The Foreclosure Prevention Act (aka the Bank and Builder Bailout Act)
Conservatives used to complain liberals always wanted to throw money at problems. While there may have been some truth at times to this charge, Congress decided to literally take this path in its approach to the housing bubble last week.There are many villains in the story of the housing bubble, but the homebuilders and the mortgage industry would go on almost everyone’s list. The homebuilders rushed ahead with new developments under the delusion the bubble would last forever. The result is an unprecedented glut in housing.
The mortgage industry aggressively promoted adjustable rate mortgages to the most vulnerable segments of the population, giving us the subprime crisis. They didn’t care mortgages couldn’t be paid because they could dump them into the secondary market almost immediately after they were issued.
During their spring recess, members of Congress heard from angry constituents who feared the loss of their home or the loss of much of their home equity due to plunging house prices. This prompted Congress to rush into action when it came back into session last week.
The centerpiece of the “Foreclosure Prevention Act” approved by the Senate is a tax break for the homebuilders and the mortgage bankers - in effect throwing taxpayer dollars at two of the industries most responsible for the housing bubble. That should satisfy troubled homeowners.
But this may not be the end of it. There are plans for a large-scale buyout of bad mortgage debt. There are several different proposals being circulated, but the basic story is the same. The government would guarantee new mortgages that would be used to buy up existing mortgages of homes facing foreclosure. While the new mortgages would be issued at prices that are less than the value of the original mortgage, they will almost certainly give the banks far more money than if the market was left alone.
For example, a bank may have issued a mortgage for $220,000 on a home that is now worth $200,000. Under the various proposals, the government-guaranteed mortgage would give the bank a check for between $170,000 and $200,000. This means a loss for the bank, but, almost certainly, a much smaller loss than if it carried through the foreclosure.
The handout to the banks is justified as an effort to keep homeowners in their houses. This may be reasonable in depressed markets like Detroit or Cleveland, but simple arithmetic shows this plan provides no benefit to homeowners in bubble-inflated markets like Los Angeles and Boston.
In these markets, houses now sell for more than 20 times the annual rent on a comparable unit. This means, even with a low 6 percent mortgage, after adding in taxes, insurance and maintenance, homeowners will likely pay 60 percent to 80 percent more in housing costs than if they rented. The additional housing costs will come at the expense of health care, quality childcare, and other necessary expenses. Furthermore, since house prices are falling in these bubble markets, it is extremely unlikely these families will accumulate any equity. In short, just like the tax breaks approved last week, these bailout proposals are yet another way to put money in the pockets of bankers under the guise of helping homeowners.
There are real ways to help homeowners facing foreclosure. Amending the bankruptcy law to allow judges to rewrite the terms of home mortgages, so families can keep their home, would be a good start. We can also change the rules on foreclosure to allow homeowners the option to remain in their home as renters paying the fair market rent. This would provide security to homeowners, since they could not just be thrown out on the street. More importantly, it would provide lenders with a real incentive to negotiate terms that allow homeowners to stay in their homes as owners, since banks do not want to become landlords.
The Fed and Congress were incredibly negligent in allowing the housing bubble to grow to such enormous proportions. Acting on the advice of economists who couldn’t see the bubble, Congress now seems determined to compound this failure. It is trying to hand as many taxpayer dollars as possible to the banks in a futile attempt to prop up the bubble and keep homes unaffordable for young people. Thankfully, it is an election year.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer (www.conservativenannystate.org). He also has a blog, “Beat the Press,” where he discusses the media’s coverage of economic issues. You can find it at the American Prospect’s web site.
The banks that got themselves into this mess should not now be given government handouts, it is obscene. No homeowner will benefit from this.
If the GOP believed in the free market, it would let the banks face the consequences of their actions, going to the wall if necessary. Sadly, they seem to favour capitalism, where moneyed interests reap the benefits of the market, but abdicates all responsibilty to the state to clear up their mess whilst they walk away with millions.
