The Collected Works of Author and Blogger Larry Roberts

Archive for February, 2009

Below is the post in its entirety: The California Foreclosure Rules or “So What Happens If I Let My California House Go Back To The Bank?” I get this question a lot.  The answer is, IT DEPENDS.   That’s a slippery lawyer’s response (someone called me that yesterday) but the outcome in your situation could be 1.                  You still owe the bank a big slug of money; 2.                  You have a big income tax bill with no cash to pay it; 3.                  You owe the bank a big slug of money and you have a big tax bill ; or 4.                  You owe the bank nothing and you do not have a tax bill. Everyone wants to be the last case.…[READ MORE]

Have you ever stopped to ponder the issue of moral hazard? At its most basic, moral hazard is any change in behavior that comes about when people believe their actions have no consequences. The housing bubble was built on moral hazard. None of the parties to the real estate transaction believed they had any risk. Borrowers and lenders both believed real estate always goes up, so there was no market risk. Some savvy borrowers realized that 100% financing was transferring all the risk to the lender, so they risked nothing other than their credit score. Most lenders believed they were transferring the risk either to investors or counterparties to their credit default swaps. The people assuming these risks ran their…[READ MORE]

Desire, greed, avarice: house prices rose at unprecedented rates because people motivated by greed were enabled by lenders (who were also motivated by greed) to bid prices higher and higher. There is a certain Karmic justice to the idea of the market perishing in fire. Those who were motivated from desire should suffer in direct proportion to the greed to which they succumbed. In fact, all moral hazard problems emanate from this relationship. If people are not punished by this behavior, it is magnified in the next generation as more and more people choose to behave unwisely. In short, each bubble grows bigger than the last because the survivors tell their tales. If you don't believe this is true, take…[READ MORE]

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