Bill CLinton: Fixing the economy by forgiving underwater mortages?

[Zebo]

Are you saying that I should have more of my money (taxes) paid to help these people keep their homes so that my value will not fall? Hell, I bought my house to live in, not an investment. I don't care if it drops and if it costs me less in property taxes because of lower value, fantastic. I don't see the need to pay more tax money.

Now, as I said, if the banks are smart enough to adjust the mortgages down on their own...that's another story.

It's already been paid for and continues to be paid for by every American through a locked up credit market because banks still have all the shit on their books. They used bailout money and near zero interest loans to speculate in financial instruments not loan to start new business expand business and other more traditional forms of making money. We are all paying for this also, with near zero interest for the banksters. Having money in savings means you're loosing money in this environment.

Until the bad debt is cleared from the system properly, haircuts, two way bailouts or something else the economy can not recover.

 

[QuantumPion]

No, I'm afraid you're both still wrong. Real estate, stocks, bonds, etc. can all increase in value over time but they're by no means guaranteed to do so in a given period. So either none of them are "investments" or all of them are.

You also have to choose whether you're applying the term formally/technically or not. Buying a new car is an investment in your ability to reliably commute between, say, a job and your desired place of residence for a given length of time (the warranty period). If you want to speak technically, you can choose to not call that an investment... but even so, the fact remains that some cars are better investments than others, even among vehicles that aren't collectible.

No. A car is not an investment, since you could always walk, ride a bike, carpool, or take mass transit. The car is not directly responsible for your employment. A car is only an investment if it is directly used as capital. There is no debate, this is a textbook definition. Go look it up on wikipedia or websters. It's true that investments do not increase in value 100% of the time guaranteed. But a car almost never increases in value.

Your primary residence has a low guarantee of generating a profit when selling it and buying a new home of the same size and location. It could be profitable but it is not an investment since it is highly risky and conditional. Trying to make a profit by trading up your primary residence in a growing market is the textbook definition of speculation, which is the opposite of investment (in the sense of risk vs. returns).

You are wrong and trying to argue semantics isn't making you look any smarter or getting you out of your original statement. When you're in a hole, stop digging.

Some cars are of a better value in that they can last longer, have reduced maintenance costs, get better mileage, etc. But it's still not an investment. It's just a less costly liability than its alternatives.

 

[zsdersw]

No. A car is not an investment, since you could always walk, ride a bike, carpool, or take mass transit. The car is not directly responsible for your employment.

Obviously you've never lived in a truly rural area before. Walking or riding a bike to work is not always realistic (and can, in fact, be fatal in a Wisconsin winter). Mass transit and ability to find someone to carpool with are also not always realistic options.

Highest gain for the least cost; the path of least resistance. In a lot of situations that means having your own automobile is the difference between being employed and unemployed.

Your primary residence has a low guarantee of generating a profit when selling it and buying a new home of the same size and location. It could be profitable but it is not an investment since it is highly risky and conditional. Trying to make a profit by trading up your primary residence in a growing market is the textbook definition of speculation, which is the opposite of investment (in the sense of risk vs. returns).

So you want to be technical instead of colloquial? You should've just said so from the beginning.

You are wrong and trying to argue semantics isn't making you look any smarter or getting you out of your original statement. When you're in a hole, stop digging.

You're making this purely technical in an attempt to make yourself look right. There's no hole to dig. Homes, cars, and student loans are often referred to colloquially as investments.

Some cars are of a better value in that they can last longer, have reduced maintenance costs, get better mileage, etc. But it's still not an investment. It's just a less costly liability than its alternatives.

It's a lower risk and a higher return.

 

[QuantumPion]

Obviously you've never lived in a truly rural area before. Walking or riding a bike to work is not always realistic (and can, in fact, be fatal in a Wisconsin winter). Mass transit and ability to find someone to carpool with are also not always realistic options.

The value of the car does not increase. It does not generate a profit for you. The job does. Unless you are a delivery driver, the car is not the job itself. It is only a means to getting you to your job based on where you chose to live. A car is not an investment. Give it up already.

 

[BansheeX]

If a car were an investment (that is, it facilitated production in excess of its costs), then companies would subsidize their employees with "car and gas reimbursement" programs the same way they do with tuition of job-related education. But they don't... because cars don't make employees more efficient, they simply allow them to spend less of their own free time commuting to work. Free time is your cost to assess. If you want to bike or take the bus, it would cost less than car ownership, but it would make commuting longer and less enjoyable. A company could care less how you spend your free time.