Too few people understand the difference between a free market and capitalism - just the way the capitalists intended.
http://rebelconservative.blogspot.com
These three paragraphs from today’s BBC article “Credit crunch costs ‘$1 trillion’”: http://news.bbc.co.uk/2/hi/business/7336744.stm
“The IMF says that financial sector supervision and regulation ‘lagged behind the rapid innovation and shifts in business models, leaving scope for excessive risk-taking’ and says more fundamental changes are needed in the medium term. But it warns against ‘a rush to regulate’ which could stifle innovation and make the credit crunch worse.”
Comment: No, No, No!! Don’t regulate GREED! Can’t do that! If we did that, the have-nots just might gain a little yardage. Not in this game plan!
“Last week, Mr. Paulson [U.S. Secretary of the Treasury] proposed a major shake-up of the US system of financial regulation, giving more power to the central bank, the Fed, to intervene to rescue stricken banks and other financial institutions.”
Comment: More power to the central bankers. Is there anyone who posts on this site that DOESN’T know that the central banks are owned by the Rothschild family? Jefferson and Lincoln would be rolling over in their graves.
“And on Monday, Mr. Strauss-Kahn [chief of IMF] said that the need for public intervention to tackle the credit crunch at the global level was “becoming more evident” every day.”
Comment: ‘Public Intervention’ – a.k.a. greater transfer of your tax dollars to the rich filth.
The rich filth play the game really well – they’ve done it for centuries. I salute them. They do know how to work the matrix. Too bad they don’t know that the game is falling apart, the matrix is crumbling. Thank the Earth Goddess that She has the last move.
A Bank may have ‘issued’ a $220,000. mortgage, but that does NOT mean the Bank ‘risked’ any of it’s “own money”. The FedReserve just ‘created’ that $220,000. out of ‘thin-air’ (and electronically credit the Bank) upon a Bank showing your Signature on the mortgage [an Assumpsit-contract, itself, just like your personal-cheques — just read the signature-’line’ you sign-upon with a magnifying-glass!]. That’s why Issuing-Banks have to sit and Bid, just like anyone-else, whenever there is any Foreclosure-auction after any Mortgage-Default.
Since these damn-Banks NEVER risked/invested even a single-DIME of their own/paltry ‘reserves’/money/Capital, “WHY” then should our Government AGAIN ‘re-gift’ them for their supposed-’Losses’ (of Principle&Interest they are allowed to ‘keep’ — that was ALWAYS just a ‘forced-largess’ from we Taxpayers, initially)?
Builders are another-story, altogether…they were ’somewhat’ at-risk (but, they mostly default [and rather-easily] upon their Loan-obligations, also…).
Don’t forget that the Government bailout” is really the “tax-payer bailout”. If you live within your means, you get to bail out those that do not.
I’ve never understood why most people take out ARMS for mortgages when they know they cannot afford the post-ARM rate. Again, it’s a symptom of immediate gratification and not being willing to wait 5-10 more years to afford a place. I have a 5 year ARM, coming due next year. We chose the ARM because we have never stayed in a home for more than 4 years and had no idea how long we would live in this house. Now we’re in the process of getting a fifteen year mortgage. Our lender was very up front about ARMs and we knew the risks associated with them. We bought a home below our means and even if interest rates went up a few points, we could still afford it.
We have to remember that central bankers, government regulators, and members of Congress all know now that they are playing with a house of cards that has both domestic and international ramifications. Many of them know (even more than we do) how chain reactions might occur for many different reasons. Right or wrong, it’s not hard to understand how much they all want to just “keep it standing upright” while they’re on duty. And,in general, that will mean not letting any really big financial corporations fail in ways that topple others. Invididual homeowners and individual stockholders are not their focus except to the extent of creating appearances for elections–and they’re not even paying too much attention to that right now because conservatives are already expecting to lose in 2008.
I understand the “house of cards” but there must be a way to do this without rewarding the one’s that did the gambling. Otherwise, they will just do it again.
And it hits the rest of us. We have lived in a same modest house in the middle class/working class area for the last 20 years. We have never spent beyond our means. Our cars are getting old. We don’t have those fancy new TV sets or blackberries or whatever. The house is paid for and we have no debts.
