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See the original image at money.cnn.com

The trillion-dollar mortgage time bomb

money.cnn.com — Credit rating agency Standard & Poor's recently placed an estimated price tag on this worst case scenario -- $420 billion to $1.1 trillion of taxpayer's money. This dwarfs how much it cost to help banks during the savings and loan crisis of the late 1980's and early 1990's.

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  • edstate, on 04/21/2008, -14/+202No! NO taxpayers money! The idiot banks and the idiot homeowners who caused this... take THEIR money to cover it. I dont' care how many homes are foreclosed. How "bad" it looks, or how much it temporarily depresses other homes value. If you're not moving for a few years, it won't matter. Homes' values are still way overblown, anyway. Plus, it'll probably lower your property taxes. More importantly, anyone with half a ***** brain saw this coming from a MILE away, and didn't act like an idiot. Those who decided to jump in this hot tub of farts... YOU made your bed, now lie in it. I dont' care how much it affects the rest of the economy. We'll deal with it. ***** you. And suckit.
    • whereiseljefe, on 04/21/2008, -4/+30Though it may sound sarcastic, possibly spiteful, but your cookie is in the mail, sir. Enjoy.
    • chan0429, on 04/21/2008, -4/+59Amen. I hear the sob stories of people losing their dream homes... and then here I am in my modest tiny townhome that I calculated that within reason my family could AFFORD. How is bailing people out so they can keep their homes fair to the rest of us who decided to spend within their means?
    • jbettineski, on 04/21/2008, -1/+72"Homes' values are still way overblown"

      Yes. This is so true.

      I'm seeing homes around my neighborhood going for 1/2 a million dollars, and there's no way it's worth that much. People I know that make less them me are getting into homes worth twice what mine is.

      Rent/Mortgage should be about 30% of your income, but in a lot of cases I'm seeing it as high as 60%. People need to accept and be satisfied with less.
      • drmangrum, on 04/21/2008, -1/+13Don't know why you're being dugg down, you're right.
      • EdwardsNH, on 04/21/2008, -0/+930%... Hell 25% has always been the historical norm.

        sold my townhouse after it tripled in value... interest made on the profit is paying the rent... will buy again when housing market regains its sanity
      • laughandsing, on 04/21/2008, -7/+2Except for the fact that most homes that the average family can buy are at least 1/2 million dollars.. And I live in a redneck neighborhood. This is why people are staying at home until they are in their 30's. I believe that you should live within your means, but you have to agree that housing prices are rediculous. Even hud homes are running in the 300,000's, and these are homes that need lots of work. Its just a tough predicament.
      • eggsovereasy, on 04/21/2008, -0/+3I pay 11% of my POST tax monthly income on my rent (7.6% in three paycheck months).
    • ralphthemagi, on 04/21/2008, -26/+14What you don't understand is that it's not just their bed, it's everyone's bed. It's like a giant, group ***** orgy disaster. You are ***** anyway.

      If you don't do anything, and just let everyone "deal with it" the entire capital system can collapse. The value of the dollar will plummet down to something you've only read about in stories, and even if you have a credit rating of 800, you won't be able to get a loan to save your life. Now you've got people out of work eating up tax payer coin anyway, and not putting anything back in.
      • insanebrain, on 04/21/2008, -4/+19I pay a price I can afford for my bed. Let them sleep on the street.
        • MWeather, on 04/21/2008, -2/+7Nobody is going homeless over this. They're just going back to renting.
        • nycmac247, on 04/21/2008, -3/+1not if a lot a lot a lot of people go this way - then rents will skyrocket imho
          • MWeather, on 04/21/2008, -0/+6Luckily for them, I hear there are a lot of empty houses available. Something about a rash of foreclosures.
        • cubicledrone, on 04/21/2008, -2/+1Good luck renting with a foreclosure.
      • drmangrum, on 04/21/2008, -2/+31You need to learn more about economics. It's the bailouts that will devalue the dollar. Where do you think that money comes from? It's conjured out of thin air. People NEED to lose their homes. They are in the wrong homes to begin with. If your family income is only 90k a year, you SHOULDN'T be in a 3k sq ft home worth $600k. This is what's called a natural rebalancing of the market. You can't grossly overvalue a commodity and not expect backlash. The economy will tank for a couple years, but in the end it will be healthier for it.

        All these bailouts and such do nothing than delay the inevitable and perhaps even make it worse. A lot of people ***** up. They rolled the dice and they lost. That's capitalism. Sometimes you lose.
        • SpaceMonkeyZero, on 04/21/2008, -0/+11replace "worth" with "that sold for"
          • drmangrum, on 04/21/2008, -0/+5yeah, well, i would, but you know the whole 2 minute edit window:)
          • MWeather, on 04/21/2008, -0/+7Everything is worth what it's buyer will pay for it.
          • SpaceMonkeyZero, on 04/21/2008, -1/+4That's the problem. the "worth" was inflated by a flood of bad mortgages.
        • wrxpert, on 04/21/2008, -0/+10There are so many people living in these huge 5000 sq ft. homes around here. These are homes they should not have been able to afford. If they would have built homes there that were smaller people could have afforded them more readily and more people could live there. I don't understand this need for so much of this new construction to be so large.
          • SpaceMonkeyZero, on 04/21/2008, -0/+3Property taxes. The towns saw dollar signs. Larger homes have less people, and higher taxes per capita to fund the town's pet projects. Greed all around.
        • cubicledrone, on 04/21/2008, -6/+3But see only the working guy loses. The big money has a guarantee. The CEO gets a guaranteed contract. The working guy is "right to work." The bank gets the house. The working guy goes back to renting. That's not capitalism, and it's not a free market either.
          • mcquitty, on 04/21/2008, -2/+10Actually, it is. Someone bet they could afford a house they couldn't.

            It's the entitlement mentality. I deserve this. I need that.

            Well, you don't. Save your money and buy a house within your means. I bought my house for less than two year's gross salary. Something I could afford. I qualified for a house much, much more expensive. I chose my house based upon my needs, not because I felt entitled to it.
          • jpmoney03, on 04/21/2008, -2/+6How do you think the CEO got there. He won the contest to be CEO and because of that he gets a contract and if a board is dumb enough to allow a huge severance package or something like that good for him for talking a bunch of idiots into it. (AKA blame the board not the CEO) If the working guy is good he will be able to find another job in a short time. Poor planning is where this losing your job thing gets ugly since a smart person is in a home they can afford and has therefore set aside an emergency fund that can take care of the mortgage until he gets a new job or can sell the home in order to cash out his equity and then move into something he can afford with his new job. Seriously if am going to have any sympathy for somebody they better have been lied to about the loan they were getting into.
          • mahdaeng, on 04/21/2008, -1/+2Bless you, mcquitty, but you are unfortunately in the minority. I wish more people thought like you do.
          • MWeather, on 04/21/2008, -4/+3The CEO got the job because he works 10,000X harder than the janitors. That's why he gets paid 10,000X more.
          • andy314159pi, on 04/22/2008, -2/+1>"But see only the working guy loses. The big money has a guarantee. The CEO gets a guaranteed contract. The working guy is "right to work." The bank gets the house. The working guy goes back to renting. That's not capitalism, and it's not a free market either."

