Comments on: USA – The Land of Deadbeats?

By: Living Off Dividends

Living Off Dividends — Sat, 20 Mar 2010 21:49:33 +0000

the banks are currently in a great spot. they make money originating the loans and all the losses are borne by the US government AKA the US taxpayer. that’s what I meant by socializing losses.

By: Clay

Clay — Sat, 20 Mar 2010 04:56:21 +0000

How is defaulting on your loan, which the bank made the decision to loan you, socializing losses? The mortgage contract is simply an agreement, if the bank made a poor choice and you end up underwater, that is a risk they took. Now, what they did with the loan afterwards is another matter..

By: Blogging Banks

Blogging Banks — Tue, 16 Mar 2010 21:22:11 +0000

I second Beardog, asking about the passive income business. I am currently buying long-term treasuries, earning between 3% for 6 year treasuries to 4.7% for 26 year maturities.

By: j

Thu, 11 Mar 2010 17:23:08 +0000

Sure, people can walk away from the mortgages.

However, in the future, banks and other lenders will need to price the increased risk of homeowners walking away and increase mortgage rates as needed. Businesses usually had a higher higher interest rate than a homeowner’s mortgage because of increased risk. It sounds like these models would have to be re-examined.

Also, should the government then be able to step like they just did with credit card interest rates and tell lenders what the maximum rate is and other restrictions. Isn’t it a “business transaction” after all.
Will the government step in and have a maximum mortgage rate at some point as well.

By: Living Off Dividends

Living Off Dividends — Tue, 09 Mar 2010 19:23:41 +0000

Hi Erica,

I agree and disagree with at the same time.

The ability for businesses to walk away from their debts is what stimulates business and job creation in the US and makes it sooo much better than Europe and most other places on the planet. Giving everyday people the ability to walk away from their debts and obligations with minimal consequences bodes bad for the general business climate as a whole.

If you’re underwater and can’t afford the payments, you really don’t have a choice. But if you’re well capitalized and can get a loan for another home – do you take that loan, buy another house and then default on the first one?

As an aside, I fear its this 18 months free rent which is stimulating the economy. Tradermark on Seekingalpha calculated the effect on the GDP and it was pretty astounding. What will happen when this “stimulus” drys up?