Hedge fund manager and derivatives trader turned CNBC personality, Rick Santelli was the author of a highly publicized rant against Obama’s plan to deal with mortgages. The gist of it was that he didn’t work so hard so that he could foot the bill for his neighbor’s bigger house or extra bathroom that caused his deadbeat neighbor to default, apparently. Said Santelli, “This is America! How many people want to pay for your neighbor’s mortgages that has an extra bathroom and can’t pay their bills?”
He’s right, this America, there is always room for discussion of the philosophical position of “I’ve got mine. Fuck you. It’s better for everybody (especially me) in the long run.” But really, right now, guys in the exotic financial products industry probably want to keep their heads down and shut up. Because whatever bad decisions were made at the ground level, they were magnified hugely by the financial hucksters who bundled the mortgages, removed the risk from the banks and brokers who originated the deals, slapped a AAA gold star on the financial product, and started making leveraged bets on derivative products.
These guys, if they are smart, do not want to draw attention to themselves. There is a lot of ambient anger out there looking for a place to land. Because the “financial industry” is nameless, faceless, and complicated for the “Average American” (including this one), very few individuals have taken too much heat for the economic collapse. But if a guy like Santelli wants to stand up and tell honest folks who got in over their head despite hard work and good intentions that this is all their fault, I just have to say “good luck with that.”
The moral hazard of a homeowner paying a fixed rate mortgage instead of an adjustable rate mortgage just isn’t that worrying to me after reading about how loan originators were able to remove themselves from any real risk for the mortgages they arranged. I could have missed it, but I am not aware of public statements by Santelli about the moral hazard of bank bailouts.
If anyone is going to credibly advance the pure market philosophy in the current climate, it will have to be a pure libertarian walking the talk and unaffiliated with the financial industry. A guy like Santelli is just begging to be tarred and feathered.
It would have been great if all the analysist had a long time ago been ranting about the system of too easy mortgages/credit and the resale and hedge fund actions that certainly is part of the problem. It is easier to view historically than to critically view the present and caution about the future. In retrospect there have been so many “bubbles” building over the years that sooner or later reality had to strike. Completely unsure as to whether any of the bailout/stimulus things will work (or even sure what path should be taken) but at least something is being tried. And I too have to admit to being upset about paying for the high living of my neighbors that now need assistance getting out. As well said many years ago by an economist: It is not the high cost of living but the cost of high living.
Doug, you could take it as, “I’ve got mine, fuck you”. Or, you could look at the other side that says, “I was greedy, it was a mistake, now you’ll pay for it and save my ass”.
Santelli is acting like a politician, courting the people who played it straight with their mortgages, living within their means, not overreaching past starter home for McMansion. I’m not going to be surprised if Santelli doesn’t become one of the most popular people in the USA overnight. It isn’t so much free market/libertarian tones he is sounding, but pure populism. The average person did not overreach and default. I’d say there is a whole lot of opportunity for his message to be heard and welcomed.
Now, you might consider which side advocates justice.
Is it just to reward someone who faces foreclosure after choosing to live at the edge, praying that no bump or ruffle would pop their bubble?
Is it just to take from those who didn’t indulge in greedy behavior and reward those who did?
On another note, if Santelli is unfit to bring the message by virtue of his wealth and lifestyle, then Al Gore is unfit to bring his environmental message, by virtue of living in his mansion, flying on private jets, etc. No double standard, if you please.
And you’re right: There are two moral hazards at work here. Bailing out greedy lenders encourages more greedy lending, just as bailing out greedy borrowers encourages more greedy borrowing. Neither is worth encouraging.
Or, as the old economic saw goes, ‘You get more of anything you subsidize’.
Very well said Mike Kole. No matter who actually says “it” (Do you want to pay for your neighbors stupidity essentially) the message resonates with an eormous amout of people (like me) who pay their mortgages, pay their taxes, go to work everyday to provide for OUR families, etc…You remember us right, the 96% of us mortgage holders in this country that are not and will not be foreclosed on?
Yeah, just hand us the bill, what the hell.
Big Deal, Santelli and the lady at the Hong Kong airport have a melt down/tantrum and they end up on tv. These two deserve each other.
