous confidence to do so.

    3. SeattleDave

      Who says the alternative is a complete meltdown of our financial system? This line is being pedaled by the same folks who brought us WMD’s. And we know how right they were about that.

      The FDIC just arranged the demise of WaMu and passed it off to JPMorgan. Paulson should give some of that $700B to the FDIC and let them close all the insolvent banks. The good parts will be bought right away, and the bad parts can be placed in Resolution Trust II and sold over time.

      Give the pain to the owners and not the taxpayers.

      1. Major Schadenfreude

        “This line is being pedaled by the same folks who brought us WMD’s. And we know how right they were about that.”

        You got to admire Bush’s balls. He suckered us into a war in Iraq based on a false premise, his approval rating free-falls to one of the lowest on record, but that doesn’t stop him from thinking that he ought to talk to his people about the financial crises. As if we still listen to the guy!

      2. WaitingToBuyByAndBy

        If it helps anybody to clarify the current situation, there are “failures” and then there are “systemic failures” (see Nouriel Roubini).

        Yes, when a bank is insolvent, the FDIC can step in and address it. And if the insolvent banks fail one at a time, the FDIC can clean up the mess over time. However, when the majority of banks are insolvent, the FDIC has neither the manpower nor the money to fix everything all at one time.

        I believe in hindsight it will someday be clear that somebody HAD to buy WaMu because the FDIC did not have the manpower to transition 4500 branches.

        Looking at this another way, it is clear to our leaders we are already in a systemic failure situation. I suggest our government assume the worst and start up the programs for rebuilding our economy.

        1. SeattleDave

          WaitingToBuy…

          The FDIC is very adept at handling insolvent banks. They have the expertise and the track record. So why are we going with Paulson’s plan that has been sprung on us from left field, and is short on specifics. The FDIC just handled the largest bank failure in history, and it didn’t cost them a cent. And it cost the taxpayers nothing.

          The FDIC can clean up lots of insolvent banks with $700B. And as with WaMu, those insolvent banks have lots of assets that have value. Not all their assets are junk MBS’s. And those assets that have no value now, will have value later when things calm down. Isn’t that the argument that Bernanke made when he talked about “Hold-to-Maturity” pricing?

          And if the FDIC handles it, there is no need to worry about taking equity positions because they own the whole bank. They’re the ultimate “work-out” guys. And they don’t have outrageous salaries, Million$ bonuses, corporate jets, and golden parachutes.

          Paulson’s plan leaves us with nothing but the bill.

      3. IrvineRenter

        The lack of credibility with the current administration is part of the problem. They are a bit like “the boy who cried wolf.” How do you respond to someone with little or no credibility when they tell you the truth?

  12. Anthony

    Ditto!
    Thanks for a great job, IR.
    The only thing that still amazes me (besides the arrogance of our Ben, Henry, and George towards the bailout pill) is that people are still rushing in to buy, especially here in Irvine. Are they expecting another run-up with hefty returns in a few years?
    Anyway, no matter what happens, we the taxpayers will stand by, ready to bail this group out again, as we are doing right now to the previous group.

  13. Blueberry Pie

    Yes, I knew I can’t vote for all the senators, only the ones from my state. And I probably wasn’t ever going to vote for either of them anyway.

  14. 12xuser

    The total value of all the mortgages in the country is estimated at $11.1 trillion. 1 percent of those are in foreclosure, with a possible two percent more headed that way. Three percent of $11.1 trillion is $333 billion. We could buy up all of those mortgages for less than half of the $750B that Wall Street is drooling over right now. All of those mortgages have value, probably not less than 2/3 of their face value. 1/3 of $333B is $111B, which is what would actually be lost if we get 2/3 of the face value for those mortgages.

    From 2000 to 2006, those big Wall Street companies paid out $120B in bonuses, more than the losses they might have to absorb on all of those mortgages.

    The bailout is not for those mortgages, it’s for the speculative, highly leveraged derivatives based on those mortgages.

  15. 26w100k+

    Wouldn’t be suprised if this one takes another 500k price cut. Sure its a beautiful house, but look how *many* are for sale in shady canyon. I have to believe the market for 2 million dollar houses is MUCH smaller than for 1 million dollar houses, and even smaller for 3 or 4+…

  16. ventouxbob

    thats what i was wondering. what percent of actual people in the USA are in mortgage trouble or heloc theft etc. it’s not evrey where. the map of misery proves that.

    -not many of the people i know are in crisis but a few are. 10% maybe. so how is this enought the take the whole country down the shiter?

    thats probable why 90% of americans are against the bail out cause only 10 % are in trouble?

    now I can see how the over leveraged banks are in trouble-thats a bit different.

    The flipper mentality sucks.

    flip a house
    -flip this corporation.
    -flip the drug company.

    I think the stock option mentality was bad for sure.

    I mean do people want to build a real company provide a real service or product?

    -ok a small rant.

    1. Blueberry Pie

      Would the 10% even get bailed out, anyway?

      I really have little sympathy for the people who are in foreclosure danger due to insane financing decisions. (If they are in foreclosure danger due to “typical” reasons like job loss, I do have sympathy.)