Yet, our tax dollars are bailing out the mortgage lenders and the people who wanted everything. Our neigborhood, which for years has been a quiet, stable place where people took care of their properties, has changed. We now have abandoned houses and rent-to-owns. Property values have dropped and crime has increased.
So much for all of the advice to live within your means. All of us are getting hurt.
The White House and the Congress has become the welfare office for corporate America. The average American has to got to his local welfare office and fill out some forms to get financial help. Corporate America applies for welfare a different way. They use their lobbyists to get politicians to fill out their forms to get financial help.
Hoa binh
RuthK - I blaim the degeneration of neighborhoods on the same “social” programs that are being suggested for this quick fix. Forced government “charity” has destroyed the family, community and church support system that kept communities strong. No need to help my neighbors since the government will do it, and I won’t need my neighbors because the government will bail me out.
For over 40 years, New Deal era financial industry regulation succeeded in limiting each bank’s ability to game the system and limiting each bank’s size to prevent massive bank failures that would drag the whole economy down.
Since Ronnie Raygun’s January 20, 1981 inauguration financial industry deregulation has proceeded at a rapid pace. The solution to each finacial crisis caused by deregulation has been more deregulation and more tolerance of mergers and acquisitions that have created mega-banks.
Now we are told that these banks are so big that if we don’t provide taxpayer funded bailouts, they will take us down with them.
Anybody not screaming for re-regulating the financial industry (to New Deal standards) immediately is part of the problem and not part of the solution.
Disclaimer - I made the following entry elsewhere but it applies to this topic as well.
Several items to also check out about how this country run by the privileged for the privileged:
1. BOOK:Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense and Stick You With The Bill by David Cay Johnston
2. NYTimes today:
Editorial
Corporate Croesus
Published: April 8, 2008
http://www.nytimes.com/2008/04/08/opinion/08tue4.html?ref=todayspaper
Too many think that it is an important national goal to keep housing prices up. I say let them fall down to where they should be, and let the buyers in. This means, end the mortgage interests deduction, and for God’s sake, end this aid to lenders and builders. Even though some in this thread call for aid for the individual home buyer, I say give him none either. The non-homeowning taxpayer pays enough to subsidize everyone else’s house already.
If we MUST give federal aid to some in the name of “liquidity,” give as little as possible, and ask for something in return.
Then, regulate banks more thoroughly.
Nader knows what he is talking about.
Corporate welfare.
A line from Charlie Chaplin’s Monsieur Verdoux applies, “Numbers justify.”
The people talking about ‘reagan era’ deregulation should realize that it was Bill Clinton who signed the key deregulation bill for this crisis in 1999. This was the bill that repealed the depression-era reform called Glass-Steagal. The name of the bill was something like the Graham-Leach Banking Modernization Act. A google search awhile back led me quickly to Bill Clinton’s address bragging about signing this, and how wonderful it would be for Americans.
Note also that Obama is Wall St’s candidate in this election. Going way back, he’s been getting more Wall St money in his campaign than any other candidate. Even more than Hillary.
So, it should be obvious that a vote for Obama is a vote for …
— no prosecutions of the crooks who set all this up and got rich from it.
— more big bailouts of your tax money going to these crooks.
Republicans went to Washington to run a racket. This is just another part of the racket. Al Capone on elephant steroids.
correctivelens - Excellent post!
NO HANDOUTS FOR ANYONE!!!!
Nothing for crooked banks and lenders.
Nothing for greedy home builders.
Nothing for stupid rubes that took these loans.
expatincebu April 8th, 2008 7:12 pm…… Hey, Mike…I’ve been trying to contact you to no avail. May be coming to cebu in July…..ignotzle@windstream.net.
Let ‘em be foreclosed on. The people who’ve engineered this have clearly created a set of conditions such that “compassion” is meant to disguise a bank bailout. I’ve seen this dynamic elsewhere when monkeybusiness is obviously going on. Now is the time to write laws limiting absentee ownership of property so that large development shell corporations don’t gobble it all up, and to limit the number of rental units in communities around the US. Then let the banks foreclose on people en masse. And let market value of real estate drop back to a level of genuinely affordable. There will be chaos, but then people can buy a comparable property at perhaps half-price.
