Thou Shalt Not…

20 Replies to “Thou Shalt Not…”

1. Remember when home-equity loans used to be called second mortgages and everybody was taught to avoid them like the plague?
   Yeah, me neither.

2. Remember when home-equity loans used to be called second mortgages and everybody was taught to avoid them like the plague?
   Yeah but who can argue with the catchy jingles they play in their ads?
   The ONLY reason for taking them up on their offer is if you plan on taking the cash they give you and fleeing the country, never to return!

3. This is one of the holy trinity of stupidity and greed.
   1. Idiot governments with no over-sight on the financial industry. They are not looking out for the folks. Probably to not offend their pals in banking.
   2. Idiot bankers who would rather risk the viability of their own industry than settle for merely and obscene income level.
   3. Idiot home buyers who apparently can’t add subtract or control their desire for more toys and less responsibility.
   All three can share blame for the banking crises. Unfortunately, we must all collectively bear the pain for this lunacy. But them ‘collective’ is the new mantra for our once free prosperous society.
   Take heart, there is some justice in this. The government is paying the price in the upcoming US elections.
   Thousands of loan officers and bankers are losing their cushy gigs.
   Millions of stupid home buyers are now homeless.
   All this on top of the climate change assault on our intelligence and wallets, and the Islamic jihad challenging our resolve and our freedoms.
   Nice world. I am glad I am old.

4. The ONLY reason for taking them up on their offer is if you plan on taking the cash they give you and fleeing the country, never to return!
   The only people that gain from inflated home prices are real estate agents, lenders and those selling out to retire to a cheaper location.
   Most punished are regular families who can no longer afford to own their own home.

5. The USA is a socialist state.
   They use the common money (tax) to help the whole crisis. That’s socialism, that communism.
   I agree with them.. people are stronger together than as individual unit. But why are they in denial toward that situation?

6. The cartoon points out the difference between the US and Canadian taxation systems.
   In the US, you are allowed to deduct mortgage interest off your income tax.
   In effect that encourages people, when property values go up, to increase the amount of their mortgage in order to buy consumer goods they really do not need.
   That’s the point of the cartoon.
   Having said that, there will be no US politician who will change that stupid interest deductibility.

7. “In effect that encourages people, when property values go up, to increase the amount of their mortgage in order to buy consumer goods they really do not need.”
   Sure hope you don’t work at a factory that makes those “goods they really do not need.”
   Personally, I like the mortgage deduction. It offsets the dividends I receive from my investments and can mean the difference between paying tax or receiving a refund.
   It is painfully obvious that you lack even a rudimentry knowledge of the US economy

8. So true. It wasn’t just the big fat bankers, Wall Street speculators and sundry evil capitalists that caused this problem; it was also Joe Shmoe who thought he could get a good get money cheap, and spend it on trinkets.

9. Set you free @5.04 pm, they also deduct mortgace payments in the UK; no similar problem. So, your theses is wrong.

10. Now that the value of the homes in certain markets has gone down, people will be unable to use their home as an ATM to purchase consumer goods they do not need.
    As opposed to consumer goods they do need.

11. set you free – The mortgage tax deduction isn’t the issue with the sub-prime fiasco in the US. There is nothing wrong with deducting the mortgage interest, we’ve been doing it for decades here. The mortage interest deduction wasn’t a problem all of those decades. Sure, it’s a middle class entitlement, so what, there are worse more wasteful ones. It’s purpose was to create more homeowners which is a good thing when more people have a stake in the system.
    The problem was that sub-prime mortgages went to speculators and people that in a different era would have never been given a mortgage especially with no money down terms. The mortgage companies and banks got stupid and greedy. You are completely off base that mortgage interest tax deductions had anything to do with this mess.

12. the mortgage ” tax deduction” certainly WAS a large factor, as borrowing against the house was tax deductable, were as borrowing to buy a car was not, thusly house equity suffered so people could over extend themselves “tax free”….capice!!!!!!

13. Set you free:
    You miss the point. Given that mortgage interest is deductible, it’s only rational to take out a home equity loan as opposed to a standard loan for anything you want to buy.
    I mean, people used to put their vacation cruises on their credit cards at 18%+ per year. That $5k for a family of 4 would end up costing them another $1.8k if they paid it off in two years. By taking out a home equity loan at 6%, you’ve already reduced the extra cost by $1.2k, and since the $.6k in interest is deductible, you’ll save another 30% or so in income tax. That’s rational economic action (unless it was a Disney cruise, in which case all bets are off).
    The choice for many consumers was 1) do without, 2) use expensive credit cards, or 3) use low interest, tax deductible home loans. Before you argue for 1), please be prepared to show us your ascetic lifestyle, where you have lived in a rooming house for 15 years while you saved up to buy your house, or the bicycle you’ve ridden for 5 years while getting ready to pay cash for a car. Yeah, that’s what I thought.
    Consumer credit performs a useful function. It allows people who can afford a useful asset over its lifetime but can’t afford to pay for it up front, to enjoy it over time, while paying a bit extra for the privilege. It’s much better to raise your children in a house than an apartment, even if you pay a bit extra for it.
    The problem in the US was the “NINA” (no income, no assets) mortgages that were issued. And, as I’ve noted repeatedly here, this was due to the total disconnect between mortgage brokers like Countrywide and the concept of risk. I’ll also throw some blame on S&P and Moody’s (like I’ll ever trust their ratings again), and idiot investors, from individuals to pension funds, who forgot the two most important words in investing: DUE DILIGENCE.
    Again, as I’ve noted here before, I have been offered similar investments. But since the links between revenue, ownership, and risk were (deliberately?) obscured, I passed. I didn’t understand how the investment really worked, and as the proverb says, if you’re sitting at a poker table and you don’t know who the pigeon is, it’s you. There was no way I was going to risk my family’s money on investments that seemed obscure to me. If a few institutional investors – OK, a lot of institutional investors – had shown the same forebearance, problems wouldn’t have gotten so bad.

