Sunday, March 8, 2009

AM I TURNING REPUBLICAN? BANK BAILOUT WAS A SHAM!

I've been dormant, so I'm not sure who will read this, but I have to say it. Actually, YELL it. Have I lost my mind or soul or both...because I'm feeling so Republican lately. Or am I?

Over the past few years, I've grown my credit card limits and improved my credit score substantially. Two years ago, I opened an HSBC credit card with a $7,000 limit. Eighteen months ago, the balance was $6,200. Last week, it was at $780. I never paid late, I always paid 5-10 times the minimum, and my credit score now is better than when HSBC gave me the card.

Last week, HSBC reduced my limit to $2,730. I called to learn what I did wrong. The customer service rep actually said, "You've an ideal client. This doesn't have to do with you. This is something we've done across the board."

WHAT?!?

This man knew from staring for a millisecond at a screen that I was a good customer, but HSBC didn't care. It extended credit so recklessly, it had to take it all back, regardless of how it affected customers' credit scores. Can someone explain how a bank makes money when great customers pay their accounts off and close them (which is what I did)?

This is the "loose credit" the bailout was to generate? Banks taking credit lines BACK from the GOOD customers!?!

Where's the alleged Republican thought, you ask?

In my disgust and lack of sympathy.

We are rewarding a LOT of irresponsibility and ignorance. We are punishing the responsible by permitting banks to treat everybody the same, and we are rewarding people who bought more house than they could afford by letting them refinance at lower rates when their more responsible neighbors who sacrifice to pay their monthly payments get no benefit.

What's that? Predatory lenders??! Oh, sure, there are SOME citizens who aren't real sharp who didn't understand what they signed. But I promise you the larger problem was people who never believed they would have to face the music.

Everybody reading this who has either had or just contemplated an adjustable rate mortgage (ARM), ask yourself these questions:

(1) Did I KNOW that the rate could go up with an ARM?

(2) Did I know HOW MUCH the rate could go up with the ARM?

If you answered "yes" to the first two questions, you are a DUMBASS if you did not follow up with:

(3) IF the interest rate goes up, how much will my mortgage payment be?"

If we are honest with ourselves, it wasn't predatory lenders who caused this problem. It was foolish optimism.

When I bought my house in 1998, I had the following mental conversation as I weighed an ARM versus a fixed rate:

"If I get an ARM, I'll save crazy money right now. Interest rates will probably go down, and I'll save even MORE. If it doesn't work out, I'll sell, or if I want to stay, I'll just refi to a fixed rate. BUT the fixed rate is close to an all-time low, and I KNOW I can afford THAT. SO, I won't be greedy. I'll pay more now to get future security, and if rates keep going down appreciably, I'll refinance to a lower fixed rate.

I have no doubt that this same conversation has occurred in the minds of millions who, quite frankly, just guessed wrong about being able to refinance. It seems to me that Republicans are content saying, "We gave you the freedom to decide. Now live with your bad choice." It doesn't seem that Democrats do this as much.

OH, that's so terrible, Chris, you say. People will lose their homes! Yeah, and they'll move into cheaper ones they can actually afford, thereby taking OTHER foreclosed homes off the market and stabilizing the whole housing sector.

Quite frankly, I'm tired of people mythologizing homeownership as "the American dream." I've rented homes, and I've owned them. Aside from the fact I spent an entire summer powerwashing the owned house, the only difference was a minor psychological comfort of saying "it's mine." The rest of the benefits are artificially created.

You see, the U.S. Congress PAYS US to own homes, which is why I'm looking again. As a sop to the Home Builders Association, realtors, mortgage companies, and banks, Congress lets me deduct ALL of the interest I pay on my mortgage from my gross income before I calculate the taxes I owe the U.S. In addition, Congress let me deduct my property taxes. The combination of one and two are HUGE because, for most people, including myself, the mortgage interest is what gets us above the standard deduction on our taxes.

