How would you fix things?

Why not go further? Teach kids how credit and credit cards work.

The government can't fix this problem. All it will end up doing is put a band-aid on on the problem to temporarily stop the bleeding. The fact is that most people making a decent income and living in Massachusetts still cannot afford to buy a house because prices are too high. When prices come down to affordable levels people will start to buy and the housing market will stabilize. The bottom line is you have to let the market sort itself out.

Let the realestate market continue to slide without any intervention at all. Only allow houses to be bought with 20% down no less. Put a capital gains like tax on houses that are bought and sold within a two year time frame, restricting "flippers." Housing still needs to drop about another 30% before housing is made affordable to people making 50k a year. A house should only be purchased if the house is 3 times their annual salary.

Cut taxes and basically let non-criminal failures happen. If anyone is guilty of fraud, prosecute them. If they're guilty of stupidity, that's their problem.

Never happen, of course, but a voter can dream.

We have to get out of this mindset that some guy sitting behind a desk in Washington can solve all our problems for us. Government meddling is part of what caused the current mortgage problems in the first place.

Seriously!? Are we still talking bailouts and additional stimulus packages? When are people going to wake UP and realize that you do not solve a problem by engaging in the very activity that caused the problem.

The reason we are in this mess is because we had a massive expansion in credit which led to home price appreciation above and beyond levels that could be supported by normal economic fundamentals. But the morons in Washington think the answer is more credit to try and reinflate the housing bubble. (That's to be expected I guess since politicians have two primary goals:1. Get elected & 2. Get re-elected). The problem is home prices are still too high. The answer is lower home prices as painful as that will be for current homeowners, realtor's, homebuilders, etc. The problem is credit expanded to much. The answer is a contraction in credit and a necessary recession.

Enough with the socialism in this country. Enough with privatizing profits and socializing risk. The government isn't offering to bail me out of my credit card bills or student loan payments. Stop bailing out irresponsible homeowners who bought a home they could not afford. Stop bailing out Wall Street. Stop bailing out our phoney, consumer, debt laden economy. Enough already.

'mandatory financial education'? really?!

what we need is people to be responsible for their own actions. if a mortgage broker tells me i can afford a $1 million home, and I make $35,000/yr, is it really the mortgage brokers fault when i go belly up? i think not. let capitalism do its thing, and let the morons suffer. we don't need the morons on Capitol Hill making it worse.

I like your suggestion of mandatory financial education for those taking out a mortgage. It should require the people taking out the loan to go through the numbers themselves instead of listening to what a loan offer tells them what they can afford.

I will never forget one lender saying that we could easily boast our mortgage to the $600,000 range. My husband and I had done the math and we didn't want to take out a mortgage more than $300,000.

Getting folks to crunch the numbers themselves will not only help them, but also the taxpayer in the long run by reducing the number of foreclosures.

Allow families to claim principal payments paid toward their primary residence on their fed taxes and have the deduction scale according to their AIG. For example, allow a family who is shelling out 40-50% of their AIG to cover their mortgage claim a higher percentage deduction of their principal paid vs a family who is shelling out 10-15% of their AIG.

There is no solution. It is what it is.

The solution was to make and enforce better regulation--strengthening usury laws, regulating exotic financial instruments, preemptively deflating asset bubbles, and so on.

Now that it's happened, it will have to play out, and the consequences will have to be suffered. They could be catastrophic.

There are a few things that would be helpful, like allowing bankruptcy judges to cram down mortgage principal. But for the most part, the "solutions" will only extend the problem and give us a decades-long Japan-style decline.

Borrowers must be foreclosed on, banks must fail, and trillions of dollars in wealth must be destroyed. Let's just get on with it.

I would like to see a complete 3 year freeze on all variable rate Mortgages. The new rules are not helping enough people and more and more houses are going to be foreclosed soon enough. Also I would like to see a law passed that lowers the maximum interest rate on credit cards to something more reasonable then it is now. I know too many people who are getting drowned by variable rates that are too high.

There is nothing to be done.

Time will heal this, but it will take ... well ... "time".

Cisneros know this, so that is why he said exactly nothing.

What would I suggest? Many things one that is very important and I think is absolutely mandatory, go into high schools and make sure that money management is part of the curriculum required to graduate. Young people are being bombarded with offers for credit cards etc, so early in life and waiting until they get to college is not the time to learn it. They need a solid foundation going into college in which to build upon and based on this foreclosure crisis it seems that people are not learning financial responsibility early enough.