            That is capitalism. Your problem is with capitalism itself.
          • MWeather, on 04/22/2008, -1/+2Government bailouts are capitalism?
          • andy314159pi, on 04/22/2008, -1/+2I'm not sure he was referring to government bailouts; if so I stand corrected. Also, I made no value judgment on his criticism.
          • MWeather, on 04/22/2008, -1/+2What guarantee did you think he was referring to?
          • andy314159pi, on 04/22/2008, -1/+2whichever ones are provided to him by virtue of his position.
          • MWeather, on 04/22/2008, -0/+2Him? There are 2 entities being discussed: the bank (the big money) and the CEO.
      • nycmac247, on 04/21/2008, -0/+5maybe it needs to collapse and we are here b/c we let this BS go on and on and on and on and there's always an excuse?
        • mahdaeng, on 04/21/2008, -0/+3Not maybe. You described the situation perfectly.
    • inthe80s, on 04/21/2008, -4/+9Your taxes won't go down no matter how much your property value is depressed. Local tax rates are generally adjustable, and will just be increased to make up the difference.
      • SpaceMonkeyZero, on 04/21/2008, -0/+8Depends on the state. Some states do yearly appraisals of your property and base your property and school taxes on some dollar amount per $1000 value. Of course they always over estimate your property's value.
        • InfidelAl, on 04/21/2008, -0/+1Yeah, I think they do that in a lot of places, which doesn't make much sense to me. If I live in my house three years and it's value doubles, then my property taxes double. Problem is, my income didn't double. It has forced people on fixed incomes to sell their house simply because their property taxes kept increasing every year.
    • tunapez, on 04/21/2008, -0/+20Hear, hear. The greedy allowed the "liar loans", the lazy took the ARM's and this so called loss is abundantly comprised of "wealth" "created" out of thin air as home values skyrocketed without merit. So, how much did the economy gain by 200% run-ups of property valuations in previous years? And now the skid is on, values are STILL 50%+ higher than 5 years ago. Go to your county assessor's website and see for yourself.
    • lnxfi, on 04/21/2008, -3/+18I wish I bought a huge home instead of being sensible and living within my means.
      • SpaceMonkeyZero, on 04/21/2008, -1/+7If the government starts bailing out the stupid who bought too much house then I will stop paying my mortgage and hope the gubmint checks start rolling in!
        • MWeather, on 04/21/2008, -2/+2Let us know how that works out for you.
    • robbiemuffin, on 04/21/2008, -10/+4"The idiot banks and the idiot homeowners who caused this... take THEIR money to cover it."
      well, if their money covered it, there wouldn't be a problem, now would there be?

      We need to cover the banks, not the homeowners... your sentiment is something I can appreciate, it has all the value of a moral certitude. Try keeping an economy running with moral certitude though... people don't pay a lot for that.
      • olenick, on 04/21/2008, -0/+21We DON'T need to cover the banks: if they made lousy gambles, let them fail. If the banks were forced between bankruptcy and renegotiating mortgages to ensure ongoing payments they'd start to negotiate with homeowners in good faith and the market would work everything out. Insulating banks from the downside risk of their own bad judgments just makes the pain deeper and more prolonged.
        • jpmoney03, on 04/21/2008, -0/+5Exactly the banks started thinking that housing prices would never go down so they dropped what they expect for a down payment. While now when they foreclose a home there is no or negative equity and they are losing money. If they wanted to avoid this risk they would have not set such low down payments.

          A similar bailout would be if an oil company decided that oil prices would stay at current levels and started to get oil from sources that are more expensive such as oil shale and then oil prices drop and the oil company is out money. I bet nobody would be begging for the oil company to be bailed out of that.
          • robbiemuffin, on 04/23/2008, -0/+1people didn't start thinking that... its a fact. the value of housing has gone up steadily since the beginning of printed money. before. more than half the world's wealth is in land and building assets. it is so principle that the proper term for this stuff isn't housing, it is _property_: the definition of ownership itself is tied to it. It isn't just valuable... IT IS value. That never changed and no one's opinions have changed on it.

            What changed was just the rules limiting banks.

            But this is much more serious than oil rising to a nice healthy, ridiculous price ... If you don't bail out the banking industry you are going to have a run ... not just a run on some small out of the way banks ... but a run on central banks.

            That kind of a run on the banks means companies go out of business, people starve, riots erupt and the military is called home to put guns in your local Safeway.
      • MWeather, on 04/21/2008, -2/+5How about we try letting the market keep the economy going? Why is it the government's job?
        • InfidelAl, on 04/21/2008, -0/+1Because it's an election year.
        • robbiemuffin, on 04/23/2008, -0/+2You're saying, get rid of the central bank? I'm just checking because that's what it sounds like ... and you can say goodbye to cheap food and cheap clothes and all the other influx commodities if that happens.

          another idea that people seem to think goes hand in hand with it is to readopt the gold standard. If we readopted the gold standard, we get huge initial inflation to compensate for the deviation between the current dollar and market prices. we say that when the dollar drops, we lose purchasing power no matter what. no thanks.
          • Bagos1, on 04/30/2008, -0/+1There will be a transfer of wealth. That is inevitable. How drastic and to whom is still debated.
    • VenDrake, on 04/21/2008, -5/+111) Stupid people took out stupid loans and now they can't pay them back. (agreed)
      2) Stupid banks gave out stupid loans and now they'll never see their money again. (agreed)
      3) Stupid banks and stupid people will suffer for their actions. (agreed)

      There is a problem, however, with the "you made your bed now you sleep in it" attitude. See there are other companies and individuals who will also suffer. Companies and individuals who likely purchase products or services from your employer. When those people get the financial pinch, your company will also get the financial pinch. When companies get the financial pinch...hello layoffs.

      I'm glad you chose a house you can afford, I really am; but unemployment can still steal that away -- and it ***** sucks because your one of the few who played their cards smart.

      Welcome to "their problem" a.k.a. "our problem".
      • nycmac247, on 04/21/2008, -0/+7a.k.a. "our problem" no no no no
        don't enable an alcoholic no matter how bad the situation and no matter how "bad" the crash will be.
        If you do otherwise, there will be no end ... and the next time will only be worse
        • DiggCommando, on 04/21/2008, -0/+9We have built layer upon layer of this moral hazard over decades, the crash is necessary but will not be allowed to happen in the way it must.
      • MWeather, on 04/21/2008, -0/+1Ok, lets just use the money we would have used on the bailout, and give it to those who would be hurt by not having a bailout. That way the stupid get punished, and the rest of us get a check.
      • andy314159pi, on 04/22/2008, -0/+1I think that you have glossed over a big step in the processes, which was that the banks sold the debt to unwitting investors who believed the regulatory processes would have prevented the sale of worthless debt. This will eventually undermine the confidence of investors and cause further deterioration of the business climate in the U.S.
    • BeforeSputnik, on 04/21/2008, -3/+5"***** you. And suckit."
      Geez. Easy there tiger. Talk about having your cake and eating it too.
    • mahdaeng, on 04/21/2008, -1/+6All I can think to say to that comment is, "Amen, brother!"
    • weeeezzll, on 04/21/2008, -3/+1Hey, you may lose $20,000-$40,000 in home value, but at least you'll save $120-$480 a year in taxes.

      Oh yea, I feel better now!
      • Y0tsuya, on 04/21/2008, -0/+4You shouldn't care unless you have to sell. I don't mind my house halving in value. It just means the house falls back to what I paid for it 10 yrs ago. The phantom paper wealth never entered my financial plans. On the other hand, I love lower property taxes.
    • eggsovereasy, on 04/21/2008, -0/+7I just want housing prices to plummet so I can afford to buy a house.

      I really don't understand. I alone make more than the median household income in my city, but I couldn't comfortably own a house (without eating anything but rice) here even if I got a roommate. How the hell do these people do it?
      • drmangrum, on 04/21/2008, -1/+3They don't.
        • mahdaeng, on 04/22/2008, -0/+1Exactly. That is precisely the problem.
      • Synchro, on 04/21/2008, -0/+5they are financed out the wazoo. living on borrowed time.
    • ManoWar, on 04/21/2008, -2/+3OK check this out japan had the same real-estate "crash" total bad debt around 600 billion. Now there GDP was like 2 trillion. That really hurt. OK now the USA talks of 1 Trillion. You know that's going to be 2 Trillion before this is over. But our GDP will be over 13 trillion. Don't Buy the Hype!
  • EelfinnTy, on 04/21/2008, -5/+7I wonder how this compares to the savings and loan crisis of the 80s and 90s if you adjust it for inflation?
    • meruru, on 04/21/2008, -2/+17"This dwarfs how much it cost to help banks during the savings and loan crisis of the late 1980's and early 1990's. That cost taxpayers about $250 billion in today's dollars."
      • jamesdew, on 04/21/2008, -0/+4you could't even have a small war with that
    • dreicher, on 04/21/2008, -0/+13Third paragraph in the article... "This dwarfs how much it cost to help banks during the savings and loan crisis of the late 1980's and early 1990's. That cost taxpayers about $250 billion in today's dollars."