Think about the implications. If I am a single renter, and I pay $1,000 per month in rent and donate $5,000 to my church, I have to take the standard deduction, of $5,450. I get NO reward for my generosity. BUT if I pay $1,000 per month on a mortgage ($200 to principle, $800 to interest each month), I can deduct $9,600 in interest and, as a result, ALL $5,000 in charity expenses, PLUS the real estate taxes (plus a series of other deductions). In America, your charity almost ALWAYS matters more if you own a home.

Of course, any Republican-leaning I'm doing is moderated by the GOP "free market" hypocrisy.
On Friday, I heard a screed on Limbaugh by a guy who said, "Congress was forcing these banks to make loans to people who didn't deserve them. This made the demand for houses go up artificially, which inflated prices artificially. We should have let the market determine the rate." But what REALLY inflates prices is massive tax benefits for home ownership. Will Republicans take that away? Never. Their "free market" dogma only goes as far as the next election cycle.

So, yes, I'm looking to move again after renting this past year. Who wouldn't want an $8,000 CREDIT (yes, the government will cut you a check, even if you owe ZERO on your taxes already) so you can buy a house. Unfortunately, my credit score will go down as soon as my credit limit reduction is reported.

So, to recap:

(1) Congress will pay me $8,000 to buy a house (among other benefits);

(2) I need a loan to buy a house, and the rate I get will depend on my credit score;

(3) The worse my credit score, the higher the loan rate, the more interest I can deduct on my taxes, and the more I can keep out of the federal treasury;

(4) The higher the loan rate, the more banks will make; and

(5) Banks hurt my credit score by adjusting my credit limits without cause.

How am I not being hurt by the cascade of events that stemmed from people taking out loans irresponsibly?

How is it NOT unjust to let neighbor A refinance to a lower rate on his home because he either bought more house than he should have or he doesn't sacrifice as much as neighbor B who pays on time and gets NO CREDIT for doing so?

Just some thoughts....are they Republican, Democrat, or none of the above?


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11 comments:

Jacob Perry said...

No, you just possess common sense. If only our President did as well.

Miklo Velka said...

Bulworth,

There are so many factors to be discussed that fail to be adequately considered in your post that it's fairly difficult to form an appropriate response.

Most of what you're feeling about this bailout as it relates to your "disgust and lack of sympathy" isn't very surprising in our capitalist (not a bad word) economy.

However, it isn't a situation that should feel unfamiliar to anyone paying attention to our credit system in general. What about the following situation is significantly less fair to "responsible" home buyers or credit users: Due to credit card holders that fail to pay their bills month after month, credit card companies jack up EVERYONE'S interest rates to percentages that fall just under usurious rates...across the board.

I have never heard anyone raise as much fuss about that circumstance which has been going on for decades. (Oh wait, aren't these companies getting bailed out too? ...because they're too big to fail?)

A Macroeconomist I am not. As much as I think I know about how to keep national or international monetary systems afloat, I do have faith in higher education to the point of "trusting" the "experts" to figure this one out for me. I have higher education degrees and I believe that due to that education I am more equipped to deal with circumstances related to my education than those without it...generally. I too believe that those that have studied in the arts of economy on the large scale are likewise better equipped to handle the circumstances with which our country (, and the whole world, for that matter,) finds itself dealing.

Do I like the taste that this "answer" leaves in my mouth? No. Definitely, "No." This doesn't end my internal (and now external) dialogue.

Rather, it begins the discussion with: "Is there any better idea that can taste less disgusting (to use your term) and still solve the crisis (because I do believe it is one) in which we find ourselves?" Again, I am ill-equipped to produce an answer and won't offer a suggestion based on my "gut-reaction" and only a liberally (the "academic course focused" definition, not the "politically based" one)-trained mind. Instead, I'll leave it up to the "experts"

Plus, if it fails, it's their fault...not mine...and fail it might...even with the best of intentions...because we all know where those lead...

btw...i'm also one of those people that went for the 30-yr fixed at a historically low rate when I could've taken an ARM for a song of a rate. ...haven't missed a payment and even though my property taxes have caused my payment to increase EVERY YEAR, that too is based on the fact that the assessed value on my home was so far below the fair-market value that I was getting away with murder in terms of providing tax revenue to both my municipality as well as my school district when compared to the actual market value of my home. Don't quote on that, but I'm nothing if not honest. That keeps me ahead of too many people, I'm afraid.