For the more immediate term, quite frankly I don't want to be bailing out people that took out liar loans for $400,000 when making $75,000 a year. I worked hard to save for my townhouse, even though I wanted a single family. I knew I couldn't afford that kind of payment so I started with what I could afford and figured I would trade up as my situation became more liquid. The problem now is I can afford more home but I cannot sell my place why? I am sure there are a number of reasons some having to do with the fact that now mortgage companies are actually looking into applications and not giving away money, people waiting for prices to fall even further, and yet others that felt it was better to spend their money on flat screen TVs so they haven't saved anything for a down payment, others that think that they deserve something for nothing the list could go on. This whole mess is a plate of spaghetti you move one noodle and well you actually move a whole lot more, this is not a simple problem it needs to be approached on a multipronged front to address all those noodles you just moved.

For those that do default and go into foreclosure they should pay, and so should the idiot banks that wrote out those mortgages and didn't check to see if the home owner to be could actually afford the loan. Any bank that didn't do their homework on the home owner to be, should be made to feel some of the consequences as well as the idiots that accepted money that they could not afford. This was not a mess we go into because of one party or entity, borrowers and lenders are to blame, as are both political parties for pushing for a higher % of home ownership. To be quite frank some people cannot afford to own, that does not make them bad people it is just a fact. Those people that found that they could "buy" with 0% down were in no position to support a household and the extra expenses that go with maintaining a house.

I think that lenders need to wake up and require that those applying for a mortgage prove their income and if they cannot then they need to go through a class that will highlight how a loan works, that yes you do have to pay it back, how to set up a budget including funding a safety net fund for things that go wrong, and a fund for maintenance. It is in the lenders and the home owners to be to be prepared and qualified to own a house and understand what they are getting themselves into.

And finally we need to break the habit of having to bail out everyone. It is about time we as American's remember that you control your own destiny and remember that actions have consequences, some good some bad but we are responsible for those consequences. It is time to remember you have personal responsibility and it is time to live up to it and not expect that anyone, let alone the government is going to bail you out. The government should not be your nanny and your keeper, it is time to grown up and realize that you cannot always get what you want. And other times you can get it but you will need to wait and save to achieve it.

Lets not forget that there are some foreclosures that happen because of freak circumstances such as a sudden illness but the majority of this issue is not because everyone was striken with some deadly disease. The majority of these foreclosures are occuring because of carelessness by lenders, greedy lenders, and greedy home owners that never thought the whole thing through. We should have compassion for those that are truly in a pickle for circumstances beyond their control, but I have no compassion for those that had to have the granite counter tops, the newest car and flat screen tv and didn't give a thought to actually having to pay for it.

I don't know exactly how to pull this off, but I think one of the keys is that mortgage rates are higher than they "should be," given where the 10 yr treasury is at. Activity noticably picks up when rates hit the low 6's or the high 5's. Lower rates are like an across-the-board price decrease. Rather than tax relief, I think finding a way to move these rates down for a 4 to 6 month period throughout the colder months would be very helpful. It would be a real kickstart.

The problem is that there are too many potential buyers who don't care if they get foreclosed, because they only have to put down a few thousand dollars. Banks need to do a better job of screening the borrowers. And perhaps it should be required that you need to put down 10% on a property, instead of the current 3% requirement for FHA financing. If someone has to save up $30K for a $300K house then maybe they will be more conservative about the loan program they choose.

Hi,

We can fix this housing crisis. If we want but it looks like many banks do not want that. There are approximately 3 million total people in crises in the USA. Some are all ready bankrupt, some of them will be soon and many of them will be in trouble in future.

We can do couple of things to bring this crises down/hault

1:
Pass a law that people in trouble have the right to freeze their payments for one year.

This will slow down the process. Mean while many people can find jobs and get their act togather in that time OR sell their properties.

2:
Bank tries to negotiate with owners instead of fore-closer lawyers, which are making fortune from this. The money banks are spending to foreclose the property (including all the fee + Loss after close) is mostly more than 6 to 15 months of owner payments. Then why bank is not willing to freeze home owner payments for first 6 to 12 months and then negotiate with them.

=>Only do foreclosed if both these steps do not work.

This will resolve approximately 50% to 75% of the issues.

Thanks
Member
The Expert Talks Series

Lower the rates to 3% and then you will see.......

We live in an "I WANT" society. These homeowners who bought more house than they can afford are just as much as to blame as the money hungry lenders. Read the fine print people. Essentially, all the nit wits who bought homes (or actually "leased" homes) wanted something they cannot afford. They were living the high life. If more people would live below their means, we would all be in a better place. You made your bed, now lie in it.