      Obligatory: RTFA.
    • minorthreat, on 04/21/2008, -1/+1well I was dugg down for stating that you can't acurately say a 1 dollar from year X is worth Y in year Z. Gas was .89 cents in 98, I made 5.15 an hour. Gas is $3.45 now, I could possibly make 5.75 if I stayed where I was. It all depends on what goods you are purchasing and other factors, such as.. We are obviously paying way to much for gas(over inflated). We are obviously not raising minimum wage to keep up with the real inflation. In my opinion minimum wage should be about 9-10 bucks. Gas should be no more than $1.50
      • Nougat, on 04/21/2008, -0/+3And pillows should be free.
      • aspec, on 04/21/2008, -2/+3You think you should get paid 10 bucks an hour to ring a till and have gas at a buck-fifty?
        I agree that the wage should go up, but products and services are due for an update in price.
        You can't compare a gallon of gas from then and now, anyway. The difference is not having an oil baron in office.
      • MWeather, on 04/21/2008, -1/+2Luckily they take stuff like that into account when they adjust for inflation.
      • rficwizard, on 04/21/2008, -0/+1There is no such thing as what the price "should" be. Equilibrium prices are what they are because of the market. Saying gas "should" be no more than $1.50 is not meaningful. You could reasonably say something along the lines of "if we had done X, gas prices would be Y". There is no reason to think that the price of gasoline will stay constant relative to the price of any other good (including unskilled labor). The price of gas has gone up, and the price of unskilled labor has gone down, mostly due to the "development" of countries such as China and India. That is neither good nor bad, it is just reality.
  • froma, on 04/21/2008, -4/+29dugg for $420 billion... a day late though
  • DraconWolf, on 04/21/2008, -9/+27*Sigh* The American people should be used to getting screwed by taxes being spent on ridiculous things...The Iraq War is at $500 billion currently of OUR tax money, another great use of cash...
    • poidh, on 04/21/2008, -20/+5Iraq war! Iraq war! Waaa! Waaaaa! I'm doing an impression of a crying baby crossed with a broken record!
      • DraconWolf, on 04/21/2008, -3/+9Oh come on poidh, you cannot reasonably tell me that the Iraq War was really worth the $500 billion. You can't think of a signle thing that this country could do with half a trillion dollars that is more worthwhile?
        • poidh, on 04/21/2008, -1/+6Well the truth is that we don't yet know if it was worth it and may not for a very long time.

          A relative of mine is currently spending alot of money on private treatment for a serious illness. She isn't getting any better at present, but I'll reserve judgment until she either gets better or dies. But then again I have the luxury of not having to use my relative's illness as a hammer to bash the evil neocons with.
          • MrErr, on 04/21/2008, -1/+4I can say now that the war was not worth it. They were noweapons of mass destruction. There was no al-qeada connection and we were not in danger of being attacked by iraq. There are more killings today then there were under Saddam Hussein. We gained nothing but only lost trillions of dollars.
          • poidh, on 04/21/2008, -1/+2MrErr, there isn't alot I can do for someone like you. Grow up, take a step back, breathe deeply then engage your brain.
          • poidh, on 04/21/2008, -1/+2MrErr, there isn't alot I can do for someone like you. Grow up, take a step back, breathe deeply then engage your brain.

            If I bury a gold ring in my back garden but you can't find it, does that mean I never buried it there?

            When curing a long term illness, do you sometimes have to get worse before you get better?

            Should every action be judged in the shortest term possible?
          • ProgressBar, on 04/21/2008, -0/+3poidh, do you really believe the terrists are gonna drop a nukular bomb at your door if we left or better yet, never invaded Iraq? Duct tape much?
          • ManoWar, on 04/21/2008, -0/+1Remember is the phase one of the greatest war. Many of you don't believe that Islam is on the move. At this moment many men are working to bring down the kingdoms in the middle east. They are very upset with the ruling class's willingness to work with the west in a subordinate role. Now Islam is in the west with business and charity all funding the movements for a caliphate. I wish I knew who was to be the Caliph. If a Caliph gets his way then all westerns will be removed from the middle east and there will be world war. They believe it will be Gods( Allah) will and a divine right.

            We are not in the middle to rule and steal oil. We are providing safety to the democratically elected leaders.
            Saddam Hussein wanted to be Caliph so bad he couldn't stand it and told almost everyone. Part of the reason Iran hated him. Not just because he wanted oil. Open you eyes past the Oil there is a much deeper story. His followers that still fight on for him so people will remember him on the same level as Saladin.

            Once this is over people will be welcome in the middle east and all nations still standing will look like Dubai.
      • dynamojoe, on 04/21/2008, -5/+2Your "crying baby" impressions sounds a lot like "***** idiot"
    • pintomp3, on 04/21/2008, -1/+12you think the iraq war cost us a lot? we have given israel $1.6 trillion since 1973.
    • allera, on 04/21/2008, -0/+0$500 spent. How much including interest, though? We all know that is borrowed money.
    • markgl, on 04/21/2008, -0/+1always comparing this amount to that amount as if it really matters.
    • JesusHatesYou, on 04/21/2008, -0/+1George Bush is recreating his dad's Presidency: a war, a ***** up economy, and a trillion-dollar bailout. Jeb Bush will run for President next and hunt George's Moby Dick - Osama - just like George hunted his dad's (Saddam).
    • LinuxGalore, on 04/22/2008, -0/+1lol, US$500 billion, try $3.2 Trillion so far with the full bill if the US stays till 2012 of (puts pinky in mouth) US$9 trillion dollars.

      http://www.abc.net.au/rn/backgroundbriefing/storie ...
  • SkateItsGreat, on 04/21/2008, -0/+46Who's idea was it to give loans to people that can't pay them? Companies should be responsible for their own failures. People should be smart enough not to get in debt like a sucker.
    • Eezyville, on 04/21/2008, -2/+2I agree, the companies should be more responsible. The people should be more informed. Lets use this tax money to inform the people and sue the companies. We need some type of cheap plan to get them outta debt and at the same time punish them for stupidity.
      • diggsmitty, on 04/21/2008, -1/+3It's called bankruptcy. It might be OK if a small percentage of the population goes under, but with the numbers they're talking about, it will affect us all.
    • dreicher, on 04/21/2008, -0/+3You sum up the brunt of the problem right now. On one side, you have these companies that are "too big to fail" with governments, Wall St. and the Fed saying we need to keep them going. On the other side, you have the individuals that (depending on your perspective) were conned or incompetent and took out a loan they could never pay back. One side wants to save the big companies and as a side-effect some of the people. The other side wants to save the people and as a side-effect some of the companies. And both sides want to use your money to do it.

      I say let them all fail. We don't have a housing shortage so prices will fall until they come back in line with what people can afford to pay. People who were foreclosed will be able to rent for a while until they can get back on their feet (maybe forever, but I'm okay with that).
    • markgl, on 04/21/2008, -0/+1right. Now bear stearns is getting all of our money because it's broke! WTF! No way, that is as bad as taking my money and giving it to someone else because they're to lazy to get a job!
  • CRCulver, on 04/21/2008, -7/+4Luckily I make euros and, when converted into dollars, it pays my student loans back quickly. But I wonder how banks are going to get their student loans repayed if the economy totally tanks. The past couple of decades have seen the rise of a debt society, and there hasn't yet been a financial crisis to the degree that people start massively ignoring credit cards and student loans. Will we see the return of debtors prisons?
    • Nougat, on 04/21/2008, -0/+11Thank you for funneling cash from Europe into the US economy.
    • psykiv, on 04/21/2008, -0/+2Debtor's Prisons? So what? Now we're not only going to bail out the irresponsible people, but we're giving them a place to stay and 3 meals a day out of our tax money? wtf?
    • heystoopid, on 04/21/2008, -0/+1They already exist , for the under privileged minorities !
  • ramong, on 04/21/2008, -0/+27So, if I get involved in high risk lending and a flop, does the goverment bail ME out? no! then why most we pay in order to diversify these big guy`s risks?
    • whereiseljefe, on 04/21/2008, -1/+6Because they are the "big guys"
    • meruru, on 04/21/2008, -1/+2The only explanation I can think of is that if we let Fannie and Freddie collapse and go out of business then the whole banking industry will implode. The $420 billion lost bailing them out would be less then the hit to the economy if the banking industry fell.
      • dreicher, on 04/21/2008, -0/+3$420B is on the low side. Every number that has come out thus far in terms of losses has been on the low side. When they finally mark-to-market these toxic loans $1T may even be on the low side. A bailout also, in no way, guarantees that Fannie/Freddie won't fail at some later date - we just push back the clock another 1, 5, 10 years. You also don't take into account the money necessary to prop up all the other banking community members - which we have done and continue to do.

