The son of a friend was in banking locally and was very successful because he grew up here and knew the crooks from the good guys. They promoted him and shipped to Jacksonville on the other side of the state and he doesn’t know who to trust.
]]>Badtux, I want to buy the mortgages at the real market value, which is at least 30% off, and then do re-finances into standard 30-year fixed mortgages, so there is some cash flow to cover the expenses. Taking a 30% hit is bad for Wall Streeters, but it’s probably better than what they’ll get in bankruptcy.
Doing that stabilizes the housing markets and drops the prices back to reality. Not everyone will be able to handle the mortgage, even after the re-fi, but they shouldn’t have been in the market in the first place.
They can sell the foreclosed houses to qualified buyers who prove they can handle the load, generating more cash flow.
The 30% drop is going to happen, so they may as well get over it, because, until it happens the crisis conditions continue.
Currently in South Florida the bids are 50% off, so 30% can look pretty good.
This isn’t the first time this has happened. The French went through in the early 1980s and ended up nationalizing the banks, as did the Swedes in the 1990s. I would just as soon not nationalize banking if it could be avoided because one of the problems is that the power became too centralized and the government is forced to deal with it.
]]>In short, there’s no good way forward here, but the more we wait, the more the chance that banks are going to start collapsing like dominos because, well, they’re already effectively bankrupt. So the question is whether we hurt future homebuyers by keeping housing prices outside of the range they can afford to buy, or whether we hurt homebuyers who took out toxic mortgages. We hurt homebuyers either way, but as a future homebuyer as vs. buyer w/a toxic mortgage, I’d prefer the solution that allows the mortgages to go sour and turns those homes back onto the market, as vs. the solution that props up home prices and keeps homes unaffordable for prudent Americans not willing to take out toxic mortgages.
In other words, let the mortgages default, foreclose, and be dissolved. Let the mortgage issuers and those who took out these mortgages take their hits. The end result will be more affordable homes for those of us who are prudent. In the meantime, avoiding a deflationary spiral is the #1 goal of any central banker at this time, and while trading toxic paper for treasuries may seem akin to loading up C-130’s with dollar bills and flying low and slow over cities while throwing bails of dough over the side, but I’m not seeing a better solution for avoiding that deflationary cycle that does not in turn cause even worse problems than rewarding those who invested in bad debt.
– Badtux the Monetary Penguin
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