I always thought it was odd that kids and college students go through years of school with no real classes about how to manage money to prepare them for life in the real world. Maybe if we focused more on education instead of giving our kids the best of everything, they would make for more responsible adults and members of society. People should not be bailed out from their mistakes with stimulus packages, plus it's not going to help for the long-term. Focus on what will...like education.

I would give a tax a huge tax credit to people who are up-side down in their mortgages with the stipulation that they would have to use it to pay down the principle of their mortgage.

Then I would have the Fed govt co-sign on loans so people can refinance out of interest only mortgages and the like.

The next step would be to try to get more first time home buyers into the market again

Wow, I'd be pretty annoyed if I had to take a class to prove I was smart enough to understand a mortgage. Maybe we could expand that to mandatory investments 101, mandatory gardening knowledge and how to be a good neighbor. My suggestion would be to increase the penalties (jail) for fraud. Both on the lender and borrower side. You read stories of scum bags who use a homeless persons S.S.N and gets a mortgage which he then defaults on. He does it time and time again and puts a million dollars in an off shore bank account. The guy gets 18 months.. out in 6 if that with a fine he never pays.

My two cents?

Housing prices have to fall. Not everywhere and not drastically but I think we have to accept the fact that something problematic happened with the housing bubble, and the market needs to correct itself back to historical norms. Any government action that seeks to artificially maintain high prices really isn’t doing anyone any favors, and it’s doomed to fail regardless. For someone like me who has been saving a 20% down payment (almost there!), it actually punishes me for my prudence. It keeps prices too high, then whacks me a second time by using my tax dollars to prop up artificially high prices. No thanks. I know it cuts into people’s savings and net worth, but when the dot-com bubble burst and billions of anticipated value was lost, did anyone ever mention a bailout of the technology sector to guarantee the value of stock options? No. Of course not. We let the market run its course to correct the foolish exuberance by naïve investors. Same thing here.

What the government can do, however, is provide support to those people who were negatively affected (actual home owners, not investors), but accept the fact that the money has been lost. Some suggested programs might include:

1. Revisions to banking law to make it easier for people who have been foreclosed to remove the stain from their credit history – essentially admitting that current banking law was so lax that it created a predatory and dysfunctional lending environment in which certain people were victimized. Bonus points if this program can be restricted to people who actually were preyed upon, not just the stupid, unrealistic or greedy.

2. Federal programs to expedite municipal purchase or transfer of ownership of foreclosed properties so that they can be rented out, rather than decaying. I believe this is beginning to happen on an ad hoc basis by different cities and towns around the country, but having a process in place that allows banks to write off the loss or barter properties for some financial / tax incentives seems to make the whole process more standardized, and would likely get us further down the road for mixed-use affordable housing (which everyone always seems to be dreaming about). This will also make more rental properties available for the dispossessed.

3. The mortgage renegotiation services that are springing up seem to be having some effect. Expand them. Create a financial / tax incentive for lenders to participate rather than stonewall. I think some of that is there now, but standardizing the process so that owners have access to lenders, and potential buyers if there is a short sale in the offing, may make everything move smoother and quicker.

I hope they do nothing. Let prices fall. My wife and I have combined income of $100,000, $700/month in car payments, about $500 a month in student loans, and a $2000 credit card balance, and I can tell you we wouldn't touch a monthly mortgage/insurance/taxes payment anywhere near $2750, especially with childcare for pre-toddlers running more than $1000/month. Yes, there are homes out there within reasonable commuting distances in the $300,000 range, but we can rent perfectly nice 2-3 bedroom apartments for $2000 without the heating and maintenance exposure.

It's very upsetting to be closed out of the market despite bringing in reasonable income. A special thanks to all of you out there who overextended yourselves and not only killed the housing market but kicked land and construction costs out of whack as well.

This 'crisis' is the result of an articial run-up in housing prices. Too many people who could not afford houses 'bought' them (tempoarily). They did not intend to share their profits with the taxpayers, and they should not share their losses either. Meanwhile, the builders kept building (and selling, and making money hand over fist) ... now, there is now an excess supply of housing, and current prices cannot be sustained. Too bad ... that excess supply will diminish as prices are reduced to realistic levels. A quick/painless fix at the expense of the taxpayers is wrong ... no one was pushing the panic button when prices were going through the roof. This debacle is due to a complete lack of oversight/competence by the Bush Administration ... this is what happens when corporate America is left unchecked. Impose strict regulations on the real estate/banking/mortgage industries, and hold their representatives accountable for making unsuitable recommendations to customers. The securities industry provides a good blueprint ... the lack of regulations/standards/accountability in the real estate/banking/mortgage industries is staggering, and we are now feeling the ramifications.