        This is nothing more than reverse wealth-redistribution. Take money from the middle-class (taxpayers) and move it to the upper-class (investors). It's insanity that because Dick and Jane America might be inconvenienced by losing a home they never really owned and being forced to *GASP* rent for a few years, we are even talking about this.
        • aspec, on 04/21/2008, -0/+5It's not about Dick and Jane having to rent, the problem is that if Dick and Jane get kicked out of their houses, then banks end up with properties that they can't afford to own (either legally or financially). If the banks go under, so does consumer spending, and you end up in a depression.

          You're right about the blame being in the wrong place. And where the money is coming from, but there is one thing that I know, old money always looks out for old money. Government wants a bailout? I bet they could find some quick cash on those CEOs and brokers that made millions and billions on screwing people with subprime loans and bailing out.

          But then who will pay the politicians?
        • tophu, on 04/21/2008, -0/+1Exactly. Let the whole thing collapse. Those who can produce, will. Let the looters who just want to live off their backs starve.
      • olenick, on 04/21/2008, -0/+2Why? This doesn't make sense. They're supposed to be private. They paid themselves as if they were private. Let them fail. The mortgages will be purchased by somebody else and renegotiated for "genuine" market rates (read that as what people are able and willing to pay): the free-market will work itself out.
    • 4degrees, on 04/21/2008, -0/+2because you, nor I, can afford to stop them... The system does not work unless you can pay for it.
  • aspec, on 04/21/2008, -1/+20I laugh because this mortgage crisis is directly related to the laws that they lobbied to get passed to make it harder to declare bankruptcy. You can't run away from credit card debt anymore, but you can just walk away from your house.
    • pintomp3, on 04/21/2008, -2/+8they also lobbied for less regulation. the banking and credit industries know exactly what they doing. they created this crisis, which they profited heavily from, and now they will get a huge tax payer bailout. privatize the profits, socialize the loss.
      • jizzypop, on 04/21/2008, -1/+19this bears repeating:

        privatize the profits, socialize the loss
        privatize the profits, socialize the loss
        privatize the profits, socialize the loss

    • stonklit, on 04/21/2008, -0/+1There are consequences from walking away from the house. Big time.

      As in, your credit is entirely ***** for 7 years. You can't do ***** in this country without credit.
      • nycmac247, on 04/21/2008, -0/+3lol I thought you wrote "You cannot take a ***** in this country without credit."
    • allera, on 04/21/2008, -0/+3How long before there are so many foreclosures, so many repos, so many credit cards default, that it will start to desensitize future lending practices?

      "Oh, I see you have a foreclosure here, Mr Smith"
      "Why yes, I lost my home in the Housing Bubble of 2008"
      "I know, right! Me too! We are able to overlook that and approve your new mortgage. Welcome!"

      Somehow, I don't see blemishes to SO MANY credit reports affecting their ability to get proper credit. Over extend themselves, probably not, but proper credit, it's certainly possible.
      • Screwy1138, on 04/21/2008, -0/+1This is exactly what will happen if there is bailouts and no suffering.
  • DeFex, on 04/21/2008, -1/+14will they bail out guido the loan shark if he accidentally kills too many of his customers?
    • nirav72, on 04/21/2008, -0/+2It is Vito..not guido! get your loan shark thugs straight!
    • cambob76, on 04/21/2008, -0/+2Han shot first.
  • gametavern, on 04/21/2008, -3/+21Does this mean I get a free house that someone else is going to pay for?
    • laserblazer, on 04/21/2008, -1/+16Nope - this isn't about you - it's about people that lost much more money who are a lot better connected. The government will never bail out the poor.
    • skellener, on 04/21/2008, -0/+5No, you just get to pay for that guy's house and you get nothing for it.
  • joerod, on 04/21/2008, -0/+17I wish I would get this kind of bail out when I over spend or spend on things that I know are bad.
  • Berek, on 04/21/2008, -13/+7***** the RIAA!!!
    • breckinshire, on 04/21/2008, -4/+3Your enthusiasm is to be admired.
    • Ricemanstm, on 04/21/2008, -0/+2But your lack of intelligence is to be ridiculed.
  • poidh, on 04/21/2008, -0/+28Tax payers' money? Well I'm not from the US, but I want to object on their behalf.
    • mahdaeng, on 04/21/2008, -0/+3I am from the U.S. and I wholeheartedly welcome your objection.
  • Aidenf77, on 04/21/2008, -2/+7But wait, wouldn't the great fiscal economic stimulus package that we're all SO looking forward to help stave off the inevitable for some of these people? Oh, that's right... that's barely enough to pay their fuel bill for the month when they receive it.
  • Homerr, on 04/21/2008, -6/+8How will we afford this when we have a $3 trillion dollar war to pay for also?
    • olenick, on 04/21/2008, -2/+4Don't exaggerate: it's only a $2 trillion dollar war. :(
    • skcoder, on 04/22/2008, -0/+0Thats easy...just print more money!
  • vooc, on 04/21/2008, -8/+0www.ie.la
  • buymagicfish, on 04/21/2008, -2/+4Sound like a lot of money, but compared to a certain unmentioned war, I think we would be getting a bargain to temporarily patch up a pretty huge problem.
    • GhostyBoy, on 04/21/2008, -0/+1So.....at least it's not as bad as the last time we got completely ***** over?

      There is apparently no rock-bottom for standards.
  • AROERS, on 04/21/2008, -1/+3If you create money out of thin air (how banking works). What do you actually 'lose'? Just an excuse to sell the same property multiple times or gain control of that property.
  • Ricemanstm, on 04/21/2008, -4/+37Although I don't quite agree with edstates's verbose presentation, I do agree with the sentiment. I'm sorry, but if you thought you could afford a 500K house on 2000 / mo with zero down, then you were two things:

    1. A deluded idiot who shouldn't be trusted with money.
    2. A mortgage company's wet dream.

    As Gordon Gecko once stated, "A fool and his money are lucky enough to get together in the first place..." And PT Barnum said "There's a sucker born every minute." Were the mortgage companies to blame, some were, but ultimately it's your signature on the paper. If you didn't understand it, you shouldn't have signed it. If you "trusted" your agent, congratulations, you learned a valuable lesson. Now, as usual, those who took their time and made smart decisions will now, once again, have to pick up the pieces and pay the tab for the stupid yutzes of the world who believe that happiness is a right, when in reality it's the pursuit of happiness that is the right.
    • moolaismyfriend, on 04/21/2008, -0/+14I know I have been reading these sob storries of families loosing 635,000 homes in the Bay Area and they are making like 5 thousand a month before taxes and bought the house with zero down.

      Hello???

      Why would anyone think they could afford a payment over 3200$ a month? People are retarded.
    • RobotLeAwesome, on 04/21/2008, -1/+3but you must agree - these lenders should be held somewhat responsible because it was their intention to mislead people
      • Ricemanstm, on 04/21/2008, -1/+12I'm not going to excuse the crooked mortgage lenders out there, but at some point there's this little thing I like to call "personal responsibility" that needs to come into play. One of the biggest problems we have in this country is that we've made it far too easy in our society to blame someone, or something, else for our failures. No one forced anyone to sign anything, oh sure there's the high pressure sales hype, but you are always in control. If you can't walk away from it, then you shouldn't be there in the first place.
        • edstate, on 04/21/2008, -0/+4Sadly, you are living in a bygone era, sir.
        • RobotLeAwesome, on 04/21/2008, -1/+1Yes, I can't argue with your point - people need to be more responsible, especially because these lenders are trying to be misleading.
    • stonklit, on 04/21/2008, -3/+1Signatures are BS.