Santelli isn’t a bad messenger because he’s rich (if, in fact, he is.) He’s a bad messenger because he’s of the financial industry. It looks more and more like those guys were merely gambling big money with house money to the detriment of the rest of us. Derivatives traders and hedge fund managers don’t get to do any lecturing. (Nor, I suppose, should we let any mortgage deadbeats who bought houses they couldn’t afford get on TV and rally like minded deadbeats with lectures about the financial industry.)
A guy like you, Mike, I’ll listen to — a hard working guy consistently against subsidies of any kind, basically. But when a guy like Santelli appears to be starts mouthing off, it makes me want to look around for the torches and pitchforks.
For what its worth, Santelli has also spoken out against recent financial bailouts.
Don’t know if he has addressed the charming practice of the government making and encouraging bad loans – but I don’t think that’s part of his financial beat or past.
Renters are getting kind of P.O.’d, as well – especially those who have been saving to buy a house on some kind of reasonable terms.
Santelli has a point abut those who overspent.
On the other hand, he overlooks the people who lived within their means, had a year’s worth of savings in the bank, plus investments and who, thanks to lay-offs, the tanking of the economy, the loss of all value in their investments, etc. and underemployment when it is available at all and who now face foreclosure anyway.
Build more roads, fine – but it’s not going to do anything to help a lot of Hoosiers. The bitter truth about the current mes is that the people who went to college are unemployable. The plumbers and hairdressers and electricians are still very much needed.
I have to think that in a society as sophisticated as ours, we should be able to have program administrators making distinctions and reviewing the decisions made before authorizing any bailouts for borrowers.
How hard would it really be to analyze the following data:
1. Did the borrower put 20% down? 5%? Anything?
2. What % of monthly income was committed to mortgage? 50%? 25%?
3. Did the borrower have a savings adequate to cover 6 months expenses? 3 months? Any savings?
4. Was the borrower laid off from a job?
Look, the money is committed, so I would be happy enough that the people who did the right things (20% down, mortgage 25% of income, 6 months savings, laid off a year ago and ran through that savings, and working any job to get any income until able to find better) and still found themselves staring at a foreclosure would get relief.
I have a gigantic problem with people who did the wrong things (zero down, mortgage 50% of income, no savings at any time, etc) getting ‘relief’. In that case, it is little more than subsidizing bad decision making. This behavior MUST be punished!
And of course, the lenders MUST be punished also.
Wouldn’t bother me a bit to see some of the lenders and the borrowers go to jail for fraud. I think that would sent precisely the correct message.
Mike Kole: “Look, the money is committed, so I would be happy enough that the people who did the right things (20% down, mortgage 25% of income, 6 months savings, laid off a year ago and ran through that savings, and working any job to get any income until able to find better) and still found themselves staring at a foreclosure would get relief.”
I’d bet the above mentioned group of folks represents about 1% of those that will receive $$$$$$.
You wanna get really pissed?? The last number I heard was 9 million mortgages to be “modified, renegotiated, or fricked with in some fashion” which requires what first?? If you said “an appraisal” you are correct… Let’s be conservative (no pun intended) and use Indiana pricing….
$400 per appraisal times 9 million = $3.6 BILLION to just the appraisors…
They’re not approaching this with justice in mind, but with an actuarial pragmatism. Is it better to have a bunch of people walk away and stick banks with unwanted houses? Or is it better to renegotiate terms to keep people paying money toward those houses?
The banks should take some loss for being irresponsible. The irresponsible homeowners should have to stay in those houses rather than walking away. The fact is that as the loans readjusted, many could no longer pay. Both the irresponsible borrower and the standardless lender should pay a penalty for that. That’s the justice side of it. If that approach had been taken a year ago, the government might not be needing to offer its (our) guarantees also. Indecisiveness on the issue necessitated my tax dollars getting involved, which isn’t fair.
Meanwhile, I with a decent income didn’t have to have the brand new house on the acre of converted farmland at the edge of town. I got the thirty year old model that needs new siding and costs considerably below the national average. And as of this month, it’s paid off. It’s not fair that this plan will have me subsidizing people who make less, but have much grander houses than mine. So life’s not fair, and neither is this plan. But if this plan does more good than harm to the economy (perhaps hastening a recovery, with ultimately a positive effect on the budget), then I’m for it.
Everyone’s pretty much established that this isn’t fair. Let’s move past that into a discussion of whether it’s going to be worth doing anyway.
