Posted On: Saturday - October 19th 2019 5:40PM MST
In Topics:   Global Financial Stupidity  Economics  US Feral Government  Big-Biz Stupidity
The discussion on the "moral hazard" of handing out student loans like jolly ranchers on Halloween brought my mind back to an even bigger instance of this government induced problem. That is the housing bubble 1.0 crash of 11 years back. I'd guess that there are 3-5 times as many mortgage loans out there as student loans, and they are in the range of 2 (for the med students!) to 15 times bigger (for the student at the State U. who doesn't go crazy with it). There's a LOT more money involved.
Back from the mid 1990s through 2008, it wasn't all DIRECT guaranteeing of mortgage loans, mind you, in this HUGE market, but the US Government got very involved. It started with the claims of "red-lining" (like, yeah, a bank wouldn't want to lend money to a good risk) that were made since the Civil Rites era, but the stupidity of Bill Clinton and the "compassion" of George W. started this push on the banks. It was not just that the Feds would help these banks out when they took on the bad risks, but also that the more conservative banks that didn't want to play this game were made out to be non-virtuous and mean, racist bankers. Why fight all that, when the US Gov would back you?
It wasn't all just that - housing prices had been going up steadily since the late 1980s, with maybe a few very slight drops. Since house prices "always go up", banks saw no reason to fight this stupidity. Investors got in on this game, and these $350,000 mortgages to $10/hr Hispanic gardeners were all packaged in nicely into these "tranches" of funds, ... or whatever-the-hell. After years of helping out Uncle Sugar with his virtuous project (and making a killing), when the SHTF in '07-'08 (depending on where you live), well, "quid pro quo, Clarice" said the big banks, at least those officially too big to fail. "Bail me out, Clarice, uhh, Uncle Sugar!"
I'd perused one particular housing bubble web site starting in '05, so I did see this coming. The posts and comments were mostly from real estate agent types. Their being part of the F.I.R.E. economy, I'm not the biggest fans of real estate agents, but some of the details they wrote of regarding what was going on after the crash were pretty interesting.
The term "jingle mail" was used a lot in '08 - '12. This term refers to the sending of house keys in the mail back to the bank, as in "Yeah, we can't sell this thing without bringing 200 large to the closing, which we don't have, so here you go. Good luck with all that ..." Yeah, it was not always the actual keys in the actual mail, but you get the idea. There were some amazingly stupid things going on, as the banks did not want so many"non-performing" loans on their books, making them look insolvent. I have a friend who did pretty well with this. On his 2nd out of 3 foreclosures, though he hadn't paid a cent in a year, the bank PAID HIM 2,000 bucks to not trash the place when he left! "Hmmm, nice place I'm leaving you here ... it'd be a real shame if sometin' woulda' happen to it."
For years, when discussing the housing loan crisis, I'd been using the same line I wrote in the previous post on the school loan business - "Hey you signed on the line." Well, the more I thought about it later, I recalled a time when my personal finances were not so good. I didn't plan on cheating on any deal, mind you, and the last thing I got behind on WAS the house payment. The money was coming - "you'll get it when I get it" is what I wanted to say, but there was no chance to say that. In those years, you got a letter from lawyers by that point. They wanted 2 payments (not quite catching up, but on the way) together, or foreclosure would start.
Years after this (I had made 2 double payments, as I got out of the financial hole caused, yes, it was, by the US government with regard to the business I was involved in) a thought came to me. At the time in question, housing prices had already risen for a few years, and the equity in my house was likely $50,000 more than what I owed on the loan.* Shouldn't they have given me that 50 grand, were I to say "OK, I can't pay anymore"? No, that wasn't part of the deal - they just get the house. Well, quid pro quo,
It's not quite like the student-loan business in which the amount of benefit one has obtained from this education is not easily calculable, and sometimes a net negative, BEFORE accounting for the loan.
OK, it's been financial stupidity week, I guess. Part 3 on the school loans is to come next week, along with more on Media Stupidity and a book review.
* Personally, I wasn't as excited about some are about this sort of thing. All it meant to me was higher property taxes.
** OK, this whole "bitchez" thing is from the ZeroHedge commenters and I'm having some kind of flashback here ...