A useless answer to a pressing problem
With the mortgage crisis forcing people from their homes and undermining the economy, it may have seemed encouraging last week when the White House unveiled its policy proposal. Paul Krugman explains today that the administration is largely getting the crisis backwards.
[Treasury Secretary Henry] Paulson’s actions reflect the priorities of the administration he serves. And that, ultimately, is what’s wrong with the mortgage relief plan he unveiled last week.
The plan is, as a Times editorial put it yesterday, “too little, too late and too voluntary.” But from the administration’s point of view these failings aren’t bugs, they’re features.
In fact, there’s a growing consensus among financial observers that the Paulson plan isn’t mainly intended to achieve real results. The point is, instead, to create the appearance of action, thereby undercutting political support for actual attempts to help families in trouble.
In other words, it sounds an awful lot like every other proposal out of this White House.
As Elizabeth Warren, the Harvard bankruptcy expert, puts it, “The administration’s subprime mortgage plan is the bank lobby’s dream.” Krugman added, "Given the Bush record, that should come as no surprise."
The actual problem lays in "leveraging", not the mortgages. Do the research.
The bush administration is like Robin Hood's evil twin: take from the poor and give to the rich. Kind of like big-time TV evangelism, isn't it.
Straight Shooter @ 2:
The transparent Robber Barron . . . you can see what we're doing but we figure you'll keep buying cheap crap from China and absorbing yourselfs in video games . . . reality is painful . . . back to sleep sheeple . . . back to sleep.
Yes of course, allow the banks to find a market solution while the Repugs emasculate the Government and the People for which it stands!
Radically Moderate @ 4:
Print more money for Wall Street! Buy some more printing presses now!
Avid Reader @ 5:
Sell more debt to foreign interest.
It will not be the 1% mafia that will ultimately have to pay back all of that debt.
I think what we're seeing is the train wreck that is the mortgage crisis has been switched off the main track of the US economy. Right now it's on a siding but I'd say don't worry soon enough it will find it's way back onto the main line.
"I'm from the government and I'm here to help you!"
Tell me that you didn't smirk, giggle and/or guffaw when you read the previous sentence.
The truth is, we have the best government that money can buy.
What people seem to either forget or ignore is that the same neo-cons who are interested in building the American Empire, as is outlined in Project forThe New American Century for anyone interested in seeing where the American Imperial Fascists are going to take this country.
In addition, of course, they embrace the values of Libertarian Capitalism which will produce an economy consisting in billions of people living like peasants (one billion + already enjoy this lifestyle) while a very, very few will enjoy riches beyond the wildest dreams of Roman Emperors and Egyptian Queens of the past.
Add to this mix the Christian Dominionists who have infiltrated the US government by the thousands under the Bush regime and what you have is a nightmare future whose model might be Spain during the Inquisition, or Spain under Franco.
This country is a danger to itself and others. It is an entire nation that has become certifiably insane.
Every time i look into the details of what Bush is doing i feel like i just sat in chewing gum; stuck and hating it.
All pigs are equal.
All pigs are fat.
All pigs need to be fatter.
Vote Republican
Instead of putting all of the blame on Bush and the ReThugs, there's a whole lot of Democrats that helped to shepherd in this Bankruptcy bill and the problem with the sub-prime mortgages, too.
Democrats named Artur Davis, and Chuck Schumer from the Senate side. If someone can find a link (since I'm at work and can't look it up) find that roll call list on the BK bill back in 2006 and you will see what I mean.
It's easy to blame BushCo for most of the shyt this country is in, because he has FUBARed royally, but we also need to remember he had help from the Blue Dog Democrats that Pelosi refused to rein in or punish for voting for legislation that was designed to economically ruin this country.
Democrats + ReThugs = TWO HEADS OF THE SAME SNAKE.
Leland Somers @ 9:
According to PNAC's plan, they needed a "New Pearl Harbor" to speed things up. Man we're they lucky!
The Political Junkie @ 12:
No arguments here. I'm trying to figure out if Dick Durbin has a soul, obviously Reid does not. Will Durbin step up and be a force for "the People" or is he simply into rhetoric?