T…”Let’s move past that into a discussion of whether it’s going to be worth doing anyway.”
Good idea, I’ll go first.
No.
Why, T? Why move past fairness? Isn’t that important anymore? Unfair alone makes it not worth doing, to me. That’s bewildering logic, to say forget about fairness. Now we’re talking dog eat dog, but where the worst decisions move to the front of the line.
Then there’s the pragmatism that says rewarding bad decision yields more bad decisions. So, when do we at last draw the line? Isn’t it pragmatically better to draw that line sooner than later?
Then in fairness, everyone should have to cut a $20,000 check to pay their share of the Iraq war.
Right now.
I mean, we’re exiting a period that was an orgy of stupid spending on many things. Some bought houses. Some bought into a war paid for with credit. As long as we’re talking about balancing the accounts, let’s balance all of them. We’re all in default.
Back to the housing issue– There are instances where the plan that is being considered will keep people paying for their housing. If those people otherwise default and the banks take over the houses, who wins? They won’t be able to convince new buyers to pay at the same level due to the depressed prices. The homes will continue to fall into disrepair and end up being even larger losses for the banks, as well as the neighbors. I love justice, but I’m not a big fan of shooting myself in the foot to get it.
You’re on to something there, T. If we all had to pay a lliteral fair share of any government spending program, none of us would be for any of them. It’s the dishonest way that we obfuscate the costs that makes them tolerable.
But, to follow up on your metaphor, are we not shooting ourselves in the foot with the stimulus? We’re certainly going to devalue our currency. We’re certainly going to increase our future obligations, because we are certainly causing our debt to balloon. I’m a fan of practical solutions, I’m not a big fan of shooting my foot off today, and leg off tomorrow, to get it.
Yeah rick did point out some things that alot of folks would probably like to see stay quite.. but he was also right when these markets come back i dont want to be part of giving them a free ride to a major sale home.. there has to be some kind of payback for any help we give our fellow americans
That would make some sense — extra sales taxes on profits made on sales of homes receiving assistance or something. To go along with dividends or some sort of cut to the U.S. Government from banks or other institutions that pull out of trouble after receiving bailout funds. Probably want to make these things sliding scales of some sort to avoid squelching recoveries before they get going.
The natural cycle of the housing market was already underway until fed intervention. Roughly 1/3 of the closings/sales in California (where it’s a lot worse than elsewhere) were foreclosed homes sold to people that can actually afford them. Those sales create a factual appraisal baseline, a true “bottom” if you will.
When the feds step in and allow that process to drag out by essentially making payments for people, it “queers” the value baseline on appraisals and slows down the process again.
The people that can afford to buy will do so (and they always do) when they believe the downward slide is over.
While it sounds noble, and hopey-changey it’s money down the toilet initially, and then money out the window long term.
What I honestly don’t understand is why the intelligent and educated men here concern themselves more with the fleas—those stupid default homeowners that bought homes in those converted corn fields—then they do the unjustly overfed DOGS—those Captains of Industry and Wall Street—that have gorged themselves on the chewed off the legs of the our economy. Where is the demand that taxpayers receive restitution or compensation from those that were unjustly enriched, broke the laws, and turned a blind eye to their judiciary duties!
… ok, I actually meant to say their fiduciary duties.
Katie, You could never have sold bad mortgage derivatives to investors had you not had the first part, the bad mortgage. The Captains of Industry & Wall Street were bad actors and should have their collective asses kicked (IMO) and prosecuted on many levels of fraud.
That doesn’t have anything to do with todays problem of the fed “queering” the values of existing real estate by prolonging bad mortgages for another year or so.
Just another addition to the blame fest — who the hell was giving these derivative financial products AAA ratings? Or, rather, I should ask on what basis the rating companies were providing these high ratings.
… that would be Standard & Poor’s, Moody’s; I’m thinking they were certainly running with the pack!
Tim – you did not figure into my puzzlement; you’re (point)way too queer for my tastes.
That’s an easy one Doug.
Mr Moody’s, Here is a check for a million dollars – I’d like a 4 star rating on this bundle of derivatives.
Coming right up sir!
Mr Standard and Poor…….
Doug, the latest issue of Wired goes into detail on the formula used to come up with these bogus ratings.
… the Wired article:
http://www.wired.com/techbiz/it/magazine/17-03/wp_quant