Bush unveils sub-prime assistance

[Darth Wong]

After reading Mike's explanation, I have to retract my earlier comments in the forum (if anybody fucking cares) about it being "cruel" or "suffering" to lose a home. Hell, I am a pro-apartment guy.

I know a couple which rented an apartment into their 40s, because it took them that long to afford a house while being realistic, raising a family, and living within their means. Then I read about these fuckers who run out and buy a house the minute they can get a shitty bad-credit loan, and who expect people like my friends to help bail them out of the jam they got themselves into, and help them keep the home they could never really afford in the first place. Fuck 'em. Goddamned parasites.

[K. A. Pital]

People who live beyond their means are pathetic. They don't want to believe that workers can't really buy a super-home any day with a credit. I mean, it's America! Land of prosperity! Even workers can live like rich guys here! And then the idiot goes and signs up.

Of course it doesn't work. There's this little production to consumption relation, which says you can't consume that much if you don't produce that much!

[Illuminatus Primus]

I couldn't careless about American homeowners. They're living beyond their means and quite soon they're going to find the single-family home on a big lawn in a nowhere suburb" is not an efficient model of development. We'd all be better off in North America learning, even if well-off, to live in towns and cities in spacious apartments and to be good neighbors and tenants. More like Europe. Learn to actually need and interact with our communities. As opposed to deluding that we're still homestead farmers with all the ra ra American bullshit that comes with these cultural self-delusions.

[Flagg]

I'd have less sympathy if we actually educated people about this shit while in school.

[mr friendly guy]

In my state property prices have gone through the roof. While the subprime market is less prevalent in Australia, we do also use variable interest rates.

Every so often there is a story about how families now have to carefully budget (what you mean they didn't before) what they buy, buying the cheap brands to keep up with mortgage repayments with the next interest rate rise. In fact interest rates were quite an election issue in the latest and previous elections.

There is also stories of people who go to get food from charities because they are holding onto an expensive house. While you know what. I can't feel goddamn sympathy for them. Its people like this which price me out of the market.

While the bank as of last year was willing to lend me up to half a million, I am not willing to commit myself to such an amount, and I am willing to bet I actually earn more than those families. These people however are willing to borrow massive amounts when its pretty obvious they are going to struggle. So how do they hope to continue to afford it. Why vote for the party which promises to keep interest rates low (even though its set by the INDEPENDENT reserve bank).

The only good thing about this, is that it may steady the markets for the say next few years. Already the stock market here is in gearing up in anticipation for US rate cuts. Hopefully this helps my stock bounce back and then I can sell it down the line, before this decision comes back to bite the US economy, whose pain will be transmitted around the globe.

[Xisiqomelir]

I'd have less sympathy if we actually educated people about this shit while in school.

Dunno, "best case/worst case" should really only take half a brain. "Oh I have this VARIABLE interest rate mortgage. What would happen if it varied upwards?"

[Fingolfin_Noldor]

In my country, people are being suckered into buying flats that will take them at least 1-2 decades to pay. If something happens along their way, good luck to them. One such minister already said the Government isn't inclined to bail out housing owners.

But hey, the Government actively gives incentives fueling the dream (which they themselves created) of home ownership. I just can't wait to see what would happen if there's another major recession, which should come in a few years, if not less.

[Xisiqomelir]

In my country, people are being suckered into buying flats that will take them at least 1-2 decades to pay.

If I were still in SGP (horrible thought), I'd probably take a job in the north of the country and just commute in from JB every day.

[Fingolfin_Noldor]

In my country, people are being suckered into buying flats that will take them at least 1-2 decades to pay.

If I were still in SGP (horrible thought), I'd probably take a job in the north of the country and just commute in from JB every day.

Isn't it better the reverse?

[Xisiqomelir]

Zowwie

December 2, 2007
U.S. Credit Crisis Adds to Gloom in Norway
By MARK LANDLER

NARVIK, Norway, Nov. 30 — At this time of year, the sun does not rise at all this far north of the Arctic Circle. But Karen Margrethe Kuvaas says she has not been able to sleep well for days.

What is keeping her awake are the far-reaching ripple effects of the troubled housing market in sunny Florida, California and other parts of the United States.

Ms. Kuvaas is the mayor of Narvik, a remote seaport where the season’s perpetual gloom deepened even further in recent days after news that the town — along with three other Norwegian municipalities — had lost about $64 million, and potentially much more, in complex securities investments that went sour.