      1. Joel

        See link above for an example which my local media wants me to BAWWWWW about.

        A couple making a little more than $3,200 a month got a $3,200 a month mortgage, couldn’t get a renter (like me) to shell out $1,200 a month they expected for half the duplex, and got evicted after the mortgage reset to $4,200 a month.

        Boo hoo. It’s because of unscrupulous borrowers like this driving up house prices that people like me can’t buy a house. Why should I feel sorry for them?

  17. Joel

    Well, I’m approximating from this CNET article:
    http://news.cnet.com/8301-13578_3-10051790-38.html

    They are putting the total bailout at $1,800,000,000,000 when all is said and done, at a cost of $17,000 per household.

    There were 126,316,181 households as of the last census. http://quickfacts.census.gov/qfd/states/00000.html

    Not sure where you get your numbers, and I’m having a hard time holding all these zeros in my head, but if you think only one in ten households pays taxes, you are way off, in my opinion. (Of course, some right-wing republicans I’ve talked to online think everyone is on welfare except themselves, but I’ll give you the benefit of the doubt!)

  18. Major Schadenfreude

    “…despite 90% or more of the electorate being against the bailout, Congress is going to pass it…”

    And hopefully we will send them all packing this November.

    Clean slate for everyone.

    1. Joel

      With the election six weeks away and the primaries already over, I don’t think that will happen. Red districts and blue districts aren’t going to flip over on just this one issue, and it will take a few months before effects start to kick in.

      A year from now, when the next crop of primary challengers can throw their hats in the ring is when it will matter.

  19. MalibuRenter

    I am a deep skeptic of the bailout, at least the version which was initially proposed.

    There are several goals of the bailout, some of them are formally stated, and some are not.

    I have several deep objections:
    1. The proposed bailout would be used to provide liquidity to banks and other financial institutions. The great majority of those institutions already have access to one Fed program or another. Banks have the regular Fed window. Primary dealers in treasuries have the PDCF. The Fed can make emergency loans to insurers and other institutions. There is liquidity for just about anyone who needs it. Cheap. Plentiful.

    I think that the Bush plan only contained carrots. There are some massive sticks which could be wielded against banks who just sit on capital.

    2. Providing more capital to the banking system is one of the real motivations. Unfortunately, buying up MBS which is hard to sell means buying it from either A. The exact idiots who made the bad loans. B. The next level of idiot who purchased the MBS and believed it was a good investment, and who kept it in their portfolio even as it became clearer and clearer that defaults were going way up. Dummies. We don’t reimburse people who purchased stocks that go down.

    You can provide new capital to the banking system in numerous ways. I submit that actually you don’t need as large a banking system in 2009 as you had in 2006. There should be fewer banks, fewer employees, fewer branches. There won’t be nearly the mortgage feeding trough of 2003 to early 2007.

    The people you should give money to are the ones who didn’t screw up. You should give money to banks that are currently doing well and have been responsible lenders. Some of those are big, like JPMorgan. Some of those are small, like BBT.

    3. Some of the alternative proposals have to do with limiting CEO pay for anyone who sells securities to the Federal government. I am ok with that, but I think something much more proactive would work. I think the FDIC should be much more activist in removing management which just doesn’t get it. They don’t have to takeover the bank, just take a look at who has poor risk controls, contributed to the bubble, and has a high chance of problems if they stay. I am a big proponent of the Dump the Bad CEOs movement.

    4. The bailout plan is missing a group of securities which as a group are pretty low risk. Municipalities have had their market displaced by problems with the bond insurers. Want to make life an awful lot easier for many municipalities? I know that the Federal Government does not currently guarantee any municipal debt, but now would be a good time to reconsider. An alternative would be taking over the questionable bond insurers’ muni portfolios, with both the premiums and obligations. A second alternative would be to simply backstop the bond insurers’ guarantees on munis. This would actually be pretty cheap. Very few munis will default, especially when compared to MBS or CDO risks.

    5. The bailout plan does not seem to realize the parallels between individual homeowners and owners of mortgage backed securities. Both of them tend to think real estate prices won’t or shouldn’t decline much more. Both of them used to think prices would always rise. Both of them think prices will rise in the future when the credit problems are over.

    Both of them are wrong, for similar reasons.

  20. NOTsoShiny

    For those of you that have a political agenda and have political glaucoma, which prevents you from seeing the whole picture, it is unfortunate that you can’t get a grip on how pervasive the economic and moral problems truly are. There is enough blame to go around.

    The problem is not politics – it is GREED. If you are greedy and buy things that you can’t afford or think that you are entitled to certain things and you act on your whims, YOU are the problem. The only people that are not to blame are the INDIVIDUALS that buy things with cash, don’t overuse credit cards, save their money, and live WITHIN their means.

    If you think that these economic problems are caused by one person, one party, one administration, one reason, or one anything, then … well that’s unfortunate (and it is a good reflection on your wisdom, or lack thereof). If there are things to point at, they are greed, feeling of entitlement, compassion, dishonesty, pride, and other character flaws. These character flaws afflict all kinds of people, even some good people.

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