Keep in mind that a foreclosure is a double-edged sword. It’s not about the eviction of homeowners — since they never “owned” the property to being with. Our version of capitalism is predicated on the majority being born into a propertyless state, and property to be priced well out of reasonable reach. So what foreclosure is really about is the warning signs of unsustainable and run-amok speculation. Let the lenders feel the pain of their greed.
Please invite me to read your blog, Paul B. I am hanging around outside trying to see what’s happening on the socio-economic front.
This situation has been allowed to “cook” too long. The newspapers screamed earlier this week, “200,000 more jobs lost in March. Isn’t that another potential 200,000 foreclosures?
After a multitude of foreclosures values automatically diminish. Here in Florida the average drop is $20,000.00.
Because of the value adjustment those hanging on to their homes now find they have zero equity. Hence, no equity loan.
If by some miracle the homeowner continues to pay his Mortgage payment he is still paying on the inflated price
and realizes that it will take years to pay down to the re-adjusted value. Those making interest only payments are only paving the road to Hell…Their solution, and there is only one..”Foreclosure” What is the answer? There is none.
The current admiistration has wasted valuable time as it shirks responsibility for the problem and it continues to “cook”. They continue their indifference with comments such as “SO” and “NO NEED TO WORRY”
The robbers are running the bank—so what’s the hold up?
COMarc What “Wall Street” money is Obama getting? From my research I find only $80,000 that is not from small donors, those contributing $100 or less. Hillary is the biggest recipient of big money contributors, over all of the Dems and reps –please provide your sources before you “dis” someone.
Get ready for the “perfect storm” folks. I hope to God most of you are ready
I thought it was significent and wondered what it means to have 7 banks and 2 branch banks in a rural Arkansas town. (pop.3000 more or less)???
By the way, they are building the 8th bank , as I write…
What does all this mean?
How many banks in your town?
Everything is worthless. Nothing is worth anything. It is just a game. Mark-to-Market, they call it. An endless auction. One day’s price becomes the new price for all, though it may not reflect any real value. The money-power is a mass delusion that becomes real only when all act as though it were. Then it becomes very useful to the controlling oligarchy.
Look at a piece of American paper currency. It says right on it that it is a ‘Federal Reserve Note.’ This means it is a Memo from the Federal Reserve Private Bank (the only one chartered by the United States to print its own currency) which essentially says that if the bearer of the Note were to take this piece of paper to the Federal Reserve Bank, he can trade it in for.. another one just like it! How about that for real value!
But what it really buys is the debt-slavery of the bearer. And that is what is really traded. Debt slavery. To the almighty dollar.
The Federal Reserve conjures new money out of the clear blue sky. This aspect of its power was used by Greenspan to drive interest FOR BANKS ONLY down to 1% per annum after the stock market meltdown earlier this decade. Banks took this money and lent it out at higher interest rates, to the American people. And if the interest rate at which the BANKS could borrow new money to loan out was 1%, the banks could make a 400% raw profit loaning this out at 5%.
This is also why banks at the time would only pay you less than 1% on CDs. Since they could get 1% money from Greenspan… why pay you any more! So Granny’s CD was making one cent per year per dollar. An invisible tax of elimination-of-interest-payments to depositors.
Interest has now gone the other way. Just as in Paul Volker’s time. Paul, as you remember, killed the Carter presidency with double-digit interest rates (an election gizmo of Reagan’s was the ‘misery index’ which included these high interest rates as part of the misery). The election of Reagan was probably one of Volker’s purposes in this, among other things. That high interest rate was DECREED by Volker.
When Greenspan DECREED 1% interest rates, voila, it was made so, like any good magicians’ trick. This flood of money was released to salvage the economy at the last time there was an economic train-wreck of capitalism, the not-so-long-ago stock market collapse (so much for the NeoCon credo of free-market-and-free-enterprise, and central government agencies not involving themselves in the markets… unless of course the corpo-fascist plutocracy is in trouble, then bring on the welfare… but only to them!).