      What they NEED are papers from the signer explaining what they think is being signed versus what is. In a mortgage, there are SO many fine print ***** items that it would take you literally days to read and sign everything.

      Yet, it's a common process, "Now sign here.. now here, now here, now here..."

      It's VERY easy for them to randomly slip something in without you knowing it. Or if they do, they can explain something else that will create this illusion that you're signing one thing versus another.
      • Ricemanstm, on 04/21/2008, -0/+5Not going to debate you on that one. But again, if you can't walk away from the deal then you shouldn't be there in the first place. I took two days reading over my paperwork, found a couple of discrepancies, asked questions, and then had the whole thing redone with the corrections. Mortgages are not, and should never be, a quick process. Another thing is to go with company that's been around for awhile. You may pay more up front, but it's worth it for the piece of mind later on.
        • mcquitty, on 04/21/2008, -0/+5Not only that, but there are certain aspects of a mortgage that are clearly spelled out. For example, the amortized payment schedule. It also lists whether the loan is fixed and if it isn't, when the rate is changed as well as the upper and lower bounds of the interest rate.

          It's actually pretty simple. The Truth in Lending act pretty much requires all the financial information be disclosed.

          If you don't take the time to read a document covering a mortgage that lasts 15-30 years of your life, then you are a moron. Plain and simple.
    • nbcaffeine, on 04/21/2008, -1/+3Barnum never said that
  • david76, on 04/21/2008, -0/+22The Sub-Prime Primer: http://docs.google.com/TeamPresent?docid=ddp4zq7n_ ...

    A beautiful explanation of how we got to where we are.
    • Mardala, on 04/21/2008, -0/+3yep that about sums it up. now we wouldn't be in this mess had there been some regulation on how mortgage lenders managed their loans.
      • dreicher, on 04/21/2008, -0/+7We wouldn't be in this mess, if...

        Alan Greenspan hadn't basically zero'd out the Fed rate and kept it there for so long.
        Sheep hadn't flocked to buy homes they couldn't afford even at artificially low interest rates.
        Credit agencies had rated CDO and MBS's with some sanity.
        Realtors had properly advised their clients that, in fact, real estate doesn't always go up.
        The lenders hadn't preyed upon an ever-dwindling pool of suckers to get to sign.
        The underwriters had done some investigation to minimize fraud and abuse.
        Cities across America hadn't turned a blind eye enamored by all the potential new tax dollars.

        There is plenty of blame to go around...
        • mcquitty, on 04/21/2008, -0/+4Don't forget the speculators buying houses and condos hooping to flip them for profit. Which became a viscous cycle.

          It's basic economics. I want to buy a house to live in. I am competing against people who want to buy a house/condo so that I can sell it to someone else for a profit. Well, eventually, I either determine the price isn't in my price range and don't buy, or I buy, fueling the problem.

          When the cheap money goes away, the investor is left holding the bag, trying to sell for more than they paid. Only, now the demand is low. The real buyers can't afford it and the price requires a correction to fit supply and demand.

          In Florida, it had become so bad that condos were setting restrictions such as flipping within a specified timeframe.

          It's plain and simple. It was 2000 again, instead of stocks, it was houses.

          Let the correction happen. It will be better in the long run. Government intervention is what caused the Great Depression.
    • david76, on 04/21/2008, -0/+6Yeah... Come on, when you have a loan category called NINJA loans, you've got problems.
    • nycmac247, on 04/21/2008, -0/+4got one for derivatives (the sleeping dragon?)
  • Eezyville, on 04/21/2008, -3/+9You guys think we could let this die and rebuild from scratch? Is that an option?
    • RobotLeAwesome, on 04/21/2008, -2/+3Yeah, this whole thing needs a reset button.

      • mike17032, on 04/21/2008, -2/+1You know that you digg kiddies would have to leave your parents basement if someone hit that button right?
        • nycmac247, on 04/21/2008, -0/+2but "they" would still keep paying you to be smug and self-righteous, right?
    • NYC10004, on 04/21/2008, -0/+4Eezyille,
      It is possible to stop this thing by chopping the head of the serpent a.k.a the Federal Reserve. It's actually been done before. Andrew Jackson saw that the US was being led into debt and looted by the 2nd National Bank and moved to stop it and did. Unfortunately history is forgotten, allowing history to repeat itself. Personally responsibility on the part of the investors is a part of it, but the facilitator is the Fed.
    • MrErr, on 04/21/2008, -0/+1I have no problem bailing them out as long as it is with money from the bankers and all those top brass people who made their millions. Only after that maye then we can talk about using taxpayers money to bail them out.
    • Hangly, on 04/21/2008, -0/+1It's the only option. The market will find equilibrium, the only question is how much damage will be done.
  • moolaismyfriend, on 04/21/2008, -6/+24Buy a house or the terrorists will win.

    /Fox News
    • Ricemanstm, on 04/21/2008, -9/+2Ah yes. There's always the core group of Bush haters who need to chime in with Fox and Bush bashing. Get a life you lib-tard!
      • MrErr, on 04/21/2008, -0/+3Why the negative reaction? It was funny. I need a laugh every once in a while.
        • Ricemanstm, on 04/21/2008, -0/+2So do I, that's why i keep coming back.
      • ProgressBar, on 04/21/2008, -0/+1C'mon, Bush has said as much with his rallying cry of "go shopping".
  • krli, on 04/21/2008, -1/+11Yes, everybody including the government saw this coming. But the loan sharks knew the gov would bail them out and the gov needed a bubble economy to float on until someone else got in office. The gov will bail them out, just as they have airlines and savings and loans in the past, and just as in the past, it's the little man who gets screwed. This country needs a revolution!
    • IronDonut, on 04/21/2008, -0/+1Yeah but that bubble popped a couple of years too early.
  • eric513, on 04/21/2008, -0/+21Soooooo.... since I decided to wait to purchase a home until I could afford one (and still haven't purchased yet), I now have to help foot the bill to bail out all the morons who took out shady mortgages? Sounds about fair.

    • dynamojoe, on 04/21/2008, -2/+5On the bright side, the market is looking a lot better for you.
    • edstate, on 04/21/2008, -0/+4As fair as it gets these days.
    • stonklit, on 04/21/2008, -1/+3You're bailing out banks, not people who had the mortgages.

      And the people who had those mortgages were victims of shady banks and lenders.
      • mcquitty, on 04/21/2008, -1/+2Yes. Because a banker held a gun to the person signing the paperwork.
    • cubicledrone, on 04/21/2008, -0/+5Some of us did the right thing and got educations and experience so we could have a good job too.

      And we all got fired.
    • mahdaeng, on 04/21/2008, -0/+2Actually, you're going to be on the winning side as the house prices fall. Whatever you've saved up to this point to put towards a house is going to get you more for the money. You did the right thing.
    • jtown, on 04/21/2008, -0/+3Welcome to the suckiness of being responsible. Back in the 60s, you could buy a decent house in a decent neighborhood near where I grew up for about a year's basic white-collar salary. By the time I was out of school and in my first white collar job (early 90s), you were looking at 3-4 years' salary. Now it's 10 years' salary. That progression is seriously ***** up.

      I could have probably stretched my budget, bought a 3-room place in the mid-late 90s and rented out the extra rooms to pay my mortgage but it wasn't the economically responsible thing to do. If I lost a renter, I'd be eating generic ramen until I got the room filled. If I lost both renters at the same time, I wouldn't be able to pay all my bills. Even with a full house, it would have been tough to put away a nest egg.

