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How Bair is Creating a Generation of Debt Slaves



December 04, 2008 – Comments (4)

Mr. Mortgage explains it here.

Be sure to take a look at the loan modification doc, and see that nice balloon.

Mister Mortgage sez:

This modification makes the borrower a renter and debt-prisoner for life. This is not a financial solution for the borrower, rather a structure that lures the borrower into a terrible financial decision because it is cheaper to stay than walk away and rent. All of these new proactive loan modification plans by the law makers, regulators and bank are designed to do just this.  A ’solution’ where the borrower still owes $840k on a $475k home and will never be able to refi or sell, should send them running.

4 Comments – Post Your Own

#1) On December 04, 2008 at 11:56 AM, EverydayInvestor (< 20) wrote:

Blair, not "Bair".

I really wish we could edit blog posts.

And yeah, nothing can stop the force that is deleveraging.

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#2) On December 04, 2008 at 12:32 PM, TMFBent (99.24) wrote:

Actually, it's Bair. No L. I'm totally serial.


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#3) On December 04, 2008 at 2:12 PM, degaston (< 20) wrote:

Actually Congress could've stopped the deleveraging force. Instead of spending 700B to plug the holes of insolvent banks they could've given it to 700 BRAND NEW state-chartered banks on a dollar for dollar match with preferred shares up to 1B. That would've gotten 1.4T of capitalization that could result in up to 17.5T of new interest in loans/securities outstanding assuming the banks maintain 8% equity levels (i.e. 12.5:1 capital ratios). However its a debatable issue on whether any stimulus would just postpone a day of reckoning to be even more painful than this one will be.

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#4) On December 04, 2008 at 3:18 PM, TMFBent (99.24) wrote:

I have to give Bair a golf clap at least for blowing a flame thrower on this new, Republican straw man:

In her remarks to the Consumer Federation of America gathering, Bair disputed the notion that the Community Reinvestment Act -- the 1977 law requiring banks to make loans in low-income areas where they operate as a condition for opening new branches -- was a cause of the subprime mortgage debacle and ensuing financial crisis.

Critics of the law, notably conservative Republicans, recently have blamed the crisis on the lending law, saying it forced banks to make home loans to borrowers who were bad credit risks. Champions of the law, known as CRA, credit it with having boosted the renewal of inner-city areas in recent years.

"I think we can agree that a complex interplay of risky behaviors by lenders, borrowers and investors led to the current financial storm," Bair said in her speech. "To be sure, there's plenty of blame to go around. However, I want to give you my verdict on CRA: Not guilty."

She's right about that.

What I'll contend is: The primary greed mechanism was levered-up pools of rich suckers tossing money at lousy bonds sold by crooked Wall Street financiers, providing the financing for crummier and crummier loans. If there were no easy way for people to have gotten rich by handing out loans to people who couldn't afford them, they would not have been handed out. We've got centuries of banking history that illustrate it.

Here's the story.

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