Radically Moderate @ 14:
If Hillary falls off the political cliff, the gates will open up. People are afraid of what's behind the Clintons just the way they are afraid of the Bush mafia. I don't believe in conspiracy theories but there is an airfield in Asa Hutchinson's territory where large amounts of cocaine we're flown in by the CIA using pilot Barry Seal who was represented by the Ben Venista 9/11 commission guy before Barry was executed in the parking lot of a restaurant.
This could on for several miles but I must get ready for work.
OT but pretty funny.
xoites defends Constitution @ 16:
National Public Radio:
"The Geopolitics of Drugs series concludes with a look at the complex relationship between the U.S. and Latin America within the "War on Drugs." We'll hear from a former DEA agent who's written an indictment of George H.W. Bush for drug trafficking, and find out how a plane went from flying to Guantanamo to crashing in the jungle... full of drugs."
http://www.chicagopublicradio.org/Program_WV.aspx?episode=14289
Won't many of the people who lose their homes then buy a more affordable home?
It's not surprising that chimpy's "help" is pretty much useless. This sorry piece of excrement is a sorry excuse for a human being.
Democrats + ReThugs = TWO HEADS OF THE SAME SNAKE....is a little much.
There's only one big fat Republican head on this snake and the Democrats at most are the rattle which needs to be snapped off and tossed into the trash. Then, it's lunchtime.
Mparker:
I agree, but you must admit, the Democrats keep feeding the ReThugs' Big Snake head.
we need public financing of campaigns. F all these astroturf plans
The rich get righer. The middle class and poor lose their homes - for starters.
"there’s a growing consensus among financial observers that the Paulson plan isn’t mainly intended to achieve real results. The point is, instead, to create the appearance of action, thereby undercutting political support for actual attempts to help families in trouble."
That's exactly what I've been saying.
monkfish @ 18:
Maybe, after twenty years of living on the street.
A useless answer to a pressing problem
Khaki pants don't hold a crease.
i'm sorry, but there's also another side to the mortgage mess too. i, for example, bought a smaller home with a fixed rate mortgage. any lunatic could see the danger in an adjustable rate. i have no compassion for people who bought those bloated monstrosities with a floating rate loan.
There's one thing Krugman doesn;t address that bothers me - the larger the bailout (whether on the borrower or lender side) the greater the message sent to the finacial sector that when you act irresponsibly, the government is there to bail you out.
What happened at the individual borrow level with shady lenders was not the greatest sin, because there will always be slimily creditors out there to take advantage of people. It was the securitization of the loans that was the real crime. By securitizing the loans the speculative risk was passed on to the government and loans were legitimized. Remember that many loans now in forclosure were filled with fraudulent information. So now the government is in a real bind - bail the whole house of cards out and you tacitly approve further financial shananigans. The other option is to provide little relief and send the message to the bond market that, next time, you better double check those mortgage applications.
I don't discount that many families are in serious immediate trouble and foreclosure is a lose-lose situation. However, no one put a gun to these people's heads to sign up for these mortgages. At some point caveat emptor has to come into play. Let the problem bleed through the system, as painful as that might be. That is the whole problem with our current finacial system - avoid pain at all costs. That is way recessions and depressions always take place - the manifest pain of credit mistakes. Want to know why there has only been one recession in the past 15 or so years? The fed has decided to remove finacial pain from the system and delay it to some day when they are in retirement. It's a very dangerous game.
I'm kind of torn on this subject. I hate to see middle-class families in trouble but by the same token, they were warned this was coming and yet they kept buying up property like crazy. They refinanced their homes in order to buy boats and Hummers and spend, spend, spend. They were warned that the property values weren't realistic and would eventually come back down to Earth. They didn't believe the "alarmists" or they did and just didn't care. Now they're crying about it. Oh well.
Personally, I hope it's the banks that get hardest. They, along with the credit industry, are to blame. Am I the only one who sees a deal in the background? Think about it. A few years ago, the Cons make a deal with the banks and credit industry: "You give e'm the credit which will keep 'em spending which will keep this BS economy going. And when the economy starts to take a crap, we'll make sure they can't declare bankruptcy in a few years."
sassafra @ 27:
Agreed. In 1996, I was fortunate enough to find a very small home in a very good neighborhood. I got a fixed rate and doubled my payments and paid it off in less than 9 years. (it was a very modest loan) 11 years later, the same houses are going for 3-4 times the amount I paid. I couldn't afford to buy my own house now. The only way people are able to afford these exhorbitant prices is with these scary hybrid/interest only/teaser rate loans. And now as Robert Stack said in "Airplane", "The defecation has hit the rotary oscillator".
