Citi announces significant job cuts to show its shareholders that it is lean and fit, but the analysis shows this is a job shift to the lower costs of India and emerging economies.
Have to share the suspicions with Tanta that the taxpayer is being asked to cover losses, losses which until very recently were Citi's and other financial banks's gains.
A variation on the theme where the accused pleads for mercy on account of being an orphan.
The great train robbery where the heist continues when the officials announce that to actually redistribute the stolen money will require even more funds.
So now we have both sides of the housing moral hazard covered - the market expects the Fed to cut rates to effectively bail out bad lending decisions, and the government will underwrite bailing out bad home purchase decisions. Welcome to the risk-free society. What's the point of saving money when it will either be inflated away or used to finance bailouts?
Banks, in danger of losing tons of mortgage investment dollars as well as many other resulting intangibles, are offering a program (conduitively) to help switch probably their own borrowers and I assume other lenders' borrowers into their own refinanced mortgages, perhaps using tax dollars to help with this -- I may be getting this totally wrong and forgive me if I am, I am intuiting here, maybe, just maybe, the banks are not going to profit from this at all, but I highly doubt that --
And in the long run, I assume, they are going to somehow be covering their own losses as well as bringing new "sure" dollars in for themselves since it sounds like taxpayer $$ are going to be involved at some level --
And I also assume there will be some palm greasing going on too, as with the newly discovered abuses of Sallie Mae --
And this is a good thing?
My eyes are still too crossed to research all the facts, and my brain wires are currently short-circuiting. So forgive me if this post is completely wrong.
I hear Costa Rica is a nice place. I'm all ears for alternatives here. Because at this point our entire country needs a huge (federal) bailout, and I'm wondering just who is going to be involved in that... Can we tax other countries to cover our losses? Maybe NATO? I don't really want to be here when this whole train wreck thing happens...
Let's claim the Atlantic Ocean as our own territory (let's leave the Pacific for Stage 2) and then tax every country that borders our ocean's shores! After all, they get views of our waters and they probably get fish out of them. Let's tax per fish. We could make BIG bucks that way - enough to bail everyone out, even those with low fixed rate mortgages!
What pisses me off even more than usual is that Chuck Shumer is no Henry B. Gonzalez. At least old Henry B. kept the S&L bailout legislation hostage in committee until he got some regulations in exchange for the money. We didn't get FIRREA--such as it is--by offering to cover the losses first and then ask the business lobby for permission to regulate them later.
Of course, Barney Frank throws out the idea that perhaps new regulation is needed to deal with the new reality that depositories aren't the major sources of mortgage money any longer, and the bondholders have a melt-down.
I'll be in the fetal position under my desk if anyone needs me . . .
Vader - I'd argue that we don't live in a particularly capitalist, or for that matter, particularly free, society at all at the moment. More of a corporatist / big brother government model. At least it's risk free, as long as there's capital coming from somewhere to underwrite it that is.
A legislation that rewards both lenders and borrowers for making fraudulent loans? Borrowers can make false representation of income and lenders set up loan programs with no documents and no income verfication with impunity and get money for it? Let's all get behind the Sen. Charles Schumer and his committee on this abomination. Just another sign of to Apocalypse.
This is the part of the quote that says it all, "avoid foreclosure by refinancing mortgages they cannot afford." The problem is not that people have mortgages they can't afford, it's that they have houses they can't afford. The politicians are trying to solve the wrong problem and thus going to be throwing taxpayers money away.
I have a great idea for my new political platform as I run for Ruler of the World...
I will propose a program whereby taxpayer funds will be used to pay all legislators to stay home and do nothing!
If you would like to donate towards my upcoming campaign, I will have a website up soon. Particularly intersted in credit card donations because I know someone will bail you out when you can't afford to pay the bill. Maybe I'll accept Paypal too.
Name, once I'm done incorporating my new One True and Universal Church of the Sacred Mortgage of Jesus, I'm applying for some block grants, baby. Caesar can just render unto me.
You think making a refi to some strapped borrower under the condition that it swear allegiance to the Holy Ghost is any weirder than making a refi to some strapped borrower under the condition that it swear allegiance to the Ownership Society? Which Kool-Aid is in this chalice?
"avoid foreclosure by refinancing mortgages they cannot afford."
Will these refinancings pay the usurious prepayment fees that have been stuck on the predatory loans, such that the lenders' slight pain from getting their principal back early than they wanted is more than offset by astonishing percentage-rate returns?
"Several hundred million" or even a billion dollars is probably not enough to keep this train on the tracks. Like the Dodd announcement, these are just trial balloons being floated so when the stuff really hits the fan these guys can pretend that they tried to do something.
This has got to be the most absurd vote harvesting scheme I can remember. What is a few hundred million going to achieve, besides become a gravy train to those few that are connected? NOTHING! A fleecing is right.
