It's 2012 and Amy's right to still be talking about this... It's like the politicians stabilized a flu patient's condition at the height of the fever; We're not being allowed to get healthy, either by medicine or by an unpleasant night of coughing.

Earlier tonight I was reviewing one of the great fistfights we've had in here, and came upon a wonderful old link.

If you like a good book but don't read many and only want the best, here's a recommendation. This article is a sampler of Lewis' book called "The Big Short."

The book explains a lot of the forces that made this (continuing!) crisis happen with clear language.

Lewis makes it digestible by focusing a handful of the personalities who knew what was going on and responded rationality. (There were only a couple of dozen in the entire world.) Some of those people were brilliant, but certainly not all of them. They were all courageous, which makes a horrible event into a lot of fun.

(I saw Titanic [most of it] for the first time this week. Y'know howta make a gruesome tragedy interesting for three hours when your audience knows the end of the story? You give 'em some attractive, strong people to fall in love with.)

(And the book has no Celine!)

If Johnny walks away from his home mortgage and/or declares personal bankruptcy, we judge Johnny pretty badly. What a dope, and how irresponsible!

When Intel or BofA walks away from a mortgage or any business investment (and Intel walked away from a fab worth billions, they just left it half built and locked the doors and left) we all think, well that's business! How shrewd of Intel! And Intel's stock goes up.

Everyone who is underwater, if they were to coordinate their efforts, could just walk away.

Just send their keys back to the bank.

And start looking, for a "new" used home to buy, probably from one of the millions of underwater houses the banks now own.

What would the banks do?

Refuse to sell homes to these people?

If Johnny and Jane did that, I'd think, how shrewd!

Bungled the link to the blog brawl.

Jerry, Intel paid for the fab that they elected not to complete. How is that remotely comparable to someone walking away from a debt?

Now maybe it's just me, but I can't see a bank lending money to anyone who walked away from a loan. Maybe with twenty percent down, you might get someone to trust you. I wouldn't.

I have no sympathy for any of the home buyers that are underwater.

When you are buying a house you have to look what would it cost to rebuild it from the ground up. Then throw in a 15% fudge factor for inflation. For most houses the physical material is about $50-60K, labor about $40K for a 3-4K sq ft house. Some McMansions can get to about $200Ks for labor and materials, but that is about it. (I'm talking the less 10K living space.) The rest is the property or as the line goes, "It's location, location, location."

So when I see people whine that they are underwater on their home that they paid $350K for and could be replaced for $60K even in CA, it no longer really moves me.

I'm currently break even on my place from the appraisal to the mortgage. I would get very little equity out if I sold my place, but the mortgage should be paid off.

I also have no sympathy for the banks that made liar's loans or financed that $350K loan that should have maxed about $175K even in the suburbs of L.A.

But the problem is that all the loans that were backed by Freddy, Fannie and FHA. The rest of us -- you, me, your kids -- we are on the hook for those loans. So it is either we fuck the banks by not repaying their losses, or we up the national debt and pay back the banks.

Then you have the mortgage backed securities that are held in numerous 401K and other retirement funds. Those will be worthless. So granny and pappy will have retirement pushed back for a couple of years.

Where will Johnny and Janey get a job of pappy doesn't retire?

There is no simple answer.

Agree w Jim

The rest of us -- you, me, your kids -- we are on the hook for those loans. So it is either we fuck the banks by not repaying their losses, or we up the national debt and pay back the banks.

There is no "fuck the banks." It's fuck ourselves twice over.

The banks got the money they loaned ... from us. Our deposits on account at the banks gave them the assets against which to borrow money for mortgage lending.

Besides, if the bank goes under because we refused to make up the losses from underwater mortgages, the people with money on deposit at that bank get their money from the FDIC.

That's interesting about the rebuild estimates. My homeowner's insurance estimates it much higher. Maybe that's because of where we live (20 minutes to have somebody look at your furnace can cost you a couple hundred bucks without any repairs if you aren't savvy).

Maybe it's because it's a townhome and that makes parts of construction more complicated (assuming only our home was destroyed)? Maybe it includes all the systems like buying new furnace, water heaters, pipes, washer, dryer, fridge, etc.

All I can tell you is that my 1,200 square foot townhome is rather expensive. I'd love to move to someplace where I could get a yard big enough for a table N chairs AND the kids' sandbox.

That's interesting about the rebuild estimates. My homeowner's insurance estimates it much higher. Maybe that's because of where we live (20 minutes to have somebody look at your furnace can cost you a couple hundred bucks without any repairs if you aren't savvy). -- Shannon M. Howell at August 27, 2012 6:33 AM

When you say townhome, I take it you are in 4-8 home side by side with a "firewall" in between?

In those cases the insurance company has to assume that they are going to be paying at least for smoke and water damage to the adjoining houses. About the only way around this is to own a townhome with brick/mortar/cement separating walls. (The changes in firewall standards changed in the late 90's.)

I bet if you ask an insurance agent what it would cost to insure an equivalent house, the premium would drop by an equivalent amount.

The banks got the money they loaned ... from us. Our deposits on account at the banks gave them the assets against which to borrow money for mortgage lending. -- Conan the Grammarian at August 26, 2012 8:20 PM

I'm not disagreeing -- it was the simplest way to put it out that is understandable.

Jim P,

Yes, that's what I mean by townhome. ALthough, I'm not convinced that if one caught fire they wouldn't ALL catch fire...

I guess that explains it. Still, they pretty much seemed to use the purchase price as the rebuild price. For that matter, I have to deal with the mortgage company annually because our rebuild value of coverage isn't over our loan value. I keep telling them that the loan also bought me the land (which is very expensive here). I still have to get a note from the insurance company.