      If I'd known then what I know now, I would have gone for it. Buy at $150k, live in the garage until 2006, then sell for $500k. But housing prices were already out of control back then. It didn't seem like there was any way prices could continue to rise like they had been. I figured if I got into the house at $150 in '96/97, I'd be lucky if it was worth $100 in 10 years after the bubble burst and I'd be stuck paying off the extra. Better to wait for the bubble to burst and be ready for it. And wait...and wait...and wait... So now it's burst but prices are still insane. Even if prices drop 30% tomorrow, home prices in many areas will still be out of reach of anyone making less than a hundred grand a year. And I'm not talking about downtown NYC. Just generic 'burb-hoods within half an hour of urban centers.

      What happened to the days when one parent could hold one white-collar job and be able to afford a 3 bedroom house with a bit of a yard, 2 cars, a couple of kids (even putting money away for college), and a family vacation every year?

      Hell, adjusted for inflation, my salary is higher than my grandfather's was at my age and he had a wife, 2 kids, a big home on 5 acres, some horses, 2 cars, and a frickin' plane. Where's MY plane? :)
      • itsthemechanic, on 04/22/2008, -1/+1While I can see what you on about, the closing paragraph also perfectly describes what's wrong with America -- the gigantic sense of entitlement? "Where's my plane?", my ass. You don't see the Chinese asking for ***** planes. That's why they are economically kicking your ass.
        • cubicledrone, on 04/22/2008, -0/+1They're not asking "where's my plane" because they're too busy building them. You know, the ones we used to build?
        • mahdaeng, on 04/22/2008, -0/+1I'm as against the attitude of entitlement as anyone else (maybe even more so), but that was not his point. His point was that his grandfather made comparatively less money and was able to afford more. He was not complaining about not having a plane, he was complaining about not being able to afford one even though he makes more money than his grandfather did.
  • rmxz, on 04/21/2008, -0/+22And before people were so very concerned about "affordable housing"

    Seems like an easy way to get "affordable housing" would be to let the foreclosures happen, and prices will come down to where normal people can afford a house.
    • VeritasAequitas, on 04/21/2008, -0/+2That's what my fiance and I did! We bought a beautiful house that was foreclosed on. We could never have afforded it 2 years ago, but now, well our mortgage, insurance and such is 28% of our income AFTER taxes. and we both have very very secure jobs with short and long term dissability and life insurance plans that would all more than cover the mortgage.
  • gthrank, on 04/21/2008, -1/+13***** that. I stayed away from buying a house for years because I saw a bubble inflating. If the govt now bails out those people, that would be so grossly unfair. Where were they when people got stuck in speculative tech stock buying in 1999? If you bale out people from one bubble, you've got to do it for everyone. It's TAXPAYER money.
    • nirav72, on 04/21/2008, -0/+5"***** that. I stayed away from buying a house for years because I saw a bubble inflating."

      Think of the plus side - at least now you'll be able to get a decent house without over paying.
  • Labourer, on 04/21/2008, -2/+4I think the situation is far graver even that this article is suggesting. It revolves around the deriviatives market particuarly debt based such as cdo and cds.

    credit deriviatives were designed since 1995 to manage and insure against debt risk , they are ridiculously complex . this is how the subprime crisis came about as no one really understood the nature of the risks involved and they still dont as only a handful understand properly how to understand the situation with these complex instuments. it basically amounts to a massive betting timebomb that is going to go off . It has started already . the sums involved are about 400-550 trillion! warren buffet has expressed extreme alarm over this market which has only existed since 1995.
  • mobilehavoc, on 04/21/2008, -2/+2We JUST managed to squeeze in a mortgage a month ago before the ***** hit the fan. Thank god.
    • robbiemuffin, on 04/21/2008, -0/+2Hey good luck with that. Straight up.
    • Hangly, on 04/21/2008, -0/+1So what you're telling me is your house is worth half of what you bought it for? Um... congrats!
  • jbmcb, on 04/21/2008, -4/+2" This dwarfs how much it cost to help banks during the savings and loan crisis of the late 1980's and early 1990's. "

    It's called inflation. It's why cars cost $500 80 years ago.
    • nycmac247, on 04/21/2008, -0/+3no - this has several more digits attached
    • DiggCommando, on 04/21/2008, -0/+2RTFA - Even inflation adjusted it dwarfs the S&L crisis.
    • tophu, on 04/21/2008, -0/+1That's a good point. Abolishing fiat money would go a long way toward avoiding these kind of bad situations. Call your representative in congress and tell them to cosponsor the Honest Money Act (HR 2756).
    • Hangly, on 04/21/2008, -0/+1You fail at reading the English.
  • Ricemanstm, on 04/21/2008, -1/+5Just push the debt out 50 years so you can show a profit now. It's that easy, c'mon everyone is doing it!! Look at Enron! Heck, even the state of California is doing it! All you need is an Excel spread sheet and the "delete" key. Format a few cells here and there and VOILA! Instant profitability and stability!
  • RRJackson, on 04/21/2008, -2/+10People are quick to criticize the money that's been spent on the war in Iraq and knee-jerk themselves towards whatever candidate claims they can withdraw the United States from the region (even though all the candidates know we're there to stay), but I get the impression that a lot of voters aren't really stopping to consider how much a bailout of this fiasco could cost. And there's absolutely no upside to bailing out the subprime mess unless you're a heavily-leveraged banker. If the people elect a candidate who promises to bail out this mess it will be an American tragedy.
  • robbiemuffin, on 04/21/2008, -0/+6and just like in the 80s and 90s, we're faced with two choices ... leverage the debt and kick a quick bailout — but face the same problem only twice as bad several years down the road, or accept dealing with the debt first and facing relative economic stagnancy while we pay for it. oh joy
  • ancalagon73, on 04/21/2008, -2/+16I can't believe how stupid I was.

    I was looking to buy a house a few years ago, and every lender I went to was throwing these mortgages at me. No matter how much I said I couldn't afford it they kept trying to convince me that I could. Well I decided to keep renting and walked away from it. I knew what I could afford, and those mortgages would have broken me. Had I only know that big brother would help bail me out I would have went with it. Now, along with all the other tax payers, my tax dollars have to go to help the other idiots.

    I can't believe how stupid I was.
    • nycmac247, on 04/21/2008, -5/+2You might want to get an AIDS test
    • andy314159pi, on 04/21/2008, -0/+1They have not bailed out individual borrowers. They are bailing out the institutions that lent to them.
  • Shakermaker, on 04/21/2008, -1/+2This story sounds a bit more like "what if" rather than "when". It's different than saying "Terrorists could have a nuclear bomb and attack New York"...that's a "What if" not a "when".
    At the same time, with the state of the US economy the way it is, nothing would surprise me.
  • stonklit, on 04/21/2008, -7/+13People who blame the homeowners are completely uneducated of the situation.

    It was shady lenders who didn't explain everything properly or slipped extra ***** in without borrowers knowing.

    Seriously, how can you even blame the borrower? You HAVE to submit complete and full financial information. They come back and tell you what you can afford, you go buy. It's simple. Now, if a bank comes back and explains, "You can afford a $300k house on your $40k a year salary because we put you in a different program that essentially gives you lower interest," that's not the borrower's fault.

    The issue is when they give you some ARM rate, don't TELL you it's an arm or interest only loan, then 3 years later, they're far far away with what they got paid to do the transaction and you're stuck dealing with hell.

    THAT is the situation. So stop ***** saying it's banks AND borrowers pulling this. It's 100% brokers and banks.
    • nirav72, on 04/21/2008, -0/+11Well I agree the shady lenders are responsible - but the blame should also go to the people who actually bought the homes. A home is a big purchase and a debt that most people will carry for 15-30 years of their life. Shouldn't they make sure that they understand all the terms before signing anything?
      If they can't understand the terms, they have no business buying a home.
      • MrErr, on 04/21/2008, -0/+5In defense of people who took shady loans ... they do not buy homes everyday. They do it once every 5 or 10 years. They are not professionals at it. but the banks and real-estate people are professionals. I remember when buying my first house that the banker quoted Alan Greenspan that no one stays in their home for more than 7 years and me taking an ARM is not risky. He also encouraged me to spend more saying that i could afford a lot more and that is something i have been told by all real-estate agents. I was new to all of this and i figured they were professional and I almost listened to them. I took an ARM but bought a modest house. The only reason i brought up this story is so that people would know that the porfessionals themselves were encouraging us to go into ARM's and spend more.
      • serramagk, on 04/21/2008, -1/+7Sorry but people ARE to blame along with lenders. It's not up to the bank to tell you what you can afford, that' your job. My mortgage company approved me for 80,000 more than I knew I could afford, I knew this because I had worked my budget. Thats MY job. If a person is committing this much money without doing basic research on the type of mortgage they are getting and without so much as knowing how much they can really afford, then they have no one to blame for the terms but themselves.