A bailout could easily cost a few $TRILLION.
Who decides who the beneficiaries are? Rewarding irresponsible or reckless behavior, putting our financial markets and economy at peril . Remarkable society we live in.
I hope this backfires on Schumer, Dodd and all the rest of the panderers as voters hand them their asses. I will remember any politician's name that signs up for this ripoff when I make my appearance in the ballot box.
--
Mr. Schumer is merely looking after the interests of Bankrupters and Fraudsters of New York City, his real masters. So is the Federal Reserve. So are most elected and appointed officials. And with the arrival of Mr. Paulsen in the White House so is the Executive Branch.
Who is left to oppose these Crooks?
None, right now. But we can be sure that some demagogue will come along to target these Crooks in the worst way possible. The time to worry about a problem is before it happens, but that would be very un-American.
Housing mess has exposed Americans for what they really are.
Bill Seidman was just on CNBC commenting on any bailout. He gave a resounding thumbs down to any bailout scheme and said the lenders need to eat the losses. Let's hope the elected officials allow the market work for a change. What's Bernanke's opinion?
Max is right about the scale/trial but I'm not sure it's a CYA position for later rather than the appearance of responsibility for current realities.
I wonder if Lurker read the recent piece on Fannie and the flotation of it's current uncertainties. I could not relocate the article which concluded that the recent overhaul (perhaps still ongoing...this is part of the negligent accounting) by the 2500 accountants is that their eventual departure will mean that Fannie's original staffing will be inadequate to manage its new structure. This after recent reports of job cuts and shutting down its Foundation.
Taxpayers don't cover the losses- that would imply higher taxes, which won't happen until '09 in a desparate attempt to make it look like we have a fiscal policy beyond print and spend.
Time to contemplate buying some real estate- the Greenspan put is being invoked by congress!!!
And will the people who took fees to write junk mortgages be required in any way to refund those fees? Ha.
Therein lies a conundrum: the people who took those fees have, for the most part, already cut and run (into bankruptcy). There are bagholders on both sides and there is empty air in the middle. As in every single Ponzi scheme ever run, the bagholders - on both sides - were lured in by greed.
Tanta, I don't think Citi is holding a really significant amount of bad paper. I don't have hard figures or inside information, but I have been looking at publicly-available information and think they are on the least-endangered species list. In Zelnick et al. (March, Credit Suisse), they are listed as originating 6% of subprimeAltA, or $38B. If 20% of those go down, it would be a major hit, of course, but (a) they have a lot of depth, and (b) they have a history of offloading risk. I don't know, but I would guess that high net worth individuals are the ones most likely to be getting a worth adjustment.
As for what comes out of all of this, I hope that it will be forcing mortgage holders of extortionate mortgages to renegotiate with people living in their primary residence. Naturally, politics will play a role, and the lenders will want to be compensated for giving up a sure but large loss for a sure but small gain. But the governmental budget is so tight, especially with the re-establishment of PAYGO that I don't see any room for major payoffs to companies like Citi.
Charles,
Citi is very agressive at offloading risk. My wife's maiden name is Spanish. After making timely payments on a mortgage for some time, Citi sent us a letter demanding proof of citizenship.
I think they were on a fishing expedition; trying to scare any illegals that may have mortgages with them into refinancing elsewhere.
Charles, I guess the reason I raised this question is that one does want to ask, if Citi (or BoA or anyone else) dislikes subprime lending so much, why are they committing $1B of their own money to take a loan off the subprime lenders' hands? This would count as a new subprime origination: the history on these loans suggests that the borrowers are not prime credit. So why are they doing this? For mere CRA credit? Because they're such good corporate citizens? Or because they think, perhaps, that Mr. Shumer will direct the GSEs to take them off Citi's balance sheet?
ed in texas, that's actually the only part of this that didn't make me want to puke. If those numbers are correct, then we really are dealing with low-to-mod income borrowers who own low-to-mod priced properties, which has a degree of appropriateness to it, rather than low-to-mod income borrowers owning giant piles in the bubble markets that they'd never be able to afford if the interest rate were in negative territory.
I really don't think NACA would have anything to do with bailing out the janitor who bought the $500K home on a stated/stated deal.
"Kenneth Heebner, manager of the top-performing real-estate fund over the past decade, said U.S. home prices may plunge as much as 20 percent because of rising defaults on riskier mortgages.
Subprime loans, made to borrowers with a history of missed payments or untested credit, and ``Alt-A'' loans, which require little or no documentation, account for about $2.5 trillion of the $10 trillion in outstanding mortgages, according to Moody's Economy.com. As much as 40 percent of these loans may default, flooding the real estate market, Heebner said.
``It will be the biggest housing-price decline since the Great Depression,'' Heebner, 66, said today in an interview in Boston. Prices may fall by a fifth in many markets, he said."
