Foreclosure wave sweeps America

Very scary stuff
up to two million Americans could lose their homes

One place homeowners needn’t be looking for help is Citigroup

from Bloomberg.

U.S. Banks Oppose Plan to Relax Home-Loan Rules, WSJ Reports

Citigroup and JP Morgan both benefitted from a relaxation in the rules back in August which meant that their retail banking arms could lend to their brokerage arms. They’ll also be looking for a bail out from the US taxpayer when insolvency becomes a threat.

Doesn’t this kind of legislation just create a moral hazard on the part of homeowners. The relative ease with which you can declare bankruptcy in the States means that there is already an element of moral hazard (esp compared to here where you can be imprisoned for the civil, not criminal, matter of failing to meet your repayments), but this would be like having your cake and eating it - file for bankruptcy and instead of the penalty of losing your house, you just get a cheaper mortgage out of nothing and get to keep the house… magic!!!

They’re talking about bulldozing the buildings and it costing them $100m. Could they not charge this to the banks. Would the banks not be better off selling them cheaply so that they at least get some money back?

But who would they sell homes to in the next bull run?

The US banks appear to like people with low credit scores as they can charge higher interest rates to them. If they let all these people buy their homes back cheaply and create decent neighbourhoods for themselves, what would the banks and property developers live on?

So they’d rather take on high risk and chance losing a loada dosh, on the off chance that it might all work out and they’ll make mental money, than sell to people reasonable products that they would be willing to pay for at a reasonable profit to them.

What were all these banks exit strategy? Surely they must’ve known that this couldn’t go on forever? Were they like uber-flippers hoping to sit down before the music stopped and they got stung with a load of debts they couldn’t off!

When you walk away with an $80m golden parachute (Chuck Prince) or even a whopping $250m one (Stan O’Neal) for outright recklessness - what do you expect?

These guys get rewarded mind-boggling amounts for milking the good times and failing miserably when the brown smelly stuff hits the fan. Someone else can carry the can for them then while they retire to their place in the Hamptons or whatever.

Sheesh… I’m in the wrong business. :confused:

There was a rumour the other day on Dealbreaker that Merrill had even tried to get Stan the man back! I don’t know what his reply was, but it must have been something like “that basket case? No thanks!”. It reminds me of the closing scenes in Trading Places where the bad guys insider dealing comes crashing down on top of them. Without a topless Jamie Lee Curtis, unfortunately.

To be fair to a CEO, the shareholders on the board are supposed to keep control of the situation. It looks more like a failure of corporate governance than rogue management. They were happy to lap up the dividends and the rising share price. They were also foolish enough to combine chairman and CEO, let Stan stuff the board with his yes-men etc. etc.

yoganmahew wrote

Many BODs have the power to hire and sack directors. This greatly affects the effectiveness of independent directors and their ability to oppose questionable profit making ventures.

There is so much fraud going on in the USA that investigation authorities can only charge a small percentage

It is to the likes of these people that our Government gives free reign in the stoking of our financial and banking affairs. Profits come first; Ethics could be a poor second!

I don’t know much about high finance, but was the Sarbanes Oxle law not meant to stop this sort of dodgy stuff?

From a lay person looking in, it looks like what you do is. Become a CEO, make huge profits in questionable ways and hope that your gone before it all comes out into the light.

Sounds a bit like Bertie - brings us back to that whole private sector v public sector argument :wink:

It’s the American Way. Has been since the mid-70s. Jungle Capitalism, divil-take-the-hindmost, ever-increasing excessive profits are the only acceptable measure of success. Steady stable modestly profitable real industry providing solid products at reasonable cost is just so passé, so 1950s.

It’s been the Irish Way under Ahern as well. We’ve mortgaged the next 40 years for an inherently unstable and ethically reprehensible shiny piece of flash bling with a tendancy to explode.

SOX was meant to prevent the dot com scandal of analysts issuing “buy” notes on companies in public while issuing “sell” notes in private.

No doubt new laws will be drafted in 2008/2009 to address the current debt problem. All these laws are too late when they’re drafted, we’ll have already moved on to the next scandal.

What you’ll find is a lot of the laws were in place from previous scandals, but were successfully repealed leading to the loose credit conditions and shenanigans that caused the problems.

I work in a tech multinational and we do a lot of work to be SOX compliant. I’d be low down the corporate ladder but even I can see holes in it, which could if an ENRON type company so wished, be exploited. I think the SOX laws and their implementation are too complicated anyway to be useful in preventing anything. I think it could be useful in closing the barn door.

There is nothing illegal (I could be wrong) in what the CEOs of citigroup and Merill lynch did. The shareholders will be miffed though and will not want it to happen again so rather than enacting yet more laws that are hard to implement and wont prevent what’ll happen next. Why don’t they hold the top men to account, by making their Golden handshakes conditional on the company being competently run whilst in their care and that if it is found that, inside the 5 years after they left, that it wasn’t then they must return the money. If you make it worth their while they’ll do it.

That’s it in a nutshell - the shareholders offer, via the company, stupidly good packages, including golden handshakes to attract so-called ‘top’ CEOs to begin with, and the shareholders themselves temporarily benefit with a boost in the stock price. Of course, when said CEO turns out to be useless, the company still has to pay them off.

Many CEOs wouldn’t move to a company where the benefits were conditional, because they can only deliver good results by taking levels of risk which allow the possibility of bad results - guaranteed benefits mean they don’t much care when things go bad.