However, this low Fed interest, plus the new laissez-faire NeoCon Greenspanic attitude of let-bankers-be-bankers and let-them-run-their-own-sandbox, gave bankers, loan sharks, hedge fund operators and real estate developers the Green Light to get away with as much Loot as they could, and in the process to make housing MORE EXPENSIVE instead of more affordable, as low interest could have done.
For example, say you only had $100 to spend per year on a mortgage, period. For simplicity, let us say you are only to pay simple interest each year. If interest was 10% you could afford a $1,000 house. If interest was 1% you could afford a $10,000 house. But you would be maxed-out in both examples. Unless average incomes rose significantly.
Anyway, you have your $100 per year for payment. You can get up to a $2,000 house at that 5% interest. But that’s all! So you go out to find your house. Now you find that all the houses that used to be $1,000 are now $2,000, with a wave of Greenspan’s magic wand. The bankers and developers and realtors and advisors have just converted that extra $1,000 that you can now ‘afford’ into pure profit… for them! That you now have to pay for.
Hey presto, 100% inflation! Abracadabra, all your money-power, buying power of your worth, is now sawn in half. Only it isn’t put back together again. That half just disappears instead. Where does it go? It all goes to the Bush Base Pluto-Kleptocracy, and statistics are showing the super-massive updrafts of wealth and ownership to the top 1% of the population, followed by the massive updrafts to the top 10%, ripped off from the rest of society.
So all the ’savings’ and thus profits from the new low, low interest rate have rolled upwards to the banking, ruling and owning oligarchy, and to the bankers, the realtors, the real estate investment trusts, the mortgage brokers, the investment bankers, the financiers, the hedge fund operators… and voila, the mortgaged American sucker is made to pay for it all… with interest! Isn’t Greenspan a wonderful magician! For his next trick he takes all the money from the rubes’… whoops, I mean the American people’s wallets and puts it all into his banker and corporate friends’ pockets with no one seeing anything or being the wiser!
The sucker is left with a $1,000 house that he has to pay $2,000 for. And the sucker will never really ‘own’ it anyway (just miss a few payments and see who ‘owns’ your home, and those of most Americans!) If true fairness and goodness were the purpose, the $1,000 house would have remained at $1,000 and would cost our sucker $50 interest instead. He could then save $50 a year out of his $100 maximum, thus ensuring excess capacity for a rise in interest as well.
But this would not be so very profitable to the professional moneygrubbers of capitalism. So they encourage our sucker with all kinds of exotic animals like no-down payments, equity home loan second mortgages, and that killer app, the Adjustable. And well, this circus is just too beguiling. Besides, everyone is doing it. Thus pushing up the apparent ‘worths’ of houses and property.
So these ‘trusted advisors and professionals’ cajole the max-out of our sucker, and saddle him with that $1,000 house for the bargain price of $2,000. And he can save nothing. Thus when it is DECREED that the time had come to raise the Fed interest rate to, say, 10% (making said sucker’s ability to afford now dwindle to a $1,000 level) the sucker has not dollar one to raise the bankers with, and has to throw in his cards. He is cashed out. And the house value falls back to the original $1,000.
But the mortgage doesn’t. So our sap owes $2,000 for which he is paying his $100, and now his house is, voila, worth $1,000. And he is supposed to now pay $200 per annum at the newly adjusted 10% rate, instead of his $100 per annum possible at his income level, or he will lose his home. Perfect storm, perfect screw, perfect trick.
This is where the whole racket collapses though, if all the suckers walk away from their ‘contracts of indebtedness slavery’ to the plutocracy. This is where we are now, with the plutocracy worried that the chattel are getting out of the barn, even though the plutocracy will make sure that these escaped slaves are financially ruined.