        Lenders willingly gave credit to people who shouldn't have gotten it. That's their fault and they should have to be held responsible. Bailing them out teaches them nothing, we should be demanding tough-love here or else repeat this again in another 15 years.

        The people I feel for are those who had big changes in their lives such as loosing work or medical issues and were unable to keep their homes through no fault of their own.
      • smergs, on 04/21/2008, -0/+1No doubt everyone in a shady deal is to blame. However, the people handing out the loans will do everything they can to convince you that you can afford more. Even if you know what you can afford the lenders will still find a way to convince you that you did the math wrong and that you can afford more.
    • IronDonut, on 04/21/2008, -0/+4Oh ***** that. Yeah there was a lot of shady ***** happening on the lending and selling side. But you have to be a class A moron with no roots in reality to think that a zero down, interest only loan that balloons in 5 years is a good idea.

      No the rubes that got into these mortgages beliving that they would get rich by living in a big house on borrowed money are just as guilty as the real estate agents and bankers running the con.

      When in life do you get the double free lunch of living in a nice new house AND getting paid to live there? It's absurd.
    • strafefire, on 04/21/2008, -2/+5I have ZERO sympathy for homeowners caught unawares.

      You see, there is this thing called an attorney. You hire him to look at things such as a contract or a mortgage, BEFORE YOU SIGN, so you know exactly what it is you are getting into.

      And, if you can not afford an attorney, then you should not be buying property!
    • SpykerSpeed, on 04/21/2008, -0/+4There's plenty of blame to go around. Blame the public education system for not teaching people how to manage their own money or how to recognize a decent mortgage.
      • IronDonut, on 04/21/2008, -0/+1I think it comes down to personal responsiblity. Yeah the banks, real estate industry, Federal Reserve, builders, the administration (the ownership society...) etc. were running one huge con-game and they should pay for their evil. But the people that borrowed this money bear a lot of responsibility as well. You shouldn't borrow what you can't pay back. You have the discipline to live in a reasonable house that you actually can afford rather than a McMansion that you can't.

        Everyone involved in this fiasco bears responsibility from the buyer to the banker.
      • mcquitty, on 04/21/2008, -0/+2Why is it the public education system's fault?
        • SpykerSpeed, on 04/22/2008, -0/+1Because money is an incredibly important and pervasive aspect of our lives, and it directly relates to simple mathematics. Not teaching it in schools is a glaring oversight.
    • jtown, on 04/21/2008, -1/+2*****. How can a person with a net income of $3500/month not share any responsibility for agreeing to a deal that requires payments of $4000/month? Or $3000? Even $1500 would really be pushing it. And, if you don't understand the terms of the deal, DON'T SIGN!!! Take the paperwork to someone who does understand it and has no stake in the deal one way or the other.
  • rottencod, on 04/21/2008, -2/+7This crisis may have been caused lots of stupid people living beyond their means, sure. Of course, Americans have been conditioned to do just that for over a generation now, taught that credit is the easy way to riches, that banks are your friend, and that real estate never depreciates, all of which is bunk. People have made stupid choices and I don't necessarily think that on moral grounds those of us who haven't fallen into the trap of predatory lending owe them a bail-out.

    But if we do nothing and the economy collapses, it will be a disaster not just for the stupid and the greedy but for responsible people as well. The bail-out has nothing to do with insulating people from their own bad choices. It is insulating the responsible half of the society from the bad choices of the irresponsible half. If my own financial outlook can only be salvaged by lending a helping hand to somebody who doesn't deserve it, then that is what I will have to do. I understand we risk reinforcing and even rewarding bad behavior, but I would rather see people pulled out of financial disaster who should have to work it out for themselves, than have to work myself out of poverty and worthless credit (again) just because I demanded "responsibility" for inexperienced and superficial investors at the risk of threatening my own investments.

    The bottom line is that this crisis has the potential to drag EVERYBODY down -- not just those who made bad decisions. We have to do something to stop this crisis in its tracks and reverse it before that happens.
    • jgzman, on 04/21/2008, -0/+3I concur with some of your points, but I feel that you do not lend enough weight to 'reinforcing bad behavior.' Learned behavior is simple: you act foolish, you get hurt. You act smart, you get benefits. If that cycle is undermined, there is no learning. In other words, if we bail out the banks now, we'll just go through all this again in 100 years, 50 years, 20 years may be. How many times are you prepared to lend that hand to the undeserving, knowing that they will never learn any better?

      As a side note, not directed to you, isn't this the same argument used by people to argue against social help programs? I'm in favor of 'bailouts' for hungry people and the poor, but I just can't get enthusiastic about bailouts for multi-million dollar companies. Some people see it the other way. There may be a lesson there.
    • Spektr4, on 04/21/2008, -0/+2You speak the truth, and the sad fact is, some of these banks really are "too big to fail". The consequences of their failure would be worse than bailing them out. Don't think they aren't punished, though. There is pain all around (just look at the stock prices). Well, except in one category: top executive pay. Government ought to confiscate their bonuses to put toward a bailout fund.
  • JointVenture, on 04/21/2008, -6/+8Almost every person who has posted doesnt own a home.

    Sure am glad we are getting posts from people with experience in the mortgage process.
    • nycmac247, on 04/21/2008, -3/+11So when you want something for nothing and get ripped off we're supposed to feel sorry for you?
      At what point do we stop treating adults like children?
      Or are you senile?
      • JointVenture, on 04/21/2008, -1/+5WTF? I have 3 homes, and 0 debt.
    • MrErr, on 04/21/2008, -0/+3I own a home. I paid for my first home in 2004 and using an ARM. So i know the pain. But i also do not want the government baliling out banks with tax payers money.
    • mcquitty, on 04/21/2008, -0/+2Hmm. Bought my first house in 1997. I am on my third. All within reason (or some would say, absurdity) of my income. After living in my first house for a year, I was making more money a year that the mortgage. That, my friends, is responsible money management.
    • allera, on 04/21/2008, -0/+1How do you know this? You say it with such confidence.
    • Hangly, on 04/21/2008, -0/+3Attention diggers:
      Not all of us here are wiry single nerds living in our parents' places. Many of us are adults with jobs and houses and who regularly make the sex with females.
    • jamaster06, on 04/22/2008, -0/+0I do. I bought my home in 2000 with a 30 year FIXED then refinanced to a lower rate 15 year FIXED. I bought a home that I could afford, and there was no way I was going to be suckered into an ARM.
  • Tantrum, on 04/21/2008, -0/+8Why should we as tax payers bail the banks and whoever else was associated with the mortgage gold rush? If you make a huge financial blunder does anyone bail you out? NO ! YOU have to pick up the pieces of your mess, learn from your mistakes and rebuild. Why should we bail these guys being uber fueled with greed and chasing the pot of gold at the end of the rainbow ? They made huge financial risks making up these nonsense mortgage packages to allow people who could only afford a 200k house get into a 600k house. And the people who bought into this with the intension of 'flipping' their home before the interest rate got locked in to chase their own pot of gold also don't deserve a bail out. You guys gambled huge, well beyond your means and you we as tax payers don't know you a damn thing. YOU loose! Eat it! Banks further shouldn't be bailed out because they are causing foreclosures by not accepting offers at asking price during the short sale period. They leave good offers on the table unresponded to leaving possible buyers hanging and they just loose interest, get tired of waiting and pull their offer. The whole thing is a rediculous mess.
  • nycmac247, on 04/21/2008, -0/+7this is a drop in the bucket compared to derivatives; a sleight of hand to keep us distracted from the real greed that has very little to nothing to do with normal people and is therefore much easier to condemn.
  • IronDonut, on 04/21/2008, -1/+2I think the real estate bubble of 2001 to 2005 will go down as the biggest con ever.
    • skellener, on 04/21/2008, -2/+5No, that title is reserved for the 8 years of the Bush Administration.
      • ProgressBar, on 04/21/2008, -0/+1No doubt. Right from the fraudulent beginning.
  • WTFppl, on 04/21/2008, -1/+3Entropy
  • buddamus, on 04/21/2008, -0/+2I'm waiting for the prices to crash in the UK so I can buy my first home, if they don't crash I can say goodbye to ever owning my own home, I did a search on what me and my girlfriend could get on our wages and the only thing I found was a LOCKUP that would take 10 years to pay off.
  • WTFppl, on 04/21/2008, -0/+2Buy some property in Israel and lease it out to Palestinians!
  • zmigliozzi, on 04/21/2008, -1/+4Yay for people who don't understand the concept (Money Spent < Money Earned).
  • zorinlynx, on 04/21/2008, -5/+1What about the banks who are suddenly raising the rates on ARMs so that the homeowners cannot afford to make payments, forcing foreclosure?