I think mandatory financial education is a great idea - but as with all other things, this program you'd be talking about is an additional expense that will be charged to whom? I think one idea would be that as a condition for licensure in the mortgage industry, brokers or banks should have to pay into an independant finance education system for borrowers.

The problem then becomes - how to you ensure the independance of these programs (ie - how do you ensure that they aren't pimping East/West Mortgage or Citibank or whatever at these seminars)? Also, since this financial education is "mandatory" - you're going to have to ensure equal access for all borrowers to these educational programs (inner city, suburban, rural) - if you were going to limit ownership on the basis of these courses - I guarantee you'd have the ACLU and the Reverends Jackson and Sharpton on your doorstep the next day unless you had tons of financial reps for the inner city folks.

I don't know - it sounds great in theory, but Washington and State Government always seems to muck up much simpler things up than this. Look at the RMV or the MBTA - they are able to turn anything harder than the very simplest of tasks into a colossal disaster. If it were well run, I'd be on board. But the odds of that happening are pretty small. My guess is that like all quasi-governmental programs, you'd just be creating another pork-filled, nepotistic system that creates more problems than it solves.

Then again, maybe I'm just jaded by every other experience I've had with anything State or Government run.

Mandatory financial education - hah! That's the dumbest idea I've ever seen. Maybe mandatory financial education for bankers might be more appropriate.

Bankers break their own rules, give away mortgage money to people they know can't pay, and it's all the buyer's fault?

The government has in its power the means to mitigate the real estate situation, and it refuses to move. It just has to make the mortgage rate drop to 5% or so, and the market will take off like it when it dropped to 4.5% after 9/11.

I suppose I shouldn't just rail on your idea (which I like in theory) without providing some insight of my own. I think mandatory education for borrowers is a great idea - but I also think there has to be more oversight on mortgage brokers and a LOT more in terms of penalties for predatory lending and falsification of mortgage documents.

I worked as a closing attorney for a couple of years and I can tell you that some of the terms lenders required for people with bad credit were INSANE. Lending Tree in particular used to charge tens of thousands of dollars to find borrowers with bad credit a loan. In addition, the loan terms were RIDICULOUSLY inappropriate. This was particularly prevalent in the inner city and in bad neighborhoods where I'd look at some of these loan terms and I KNEW that when the low introductory rates expired, these people were screwed. I refused to close a couple of the loans on that basis and I got let go by the firm I was working for because my job was just to close loans and make sure people understood the terms - not to advise them that they were committing financial suicide. I don't hold a grudge against the firm because it was the bank's responsibility to make sure that a borrower qualifies - not the closing attorney's job to work the numbers and see that these peoples' income wouldn't sustain a rate change.

The problem is that as long as the borrower is able to pay the initial teaser rate, these lenders seem to be able to get away with whatever kind of insane future rates they can come up with. It's then up to the borrowers to either refinance a few years down the road or I guess get foreclosed on. This wasn't a problem when property values were going up - but when they stagnated, you suddenly had thousands of people between a rock and a hard place - an untenable, rising interest rate and a house that they couldn't sell. The end result was a disaster - and honestly, it's not a surprise that most of these foreclosures are happening in the inner city and places like Brockton, Lawrence and Lowell - in my experience, that's where the bulk of these crazy transactions were taking place.

The housing market is fixing itself. It's the mortgages that has been/is causing problems. I do not think a second stimulus package is necessary and I wonder about its effectiveness.
With mortgage lenders giving out ridiculous loans to people who could not afford them, housing prices became inflated. Now that these mortgages are defaulting and foreclosures running high, the housing market will settle back to its correct price.
Avoiding this in the future means better financial education as you've pointed out but stricter controls on mortgage lenders should be considered. It takes two to tango after all.

First I think you need to gain control of, and greatly simplify the issuance process. Towards this end I suggest the following:
1. Only issue fixed rate mortgages - my reasoning is that anything else is an admission that the borrower can't really afford the mortgage right now.
2. Require that the issuer guarantee the first 20% of the mortgage if there is less then 20% down - my reasoning is that much of the current crisis is caused by the issuers not validating the credit worthiness of their clients. If they were on the hook, this wouldn't happen.
3. Standard contract written by Sally Mae and Freddie MAC that is clear enough that you don’t need special education.

