The Mortgage Crisis

Finals are coming up so I obviously want to do anything but read for class and prepare for exams. Here is distraction number one for right now. THE MORTGAGE CRISIS, people disagree on how to solve it but most agree the problems in our economy are largely connected to homeowners being upside down. A good number might also agree that we are going to continue to see the problem until we do something about it. I have my own thoughts ... which I am of course going to share now... call it a solution but lucky for some I guess I am not in office and therefore I am not the one making the call.

A brief note on how this I think this mess got started, I think would shed some light on my thoughts and solutions. In the early 2000's prices went up year after year and people kept buying. Prices were going gangbusters and no one regulated anything. Everyone enjoyed the ride. It is not an exaggeration to say that mortgages were issued based on appraisals that were overvalued, income figures that were erroneous, sometimes made up, that the" professionals" were in on it. They were getting rich doing it. (Insert loan officer and CEO figures) What do I mean by professionals, the appraisers, loan officers, banks, loan companies, mortgage security bundlers, underwriters, rating agencies, and on and on... These were the "professionals" which to me means, they were the ones that were responsible for making sure things made sense. Let's issue a mortgage to a couple making 50,000 combined for a property appraised at $625000 based on whatever comps we can find, then lets bundle a whole lot of these mortgages together, bundle them, get Moody's to give them a AAA rating and sell it off to investors. Let me clear I am exagerating, but really am I. The picture was a little more complicated obviously to add to this mess the banks were betting on each other's obligations buying insurance from each other.

AIG was of course one of the largest holders of these "insurance" obligations and when some of the people came knocking it quickly became obvious nobody had thought about the risk that people would not pay. The "professionals" were making money hand over fist and were asleep at the wheel. So what did we do, what most agreed was the sensible thing to do, we bailed out the institutions. Sorry I know it may have seemed like I would opt for the banks just dealing with it on their own, but the risk was systemic and global. So I agree the bailout needed to happen.
What now... there are millions of homeowners who are upside down, and facing foreclosure. It's simple the "professionals" messed up they weren't doing their jobs they deserve to be punished. The industry must be forced to take write downs on mortgages that are upside down, and so it's fair they should have to do it whether the homeowner is struggling or not... period. They were all complicit they all suffer. What about homeowners that already own their homes outright, yeah they don't get anything concrete, but a stable housing market would be the best thing that ever happened to them. Now comes the dirty word MORAL HAZARD, we are rewarding people that took on more than they could afford... you know you are dam right we are.

You know what is a moral hazard? The shit these guys were doing... lest we forget about what I think led to this and they were on their knees begging for a bailout no bank executives seemed to say anything about Moral Hazard then. They were all going to fail, disappear, someone needs to remind them that they are lucky they exist at all. Yeah right downs would likely decimate some of them and shrink the size of a whole lot of others... well that's the free market at work we don't pick winners and losers. Write offs are the right thing to do and the best way to avoid MORAL HAZARD's in the future. Banking will shrink but those people that got write downs will start spending and other industries will recover. By choosing Banks we are picking winners and losers... The idea so many people are so vehemently against.