Why the hell is everything on allocation?

That's in essence what they already did. People were paying their mortgages as long as they saw prices rising and could milk ever more money out of their house.

Sure we were smarter and now they sock it to us. A wrong lesson has already been learned, the one that says that it's ok to buy a major asset and walk away from it when things cool off. It's too late. Banks, Fannie, Freddie, they all allowed people to either lie on their applications or gave them more than they should have. Meaning two things: The people that were supposed to guard our (the taxpayer's) asset failed to do their jobs, and ordinary people signed their names under obviously exaggerated or blatantly false information. Both of which should have had legal consequences, but didn't.

Right. And you've discovered the greatest weakness in the general Stoic argument-suite. Lots of Stoics here...

As the Prophet, Kenny Rogers said (blessed be his name) said - you got to know when to hold 'em, and know when to fold 'em.

Being able to fold 'em is what makes what we are today. I think there is no small resemblance to the idea of forgiveness in general. Just let it go.

If you don't buy "fold 'em", look in detail into the history of the railroads in the United States. They were scourges of insolvency and calmuny. Leland Stanford did not get rich by being a nice guy....

When I first learned that Aristotle objected to the charging of interest because it was "reifying the symbol" - rent for money, which is itself a symbol - I thought this ludicrous.

Obviously, credit money makes sense because even if a quarter or one fifth of it all goes bad, there's still 75-95% success rate.

And that's *much* worse than the general batting average of credit a this writing.

but if a debt is something akin to pledging one's sacred honor, then people are going to be *much* less likely to run experiments that fail. Indeed, as I read Roman history ( which figures Stoicism prominently ), I have to wonder if that isn't a large part of what took 'em down - bad debt meant slavery.

but the Romans were bloody-minded anyway - if you are of a... open mind and strong stomach, catch "Spartacus: Blood And Sand" and see the very closest thing that I have ever seen to my own mental picture of the Romans. A very sanguine race, they.

It's on Netflix.

Indeed. As a great man once said, "Furthur".

Joel, I always enjoy your posts.

-- Les Cargill

Division? The corporation still owes the creditors.

No, it's not right and shouldn't be rewarded.

That is *exactly* what you are encouraging. Watch what you reward, you will get more of it.

There is no such thing as no-fault bankruptcy. Bankruptcy is means-tested, now.

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...and when the gravy train ends, you want to give them more?

But you want to let them keep the house, as a reward for screwing the system.

...and you want to let these same people keep their houses, and banks. Let bankruptcy take its toll, or you're going to get even more bad behavior.

Thank you for the analysis, movie suggestion and your kind words, Les!

---Joel

You are most welcome! Glad to be of service.

-- Les Cargill

How is this dangerous? There is a new reality with respect to the price level of the property; you react to it or it sinks you.

This is a very difficult time. But the longer people are held to fictional property values, the longer it will remain difficult.

Until the value of property is held to the true value it will have, nobody knows anything. It's a "divide by zero" moment.

When our system pushes people into gambling about housing, I am very loath to punish people who are forced to have a Come To Jesus moment about that. Most of those people are people who didn't have a way to participate, because the economy has rejected a lot of laborers in favor of equity.

If you wanna be Robert DeNiro in "Casino", in the scene with the circular saw, that it your business. You wanna be the tough guy, cut they fingers off, eh?

I have to - am forced to - evaluate alternatives on the basis of what will allow people to get on with their lives, away from the apparent madness of the past few years.

What will get us past this, so we can go on doing what we did before? In my mind, that is a much more interesting question.

You wanna divide the world into winners an losers?

-- Les Cargill

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Again, we already did. By letting them walk away.

What reward? They already took their reward. They can simply walk away, then after 3 years or whatever the wait after such an action is, buy another house at the going prices -> ka-ching.

Fact is, the majority will now go through bankruptcy. Because the mortgage collateral is the house, and just the house, not the other assets the delinquent borrower may have. So they can walk away. Now you have two choices as a bank. Say the principal sits as $450k. You can let them re-fi at a lower principal, say $350k, learn from the past screw-up and never let them take out another home loan on it, ever. You leave $100k on the table. No more.

Or you can kick them out, pay $5k move-out incentives so they really move out and hopefully don't trash the place too badly, send a restoration crew in for another $20k to repair the damage they did cause and all the stuff they ripped out of walls (I've seen it!), sell the house on the market for $250k, pay some buyers agents their commission, pay all sorts of other fees, the costs of the bank employees who had to deal with reams of messy new paperwork ... and effectively leave almost $250k on the table.