Edit: "Personally, I hope it’s the banks that get HIT hardest."
Brawlin Dem @ 29:
A good point, it's not like people refi'd their houses to get a masters degree or upgrade their skills. People generally refied their houses to accelerate their spending on consumer goods (admittedly I don't have the stats to back me up). What we ended up doing is creating a bunch of paper that eventually found its way into the China central bank. China didn't complain becuase it let them build up capital inputs, which is really what they're after anyways. The U.S. got left with bunch of junk, thats probably mostly in the trash now.
Bush is trying to bail out the banks for being greedy in the first place. They wrote that BK legislation and thought they would make out like fat bandits with the mortgages by getting people in way over their heads and enacting the BK legislation to ensure they would drown.
myiq2xu @ 8:
My fav is "We're a family company that cares" - FU!
Question. I have a friend that's buying foreclosed homes in the hope of making a profit when the market improves. Is he on the right track or is he not taking into account that we may be seeing the very beginnings of long-term economic upheaval brought about by bush/cheney mess making?
Monkfish asks: "Won’t many of the people who lose their homes then buy a more affordable home?"
No, their credit will be shot and it will take them years to recover and they probably won't be able to as paying rent never put anyone ahead financially, especially if you're stuck with a family to raise.
Brawlin Dem says: "I’m kind of torn on this subject. I hate to see middle-class families in trouble but by the same token, they were warned this was coming and yet they kept buying up property like crazy."
No, the majority of people that got sucked into this were first-time buyers who were conned into believing that they were doing the right thing and that their broker was taking care of their interests. While a certain amount of knowledge helps, ignorance on the part of the consumer does not allow a pass to those who parlay that ignorance to generate fiction to line their own pockets; people who come off as having their clients' best interest at heart and yet who know full well they are taking them down the road. When people cannot trust professionals to do the job they say they will do, then how the hell will anything work in this economy? Please tell me.
Also, the other sector hardest hit was the minority buyer, who often was the first one in their family to ever reach the American Dream and thus had little support within their community or family to fall back on as for knowledge of the property market.
Sure, there are a contingent of people who took out loans to buy a boat, or more often than not, to build an addition or a new garage (I am a contractor), but I'll tell you right now, the information fed to them by bankers and lenders' agents about the future value of their housing if they expanded or remodeled and how smart they were put a lot of people over the cliff. Again, professionals have an ethical duty to treat their clients with honesty and respect first, with profit coming second. Bankers, lenders, mortageers and even real estate companies should take the hit, not the victims of these shams.
Lastly, might I add that the ole' "Ain't gonna get no gubmint hep." mantra pushed since Reagan has caused a lot of people who would otherwise have qualified, to look away from government sponsored programs for certain eligible groups. Usually the first ones to shy away from any assistance of any kind are the ones who would benefit the most from such help and yet want to believe the myth pushed by the Rethuglicans that wealthy people don't get help, so be independent and viola! You've joined Club Made It! Then the Rethugs can will have the funds to set about giving their corporate payors, wealthy donars and themselves government funded percs like deep tax cuts, loopholes and bailouts. All, might I add by pushing the fiction that the rich folks really were little peoples once and really love us and hold us dear in their big soppy hearts. See how that works?
Get rid of that Federal Reserve system and fraction reserve loans, and you'll see employment and wages skyrocket, inflation and debt halt, and mortgage rates and taxation drop and go back to essential services. But hey, that'd be logical and against the pig fuckers who run this planet.
My fav is "We're a family company that cares" - FU!
Or, "We'll treat you like family!"
Please, treat me like an employee, you don't know my family.
PassedPawn @ 35:
There's the macro financial picture - deflation vs. inflation. When you have a huge mis-allocation of financial resources like what we have now, credit can completely dry up (see great depression). The great depression was deflationary. The fed is scared of deflation most of all. Therefore, the fed will risk inflation to prevent deflation (by lowering interest rates to ridiculously low levels again). If there is deflation, then housing prices will fall much further. However, inflation is much more likely, and due to the rise of all comodities, the fed will likely lose control of inflation. Land/RE is generally a good protector against inflation - but that does not mean you necessarily get a return on your investment either.