“I think about it every minute,” Ms. Kuvaas, 60, said in an interview, her manner polite but harried. “Because of this, we can’t focus on things that matter, like schools or care for the elderly.”

Norway’s unlucky towns are the latest victims — and perhaps the least likely ones so far — of the credit crisis that began last summer in the American subprime mortgage market and has spread to the farthest reaches of the world, causing untold losses and sowing fears about the global economy.

Where all the bad debt ended up remains something of a mystery, but to those hit by the collateral damage, it hardly matters.

Tiny specks on the map, these Norwegian towns are links in a chain of misery that stretches from insolvent homeowners in California to the state treasury of Maine, and from regional banks in Germany to the mightiest names on Wall Street. Citigroup, among the hardest hit, created the investments bought by the towns through a Norwegian broker.

For Ms. Kuvaas, being in such company is no comfort. People here are angry and scared, fearing that the losses will hurt local services like kindergartens, nursing homes and cultural institutions. With Christmas only weeks away, Narvik has already missed a payroll for municipal workers.

Above all, the residents want to know how their close-knit community of 18,000 could have mortgaged its future — built on the revenue from a hydroelectric plant on a nearby fjord — by dabbling in what many view as the black arts of investment bankers in distant places.

“The people in City Hall were naïve and they were manipulated,” said Paal Droenen, who was buying fish at a market across the street from the mayor’s office. “The fund guys were telling them tales, like, ‘This could happen to you.’ It’s a catastrophe for a small town like this.”

Now, the towns are considering legal action against the Norwegian brokerage company, Terra Securities, that sold them the investments. They allege that they were duped by Terra’s brokers, who did not warn them that these types of securities were risky and subject to being cashed out, at a loss, if their market price fell below a certain level.

“When you sell something that is not what you say it is, that is a lie,” Ms. Kuvaas said. She disputed the suggestion that people here lacked the sophistication to understand what they were buying. “We’re not especially stupid because we live so far in the north,” she said.

Norway’s financial regulator agreed that the brokers had misled the towns, and it revoked the license of Terra Securities, prompting the company to file for bankruptcy. But the company’s parent, Terra Group, which is in turn owned by 78 savings banks and remains in business, rejected calls for it to compensate the towns. A spokesman for the group said it too had taken a hit from the episode.

Norway’s finance minister, Kristin Halvorsen, has ruled out the possibility of a state bailout, and Citigroup, which announced Thursday that it would shut down one of the money-losing investments Narvik bought, said it had no legal obligation to step in.

At City Hall, the stark reality of the situation is starting to set in. Narvik’s chief administrator, Trond L. Hermansen, figures he may recoup half of the town’s $9.4 million investment in the defunct Citigroup product — a package of securities linked to municipal bonds in the United States. Those securities declined in value after the market for bonds dried up.

But Narvik has $34.5 million in a second Citigroup-devised investment, known as a collateralized debt obligation, which has also lost value as a result of the broader market turmoil. The town stands to lose at least some of that money, too.

Those investments represent a quarter of Narvik’s annual budget of $163 million, and covering the losses would necessitate taking out a long-term loan, which the town could only pay off by cutting back on services.

“You can calculate this in terms of places for schoolchildren or help for the elderly,” said Mr. Hermansen, a soft-spoken man who sat in his office in near-darkness, the lights switched off.

As the losses begin to bite, the political finger-pointing has begun. Down the hall from Ms. Kuvaas, the town’s opposition leader, Torgeir Traeldal, is calling for an investigation of how and why Narvik could have made such an ill-advised investment.

“Heads are going to roll,” Mr. Traeldal said, repeating the phrase a few times to drive home his point.

From Mr. Traeldal’s window, cargo ships are visible in Narvik’s harbor, waiting to be loaded with iron ore. They testify to the town’s strategic location, more than 120 miles north of the Arctic Circle, not far from rich ore fields in Sweden. This has long made Narvik a target of opportunity for foreigners.

Hitler viewed the port as an important conquest because it could provide Nazi Germany with an ice-free harbor from which to ship iron ore to build his war machine. The British had similar ideas, and the stage was set for one of the first great naval battles of World War II.

In April 1940, German warships sailed to Narvik. They were met by Norwegian and British ships, and the ensuing clashes left hundreds of sailors dead and the wrecks of more than a dozen destroyers scattered in the fjords.

Narvik’s war history is chronicled in a little museum next to the fish market that attracts visitors from around the world. But it, too, may be a victim of the crisis. Ulf Eirik Torgersen, the director, said the town told him his budget would be cut by 40 percent, which could mean closing.