It's the same in business. Sometimes you have to make deals that are absolutely unfair but not making the deal increases your losses enormously. So you make the deal, else the BoD is going to have you over the barrel.

Sorry, of course I meant _not_ go through bankruptcy.

OK, I'm learning more today about business structures than I thought I would. You're right -- divisions are legally the same as the main corporation. Subsidiaries, though, are not and hence that's the word I should have used. From

I don't think the average person views the ability to get out of a business commitment, a mortgage, or a marriage with their skin still intact as that much of a "reward." :-)

---Joel

Why are the two arrangements taxed differently? Why should the government care? How is it the government's business?

My guesses: your Government doesn't trust you, and they're wrecking the employer-employee compact, but don't want you to know--that makes them look bad. You also see all your taxes as a contractor, which they'd rather you didn't. So, by force they try to deny what they've broken.

The result is jobs simply leave the country, or are automated away. The capitalists get richer, and the rest get locked out.

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It isn't tied up in labor reforms of past centuries, this is happening NOW, part of a continuous effort to redefine words.

I remember a day not long ago when you could show up at a company, work there, invoice the company and you were a contractor. If you got paycheck and benefits you were an employee. That's how it was.

- if

a) We aren't anywhere close to unbridled anything--the government controls your car, license, the speed you can drive, insurance, fuel, roads, food, lightbulbs, toilet, drugs, energy, bank, phone, radio, employment, speech, views you naked and fondles you at will, for starters.

b) It retards employment in the long term too. Clearly companies are trying to escape the burdens of having workers, and the government is trying to insist. The result will be fewer employed.

-- Cheers, James Arthur

"Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master." --George Washington

You vastly underestimate the awesome power and influence of the government, and the consequences of their meddling. The corporate world sees that too. The President's changes already enacted can easily turn them upside down. And that's why they're sitting on $2T in cash, not investing, waiting, and wondering whether to even keep it here.

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We're inflating, diluting the value of money. Redistribution, from savers.

That helps us welch on our debt as a nation, doesn't fix our spending problem, and it'll drive up interest rates on the debt. Possibly ruinous in the mid-term. Bernanke says it won't work without more stimulus, but then it won't work with more stimulus either.

-- Cheers, James Arthur

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The business declares bankruptcy. They don't get to keep it, at taxpayer cost.

-- Cheers, James Arthur

That's not the question though Les. The defaults are inevitable--the borrowers can't pay.

The question is whether we or Big Gov't should jump in and prevent the private parties from settling their affairs according to the law and the agreements they've voluntarily entered into.

Those numbers don't add up--the bank depends on much better odds. Historic default rates were around 0.5% Today half of subprime ARMs have defaulted. The magnitude of the blunder is astounding.

-- Cheers, James Arthur

The creditors knowingly loaned (sold on credit, whatever) to the subsidiary knowing what the deal is. It's no different than a corporation going out of business; a bad bet.

You're not proposing that they "get out" of a business deal at all. You're proposing that the rules of the game get changed after the game is over because it didn't turn out the way one side wanted. If that's all contracts are worth, there won't be more.

If they can make a few hundred grand on the deal, it sure is a reward!

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But they're *not* "walking away". You propose to let them skate on their end of the contract yet force the other side (banks) to live up to their end.

You want them to be able to renegotiate the loan terms, after they've already pissed the cash away. Of course they can walk away, the bank forecloses, bankruptcy, and all that. That's what *should* happen.

If the house isn't worth $350K (your assumption), what makes you think they won't do it again? If it is worth $350K, deal with it after foreclosure. The fact is that the vast majority of people who have been cut these deals default again, in short order. It's not a good deal for the bank.

...or you can let them skate for the $100K and go through the entire thing again in six months.

Sometimes insurance does the same thing, pay off instead of going through with the law suit. The problem is that this trains people the wrong way.

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Because it teaches exactly the wrong lesson.

So the lender must take it on the chin and borrowers get a free pass. That's a *bad* idea.

"Our system" did no such thing. No one held a gun to anyone's head.

If you want to talk about movies, this isn't the tread.

There is! It's called *bankruptcy*. Everyone licks their wounds and gets on with life. No one is made whole, but the game continues with the same rules as it had before.

Clueless.

Hey, just flip a coin.

That is the classy way of saying:

"All your base are belong to us..."