I would choose housing very carefully. Many houses are built so far from economic centers that they make little sense in a higher-energy cost environment. Areas that will weather economic turbulence ahead - say a Seattle or San Fran have less risk. Personally though, I still would not touch the U.S. housing market with a ten foot pole.
With the subprime mortgage debacle coming on top of the falling housing market, it is a sure recipe for a pretty serious recession or worse. During Bush's first recession (he didn't cause it but he sure didn't help it) the ability to refinance buffered the depth of the recession by allowing homeowners to reduce payments and/or extract equity from their houses. That opportunity is gone, so there is no reserve to use to head off a recession. Since home-related spending is one of the big engines of our economy (not just house-buying but furnishing, etc.) so just letting the chips fall where they may could involve a very deep drop.
Another aspect of the problem is that a large number of foreclosures will glut the housing market and further depress it which will impact anyone who owns a home. So a solution which significantly reduces the number of foreclosures will benefit homeowners who do not hold subprime mortgages; otherwise they will become collateral damage.
The financial markets need to be shored up some how to restore confidence; if too many investors start to dump American stocks and securities out of fear then a rather nasty situation could arise.
So what we need is a solution which will reduce foreclosures and remove the related uncertainty of the financial markets. There is no need to make everyone whole, but enough must be done to prevent an economic implosion. There also ought to be an effort to identify lenders, appraisers and underwriters who were remiss in their professional duties; they should not be able to walk away unhurt from the problem they helped to create.
ysbaddaden @ 26:
So funny. Anway, Swiss banking giant UBS AG said Monday it will write off a further $10 billion on losses in the U.S. subprime lending market. This subprime bullshit scam is going to screw every last little person on earth. Thanks financial institutions and investors, now that you've provided loans to people who couldn't afford them and/or bought into really bad securities we can all work together to bail you out while the global economy goes down the crapper! Thanks again!
This SFGate article is a must-read re: the mortgage freeze:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/12/09/IN5BTNJ2V.DTL
The holders of all the bundled mortgage securities can force the banks to
buy back their paper at face value if the underlying mortgages are fraudulent,
the author alleges that both the valuations and the borrower's creditworthiness
were overstated to the point of fraud in the majority of mortgages out there.
Here's what I really don't get: if the republicans are free-market, why on earth
are they taking any action at all? Let the markets sort this out, let the banks
go bankrupt and frog-march their executive staff directly to jail whenever fraud
is determined to have been committed.
Avid Reader @ 3:
back to sleep? That implies that the sheep were awake for at least a news bite moment. Your giving them way to much credit. Maybe deep sleep going into a dreaming REM state at best, then back into deep slumber. Of course, why shouldn't sheep be asleep, if they count on themselves or the wolves in sheep's clothing?
Ed @ 42:
Republicans aren't happy with this plan either, Ed. Best plan we've heard so far...
Suck. It. Up.
The point is, instead, to create the appearance of action..............
This is a tactic borrowed from the Democrats. There is a BIG crash coming. Nothing the Government can do at this point is going to stop it. This is what happens when you sell your soul to China and any other country that has been propping up the American economy.
The Political Junkie @ 12:
I agree, this may be the thing I find most objectionable to the dems since Reagan. Alan Cranston, who authored and passed the western wilderness act bill S11, did so by making restriction-easing deals with the banking industry and republicans (and what other dems also?) to get the "pat-your-back-and-you-pat-mine" votes necessary to get S11 passed. The Sierra Club was the major lobby group and raised no objection at the time over how the bill got passed, though many now regret the way it happened. The deals that Cranston made were a significant part of the Charles Keating disaster. It seems from that point on, things have only gotten worse, and the powerful dems highly involved.
Look at the top campaign contributors for the 2008 presidential election, especially Rudy, Hillary, Mitt and Obama. It seems like things can only get worse.
sassafra @ 27:
I too have a similar mortgage and wondered why so many were accepting such risky loans, but it is an overall symptom of the myopic state much of the country is in now, that the wealthy and powerful are only too happy to encourage and advertise, "spend, spend, spend" is their battle cry.