“That would be a shame,” he said, “because this whole town is based on naval history and war history.”

Nowadays, scuba divers prospect the World War II shipwrecks, part of the town’s busy tourist trade. Like many other Norwegian towns, Narvik also gets hefty tax payments and other revenue from the nearby hydropower plant. That wealth is what got it into trouble.

In 2004, Narvik and a number of other towns took out a large loan, using future energy revenue as collateral. They invested the money, through Terra Securities, in the Citigroup debt vehicle, which offered a better return than traditional investments. In June 2007, as the subprime problems were brewing, Narvik shifted some money from that investment into an even more complex one, again through Terra Securities.

Within weeks, as the market deteriorated, that investment declined in value, and Narvik got a letter from Terra Securities, demanding an additional payment of $2.8 million. Mr. Hermansen said Terra’s brokers never told him that he would be liable for such payments.

The chief investigator of Norway’s financial regulator, Eystein Kleven, said Terra Securities’ Norwegian-language prospectus did not mention such payments, or other risk factors. Citigroup’s term sheet did provide information on risks, but Narvik got a copy only after it had signed the agreement.

“This is the most serious matter we have dealt with in the stock market in the last 10 years,” Mr. Kleven said.

Even if the Norwegian prospectus had been complete, it is not certain that Narvik would have shunned the investment. Ms. Kuvaas, for one, said she did not read the prospectus before voting to authorize it — a decision that was made when she was in the government but not yet mayor. She said the town trusted Terra Securities, with which it had worked since the late 1990s.

To local residents, the bigger question is why Narvik would gamble its future energy revenue on exotic investments.

“We’re upset with our politicians because they should have known better,” said Eileen Jacobsen, 34, a kindergarten teacher. “If this was a private person who did this, people would say, ‘Hello?’”

Ms. Jacobsen, who has a son in kindergarten, said she worried that the town would cut back on resources. Fourteen adults look after 54 children at the kindergarten. But, even without the crisis, Narvik has 40 children on a waiting list for kindergarten, something that is considered almost a right in Norway.

With candles burning in the windows and lights strung on the streets, Narvik and its residents seem determined not to let the losses spoil the season. But late at night, in the Narvik Guten pub, the sadness is palpable. “I really love this town,” said Per Ellingsen, 45, a carpenter who recently returned home after years away. “I’m afraid this is going to set us back 10 years.”

My already highly elevated levels of misanthropy are receiving massive boosts from these stories. Is there no one anywhere in the world who reads a piece of paper making them liable for vast sums of money before they sign it?

[Flagg]

I'd have less sympathy if we actually educated people about this shit while in school.

Dunno, "best case/worst case" should really only take half a brain. "Oh I have this VARIABLE interest rate mortgage. What would happen if it varied upwards?"

Too many fuckign people don't even seem to grasp the concept of interest at any real level. It's fucking pathetic and sad.

[Chardok]

I'd have less sympathy if we actually educated people about this shit while in school.

Dunno, "best case/worst case" should really only take half a brain. "Oh I have this VARIABLE interest rate mortgage. What would happen if it varied upwards?"

Too many fuckign people don't even seem to grasp the concept of interest at any real level. It's fucking pathetic and sad.

I didn't understand interest (In fact, My understanding of interest was bass-ACKWARD) until I started SERVICING mortgages. It's not pathetic and sad at all, unless it's applicable.

Meaning, that if you don't need to understand interest (Standard declining or Daily simple or whatever), then not knowing is not only forgivable, but should be expected (I don't know the tensile strength of 4000-series aluminum, but I bet Mike doesn't know the BHP of the standard Humvee.)

[Phantasee]

But our whole economic system is dependant on credit. If people knew how it worked, we wouldn't be able to make so much money! [/fatcat]

[aerius]

I didn't understand interest (In fact, My understanding of interest was bass-ACKWARD) until I started SERVICING mortgages. It's not pathetic and sad at all, unless it's applicable.

Meaning, that if you don't need to understand interest (Standard declining or Daily simple or whatever), then not knowing is not only forgivable, but should be expected (I don't know the tensile strength of 4000-series aluminum, but I bet Mike doesn't know the BHP of the standard Humvee.)

I don't know, my high school math classes taught us how to calculate daily interest, compound interest, residual balance, and all the other basic stuff to cover most loans, mortgages and interest bearing accounts. I distinctly recall a homework assignment where we had to work out payment schedules for various mortgages.

