Nouriel Roubini is a straight up guy. In stark contrast to AIG, et al.

[icarus]

The FBI investigates AIG, Fannie Mae, Freddie Mac, and Lehman Brothers for fraud.

"The FBI focused on accounting fraud, insider trading, and failure to disclose the value of mortgage-related securities and other investments."

Yep. Thought so.

The collapse of these giants has triggered a $700 bailout proposel by Bush*, which he tried to ram through Congress over the weekend. His original bailout plan included golden parachutes (big fat bonuses) for the CEOs of failed -- and potentially fraud-riddled -- businesses.

His plan currently includes some relief for home owners, but wait! To qualify they have to have 29% debt-to-income ratio and at least 6% equity in their house. So, if you have 100% financing, just bought your house, lost your job, or your property value plummeted (gee, isn't that, uh, everyone?), you're S.O.L.

Economist Nouriel Roubini says we are privatizing profits and socializing losses. He predicted last July that these companies were "toast," and proposes a better plan.

In order to resolve this financial crisis it is not enough to take the bad/toxic assets off the balance sheet of the financial institutions (a new RTC); it is also necessary and fundamental to reduce the debt overhang of millions of insolvent households via a significant debt reduction on their mortgages (an HOLC program like the one that was implemented during the Great Depression); and also recapitalize undercapitalized banks with public capital in the form of preferred shares (as the RFC did with 4000 banks during the Great Depression).

Thank you. Finally, a voice of reason.



* Don't you love how Bush didn't notice there was a recession until some of his rich buddies got burned?

Comments

[swatkat24.livejournal.com]

I really do appreciate these updates of yours. It helps me keep up with things happening in the US, with the added bonus of commentaries from non-crazy/non-right wing people.

[gail-b.livejournal.com]

When Bush came on the telly this evening to talk about the economy, I just wanted to shout, "DON'T LISTEN TO THIS JACKASS, DON'T DO WHAT HE'S SAYING! HE'S A GOD DAMN LIAR!"

I really hope this bailout plan is fought, and that they just won't go along with it.

[icarusancalion.livejournal.com]

His credibility on "dire warnings"? Is zero.

[lttledvl.livejournal.com]

The thing that gets me is all the advisors, politicians, experts, et al. for months were all going 'we don't have a recession'.

Uh, excuse me?

Yes, we have. We've been in a recession, what see now is another depression. Effing morons.

[teenygozer.livejournal.com]

Sigh. At the height of the real estate madness 3 or 4 years ago, we were tossed out of our apartment when our landlords sold their home for about twice what it was worth (we lived on the first floor in a separate apartment from our landlord's family.) We figured out how much we could afford for a house and found that decent houses were being valued for almost twice as much as what we were prepared to pay. No worries, the mortgage company cleared us for twice as much money as we could afford! We saw that in a couple of years, the interest rates would kick into overdrive and our payments would be more than we could pay on our salaries, and we'd lose our house -- appealing to our greed, the bank and realtors all told us not to worry because surely the house we'd buy would be worth twice as much as we paid for it by then. NOT BEING IDIOTS, we walked away from this deal and just rented another apartment. We had long conversations about how the chickens would come home to roost in a few years and a lot of people were going to lose their homes. Yes, though we are but humble working-class folk, we saw then exactly what is happening now, and we boggle that the "experts" didn't see what was so freakin' obvious to us.

So from our vantage point, we do not wish to see people who cheerfully did greedy and stupid things (they are adults, not innocent children whot got fooled by ebil city slickers, and should be treated as such!) be rewarded when we were behaving in a fiscally sound manner. I hate like hell to see anyone lose their house, but they can do what we did: they can rent an apartment. The media seems to demonize the idea of renting an apartment, but it is a perfectly good way to live. I genuinely believe that A) housing prices are in the "stupid money" range just now and must re-adjust downward if first time buyers are ever to be able to buy a home, which is what is happening now and B) there has to be a limit to the number of homeowners who get free money from the taxpayers to keep their homes. So setting a certain standard for which homeowners get help is a sensible thing to do: it is wrong to reward folly. Foolish home-buyers who paid money they did not have with the idea that their homes would double in value (you know, gambling!) should not be rewarded by getting to keep their homes. People who have legitimate equity and didn't buy into the crazy housing gamble should be helped.

I'm so sorry to hijack your entry, but I'm at the point where I wish we'd done the stupid, fiscally unsound thing and not acted like adults with a clue, because I'd have a house now and a lot of well-meaning people here in Massachusetts would be up in arms trying to help me keep it! It's very frustrating. I genuinely hope you don't mind an opposite viewpoint to yours appearing in your LJ.

[icarusancalion.livejournal.com]

No, not at all. My main frustration is that the pushers in this deal -- the very banks and mortgage companies who urged you two, and thank god you were smart enough to see through it -- are getting off, while the people they suckered (less clear-headed, maybe not as bright) are paying the price.

I've also seen situations where people were brought to the table with nice, stable, fixed mortgages, and then had the terms switched at the last minute, "Well, it turned out we couldn't do that after all, but here's this ballooning mortgage deal." They were lied to, then put on the spot, since they had to sign at that point or lose the house. They weren't given enough time to have the kinds of discussions you had -- and they were given a hard sell.