    Why do the banks HAVE to raise the rates? Isn't it better for the bank to get slightly lower payments instead of no payments at all and a foreclosure?

    The banks are at fault here. They tried to collectively ream the homeowners and are now suffering as a result.

    Think of it like a loan shark who is overly strict about payments, and refuses to accept slightly lower payments over a longer time, breaking the debtor's legs instead. The debtor loses his job as a result and can't pay at all. Not very smart, right? That's what banks are doing.
    • rockefeller2, on 04/21/2008, -0/+3I don't think they have a choice. The way I understand it, they resold the loans to someone else.
    • mcquitty, on 04/21/2008, -0/+3Usually, the rates are based upon the PRIME rate. Now, please forgive me if this is ignorant.. But...

      A mortgage company wants some business. So, they offer a mortgage with a teaser rate for a given period. Oftentimes, this rate is lower than the normal rate, so the rate is at a loss. Then, when the contract allows, the mortgage company adjusts the rate based upon a schedule predetermined and non-negotiable. Usually tied to the prime rate listed in the WSJ.

      Now, based upon the contract, the borrower and the lender know exactly what will happen. If the rate drops, the bank/lender make less. If the rate goes up, the lender makes more.

      So, how is holding someone to a contract being evil?
    • UtilityPole, on 04/21/2008, -0/+1You might want to read up some more on interest rates. It really doesn't look like you know a whole lot about how they work.

      Whenever you open up a savings account with a bank, they pay you back interest on it. But then, they lend out the money from your savings account as a commercial loan at a higher rate so the bank can make a profit, AND afford to pay the interest owed on your savings account.

      Banks hike interest rates whenever it becomes riskier for them to lend money. They do this to compensate for the added risk they're taking on. And guess what- when millions upon millions of homeowners are defaulting on their loans, the risk associated with these loans skyrockets- and so do interest rates.

      Banks don't take on higher risks without raising interest rates. Doing so would be really, really stupid.
    • allera, on 04/21/2008, -0/+0These ARMs are designed to reset. Adjustable Rate Mortgages -- it's built right into the name. It's not the banks being mean or anything. Plus, they can't change the terms of the loans because they've been sold, diced up, resold, diced up some more, and sold yet again in risk-management security packages. Changing the terms on the loans would be nearly impossible since there are so many things depending on those terms to stay put. Securities would not be what they were sold as anymore.
  • thomasdt12, on 04/21/2008, -0/+4The "subprime loan" issue is just the start, the Option-payment mortgages are just going resetting. Many of these are far bigger loans, bigger houses, and owners with far better credit scores who will in many cases "just walk away"...

    http://loanworkout.org/2008/01/01/its-not-all-subp ...
    http://www.bubbleinfo.com/statistics-2007/2007/3/1 ...
  • siktath, on 04/21/2008, -4/+3Thanks for regulating us right into this nightmare, Socialists. Thanks for the Fed, FDIC, and GSEs. Why do you hate people so much that you insist on making these institutions and their effects larger?
    • bullhead2007, on 04/21/2008, -0/+4This is probably the most ignorant thing I've seen in this article's comment section. Don't get me wrong I hate regulations and the Fed, and I'm a traditional small government conservative.

      This crisis actually was allowed to happen because of the deregulations that both Clinton AND Bush made. This isn't a "socialist" vs "conservative" issue. Socialism is a form of government, in which the government owns sectors of commerce and corporations. What we have is a form of government that is owned by corporations.

      This country is headed towards a Fascist Oligarch/Plutocracy. Not quite there but getting damn close. (Pretty much an Oligarchy already though.)
      • siktath, on 04/22/2008, -1/+1It's amazing that you can talk about something that you've never studied. Does this impress the trash you hang out with?
        Why don't you answer me why all regulated industries, such as banking, utilities, roads, air travel, etc., etc., etc., are all crap, and all unregulated industries work almost perfectly? The answer is because you're stupid and an inferior human being, if you can even be called a human.
  • Nyck, on 04/21/2008, -1/+6Yea I bought a house last year 30 yr fixed and we can afford it...man what an idiot I am..I should have went with a way bigger house and had the government come and bail me out with a fixed rate and go ahead and knock off 15% of the loan to boot...INSTANT EQUITY.

    So dumb for me being sensible
    • UtilityPole, on 04/21/2008, -0/+2That'll learn 'ya for researching your home financing options.
  • UtilityPole, on 04/21/2008, -0/+4How the hell did you guys NOT see this coming? If you issue a mortgage to some guy who mows lawns for a living or sticks fries in a deep fryer for 30 hours a week, HE'S NOT GOING TO BE ABLE TO PAY IT ***** BACK.
    • andy314159pi, on 04/21/2008, -0/+4Right, but these guys were loaning folks like this money and then selling the debt to investors via these "structured investment vehicles." Those investors had believed that regulations would have prevented the sale of such worthless debt, and many of those who invested in this debt had trusted those who were buying the debt on their behalf. Also, many of the investors were foreign and believed that the investment climate in the U.S. was extremely safe compared to other markets. What this has taught the foreign investors is that deregulation has made the U.S.'s investment market into one that is very similar to that of developing nations, with indigenous fraud; in other words, it is now an untrustworthy market. But I'm glad to see that some folks on the very top have really reaped some benefit.
  • DigitAl56K, on 04/21/2008, -1/+4Taxes are supposed to benefit society. Society will benefit the most if we don't bail all of these people out, and housing becomes cheap/affordable again. I'm tired of paying for other people's stupidity. First with this mortgage crisis, then a market crash because of it, then $168 in "economy stimulus" packages, and now more mortgage crisis. And all the time, the money that I *have* saved (unlike the people who took these mortgages) has less and less value every single day.
    • andy314159pi, on 04/21/2008, -0/+2I don't think you understand who is being bailed out. Individuals who are losing their homes are not being bailed out. Institutions that lent to them are being bailed out with loans that are risk free, but no individuals are receiving these type of loans. Anyhow I previously described the system that got us in trouble, and I will repost it here:

      These guys (local lending companies) were loaning low income folks money and then selling the debt to investors via these "structured investment vehicles." Those investors had believed that regulations would have prevented the sale of such worthless debt, and many of those who invested in this debt had trusted those who were buying the debt on their behalf. Also, many of the investors were foreign and believed that the investment climate in the U.S. was extremely safe compared to other markets. What this has taught the foreign investors is that deregulation has made the U.S.'s investment market into one that is very similar to that of developing nations, with indigenous fraud; in other words, it is now an untrustworthy market. But I'm glad to see that some folks on the very top have really reaped some benefit.
      • DigitAl56K, on 04/21/2008, -1/+2It doesn't matter who is being bailed out, it matters that we're collectively paying for huge greed and stupidity of others, all the while our own savings are being devalued to massive extents.
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