 

[zsdersw]

The value of the car does not increase. It does not generate a profit for you. The job does. Unless you are a delivery driver, the car is not the job itself. It is only a means to getting you to your job based on where you chose to live. A car is not an investment. Give it up already.

Without the car you could not get a job or it is the means with which better higher-paying jobs become accessible to you. It is an investment in personal mobility and freedom in addition to making more personal and professional options accessible.

Give up? Why? I'm having a ton of fun with you on this.

 

[Fern]

I think you have a fundamental misunderstanding of the relationship between homeowners, servicers and investors.

A great deal of the worst mortgage debt has already been written down or sold to the FRB, meaning that the banks aren't the principals, the investors, in the vast majority of cases. They are servicers, collecting fees for managing the cashflow from home owners to investors, and take a piece off the top. They also initiate, pursue, and liquidate foreclosures. Investors can't alter the terms of the arrangement in the slightest other than via lawsuits.

When homeowners are delinquent, servicers charge them a fee, which goes to the servicer. It comes out of the cashflow from the good mortgages in the pool, regardless of whether that fee is ever paid or not. This is a very important point. When lots of borrowers are in arrears, the servicers actually make more money, so long as there is enough cashflow from the pool to pay their fees. Investors get less, and delinquencies drag down their earnings until liquidation occurs.

So servicers have no problems letting the whole thing drag out- they make more money in the process. It's all automated bookkeeping entries & robotic letters, which cost them nearly nothing above what they spend on borrowers who stay current.
-snip-

You make some good points, but they raise questions I can't answer.

BTW: I am quite familiar in many regards with the relationship between homeowners, servicers and investors. E.g., because of loan servicing costs banks who actually still hold the home mortgages they make contract out the servicing aspect to save cost.

I suppose my question(s) involve the investor/bank relationship. Perhaps I misunderstand, but seems to me you are basically saying because of the MBS and their investors etc., no one is in position to do write downs. But that contention bothers me:

1. If I understand correctly, we already have programs for this and additional ones are frequently recommended. I.e., it is possible in spite of the whole MBS thing.

2. The bonds (MBS) are only 'backed' by a pool of mortgages. That means the mortgages are collateral, and if so, not actually owned by the investor of the bonds (MBS). Accordingly, I suppose one would have to look at the legal language in the bond(s) to determine how much, if any, discretion a bank would have in adjusting the principle amount of any of the underlying mortgages.

3. Mortgages can always be refinanced. So, even if your mortgage was pledged as collateral for a MBS the bank would seem to have at least the capability to handle that in it's own discretion. I.e., when you refinance you don't deal with the MBS investor. Raises the question of whether a principle write down could be effected as a refinance?

Fern

 

[QuantumPion]

Without the car you could not get a job or it is the means with which better higher-paying jobs become accessible to you. It is an investment in personal mobility and freedom in addition to making more personal and professional options accessible.

So no one, anywhere in America, can get a good paying job without a car? And anyone, regardless of where they live or their skill level, will have their income automatically raised simply by buying a car?


Tell you what. I'll agree with you that a car is an "investment in personal freedom" if you agree that a car is not an actual financial investment.





Furthermore, you agree that a house is not a financial investment either. You can call it whatever meaningless colorful phrase you prefer.

 

[BansheeX]

Without the car you could not get a job or it is the means with which better higher-paying jobs become accessible to you.

Sure you could, it's just a matter of whether YOU are willing to endure the transit without one. Owning a car will increase your leisure time, but it won't lead you to higher paying work. Your employer does not care about how you get to work, only that you do.

You also talk about harsh winters and long distances, but who forces you to live where you live? Nobody. Of course no one is going to live in such places without a car. They made the rational decision that they would rather have a pleasant transit than a crappy one. What does that have to do with "investment?" Nothing. It's an expenditure to improve your travel time and comfort from point a to point b.

 

[werepossum]

Sure you could, it's just a matter of whether YOU are willing to endure the transit without one. Owning a car will increase your leisure time, but it won't lead you to higher paying work. Your employer does not care about how you get to work, only that you do.

You also talk about harsh winters and long distances, but who forces you to live where you live? Nobody. Of course no one is going to live in such places without a car. They made the rational decision that they would rather have a pleasant transit than a crappy one. What does that have to do with "investment?" Nothing. It's an expenditure to improve your travel time and comfort from point a to point b.