14. First you had to BUY the house which wasn’t possible for people with poor credit, no money down or speculating on condos in Florida. until the sub-prime industry allowed it. The lenders were the culprits.
    The mortgage interest deduction is incidental to what caused this crisis. For starters, the deduction isn’t that big. You only get to deduct a portion of the interest.
    In all of the volumes written about this mess I haven’t read one economist or critic cite the mortgage interest deduction as one of the problems, the Feds keeping mortgage rates artificially low, the lax lenders, Fannie Mae and Freddie Mac bundling high and low risk mortages for resale, WS greed and hubris, etc, there is plenty of blame to go around, the tax deduction wasn’t a significant problem.

15. Chillax, guys.
    I was just offering my interpetation on what the cartoon caption meant and it sounds like GYM agrees.
    Obviously, this is an investment banking issue, not a commercial banking issue. Commercial banks can only lend under a certain set of qualifying regulations.
    The question, to my entitled American mortgage-interest deducting friends, is why this type of subprime lending was allowed to continue for so long.
    Am I correct, or incorrect, about this assertion.
    Both George Bush and John McCain were on record trying to make the investment banking (stock brokers, in Canadian terms) more accountable in 2006 and the Democratic-controlled congress turned down regulatory attempts.
    Also, what is the relationship between inflated FNMA earnings reports, executive bonuses and the Democratic Party and those who benefitted from lax FNMA oversight’s relationship with Obama? Seems to me there’s some smoke here that’s worth pursuing.

16. how about the line of credit based on income or equity in your home. what about the guy who uses his line of credit to buy a couple of motorcycles a hot rod and some minor work on his house.

17. The US mortgage interest is a deduction, not a tax credit. For every dollar in interest you pay, you can deduct that from taxable income, not from your tax liability.
    Some people mistakenly assume it’s a dollar for dollar amount, when in fact you pay the dollar and reclaim about 25 cents for it.
    It’s better than not recovering any money, and anyone who thinks trading a dollar to receive 25 cents back is a good investment, really needs to sit down with a pile of dollar bills and quarters and see how it really works.
    You should always pay down your mortgage as soon as you can – usually possible within 5 years as opposed to 30 years. Sure you’ll lose the 25 cents back on the dollar paid in interest, but you will get to keep the 75 cents that was going towards interest and all the money you used to pay in monthly mortgage payments.
    It is really sad that some people won’t pay off their houses sooner, because they think it’s a dollar for dollar trade. Those folks wrongly believe that the mortgage is not costing them extra money each month.

18. This government ‘bailout’ will likely make the US treasury hundreds of billions in profit.
    The gov’t changed the regulations to allow poor credit risks, mortgages. This was done so that the “poor” would have access to mortgages.
    Social enginneering at it’s best.
    Clinton thought it was a great idea when he did it.
    Many people are “poor” in rich societies because they don’t accept their responsibilities and don’t pay their debts.
    Who knew?

19. Doowleb is right – this started back in the 70’s with Carter wanting banks to broaden their lending to individuals who were greater risks (minorities, low-income) – as with many of Carter’s policies – good intentions, but bad practice. Then Clinton expanded it.

20. SYF,
    It is a commercial AND mercantile banking issue which originated in the idea that mortgages should not “discriminate” against “minorities” who couldn’t afford to pay them back (which was the idea that Clinton and the house/senate democrats put through and which Fannie and Freddie took to heart with reckless abandon. Note though, that the GOP/Bush did nothing to address the issue.)
    The idea was that you collected steaming piles of s**t (retail mortgages written to people who should not have been lent to) together in a much bigger pile and marketed their resale as diamonds to fools by rejigging the numbers in such a way that ensured that there were no human beings on earth which could figure out the risk profiles of the individual issues thus fooling the “bond rating” agencies into rating junk bonds AAA (a fact that should bankrupt them with VALID lawsuits, fraud charges and jailings.)
    That farce rating allowed the mercantile banks and corporate finance guys to market these “engineered” products and hybrids to institutional investors that A)should know better, and B)are not legally allowed to buy junk debt (like Insurance companies, pension funds, etc.) These institutions bought this crap because regular bonds paid low yields and these fraud bonds paid larger spreads.
    All this was allowed to happen by the politicians for pure ideological reasons and by wall street for reasons of pure, selfish and destructive greed.
    The reason this goes beyond wall street is that the financials are required to grease the economy with cash. The fact that insurance companies are now being squeezed is a problem for everyone from manufacturers (who require working capital) to builders (who require short funding for building projects in the form of letters of credit to satisfy reserve fund requirements.)
    Without the financials, the economy goes into barter mode which isn’t all that effective in the modern world…
    This bailout is necessary. BUT the consequences should be that the feds go after everyone involved and take back all the money they made generating this catastrophe. NONE of these bankers, corporate finance whores, commercial lenders, etc. should be able to walk away with their tainted money. And that’s presuming we aren’t allowed to drag them out in the public square and hang them from lamp posts!
    Capitalism is taking risk and reaping the rewards. Capitalism is NOT reaping the rewards while shifting risk onto the taxpayer who got none of the benefit but all of the bill.