Of course, the shrewdest capitalists of all have already gotten out with their own ill-gotten gains… which is what bundled mortgage securities were designed for anyway… and they have left their capitalist bretheren holding the bag these bretheren were way too eager to hold. Hey, Machiavelli never said capitalism was a walk in the park! Every man for himself!
But how will the plutocratic bag-holders get their pound of flesh now? FederalReserveMan Bernanke, save us, they cry! TreasurySecretaryMan Saint Paulson of Wall Street, save us! Congress of Spendthrift Borrowers of the United States, save us! President Bush the Base, save us!
Oh happy day, the NeoCon Corpo-Fascist Plutocracy’s plaintive cries are heard! How much of the American people’s treasures and labors do you want, fellas? The vault is now open. Grab all you can grab! And here, have some government bonds issued to raise the money to give to you, that are guaranteed by the taxpayers’ own debt slavery, along with tax-free income from them to you. Thank you kind NeoCon sirs, may we have another?!
But, hey, you riff-raff, aka the American people, get away from this Congressional pile o’ your money. So what if you are homeless and jobless. This Big Capitalist Mass Welfare Trough is EXCLUSIVELY for worthy fat-cat capitalist pigs, the real welfare queens, the same ones that created the current fiasco in the first place. And there are many, so many at this trough. (Down Cheney, down boy!)
FV HORN: Excellent post! I bought a tiny modest property and paid it off; however, with the insidious “eminent domain” law, one wonders if even having done so, some “official” can’t stampede in and claim it all. Since laws have broken down so clearly to favor the moneyed caste, the whole premise of justice seems like a smokescreen these days. The American dream has capsized.
Just sent Harry Reids office a link to this article; at least someone in his office now knows, some of us know what the real deal is! Sent them the suggestion of using Court Ordered Arbitration (with instructions) instead of ‘Rubber-Stamping’ these forclosures!Would reduce the numbers at no cost to the tax-payer!
BOTH major political parties are so deep in bed with Corporations, I think it’s hopeless!
That’s when I started looking for something different!
Found the Green Party! No Corporate Money! No Special Interests, except ‘We the People’! A real written party platform, which includes Single-payer HealthCARE not Insurance, Instant Run-Off elections, Media Reform, Restore the Constitution! There’s more, Every candidate runs on the Party Platform! No surprises.
After Edwards suspended
Look on the brightside… at least the US hasn’t nationalised a bank. The British government has loaned Northern Rock $50 billion of taxpayers money, because of its flawed business strategy. By nationalising the bank, it has also exposed British taxpayers to liabilities upwards of $100 billion - that is thousands of pounds of debt for every taxpayer in the country. Great.
The message to the other banks? Be as reckless as you like, run a highly risky business strategy but because you know you will be bailed out by the government, the taxpayer is taking all the risk and you reap all the benefits… brilliant…
http://rebelconservative.blogspot.com
Nasty Bubbles
Sure a nasty smell can move you
but can a bubble improve ya
lucre bubbles drifting on the dream
lucre bubbles transparent so they seem
maybe you have dreamt the dream
maybe you will find the drift
and won’t be sold short shrift
on the bubble fortune buoys
Is this that perfect bubble storm?
Do money changers look forlorn?
Will the trough of froth swell under the perfect crest?
and whose nest will get flooded less?
Say this bubble may need a little prick
So bend over this won’t hurt a lick!
Ah…..We licked another bubble
crack open the champagne
float another campaign
Chorus:
happy bubbles brave and free
bubble bounding lucre bubbles
drifting from sea to sea to sea
There are some people who were defrauded or at least deceived by dishonest lenders and builders, (builders often have their own lending co.). This group of consumers who were actually victims of fraud, IMO, deserves some help but that assistance should’ve come years ago when consumers and consumer org’s were bringing these problems to the attention of govt and law enforcement re: mortgage fraud.
You know what they were told?
“It’s not a big enough problem. Not enough complaints have been filed on the same co yet. It’s a civil matter–get a lawyer and sue individually. It’s not criminal.”