Actually they do, at least around here. One question I've been asked in every interview I've had has been what type of automobile I have. That's not a problem in really huge cities like New York, where an automobile might well be a liability if driven to work daily, but in the small cities where I've worked employers expect you to have reliable transportation to get yourself not only to and from work, but also to job sites, perspective clients, and the like. Someone without a reliable automobile (and a license) would be virtually unemployable in engineering in such small cities, and in fact the few I've known who lost licenses due to DUIs had extremely difficult times gaining and keeping a job. It's also true that in small cities and towns, people don't assume that someone without a car is going to have the money to pay for cabs, which means bumming rides and therefore an undependable employee.

In that sense an automobile can be said to be an investment, in that it's something you purchase to make money. In the sense that a tradesman's tools are an investment. Whether or not it actually makes you money depends on a lot of factors, but I know plenty of people who purchased stocks purely as investments only to lose most of their money.

 

[Jhhnn]

You make some good points, but they raise questions I can't answer.

BTW: I am quite familiar in many regards with the relationship between homeowners, servicers and investors. E.g., because of loan servicing costs banks who actually still hold the home mortgages they make contract out the servicing aspect to save cost.

I suppose my question(s) involve the investor/bank relationship. Perhaps I misunderstand, but seems to me you are basically saying because of the MBS and their investors etc., no one is in position to do write downs. But that contention bothers me:

1. If I understand correctly, we already have programs for this and additional ones are frequently recommended. I.e., it is possible in spite of the whole MBS thing.

2. The bonds (MBS) are only 'backed' by a pool of mortgages. That means the mortgages are collateral, and if so, not actually owned by the investor of the bonds (MBS). Accordingly, I suppose one would have to look at the legal language in the bond(s) to determine how much, if any, discretion a bank would have in adjusting the principle amount of any of the underlying mortgages.

3. Mortgages can always be refinanced. So, even if your mortgage was pledged as collateral for a MBS the bank would seem to have at least the capability to handle that in it's own discretion. I.e., when you refinance you don't deal with the MBS investor. Raises the question of whether a principle write down could be effected as a refinance?

Fern

While some programs do, indeed, exist to promote mortgage adjustments, they're seldom implemented by servicers, and they involve govt make-up funding.

I didn't address what servicers can do, and like you don't really understand what is possible. I do know that investors are powerless, being bound by the terms of the MBS contract. They get what they get from servicers. I suspect that servicers are often constrained by those contracts, too, and the diffuse nature of ownership of MBS shares makes it impossible to create the kind of consensus required to do anything but keep on keepin' on, beat as much cash as possible out of the deal.

Principal writedowns don't pay off the existing loan, at all, which is what a refi actually does. Many short term ARM's have prepayment penalties, as well. Banks are free to negotiate wrt mortgages they hold, and mortgages that are part of MBS they own in entirety, of course.

The only way out for investor owned securities is through the normal channels of foreclosure & resale, or legislation forcing other action.

 

[QuantumPion]

Actually they do, at least around here. One question I've been asked in every interview I've had has been what type of automobile I have. That's not a problem in really huge cities like New York, where an automobile might well be a liability if driven to work daily, but in the small cities where I've worked employers expect you to have reliable transportation to get yourself not only to and from work, but also to job sites, perspective clients, and the like. Someone without a reliable automobile (and a license) would be virtually unemployable in engineering in such small cities, and in fact the few I've known who lost licenses due to DUIs had extremely difficult times gaining and keeping a job. It's also true that in small cities and towns, people don't assume that someone without a car is going to have the money to pay for cabs, which means bumming rides and therefore an undependable employee.

In that sense an automobile can be said to be an investment, in that it's something you purchase to make money. In the sense that a tradesman's tools are an investment. Whether or not it actually makes you money depends on a lot of factors, but I know plenty of people who purchased stocks purely as investments only to lose most of their money.

That's all fine and dandy but still COMPLETELY MISSES THE POINT. RAWR.