Even if it isn't taught in school, you'd think that someone with half a brain would do some fucking research so he understands the system on a basic level before taking out a mortgage that's worth about 10 years of his income.

[Chardok]

I didn't understand interest (In fact, My understanding of interest was bass-ACKWARD) until I started SERVICING mortgages. It's not pathetic and sad at all, unless it's applicable.

Meaning, that if you don't need to understand interest (Standard declining or Daily simple or whatever), then not knowing is not only forgivable, but should be expected (I don't know the tensile strength of 4000-series aluminum, but I bet Mike doesn't know the BHP of the standard Humvee.)

I don't know, my high school math classes taught us how to calculate daily interest, compound interest, residual balance, and all the other basic stuff to cover most loans, mortgages and interest bearing accounts. I distinctly recall a homework assignment where we had to work out payment schedules for various mortgages.

Even if it isn't taught in school, you'd think that someone with half a brain would do some fucking research so he understands the system on a basic level before taking out a mortgage that's worth about 10 years of his income.

I agree with the last part, but as to the homework, I never got any. Certainly were *I* to have taken out a mortgage I would've educated myself on how they work. That said, it's easy for me to say several years on, ya know?

At any rate (RATE! HA!) I never did have anything remotely resembling finance classes. Just math.

Oh, they DID teach us how to write a check properly though, go fucking figure. Your tax dollars at work. Teach 'em how to spend, but not how to save.

[Alan Bolte]

<snip>

Well said (as usual ). Americans widely regard not owning your own home before the age of thirty as clear evidence of poverty, and losing your home as a genuine form of suffering. Just think, you have to move. To somewhere that might be smaller. With a landlord. How will we ever survive? I recall my mother being in absolute hysterics when we sold the previous house and moved to this one, and that was by choice. I wonder, if something happened and this house was foreclosed on, would she go catatonic?

In the previous post, there was a reason I compared it to flood insurance as opposed to food aid and public housing, though perhaps I wasn't clear enough. There are many government assistance programs that go beyond merely keeping people alive and out of the cold, so it seems like foreclosure prevention would be quite popular with a public that views more than a few people losing their houses as absolutely unacceptable.

[Einhander Sn0m4n]

Americans aren't interested in bailouts for dishonest twats.





Says it all. Is it me or does that second pie show a massive and well-judged increase in cynicism? A Google News search for 'savings and loan bailout' instead returns much screaming and gnashing of teeth against another for the subprime 'Liar Loan' peddlers

[SirNitram]

Ah, liar loans. Because it's totally safe to give people loans even if they can't prove they can pay it.

And of course, what does the Fed do? SLASH RATES! Seriously, is there even a point to speculation now? As long as it's Randian conservative masters are in charge there, they'll just keep the rate level or lower it.

And to round off the ridiculousness, here's the WSJ whining:

WSJ!

Fannie Mae, the giant government-sponsored mortgage investor, last week raised costs for many borrowers by quietly adding a 0.25% up-front charge on all new mortgages that it buys or guarantees. On a $400,000 mortgage, that would mean an extra $1,000 in fees, almost certain to be passed on to the consumer. Freddie Mac, the other big government-sponsored mortgage investor, is expected to impose a similar fee soon, according to a person familiar with the situation.
...
In a statement, Fannie said the new fee is needed "to ensure that what we charge aligns with the risk we bear." The National Association of Home Builders labeled the fee "a broad tax on homeownership." More than 40% of all mortgages outstanding are owned or guaranteed by Fannie or Freddie.

The fee is the latest in a series of moves by Fannie and Freddie that raise the cost of credit for some borrowers. Late last month, they imposed surcharges that affect mortgage borrowers who have credit scores below 680, on a standard scale of 300 to 850, and who are borrowing more than 70% of a property's value. For example, someone with a credit score of 650 would pay a surcharge of 1.25% of the loan amount for a mortgage to be sold to Fannie. On a $300,000 loan, that would mean extra fees of $3,750. The fee could be paid in cash or in the form of a higher interest rate than
would normally apply.

Fannie also is raising down-payment requirements for loans it purchases or guarantees in places where house prices are falling, which by some measures is most of the country. In these declining markets, lenders will need to cut by five percentage points the maximum percentage of the home's estimated value that can be financed. For instance, for types of loans that Fannie normally would allow to cover up to 100% of the estimated value, the ceiling now is 95% in declining markets.