For the bad mortgages already out there it is a more tricky. But my feeling is that everyone needs to give a little. I believe something like the following would work:

For houses that have lost up to 10%.
The bank agrees to temporarily write off 10% of the loan value and writes a new loan that conforms to principles 1 and 3. The government guarantees 1/2 of the banks liability for the 20% of principle 2.

For houses that have lost more then 10%.
The government creates an entity, like they did in the 30's, which buys enough of a stake in the house from the bank after the initial 10% write down to get to market value.

In either case the owner of the house agrees to reside in the house for 5 years or until the house is has sufficient value that it can be sold to payoff the original loan. Additionally, when the house is sold, that the owner does not realize any profits until the original loan plus market rate interest is paid to the originator and the government entity. With the government reimbursed first.

Reasoning, it is highly unlikely that in 5 years houses will not have recovered there value. The key is to get people and the financial system through what is basically a liquidity crisis.

Yes, yes, yes! Financial Education!
I would like to see a mandatory financial education as part of the high school graduation requirements. This would level the playing field for all, especially those who do not come from traditional homeowner families.

Handing out money is not the way to teach people to be responsible. The banks did scam people and reverse-redlining went on with predatory mortgages, but they would not be able to do it if everyone learned about money and our economy, including the history of our economy before they got out of school. Education is not a quick fix, however.

I think bail-out solutions will weaken the entire mortgage process. Why should I struggle to pay my mortgage when I can just sit back and wait for the government to help? I would agree with a plan that perhaps extended the life of a loan and subsidized some interest in order to lower the payments and keep people in their homes. But, the government can't just pay off obligations of the irresponsible.
And another economic stimulus package would only compound the error of the 1st stimulus package. We borrowed that money and it is an obligation we will have to pay, with interest, just like a mortgage. Who is going to bail us out of this huge national debt?

The best cure for he housing problem is to let prices fall to the point where homes are actually affordable. Bailing out only helps bankers who a)really don't need it b) most likely do not even have a mortgage on their 5 million dollar mansion, and c)were the cause of this mess to begin with. I suppose the accountability does lie partially with the American consumer, who was duped into believing that borrowing 90-100% of the cost of your home that is 8-10 times your yearly income is a sound financial investment, but the paradigm of a borrowing economy is purely a creation of the banksters. Enough bail-outs, time to grow up and reap what we have sewn. Learn from these mistakes and don't make them again. Buy what you can afford, and stop borrowing, and taxing everyone else in the process.

Mandatory "education"? Run by an "independent" entity? Ms. Myers, you are tip toeing towards the gulag. How about LESS governmental interference in the lending industry. Yaron Brook said it best, "What we need to do is remove the government's power to coerce, bribe, reward and bail out irrational decisions. The unfree market has failed. It's time for a truly free market."

If the problem is to address the housing/mortgage market, the solution should be based on those who own a house, not a blanket package. Perhaps basing the new stimulus package on whether or not someone paid Mortgage Interest the previous year and base the package on how much interest was paid.

Instead of "huge tax credits" for those people under water on their homes, how about huge tax credits for people who bought within their means and have continued to pay their loans on time.

Let's reward good behavior!

I agree with John K completely. I am so tired of hearing how people who can't afford things get "into trouble" bailed out time and time again. Yep, let's just wipe the slate clean for these poor people who got taken advantage of....awwww! Meanwhile, I have been a homeowner since the age of 24, always paid my mortgage on time and never missed a rent payment prior to that. And my husband and I don't have rich parents to help us out, we did it all on our own even when we had very modest salaries (51K per year at the time we bought our first home in 1995 for 117k). Rewarding good behavior would be more than appropriate. The key people to real wealth is this: Do not live above your means! If you follow this principle, you will be rich and this will not be your problem. The problem is people want to look wealthy with big homes and do whatever it takes to portray this image.

First off it was the Goverment's ingnorance of this in the first place . This whole crisis could have been avoided if " The Bush Adminstration and its co cospiritors(Republican Congress ) regulated the mortage industry and made it possible for only certain people who make enough to acquire so called " Sub - Prime " mortages . You see folks most of the mortage companies money came from european banks so when the damm dollar nosedived the Adjustabe Rating on these Mortages went up , which created Chaos among homeowners and the forclosures began . these people were already having economic issues with gas prices high and the job market already dwindiling so you see if we stop electing idiots and get real people in Washington then maybe we will never have to go through a situation like that again

Mandatory education for those who apply for mortgages is unlikely to be of any help. Legally worded small print documents will remain incomprehensible to anyone but the bankers and lawyers. Do you read all the fine print when you receive your credit card agreement update each year?

