Comment by earl | Hacker News Reader

Comment by earl | Hacker News Reader

Oh please. Contracts get modified in bankruptcy all the time -- in fact, the inability to modify mortgages is the exception. In a standard business reorganization all contracts are capable of being modified by the judge or by consensus of the creditors. There's really no good reason for homes to be an exception and it's one of the more direct ways to keep people in homes. Frankly, this is probably better for all of us considering the massive overallocation of resources to housing investment and the current existence of too much housing stock. Either we help people stay in them and they cover a percent of the mortgage or we kick them out and sell the house to... oh wait. Yeah. I'm more scared of the knockon effects of allowing a massive devaluation in housing than the potential knockon effects of judges modifying mortgages in bankruptcy just like they modify all other obligations in bankruptcy.

Further, Phil was talking to people with $2 TRILLION to invest? Um, maybe, but that's 15 percent of US GDP. Pretty rare air there, and the idea that all these people (and perhaps Phil, too) weren't simply talking their book is nonsense.

Oh Please, your worried about a massive devaluation in housing. Almost everyone admits housing is currently overvalued, everyone refers to it as a housing bubble.

I'm concerned that housing values will be stabilized at an above market rate with the help of my tax dollars making it more difficult for me to one day purchase a house of my own.

"Oh please. Contracts get modified in bankruptcy all the time -- in fact, the inability to modify mortgages is the exception. In a standard business reorganization all contracts are capable of being modified by the judge or by consensus of the creditors."

Way to go on comparing apples and oranges. Bankruptcy does lead to modified contracts but the process of these modifications has been known for decades. It is well known and bankruptcy law has been relatively stable. If Obama et al. decided to change bankruptcy law every month in ill-defined ways then you will see the same cry for the same well-justified reason: the government induced uncertainty is far more harmful as compared to the benefits.

"There's really no good reason for homes to be an exception and it's one of the more direct ways to keep people in homes."

Pure bullshit. There is an excellent reason to have special rules regarding housing when it comes to bankruptcy and mortgages. Namely, if lenders are assured that their claim to the property will not be removed during a bankruptcy, the loan is a lower risk loan and will therefore result in lower interest payments. Historically, this has been correct. The current housing glut is partly due to the over-exuberance of bankers (for which they should be allowed to go bankrupt) and partly due to government action like Fannie Mae and Freddy Mac which subsidized housing for years, excessively loose monetary policy which reduced the price of debt in general (and since housing is already is nice market for debt due to bankruptcy law, this hit housing very hard), community-reinvestment act and friends, etc...

"Frankly, this is probably better for all of us considering the massive overallocation of resources to housing investment and the current existence of too much housing stock."

So houses are overvalued. Yeah, but the problem lies with the other congressional regulation which indeed needs to go down the drain but now we are dreaming.

"Either we help people stay in them and they cover a percent of the mortgage or we kick them out and sell the house to... oh wait. Yeah. I'm more scared of the knockon effects of allowing a massive devaluation in housing than the potential knockon effects of judges modifying mortgages in bankruptcy just like they modify all other obligations in bankruptcy."

Um... either way, the value of houses decline. Just that one way, home owners are still stuck under what is possibly crushing debt and we have just established a precedent that Irresponsible debt = GOOD and by implication Responsibility and financial planning = BAD and in a society which already has too much debt, do you really want to do that? In contrast, with the other path, we allow the banks to do what they do best: deal with mortgages.

"Further, Phil was talking to people with $2 TRILLION to invest? Um, maybe, but that's 15 percent of US GDP. Pretty rare air there, and the idea that all these people (and perhaps Phil, too) weren't simply talking their book is nonsense."

Um... the US economy has ~$150 trillion of capital (by some reliable counts. This is a difficult variable to determine). GDP is how much that increases. You do realize that $2 Trillion is nowhere close to what these people will earn. Furthermore, the second part is ad hominem (which is not complete unjustified as these people rely heavily on their reputation in the article). Still their basic point that investors are scared shitless of an overly active (and in this case, confused) government. This has actually been demonstrated in the past. In particular, it is very interesting to look at investor confidence surveys during ~1938 (when FDR was Mr. Anti-Business) and ~1942-3 (when FDR was Mr. Win-The-War). Investment and gdp numbers also closely follow.

Lastly, this is not the first time that I have heard this sentiment.

Look here: http://www.smartmoney.com/investing/stocks/government-interv... . Whats really interesting about this article is that it was written in September 2008. The article predicts that as long as government keeps meddling in the markets, prices will remain low and uncertain. Lo-and-behold, a forward looking prediction that came to be true. Admittedly, this could be coincidence but then again this is the most plausible thing that I have seen in the last 6 months of this entire affair.

Don't be histrionic -- Obama isn't discussing changing bankruptcy law every month. This is a single change. Further, it resolves some nasty agency issues where securitized mortgages that can't be reasonably modified -- the servicing agencies lack the rights -- or won't be modified, because the servicing agencies don't get paid for modifications, which is an extremely expensive process.

And yes, lenders blah blah bah lower risk blah. How's that working out for them? The fact is (and nobody is disputing this) homes are overpriced. Home prices will fall. How far and how fast is a matter of direct interest to most people in the nation, particularly other homeowners. Measures we can create to prevent overshooting on the downside are probably worthwhile. If we can get people to cover a large portion of their mortgage debt, the nation as a whole is probably better off -- fewer bank defaults (and those are your retirement and insurance funds at risk), fewer fund collapses (again, your retirement and insurance and etc were invested into those CDOs), fewer foreclosures, fewer disrupted communities, higher home prices for non-foreclosed households, etc.

The whole idea that we could just foreclose and the bank could get their money out hasn't been tested with a crisis like this. In some communities in socal and Florida, 50% of home sales are foreclosure sales! The bank is going to recover what -- probably well under 50 cents on the dollar in this case. Finally, the whole bit about a judge changing the terms of the mortgage does prevent people from being stuck under crushing debt -- that's the point!

Finally, the author of your link is, well... stupid. Very briefly: Bear Stearns was rescued because if they failed, they'd take all the other banks with them via intertwined obligations. We need banks to act as financial intermediaries in all sorts of transactions... no banks, no credit markets, no ability for people and business to borrow, no economy. Fannie and Freddie got bailed out because, well, amongst other reasons China told us to. And when somebody owns more than a trillion dollars of your debt, you need foreign central banks to buy another trillion or two in 2009, when they say jump we get to say how high sir.

Now look -- you appear to think that I'm happy with this situation; like other people, particularly those of us that don't own homes, I'm pretty pissed off about the whole thing. But the time for preventing this was in 2000- maybe 2005, and now what's done is done and the best we can do is ameliorate this for as many people as possible. That pretty directly implies the government should do their best to stop the rapid home price falls... the prices will fall no matter what, but the more they fall in real instead of nominal terms probably the better off the nation will be.

Finally, prices in the markets aren't low and uncertain because of government meddling -- prices are low and uncertain because most banks are probably bankrupt, we as a country are sitting on enormous piles of bad debt and nobody can figure out whom and how bad, and btw, the entire world is entering a severe recession. Simultaneously. From China's imports that plunged this month, to the US, to Korea, to England and W Europe, it's hard to find any bright spots in this economy.

    The fact is (and nobody is disputing this) homes are
    overpriced. Home prices will fall. How far and how fast
    is a matter of direct interest to most people in the
    nation, particularly other homeowners. Measures we can
    create to prevent overshooting on the downside are
    probably worthwhile.

You're doing that trick of naming some facts everyone agrees with (houses are overpriced) and then zooming into a strange conclusion as though it's a logical flow (intervention into a market correction).

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