Republicans have no monopoly on disgust for "down-and-outers" who find themselves there due in part to their own fault(s). I think the "glass-half-full" view of that circumstance is, "If the screw-ups DO get to refi. and their homes can maintain value, so too can my home retain value. If not, my house my also continue to lose value and that will cause me to have fewer options as to where I can live and how I can dispose of my devaluing asset - my home."

No good answers...available.

Miklo Velka said...

...and in response to Jacob Perry, it was a faith in free-market economics and a faith in common-sense that got us into this mess. It's certainly going to take more than that (and perhaps something other than it) to get us out of it...like tighter regulations and greater transparency.

iPOPA said...

Miklo:

Well put across the board, but honestly, sometimes my inner anarchist says let the damn thing topple and see what actually happens. I'm tired of fear-mongers with their hands out saying save us. To quote Watchmen, and we'll reply: No.

True Conservative said...

When I took population studies in college we were taught if you artificially feed an overgrown population, more people will eventually starve unless you address the population. Therefore you are not being humane by feeding without addressing the issues. Keeping people in houses they cannot afford will not solve the problem and your house value will not climb so long as the people are kept in these homes. I see this on a regular basis in my business. Sure some have lost their homes due to lost jobs and medical bills but from what I see that is the exception not the rule. I am trying to refinance a home with a value of nearly triple what I am trying to finance and now I have to pay extra fees due to those who did not make good decisions. Obama can tell people all day long, as he has, they were tricked in to these loans but if anyone has looked at closing documents they would see that what he says is not true.

Miklo Velka said...

True Conservative,

I'm not sure I follow your complaint. Did you say you were upset at "those who did not make good decisions" because you are trying to refinance your mortgage for a total value of one-third of the house's value? Or was it for three times the house's value?

If it's the second, i am speechless as to why any bank would offer such an amount of money.

Since I think it's the first, I'm not sure why there is a complaint about currently owning a home where your mortgage is (theoretically) less than one-third of the home's value. Doesn't this mean you have approximately +66.6% equity in your home? Well done I say. I find your home-ownership status in quite a good position and would be complaint-less.

Isn't it always the case in large-scale economic situations that the system-drainers cause the system-stabilizers to have to pay more for their good behaviors? Just like in insurance...the people without problems subsidize the users of the benefits. Certainly I don't hear a complaint about loss-distribution, do I? Isn't this debacle the same effect? Lots of poor choices as to how much home, or how expensive the home should be, or failing to read the "closing documents" to see if they were accurate in the first place, etc., all lead to those with the mental and financial wherewithal to be able to, over the course of years, pay down their mortgage and increase their equity to over half the value of the home paying higher premiums, and higher fees, and higher periodic finance charges.

If we like the system of credit and loss-spreading as we have had it for decades (during all of the growth economies), we have to take the good with the bad. And if that type of system has become so intertwined with national and international (and global) financial survival that refusing to "reward" poor decision makers with lower interest rates and friendlier mortgage terms will cause widespread financial ruin, I say "That is disgusting and it will be a bitter pill, that I will swallow."

Because when the "experts" tell me that giving someone that can't currently afford their mortgage payment a longer repayment term, and a lower interest rate, will keep them in their home instead of having the bank foreclose, I will nod my head. I can cite to absolutely no statistics and no macroeconomic giants that say otherwise.

And besides, even if I could, the macroeconomic giants in power right now will be calling the shots for a few more years to come anyway, so they're going to actually get the chance to see if their solution will be one of the successful ones. Every other "potential" solution will just be speculation.

Miklo Velka said...