Our economy has been cyclic for the last hundred years and there isn't a living economist who correctly predicted any of it. It will play itself out.....just as it always has...despite all we do or try to do.........

NO BAILOUT! let the free market work itself out. When prices fall far enough so that people want to buy again then the market is fixed. Politicians made this mess in the first place 'trying' to help people.

From today's Boston.com; Luxury Living RE Section

Advertising supplement ;

Deluxe opportunities for living your dream !!
Perhaps you've always felt that luxury was out of your reach; that it's not possible to be both practical and indulgent; that your dreams need to wait until tomorrow. But now, more than ever, is the time to experience the lifestyle you deserve ..

Keep pushing the " American Dream" ! Everyone " deserves" it... have to keep up with the Jones, keep living above your means, spend $$ to stimulate the
Economy, etc. No wonder this nation is going down the drain ! Why in God's name should I, or any other hard working taxpayer, pay a dime to help bailout idiots who fell for the siren song of the NAR, Banks, and Mortgage Companies?!

Reading the comments, I come to several conclusions.

1. Bailouts are a lot less popular than politicians realize. Polls bear this out.

2. Financial education in high school might be politically feasible.

3. Mortgage rescue schemes should not be written by people who don't know anything about the mortgage market.

Mandatory education? No. There are plenty of free and very low cost programs out there if people want to take them.

Bailout? No. you signed the papers, you live with it.

If there was fraud on a mortgage, prosecute it. (won't help what happened)

Going forward.. If you would like your mortgage interest to be tax deductible, your morgage MUST BE non-recourse. This will force banks to be more conservative with loans, and will make it tougher initially to get loans, but prices will drop. Home Eq loans should follow the same path.

This thread was over with comment #3 and #9. There are people out there trying to sell me a car for $75,000. Do I buy it? No. Because I can't afford it. Make all the arguments you want about "predatory lending" but if you are not financially responsible to begin with then you will always have problems. Sorry, but it is impossible to get TRICKED into buying something you can't afford. You got fooled by math, and it is your own fault. DO NOT foreclose on personal responsibility. DO NOT bail out the financially irresponsible (this includes banks.)

I REFUSE to pay higher taxes to help bail out those who tried to live lifestyles they couldn't afford while I sacrificed for years to live within my means!!!

That ad is a perfect example of the mentality that many of these irresponsible people have had that got them into trouble n the first place. YOU DESERVE IT. Let's keep fostering that idea and encourage people to sign on the dotted line for that granite/SS and ocean views that they so rightfully DESERVE. It's the American Dream! (BTW I abhor that phrase and cringe every time I hear it).

In principle I like the idea of mandatory education for mortgage borrowers, but what does it mean in practice? That before you get a mortgage you're required to take a govt funded class? I don't know if that's politically possible.

One possibility is to insist that mortgage companies explain in simple language, on say one page, the terms of the contract and how it works. For example, in the case of adjustable mortgages they would have to provide two or three scenarios for what could happen at adjustment, depending on the rate change.

This requirement would have to be enforced of course, as lenders will find new and inventive ways to muddy the waters. But still, as a solution it's cheap and more politically practical as it can't easily be branded socialist. Is it enough? Probably not. But you're looking for solutions that can be implemented.

We are all to blame in this mess...lenders and investment banks, constantly under pressure to deliver constant, unsustainable, growth to fund our 401ks and pensions has created a poor atmosphere for government and self-regulation. Additionally, Freddie Mac and Fannie Mae have a government entity whose sole job was to oversee them. Little good that did.

While in principal I do not support a bail-out, I do recognize that it is needed. I prefer that my 3-4 neighbors on the brink of foreclosure get bailed out vs their property foreclosing and dragging down the value of my house. I also realize that quite a few of my friends and clients are employed by these institutions that enabled poor choices. I would hate to see thousands of people unemployed and stressing an already stressed social safety net.

In-short, there is no good answer, the best we can do is hold on and plug the holes where we can. We will recover as we did in the past, foreign money is still betting on the U.S. economy.

And financial education in high school should be mandatory. I had the fortune of growing up in a family of strong business people and learned alot from just being around them and their business. But I realize that not all of us are so lucky. Part of the future of our economy depends on smart financial citizens.

Oy!

We are all to blame in this mess

No.