The car itself is NOT an investment. The car itself does not increase in value. I could make the exact same argument you are making about a rental apartment. Of course you need a place to live while working for an employer. They don't want you living 1000 miles away and they don't want you to be a homeless bum. So with the same exact logic, you could say a rental apartment is an investment because it allows you to get a normal job that bum's don't have access to. You can make the same argument about phone service, clothes, food, whatever. I could argue that cable TV service is an "investment" because it allows you to see advertisements for potential employment opportunities. Just because these things help you get employment or live a typical life style does not make them all investments!!!

note: trademan's tools is CAPITAL and could be considered an investment. capital is a physical good that allows you to do your job or increases your productivity. the car would be capital IF YOU WERE A DELIVERY DRIVER, etc. But, as Banshee eloquently explained, just because your commuter vehicle gets you to work does not make it capital because the car is not part of your actual job.

 

[zsdersw]

So no one, anywhere in America, can get a good paying job without a car? And anyone, regardless of where they live or their skill level, will have their income automatically raised simply by buying a car?

Never said or implied either of those things. The following, however, are entirely true:

1. Having a car broadens your job opportunities in the event you lose your current job.

2. Relocation to a place that has jobs and doesn't require a car to be practical is not always possible. See various unemployed people who are behind on their mortgages for examples.

3. With broader job opportunities, higher income is better within reach.

Tell you what. I'll agree with you that a car is an "investment in personal freedom" if you agree that a car is not an actual financial investment.

Sure, but it is much more fun to argue.

Furthermore, you agree that a house is not a financial investment either. You can call it whatever meaningless colorful phrase you prefer.

A house itself or the house/land combo?

 

[zsdersw]

Sure you could, it's just a matter of whether YOU are willing to endure the transit without one. Owning a car will increase your leisure time, but it won't lead you to higher paying work. Your employer does not care about how you get to work, only that you do.

Not always. See areas without mass transit for examples. For some people in some situations, yes, having a car does lead you to higher paying employment. The young adult still living at home (for whom a car is the ticket to many things), the single mom working as a waitress in a diner in Small Town USA, etc.

You also talk about harsh winters and long distances, but who forces you to live where you live? Nobody. Of course no one is going to live in such places without a car. They made the rational decision that they would rather have a pleasant transit than a crappy one. What does that have to do with "investment?" Nothing. It's an expenditure to improve your travel time and comfort from point a to point b.

Circumstance is the only thing that "forces" anyone to do anything in these matters. Some people find themselves downsized and fall behind on their mortgage; jobs are out there, but not within feasibly traversable distance from their residence. Sometimes mass transit is not available and carpooling is either something no one's interested in or no one reliable can be found.

Obviously it would be better to not have a mortgage so relocation to where jobs are is easier, but that's hindsight.

A typical car is not a financial investment per se, but it is an investment in personal freedom and expanded professional and personal opportunity.

 

[Ausm]

I think taking anything from Clinton in regard to banking is a joke especially when he was the one who signed the legislation into law that was the final Coup de grâce to our financial system.

 

[PingSpike]

Seems like the time to do this would have been before we gave all that money to the banks.

 

[piasabird]

A house is a money pit.

Fix the roof, Paint the house, Fix Windows, Fix bathroom, Fix Kitchen, Paint interior, Fix Floor, Repair flooding basement, Replace the water heater, Fix/replace furnace, plumbing repairs . . ., Insurances, Taxes, Mortgage, Liability. Cut Grass, Trim Trees, haul off garbage.

Get my drift?

Where I live, it becomes hard to keep a job without a car. You might be able to do so by using buses, but add 2 hours one way for travel. Plus you may have to walk a mile or more just to get to a bus stop. Also a bus will not be available for anything but a day job. Try getting a bus for a midnight shift!

 

[BansheeX]

I don't even understand what the point of this argument is. Investment or not, it's not the government's job to incentivize one legal expenditure over another by taxing it differently or doling out special loans and vouchers. I'm sick of all the subsidies and lobbying and social engineering, it's not even authorized by the constitution. Perhaps we need an amendment clarifying this.

 

[werepossum]

I don't even understand what the point of this argument is. Investment or not, it's not the government's job to incentivize one legal expenditure over another by taxing it differently or doling out special loans and vouchers. I'm sick of all the subsidies and lobbying and social engineering, it's not even authorized by the constitution. Perhaps we need an amendment clarifying this.

Excellent point.

 

[zsdersw]

I don't even understand what the point of this argument is. Investment or not, it's not the government's job to incentivize one legal expenditure over another by taxing it differently or doling out special loans and vouchers. I'm sick of all the subsidies and lobbying and social engineering, it's not even authorized by the constitution. Perhaps we need an amendment clarifying this.

Correct.. I never said otherwise.