Gosh, a risky market means that people are hedging their bets? HOW UNFAIR!

[Siege]

Some time ago I did some work for a collections agency, and I found it truly surprising how many people apparently couldn't grasp what would happen if you failed (or flat-out refused) to pay that € 1000 you owed Company X against a 16% interest rate for a few years. Then after some time it'd become apparent to them and there'd be the inevitable wailing about how those rates are not "fair", and although in certain cases such complaints had a modicum of merit my sympathy meter doesn't register much when the contract you signed spells out the conditions in advance.

My guess would be that as the sums involved grow larger and the amount of time spent paying off those sums grow longer, progressively more people are prone to losing their grasp on what exactly those Big Numbers mean for them. That's just my experience though, and hardly much of an excuse.

[Admiral Valdemar]

All the central banks are trying to rectify this problem by opening the printing presses up globally to max.

Kind've funny. Like how we consider the fact that we got into this mess because of a lot of liquid credit, and the only way out is to produce more and help keep things ticking as they are. Because carrying on regardless is a sure fire way to win!

[J]

I believe the central banks are learning from the example set by Bob Rae, a former Premier of Ontario, he once proclaimed we'd spend our way out of a recession. That plan worked about as well as you can imagine, which is to say it didn't, in other words it left our Province in a deep financial mess.

Somehow, I don't see the current mess resolving itself any better.

[Fingolfin_Noldor]

It will be downright hilarious if all the money they are printing now turns into bananas. How will currencies react to this sudden printing of cash?

[J]

All the central banks are trying to rectify this problem by opening the printing presses up globally to max.

Kind've funny. Like how we consider the fact that we got into this mess because of a lot of liquid credit, and the only way out is to produce more and help keep things ticking as they are. Because carrying on regardless is a sure fire way to win!

Oh dear. It doesn't seem to be working. Who would've guessed? How could this be?

Bloomberg linky

Euribor Rate Unchanged, Signaling Money-Market Freeze Persists

By Gavin Finch

Dec. 13 (Bloomberg) -- The cost of borrowing euros was unchanged, signaling a Federal-Reserve-led plan to ease the credit squeeze is failing to persuade commercial banks to lend to each other.

The three-month euro interbank offered rate, the amount banks charge each other for such loans, stayed at 4.95 percent, its highest level since December 2000, according to prices from the European Banking Federation today. That's 95 basis points more than the European Central Bank's benchmark interest rate.

The euro levels suggest that money-market rates for the dollar and pound, which will be set by the British Bankers' Association later, won't decline enough to ease a credit squeeze that threatens to derail economic growth.

``It's a very disturbing sign,'' said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. ``I'm alarmed by the impact this is having, which underscores that the funding difficulties out there are enormous,''

The Fed said yesterday it will make $24 billion available to the ECB and Swiss National Bank to increase the supply of dollars into Europe to revive interbank lending. Lower borrowing costs from policy makers in the U.S., U.K. and Canada have failed to free-up cash, as financial institutions reported from more than $66 billion in losses linked to defaulted U.S. subprime mortgages.

The U.S. central bank also plans four auctions that will add as much as $40 billion. The Bank of England said it would widen the range of collateral it will accept on three-month loans.

The Euribor rate is based on a 360-day counting method for the year. The EBF represents the interests of 4,500 banks in 24 member states of the European Union and in Iceland, Norway and Switzerland.

[Illuminatus Primus]

[I didn't understand interest (In fact, My understanding of interest was bass-ACKWARD) until I started SERVICING mortgages. It's not pathetic and sad at all, unless it's applicable.

Meaning, that if you don't need to understand interest (Standard declining or Daily simple or whatever), then not knowing is not only forgivable, but should be expected (I don't know the tensile strength of 4000-series aluminum, but I bet Mike doesn't know the BHP of the standard Humvee.)

That's fucking stupid. Interest is grade school math and its meaningful application and management thereof is something every responsible adult must deal with. Everyone should understand interest, or they should have no loans or investments.

[Admiral Valdemar]

Nate Hagens gave a good talk on a podcast (forget where, I shall search) with respect to the credit crunch around the end of November. By his reasoning, we should be seeing the problems subside a bit as the banks try and remain solvent by Govt. intervention and various other interesting initiatives. Of course, this comes with the caveat that we make the crash that much harder.

And it's already a bigger risk than the '29 crash with 1% of Americans (the richest) owning 50% of the assets and the US deficit being around $60 trillion. Yes, that's with a "T".