...lenders and investment banks, constantly under pressure to deliver constant, unsustainable, growth to fund our 401ks

401(k)s don't invest in RMBSs or CDOs or any of the exotic instruments that fueled the credit bubble.

Additionally, Freddie Mac and Fannie Mae have a government entity whose sole job was to oversee them. Little good that did.

Neither Freddie nor Fannie are government entities. And neither are in charge of "overseeing" investment banks or lenders. The Fed is supposed to regulate the banking system, and Freddie and Fannie both gave up market share during the boom to other buyers of mortgage obligations.

While in principal I do not support a bail-out, I do recognize that it is needed.

It isn't.

. I prefer that my 3-4 neighbors on the brink of foreclosure get bailed out vs their property foreclosing and dragging down the value of my house.

Yes, I'm sure you prefer that the government takes my income to support the value of your house. I do not. Neither do most Americans. Luckily, the government doesn't have the money to do any such thing.

I've taken your post apart not to pick on you personally, but to make a point. The argument for bailouts makes no sense and has no basis in fact or logic.

These arguments seem to fall back to a few key issues that you either believe or dont-so it becomes like arguing religion or evolution. The confusion on the key points continues because the news media (hello Boston globe!), either is too lazy or does not like the results (due to who pays for advertising).
These key arguments revolve around the following:
1. Was the bubble in home prices artificial?
-this one seems like a no brainer, but based on seller behavior and the news media, you would think the prior pricing was normal and not the result of the overly easy lending policies. You would think that there should be news articles describing the RE downturn as "RE prices heading back to normal", instead we hear about the Housing Crisis or a Downturn. As if the moving down in prices is a temporary setback, a passing storm that will then bring us back to full prices like in the bubble.
2. Is a reduction in prices a bad thing?
-depends which side of the fence your on, right? We hear a lot of sob stories for the poor homeowners, bascially cause they are not as rich as they thought they were. Most of these people still have about 100% upside on the garbage houses they bought. Sorry, very little sympathy. Why no media stories about young families who are trying to raise toddlers in apartments cause the prices are so high? Seriously, having a house -letting the kids run barefoot in the grass in the back yard, swing sets, a neighborhood setting to ride bikes on, nice friends all around. These are some of the childhood memories I grew up with and my kids are being denied cause of the sad state of housing in Mass. Should you take more money from me to keep some idiots in a home they could not afford? Where is the fairness?
3. Are homes that get foreclosed a blight?
-I have not seen reports on what happens to a lot of homes that get foreclosed. If everyone got their minds around the new price points to reach a market clearing price, then these homes should not sit and sit on the market. Maybe we should just have regulations that state that a foreclosed property must be sold in some reasonable length of time or put up for auction. That solves your blight problem instantly. A house can get foreclosed, then sold in 3 months. Done.

Well, let me break this down in simpler terms.

Please reread, you misuderstood. There is a government agency whose job is to oversee Freddie and Fannie. OFHEO (www.ofheo.gov) is the agency; their only job is to oversee them with 200+ employees. Someone was asleep at the wheel, a whole other issue in itself...

401ks invest mostly in mutual funds that have holdings in banks and lenders such as Chase, Countrywide, Citi, BofA and a host of others. The banks did not accurately report the risk or screen the borrowers, so when the RMBSs (Residential Mortgage Backed Securities) were sold, the investors were not necessarily aware of the risk. The originator's (banks and lenders) concern was to make as many turns of capital as possible increasing their GMROI to drive earnings. Because they were focused on earnings and were not holding these instruments long term, if at all, they really didn't care, and neither did your 401k, until the bottom dropped out and the banks were left holding the bag.

You have two choices, your taxes will bail them out or pay for unemployment services, earlier than planned retirements, housing assistance, social programs that aid families in trouble, etc…

I think most Americans have a brain and will begin to realize turning our backs on this will cause further disruptions in the economy.

With rising unemployment, the economy as a whole has less discretionary income. Further depressing the economy and causing more unemployment.

I'm willing to pay for our excesses, I voted for some of these people in office and I take it as my responsibility for not being as active with my congressmen as I should have been. I also voted for some of these lenders' board of directors and invested in them, without looking as closely at their business model as I should have.

It's sad to see that some are just sticking their head in the sand and hoping it will just go away. Until we have a truly transparent market and risk rating that is infallible, the government will need to step in every now and then to keep the cheaters in check. Like it or not, that is how our economy is oriented.

On another note, have you ever had to evict a tenant with an infant because their landlord defaulted? Now this tenant is out of a home, has a child with an unstable home life and the tenant is looking for state or federal assistance. Guess who pays for that? Nothing is for free....

