Well, common sense tells us we would all be out of a job. Massive unemployment takes a great deal of time for any economy to recover from, the Great Depression had unemployment levels of over 20% for a decade or so -during the worst years it was over 30%, one out of three Americans out of a job, it would have been even longer if WWII hadn't shown up. From all who lived thru it, I have yet to hear one of them tell me what a good time they had. The Stimulus Bill is aimed at preventing that, if it works, our misery should only last for two or three years instead of a generation.

But to your other question, if you think bank failure absolves you from debt, well, sorry, you still got to come up with the bread, to whomever the ownership of the bank reverts to. If it is Uncle Sam, then you are really out of luck, because he'll just take it out of your check, or send you to prison. Better to keep the bank.

Thats kind of what my point is. The banks don't really collapse, they just change owners it would seem.

But look at the details of your loan. It is sold to someone else at a discount. How much of a discount? That's the question.

If the discount is high enough, it would be in their best interest to foreclose on you for the slightest breach of your contract. Yes, that is their right, but people tend to think that without equity, they are safe from foreclosure. Not if someone gets a bargain on your loan; then they win either way, whether you pay it back or not.

You can also be assured that you won't get the chance to buy your own loan at a discount. You're not one of the "old boys" who get to bid. You're going to pay full price. Somebody else makes out very well.

If you read your loan contract, it's all spelled out for you there. You did read it, didn't you? It states that your loan could be bought and sold at will. It also does not give the buyer any more additional rights anymore than it would give you more rights if it was sold, you owe the money same as before, and the terms and conditions are the same for both parties. Of course, if the loan had been bought cheaply and was backed by collateral worth more than the loan face value by a smart investor, of course he would wish to grab your house instead of giving you a break, he certainly isn't in business to make your life easier or to make money for you.

If you realize that, and you should if you bought the house, then it is your job to make sure he doesn't have that excuse? AFAIK, one month of being late doesn't trigger a default. I think it takes 3 months in a row or something like that.

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Other things can as well. Second mortgages taken out using paper equity gains on the value of the house is the one putting lots of folks out of their homes, because the collateral, equity value, has evaporatated. You can be on time with your loan and still have it called because your value of your collateral has evaported.

That is what is causing a lot of AIG's problems, it insured all kinds of loans like this in the secondary mortgage market. For the lender, the loan became a high-risk investment because the collateral was now worthless, so they were motivated to foreclose in order to cash in on the mortgage default insurance, because technically the holder was in default, even if he was paying the loan, and AIG was the largest underwriter of secondary-market credit insurance, so they got stuck holding the bag. In fact, AIG owns a lot of houses as a result, many of them still making payments on the loans.

The second-mortgage market was rife with all kinds of sketchy unregulated stuff going on, these mortagages were also marketed in "bundles" as securities and bond rating agencies rated them AAA, even tho they were totally unregulated securities, with no SEC oversight. Once the collateral values collapsed, it became impossible to know want these securities were really worth, hence the name "toxic mortgages". The really bad ones are the ones where the homeowners became upside-down on their first mortgage as well, as is happening in California an Florida, as home values tanked. It is a huge tangled house of cards, there are no simplistic ways to portray it.

"Thats kind of what my point is. The banks don't really collapse, they just change owners it would seem. "

Check out www.fdic.gov in the press section. There is info about each bank failing and who took it over (including the Gov). Watch on Friday afternoons, after 5pm. The Feds like to have the weekend to clean things up.

Our local bank is doing very, very well. They have been around for a few hundred years and know what they are doing.

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For the record I am not looking for a way to weasel out of paying my mortgage. I have a 5.5% fixed loan and a 20% LVL so I'm not in a bind. I didn't refi 10 times to finance a high falutin lifestyle. I own my other house outright. I am not a looter! I was just trying to figure out what happens if the govt. didn't bail out the banks(with our money). As far as I can tell they would just change owners, and some people who didn,t pay their bills would possibly lose their houses. I don't really have a problem with that.

I lose the $15 in my checking account and don't have to pay back my student loans.

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Question is: Who are these banks/financial institutions that have the capital reserves to buy out AIG, Citi group, and all the other mega players in the game? It's the logical solution, and I agree with it, but who has the capital and resources to do it?

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www.fdic.gov

All of the aforementioned analysis by other members assumes a "business as usual" scenario if the bank fails. The FDIC takes them over because they are insolvent...........makes the depositors whole...........and sells the assets to another bank. It appears to be seamless.

However, to make this transition, the Feds need to come up with money..........the difference between the bank's assets and it's liabilities. Usually, when the bank fails, it's not too badly in the red. The Fed closes it quickly when it doesn't meet it's margin requirements.

Now, take the case of Citibank and Bank of America. If you allow these two to fail, the government would need to print money from today into eternity to cover the liabilities of the bank. At the present time, I have a suspicion that both are deeply in the red and the amount of bailout to make the depositors whole would make the current "bailout" seem miniscule.

For those who minimize the situation of a failed bank, it's my opinion that you don't grasp the magnitude of such a failure in this case.



The above statement shows the lack of understanding of how the depositors would be made whole in a massive bank collapse.

BTW, AIG is not a bank. All of the money that AIG receives goes back to the banks so that AIG can meet their obligations. An AIG failure is meaningless............when the banks fail due to AIG's failure is when the real problems begin.

It looks like 8 more banks were taken over today.

http://www.fdic.gov/news/news/press/2009/index.html

If a bank fails, that doesn't mean the shareholders all commit suicide at once. I can only imagine that they are going to try to salvage whatever value they can out of the remaining carcass, which would probably involve selling the remaining assets, including outstanding loans, to someone else still in the biz, cause they ain't going to all go out at once.

**WHOOPS** Old thread. I saw Botnst quoted and I figured something was up.

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