There's another situation with refinancing. I saw a video tape (I'm trying to remember the documentary, I went through a string of them) where an elderly black woman struggling on a fixed income was talked into refinancing her house to pay some of her overdue bills (she hadn't even considered it). She was told about a fixed mortgage, and then had the terms switched on her at the last minute (and this woman was doddering). When the balloon mortgage hit, she had to ask the nice man why it had gone up so high? She lost her home.

That's the kind of fraud we're talking about. There are a lot of people who just took a risk, but especially among lower income and black people, there was outright fraud.

Why should the crooks be bailed out, while people like her pay?

[cats-are-snakes.livejournal.com]

I went to a continuing education lecture about this. Many of the financiers targeted the elderly and ignorant. Some of the banks and finance companies changed numbers after the signatures were down. Of course, there were plenty of people who got greedy and gambled, too. There always are. But, in my experience, many low-income individuals do not understand the concept of interest AT ALL. They would not understand why variable interest rates could ever be a problem. I've known others who don't really understand what a loan is or how credit cards work. I can hardly believe it, but I saw and heard it myself.

[icarusancalion.livejournal.com]

Yes, I've run across that. No matter how many times you explain it, it just doesn't go in. It's like the piggy bank concept is as far as you can get, and they picture banks as just... bigger piggy banks.

I think we need a modern, more sophisticated version of Monopoly. If people could play it as a board game, it would sink in.

[blue-underwing.livejournal.com]

The problem is (okay, A problem is) people suck at math. Really REALLY suck. I'm not just talking above uneducated people. You bring up fractions and you lose almost half of collage freshmen. And I'm talking at high tier state universities, not bitty community colleges. "Why are there two numbers in a fraction?" "What does the / mean?" You wouldn't think these were hard questions, but apparently so. How then can you expect the average person to understand compound interest well enough to know when they are being lied to? Well, you can't. That's why we have regulations. Oh, wait-

On the bail out: I hate it. Hate it Hate it HATE it. But it looks like we need one to prevent a depression. If one can be molded in to something that can patch up the economy rather than rewarding the greedy idiots who broke it, I want it to pass. Soon. (And it looked like like one was going to until McCain dragged his campaign in and @#$% it up)

Sorry for rambling. I'm a bit miffed right now.

[teenygozer.livejournal.com]

First off: I swear to you, it was NOT that we were smart enough to see through anything. It was a "DUH" situation. It was a "don't dry your hair with a hairdryer while taking a bath" situation. I know manufacturers have to put stickers on hairdryers to alert the very stupid NOT to dry their hair in the bathtub, but it doesn't make someone who manages not to dry their hair in the bathtub a genius.

The expression "there's a sucker born every minute" is accurate. But so is the expression "you can't cheat an honest man." The majority of these people allowed their greed to motivate their purchase of a house they knew damned well they could not afford because they thought their purchase would appreciate. Most people caught with houses falling in worth were avaricious people who thought they'd get a house worth $200,000 three years ago for $400,000, and it would be worth a cool $800,000 in two or three years. Unfortunately for them, the worth went down, not up, their $400,000 house is worth $300,000. That's a Ponzi scheme, it's gambling. When people lose their home on the tables in Las Vegas, nobody rushes in to pay them back, why should my taxes be used to save some Ponzi-scheme-falling-for jerk when we didn't fall for it? Why should these people get a few hundred thousands of US tax dollars to pay for their house when I am going without a house because I wasn't stupid?

The fraud situation where people were brought to the table and had their contracts switched the way you described confuses me: why didn't they get up and walk away? I would have said, "you've wasted my time" and left! Life puts you "on the spot" all the time and how you deal with it is a measure of what kind of person you are, and if you panic and sign away hundreds of thousands of your dollars because the seller and bank guy are staring at you real hard and waving the new crap contract at you, it's kind of evolution in action. You said, "they had to sign at that point or lose the house" -- OK, that's a choice right there: "LOSE" THE HOUSE by all means, it was never really yours to begin with and there will be plenty of others. Srsly, just get up and buy a different house--and please note, not a single friend or relative of mine has ever purchased the first house they sat down to the table about. Buying a house is a give-and-take thing, everyone always walks away from at least one sale along the way, even sales where money has been put down. But this sort of bait-and-switch fraud does NOT represent the majority of the mortgage failures.

Little old ladies being screwed over by outright fraud is terrible, just terrible, and whoever did it should be drawn & quartered, or at least pay a huge fine & be forced to make amends -- but again, that kind of fraud is not what most of these failing mortgages are about and isn't what I'm talking about. We always get that heart-tugging story in the article about failing mortgages because it makes good copy, not because that's what is happening to most people. I really want that story to be a separate article about fraud on the elderly, not what they're making this housing crisis about.

Housing prices are still wildly inflated and "crazy money" but prices are falling. Housing prices MUST fall for first-time buyers to afford them, and they must fall to sane prices. If (when) they fall, people who bought houses "on the bubble" (and they did this with their eyes open, believe me) are screwed... unless some well-meaning politicians reward their stupidity and greed by giving them money to keep their house. This... upsets me.

Again -- I do agree with you about the outright fraud stuff, really I do. But it's not what most of these sales were about.

[cats-are-snakes.livejournal.com]

I would like to kiss Mr. Roubini ... on the lips.

[icarusancalion.livejournal.com]

Roubini is even better in person (or rather, in front of the camera). No bullshit at all and he isn't trying to impress anyone.