But, now that banks and investors have been harmed by it, it’s “fraud” and the govt is considering multi billions to bail out…not consumers so much, but the industry that caused the problem in the first place. This is corporate welfare and it stinks to high heaven of corruption. I wonder how many private citizens met behind closed doors with Bernanke? I know the homebuilders had a number of their CEO’s do it. And it was the National Association of Home Builders who threatened congress with taking away their PAC’s campaign donation money when they didn’t get provisions they wanted in this relief package.
Even if it had been practical or affordable for each consumer back then to sue and collect from crooked companies, arbitration clauses in home purchase contracts typically prevent suing. Most consumers cannot even find a really good lawyer and are told again and again, “you have a good case but there’s not enough money in it for the firm,” or, “You’ll never collect–these co’s go out of business and open a new one and never pay.”
Since the govt seems clueless about who caused the mortgage mess and why they don’t deserve a bailout, we can’t trust the govt to sort out the victims from the perpetrators, or help those who truly deserve it. Therefore, I personally am against a bailout, and wish instead that we’d see laws enforced, and complaints made public, and fewer industry press releases packaged as “news” in mainstream media. Perhaps if the media had done more real research and reporting early on, fewer home buyers would’ve fell for the housing bubble hype. I still don’t see the quality reporting on TV news that one can find online. People need to see more articles like this one, and fewer NAHB and NAR ads that “It’s a great time to buy!”
Bottom line: It’s our fault. Between 1995-2001, Fannie May pumped $2 trillion into the housing market.
When people starting using their housing equity as an ATM to buy new SUV’s and Disney cruise vacations, Congress stepped in and changed the bankruptcy laws.
Interesting note: the $2 trn has not yet been written down -so we have much further to go!
The Roaring Millenium (Twenties) is over - the day of reckoning is here, and we’re all in it together. Welcome to the new millenium!
http://www.larouchepub.com/other/2002/2924fannie_mae.html
Anybody who thinks this plan is going to work better than any of the other BS plans they’ve hatched so far is living in a dream world. When the median priced home goes back to equalling three years of median household income all of this will settle down. Writing a $200K mortgage for a “homeowner” who only makes $37k yearly is nuts. Stretching mortgage periods until the end of time just ensures that said sucker will never own his home.
If they really wanted to fix the mortgage crisis they should restrict the maximum mortgage period to 15 years and the maximum amount lent to 3x the five year average income of the buyer. Housing prices would dive and then settle when people could afford houses again. The upside is that more people would OWN their homes instead of OWEning homes as they do now.
Also with the price of food, fuel and health care rising there isn’t a lot of pie left for housing. You can’t get blood from a turnip and homeless people are rightfully angry when they see homes left empty for years at a time. It’s fix it or else time.
pangolin - Without bail-outs, the lending practices would take care of themselves. Would you make a loan that you knew that you would never collect on? I understand why the government needs to act, but the people that made these loans and the dunces that accepted them should not benefit, nor should the investors in stock from the offending corporations. The beneficiaries should be the responsible lenders and borrowers. If housing prices collapse, then maybe more people could actually afford to buy houses. If you own a house you have not really lost anything. If all the house prices drop, then you can move just like before. If you invested in real estate, then you have less equity. There are risks in every investment. Real estate is not FDIC insured.
FVHorn; Great Post! Thank You. You use the term ‘updraft’ of wealth referring to “where the money went” if you will, thanks, please write more posts.
mike peters.
time to think about a national bank.
The Foreclosure Protection Act is intended to rescue the speculators. We shouldn’t do that. Lyndon LaRouche put forward a comprehensive solution to this last August with the drafting of the Homeowners and Banks Protection Act, which has now been endorsed by roughly 100 city councils, including Detroit, Pittsburgh, and Philadelphia, and several states including Rhode Island and Alabama. The bill freezes mortgage rates and bans foreclosures. Families who can’t make the mortgage payments will pay rent, but stay in their homes. The bill also mandates federal intervention to keep federally and state chartered banks from closing their doors (note: not a penny would go to Bear Stearns under this bill.) More info is available at http://www.larouchepac.com/static/2008/02/25/hbpa.html