True Conservative,

I'm not sure I follow your complaint. Did you say you were upset at "those who did not make good decisions" because you are trying to refinance your mortgage for a total value of one-third of the house's value? Or was it for three times the house's value?

If it's the second, i am speechless as to why any bank would offer such an amount of money.

Since I think it's the first, I'm not sure why there is a complaint about currently owning a home where your mortgage is (theoretically) less than one-third of the home's value. Doesn't this mean you have approximately +66.6% equity in your home? Well done I say. I find your home-ownership status in quite a good position and would be complaint-less.

Isn't it always the case in large-scale economic situations that the system-drainers cause the system-stabilizers to have to pay more for their good behaviors? Just like in insurance...the people without problems subsidize the users of the benefits. Certainly I don't hear a complaint about loss-distribution, do I? Isn't this debacle the same effect? Lots of poor choices as to how much home, or how expensive the home should be, or failing to read the "closing documents" to see if they were accurate in the first place, etc., all lead to those with the mental and financial wherewithal to be able to, over the course of years, pay down their mortgage and increase their equity to over half the value of the home paying higher premiums, and higher fees, and higher periodic finance charges.

If we like the system of credit and loss-spreading as we have had it for decades (during all of the growth economies), we have to take the good with the bad. And if that type of system has become so intertwined with national and international (and global) financial survival that refusing to "reward" poor decision makers with lower interest rates and friendlier mortgage terms will cause widespread financial ruin, I say "That is disgusting and it will be a bitter pill, that I will swallow."

Because when the "experts" tell me that giving someone that can't currently afford their mortgage payment a longer repayment term, and a lower interest rate, will keep them in their home instead of having the bank foreclose, I will nod my head. I can cite to absolutely no statistics and no macroeconomic giants that say otherwise.

And besides, even if I could, the macroeconomic giants in power right now will be calling the shots for a few more years to come anyway, so they're going to actually get the chance to see if their solution will be one of the successful ones. Every other "potential" solution will just be speculation.

Anonymous said...

comment was good enough to say it twice i guess

Sean Shepard said...

Maybe not taking a turn down Republican Ave but perhaps a Libertarian side street? ;-)

The whole idea behind capitalism is "creative destruction". The idea that if someone is a poor allocator of resources, they will fall to those who are better at it.

The idea that if someone invents the better mousetrap, you can become rich taking the place of the people who became rich with what would then be an inferior product that was once superior. Imagine, if having invented the better mousetrap, just as your competitors were on death's door, the government rescued them?

Imagine if you're Ford and have refused bailout money and then General Motors and Chrysler benefit from GMAC offering 0% financing after getting bailout money?

Your outrage is justified, it's not a partisan issue, it's just ... wrong. And we're immorally saddling future generations with debt and inflation to pay for it.

Melyssa said...

The day you announce you just might have a Libertarian streak, I'll buy you a couple beers.

Heck, I'll buy you one beer just for questioning if you might be a republican!

Come to a libertarian meet up social night some time. I promise I won't try to recruit you. I'll just buy you a beer with no strings!

Anonymous said...

It doesn't make you a republican...it just proves you have common sense. I had the same situation. My wife and I used to make average median income together (~90k). She used to work as a a bank (so we saw this sh*t coming)..and I was a computer programmer. We made above average income (based on the statistics)...yet our home is very modest. We paid $170k (which still high knowing mostly illegals were working to build it) in a decent area not pristine...but a large home for the price. Interest rates were really low...under 6%...we had excellent credit. We "qualified" for a home that cost over 300 thousand...but we figured if one of lost our jobs (which just happened) we would at least be able to pay our note. Do we get anything for being responsible? Hell no.
We have two old paid for cars that get decent mileage per gallon. Do we get a tax break? Nope.
Our taxes are being spent on some sorry idiots.
If we get behind on our mortage...if the bank could sell it for a profit they would in a heartbeat since it is a secured by an asset. Now they can't sell the overpriced asset...now it is considered "toxic". That is bullsh*t.