Have you seen a truly blighted neighborhood? Is crime a problem with foreclosures? Absolutely. This is much bigger than numbers on a spreadsheet. Quality of life and even life itself is taken away with this blight. While some may be content to sit by in their ivory tower, real life is happening to millions of people. So if I have to pay an extra $5000/year so be it. I'd rather pay more in taxes for services in country to fellow citizens than blowing up people in other countries.

It is very easy to point a finger at others and point out where they went wrong. I believe that society has been responsible for creating an atmosphere of greed, myself included. We vote for elected officials that have the most money with the most corporate collusion, we use credit to buy things we cannot afford, including homes (I only know a few that have bought a house in cash), and we promote entertainment that is centered on materialism. I think the difference is that some acknowledge their mistakes, both personal and cultural, and are willing to do what it takes to bring it back to center.

There is another currency in the world, it is compassion and it can generate as much wealth as greed can.

Now if we can just figure out how to get the government to run efficiently we will have solved hundreds of years of problems. Remember to vote!

"I prefer that my 3-4 neighbors on the brink of foreclosure get bailed out vs their property foreclosing and dragging down the value of my house."

Your foolish neighbors artificially increased the "value" of your home, give it back, fair is fair....

Why not instead reward those who stood on the sidelines saving their downpayments and waiting for prices to come down? Let's give every first time home buyer who is debt free and has 20% down available for a home 3 times their annual salary two things: a discounted mortgage rate (say 2%-3%, a rate credit agencies can surely afford at today's low overnight rates) and a homebuying bonus grant (either a true grant or a tax credit staggered over 5 years of ownership to weed out flippers). Somer are suggesting we lower or freeze rates for current overmortgaged homeowners and provide tax credits to the very same. But why reward bad behavior? Let's instead get innocent, financially stable buyers into homes they can afford, which indirectly will bail out some underwater owners who now will be able to sell. It will also get more stable mortgages happening which would help banks. At some point, you stop throwing money at an old broken-down car and trade it in for a new one. We need to stop throwing money at the broken end of the housing market and invest in the segment that seems more likely to keep running for the long haul --- qualified homebuyers. Of course while we're at it, we need health care coverage and quality disability programs for all so those who now typically lose thier homes due to medical crises have a better shot of avoiding home loss.

Marcus, a question if you are around. I hope you can put in non technical terms the following: I believe that there is a 5% chance that the economy muddles through and that somehow a new bubble can be created to replace the destroyed money from the stock and RE bubbles. I think that there is a 30% chance that the ultimate resolution is hyper-inflation, and a 65% chance of deflation, ala Japan and Keynes' Liquidity Trap theory. Net is that the future won't be anything like the past 20 years. I also think that coming increases in taxes and property taxes will be very deflationary.

It would be helpful to us, and others I am sure, if you could put in everyday terms (1) why everyone should be thinking in terms of probability based outcomes, (2) that the period we are entering will be vastly different than anything we are accustomed to, and (3) how we can easily see our RE deflate dramatically and significantly - just as in Japan and Toronto in the late 80's.

I think the thread gives a taste of the muddle-headed preachiness that the bailout crowd prefers to facts and reason. You don't care as much as I care, you don't see the Big Picture like I do, I deal with the real world while you sit in an ivory tower, and...and... um,... think of the children.

All mixed in with wildly incorrect statements of "fact." OFHEO does not regulate the subprime industry(!), Fannie and Freddie were not responsible for "exotic" mortgages (look up "conforming"), and pension fund managers and hedge funds are not poor, confused, unsophisticated investors.

Somehow, this mommier-than-thou gobbledygook is supposed to distract us from the fact that the bailout fans just want to prop up their own overinflated property prices.

Fact is, foreclosures are not a problem. They free people from a heavy burden they can't carry, and put property in the hands of people who can afford it at a correct, market-clearing price.

As I said before, none of this jawboning matters. There are millions more foreclosures ahead, and a continuing fall in home prices. Anyone who wants to order the tide not to come in is welcome to waste their time.

LynnLS, is that a pop quiz? I think you did a good job of touching on the possible outcomes, yourself. My scrying ball is broken and I'm not able to say which one will come true.

But I think you're right that many people who derisively dismiss a further fall in home prices simply don't understand the global financial issues, and aren't aware of the risks. This is truly the end of an era on many fronts, from dollar dominance to the Chinese money recycling machine. And most especially, it is the end of the era of low risk.