(I wish I knew how to do links)
Okay - is this believable? Because this puts a whole new light on my househunting plans...
Seriously, if there's a bailout, it amounts to an implicit guarantee that in the future no matter how much risk lenders want to take, there will be a bailout program to cover any losses. It encourages exactly the behavior that needs to be curtailed.
Outsider asked: "...Okay - is this believable? Because this puts a whole new light on my househunting plans..."
No, it's not believable. It's important to not paint all housing markets with the same brush.
For example, in a neighborhood with lots of "For Sale" signs (foreclosures or not) there is competition for your "housing dollars" that will keep a lid on prices, or even push them lower.
In another neighborhood with fewer signs the local conditions aren't the same and you won't have the same bargaining power.
This is at the core of the mistaken assumption the housing bears are making, that housing weakness in certain cities or regions is everywhere, which absolutely isn't true.
The only point I'd concede is that FORECLOSED houses will sell for 20% discounts. Tanta, in her excellent description of the foreclosure process, explained how a mortgage lender has a powerful interest in a foreclosed property selling for the best possible price, i.e., more than the money owed them.
That interest will serve to put a floor under how low housing might go.
If you truly want to own a house, strike a hard bargain on a good one in a good neighborhood (since now's the time) and don't be scared off by the doomsayers.
Tanta, in her excellent description of the foreclosure process, explained how a mortgage lender has a powerful interest in a foreclosed property selling for the best possible price, i.e., more than the money owed them.
Sebastian, if that's what I said, I must have been sniffing glue. What I remember saying is that the lender has absolutely no interest in the property selling for the best possible price, only for the make-whole amount.
Before everybody gets all worked up about these bailout proposals, lets do some basic math.
One billion sounds like a lot of dough, but if we assume the average loan balance of an underwater J6P sub-prime debtor is 200K, that only bails out 5000 people. I can't back this up with data but my guess is there are at least 2-3 orders of magnitude higher people at risk for foreclosure.
Taking the national foreclosure rate of about 1.5%, IIRC, and doing some back of the envelope calculations with the US population of about 300 million and homeownership %-age = 68%, gives about 3 million potential bailouts. Even if we figure that only 10% of these actually need to be bailed out, that is 300000 homeowners that Citibank, BoA, Trump or whoever (ultimately it will be the taxpayers) will need to rescue. Multiply that number by 200K, and you get 600 Trillion dollars.
By comparison, the total federal budget of the US govt is about 3 trillion <a href="http://en.wikipedia.org/wiki/United_States_federal_dubget>link
Better get those printing presses working overtime, Ben.
Did anyone catch Schumer saying that we need a bailout in order to prop up prices, trumpeting a "study" estimating $80K in losses for each foreclosure (i.e., the neighbor's equity)? Of course, the $80K in neighbor's equity was really ill gotten third party gains from subprime loans which never should have been made in the first place. The government has no business protecting "equity" and noone can be both in favor of "affordable housing" and in favor of protecting "equity."
central_scrutinizer, are you assuming that the bailout would involve 100% debt forgiveness?
Look, if the borrower cannot pay amortized principal every month at market rate for prime loans, then there's no reason on God's green earth to try to work the loan out. The "subsidy" here should be to lower those interest rates. That, in turn, would require subsidizing some credit enhancement if you are to allow a bank or any institutional investor to buy the loan (since it would be mispriced for its credit risk).
But that doesn't cost 100% of the unpaid principal balance.
So let's distinguish between capital needed to lend on these potential bailout refis, versus net loss on them.
Tanta, yes I was making that assumption. You are obviously correct that a subsidy to totally forgive a debt vs, one to merely reduce the monthly nut are two different things, the former being plainly more expensive.
However I still think that while a billion sounds like alot, it may end up being the proverbial "brick in the grand canyon" when it comes to the scope of the problem we are facing. Also subsidizing just the monthly interest and principal just pushes the problem out into the future, does it not? Of course our politicians are quite good at that number.
This is a great blog, and I read it all the time. However, I do feel the need to get something off my chest: I find it has a definite anti-capitalism, anti-free market bias. For lack of a better term, it is a kind of "soft socialism," which seems to be increasingly common, especially among those too young to remember any Presidents prior to Reagan.
For example:
I can imagine few things that would be more harmful to our long term welfare than a federal bailout of mortgage borrowers, subprime or otherwise.
People who take out bad loans should be allowed to fail, as should the lenders who make them. This is not for the "benefit" of the failed borrowers or the lenders themselves, who obviously don't benefit.
It is for the benefit of the many, even tens or hundreds, of thousands of people who will see them fail and will be able to apply the lessons learned in their own lives.