We should expect people to be smarter and more cautious, but that so many are not, that so many cultivate this in the consumers, is ultimately an unbalancing effect for all, smart and dumb, involved. I do not want to bail out those that made bad decisions, but somehow this subprime disaster will mess up good people and I think the bankers (who, like drug dealers, took advantage of people's natural temptations) and developers (who could build a lot of high-cost unafforadable houses with such loans) are much to blame in this. I think they knew better and most have had a history of knowing good business from bad.
Its not the governments job to bail these people out, they took on a loan they could not pay, thats there problem. The banks gave loans they should not have given and that THERE problem. No reason for government to get involved, suck it up!
Someone I know works for Washington Mutual. He said over 2,000 low level employees are being laid off this month (Merry Christmas) because of the sub-prime crisis. So far, I haven't heard of one single high level, decision making executive losing his or her job over this.
I actually work in the mortgage industry (not in the sales or new loan side, but in servicing) and when I heard Bush talking about this Paulson plan I thought exactly what Krugman says...the emphasis is on limiting loss to the investors, not in limiting hardship to the borrowers. This is indeed getting it backwards.
The bank I work for hasn't been hit as hard as the ones in the news because we were more conservative in our subprime business. Subprime programs when managed correctly are fantastic programs that help low income families get into home ownership. But the programs of a lot of lenders were over sold and utilized by many greedy more affluent families to buy houses way over their budget, which would have worked as long as house prices kept skyrocketing. They took advantage of extremely low intro rates to keep their payments affordable, and hoped their house would appreciate fast enough that they could refinance into an affordable conventional loan later. Oops. More fool them. It was greed on both sides in that case. And it was greed on the Investor's side, for they are the ones who set the underwriting standards, not the banks creating and selling the loans.
Problem is, the biggest majority of those who will suffer are exactly the people who needed these loans the most, but were talked into houses too large by shoddy underwriting practices. Banks were qualifying them based on the lower initial terms, not the higher terms these homeowners now face. And most of these people were not greedy, but simply ignorant of how things work. They work with "professionals" to find and qualify them for a loan and just trusted those people not to sell them short.
Bottom line is that the none of this would have happened if the Investors had stuck to reasonable underwritng practices. And these are the folks Bush wants to protect.
Typical.
chris @ 48:
It's a reasonable response in a free market system, but the ripples on this one are going to hurt all of us. This is the kind of failure that cascades through the world - not just the US - economy, and causes wide-spread hardship.
I hate to say it, but this is why government regulations were invented - to protect us from ourselves. (This is the downside to corporate deregulation and privatization.) Someone has to always have their eye towards the greater good, and it's not going to be the big banks.
I meant to say your response was reasonable...
chris @ 48:
It's THEIR fault that you can't spell, suck on that.
As screwed up as the housing market is now, I wonder what effect baby boomers retiring, and growing old will have on all of this. The vast majority of us will not be able to live in and maintain our homes as we age through our 60's into our 70's and beyond. A heart attack or two and a little CHF or COPD and your days of cutting grass and shoveling snow are OVER. Look around your neighborhood. Most seniors live in condos or something similar. We baby boomers bought up our parents homes and then some. Who will buy our homes? Wages for kids are nowhere near where they would need to be for all of us to sell at a price that affords us a nice little nest egg. I think the real estate markets glory days are past and some real hard core price corrections are due. Same goes for the stocks in our 401k plans. You can't eat stock, you have to sell it to get cash. Most companies today don't offer much in the way of company contributions. Kids raising famillies will buy our stock assets too?
Sure sounds like Katrina...., or like no child left behind..., or like the war on terror in Iraq..., or the war on drugs... or immigration policy.... It's the contemporary American dream, cuz you've got to be asleep to believe it.
It struck me as an empty gesture designed to avoid hearings and possible regulation. The banking industry got itself into this mess because of greed, using initially lower rates to justify later usary. I've only heard a few economist commentators mention that the crises can larely be eliminated by popping the balloons -don't let the higher interest rates kick in, and lock-in non-usurious and non-predatory rates. The banks aren't going to do that on any significant level unless forced or unless they do it out of a desparation, last ditch effort move. So, millions will be put out of homes, the market will become supersaturated, the banks will be stuck with millions of homes that they won't be able to sell, and instead of making the reasonable profits they could have had, they'll lose their asses. Their greed has blinded them to their own self-interests. And Bush is pimping for them, trying to make it look like he's on the side of the distressed mortgagee.
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