The pope on income re-distribution

[DanWeiss]

You can't be serious, Steve, when you post it would be a good idea to let the banks collapse and allow the real estate market to crash 80%. "Mom & Pop" are those who make ends meet. Millions of Mom & Pops tried to sell homes between November, 2007 and 2010. Not all fared well when the decline in home prices turned their previously growing, major asset upside down. Many could not move and lost employment opportunity and other things as a result.

Vacant houses that sell for 1/5 their recent prior price are not snapped up by happy families, they are largely taken by investors and speculators. Florida serves up a prime example of the damage caused by a glut of houses for sale.

[boggsman1]

Bard...that is one of the most fantasy economic outcomes I have ever heard. If we let the banks fail...ATM's would have stopped working, payroll would have seized. When Lehman failed, money markets froze becuase they held Lehman debt. Investors couldnt get their money from money markets, then commercial paper...which funds payroll. This was the result of letting ONE IB fail. The idea that mom and pop would be snapping up houses at 20c /dolla is wacked. Mom and Pop would have been in a tent on Zuma Beach if we hadnt bailed out the system.
Many people saved and invested wisely, and they still needed the Fed and Treasury to access their funds...

[MalibuGuru]

What would the banks have done with 100 million empty homes? Rented them to birds? No, they would have sold them to us. Do you think the government would have gone whimpering into a cave? They would have managed the crisis like they managed the S&L crisis.

I think most intelligent Americans are tired of the smoke and mirrors. We are in an unsustainable asset bubble because of the Fed. We all know what will happen when the plug is pulled. What then? There are fewer jobs today. Fewer working people. Lower salaries. Main street and Wall street have never been so misaligned. Once again it is the financial sector that is keeping America alive. Just smoke and mirrors IMO.

[pueno]

[swchandler]

Come on Bard, the majority of folks in the US ultimately depend on Social Security in retirement because they didn't save anything during their working career. What makes you think that these folks could buy 5 and 6 figure homes with the cash they saved? I seriously doubt that any of the poor folks you are talking about could even come up with a fraction of the "greatly reduced" down payment to get the sale off the ground. Even a $500K home selling for $100K would still require $20K down.

In reality, the one percenters would buy the majority of fire sale properties, and then rent them out to the poor at the limits of what the market would bear. That's what's been happening, even with the reality that ensued after the housing bust. Your imaginary outcome after a complete financial bust wouldn't change a thing. As an MBA graduate, you should know that. If you were really being honest, you would admit that you would be one of those rich investors that would snap up discounted properties for a song, and as a landlord, be raking in "inflated rents".

[DanWeiss]

Steve, if a bank fails and files for bankruptcy, it files under Ch. 11 and 99% of the time follows the same liquidation path as every other biz, where the Bankruptcy Court selects a Trustee who administers the recognition, valuation and ultimate liquidation to pay to creditors in order of legal preferences.

The bank cannot touch its assets at that point. It cannot sell anything, it can't rent anything, it can't spend any money (mostly) or enter into any new contracts. If the bank is holding fee simple absolute title to residential property it means that the property was auctioned properly and is past its redemption time. Otherwise the bank holds only a contractual interest in a promissory note secured by the home via a mortgage. Even a bank in good times can't just sell these homes without a material breach of the promissory note and all the steps required to foreclose and sell.

Your logic required that the complete opposite become reality.

You also overlook the most basic economic risk: loss of deposits over $250K and other assets in the safe and loss liquidity. As boggsy noted, no access to cash, no ability to transact loans, no ability to demand that others honor a check written on an account in the folded bank, no construction loans, no bridge loans. The catastrophic damage to everyone cannot be overstated. Didn't you study what happened in 1929 and 1930?

You say that bank failure would creats many thousand homes that will be occupied by the poor. Hogwash. People are poor because they lack wealth. When lacking wealth, one cannot easily find affordable credit. Where will a poor person come up with the down payment of 20% required of those with low credit scores? That's $16K for a house formerly valued at $400K and now priced at $80K. More fundamentally, what bank is going to extend credit where the risk of loss is so great? Banks don't exactly line up to offer purchase money when housing markets crash, and certainly not to the most risky borrowers one might categorize.

[mac]

Fantasy thinking from inside the bubble:

[keycocker]

Most lower and middle class people have only their home as a primary investment. When those homes dropped in value the equity in them was gone and Mom And Pop were left penniless.
You want this to happen to most people in America who aren't rich?
Because it would be good for them?

[MalibuGuru]

Well then, let's just keep printing money and see what happens. This is theft from the poor on a grand scale no matter how you look at it.

Higher taxes are like the rapist telling you he'll pay you some cash after he rapes you. You just don't feel the rape because he's lubed you up good with cheap money. I'd rather squash the rapist and keep control of my own future.

PS, I never said anything about eliminating government. Based on the current approval ratings that's going to happen.

[keycocker]

It is not unusual for Congress to have low ratings. The American voter nearly always puts them back in office . We deserve our crappy government.