As for "predatory lending practices," there, too, the last thing we need is more regulation. People need to learn, the hard way if necessary, that "caveat emptor" is a cliche for a reason, that they, and only they, must take responsibility for their own lives. Only if predatory lenders are allowed to exist (and to face common law sanctions for their wrongful conduct) will people have the opportunity to see, in the broken lives of others, what can happen to them if they are not extremely careful in their borrowing.
If you think I am heartless, then so be it. But think about the alternative, what will happen if the government bails everyone out of their bad decisions. Then everyone will make bad decisions.
If the Republicans in Congress had any cojones, they would be speaking this truth. Unfortunately, they don't, so we will be forced to face the consequences of more bad laws and regulations.
Mortgage lending is a mess, but the free market is working and should be allowed to work, even though the process is messy and causes extreme hardship for some.
We Americans either believe in freedom and competition or we don't.
If we do, then we should stop assigning fault to others for our own mistakes and trying to have "Uncle" bail us out of every bad economic outcome.
If we don't then we should just let the government tell everyone what to do. After all, that's what socialism is all about.
This legislation Chuck Schumer and his committee are proposing is like giving a new car and alcohol to a drunk after a DUI accident. Isn't the legislation supposed to create disincentives for borrowers who misrepresent using inflated incomes numbers and lenders who created no doc. and no income verification loan programs?
"Spare me the moral outrage over even a billion in this program- instead use it on the 300 million borrowed EVERY DAY for the war in Iraq."
Have you considered that the entire war is nothing more than an inflation machine, designed to prevent a deflationary collapse and keep stoking the giant bubble economy for a few more years? The war kicked into high gear right around the time that we were having our deflation "scare" and the war had it's intended effect: Deflationary collapse delayed (not prevented, btw.)
So now that the Dems are making noises about a timetable and the public's getting real sick of this war, a new inflation machine needs to be created. Presto! Schumer to the rescue with a trillion dollar RE bailout. And make no mistake, it will need to be in the trillions to avert a complete RE collapse and deflationary depression. Hundreds of millions won't even put a dent in it. These guys are risking a hyperinflationary depression with this garbage. This is like stagflation's bigger, badder brother.
I'm not even sure that Bush really cares about Iraq in the slightest. His puppet masters know that a deflation is on the horizon for the US and they will choose when the time is right for it.
Of all the reasons to be disgusted by the idea of bailing out predatory lenders, it seems to me there's also excellent reason here to be disgusted by the incredible lack of imagination on the part of idjits like Dodd and Shumer.
My point in the last bullet point of the post was to get us thinking about whether there are, actually, any ways to do a work out for victims of predatory lending that can end up reimbursing the taxpayers. I like IRS liens on subprime lenders, but let's even accept the assumption (which I think is probably bogus) that there are no deep pockets to pick somewhere among predatory loan originators.
If we can turn these things into performing loans by refinancing them at market rates (with amortization), then we the people can hold the damned note and get the interest payments. That's my point: are we lending taxpayer money or just giving it away?
Moopheus, I was off by one zero, not three or four as you state. My math skills may stink, but check the quality of your own dwelling before you throw stones ...
60 trillion is still 20x the current US fed. budget.
So just giving it away isn't a real option, unless you are a shameless crook like Schumer just trying to jack up your approval numbers.
Tanta,
I just think Dodd and Schumer are attempting to funnel money though the mortgagees back into the financial institutions, a portion of which reaches their campaign coffers (hence my links above). They can accomplish this while looking the part of Robin Hood.
Heck, why can't we just pay for it all. As for me, I "Won life's Lottery" as they say. Passing the CPA exam and working 60 hours a week is, after all, the same as a lottery ticket.
I don't think people really understand that no bank in their right mind would average $200K loans for subprime borrowers. If you take a look at the books of various mortgage originators and servicers (and check out REOs on their websites), you'll see that the average loan value is anywhere from 90K-115K (and the highest values are only a recent phenomenon).
That's a pretty substantial difference from what's being assumed here. In addition, as Tanta explains, the federal government would only bail out those with decent jobs and a liklihood to benefit from a bailout. Equity extractors are pretty easy to spot out when scrutinizing the original loans and corresponding documentation. (Personally, I think the bailout is a waste as well; but the fact is states like Ohio and New Jersey have already begun state-wide bailouts.)
click on a regional office and u will see loan cutoffs. goes up to 4 unit owner occupied. oh, and they want u to attend 5 activities a year put on by their organization in return.
Frank, entirely off subject, but I do think that every war should be funded as it goes and that there should be universal draft with no exceptions. Perhaps these decisions would be taken with a little more forethought.
A lot of older neighborhoods in cities have lots of 2-4 family dwellings in them. And when you have an owner-occupant in a 2-4 family dwelling, you have net rental income from the other units. They quite often perform better than a 1-unit property as long as there's a rental market. Is there some problem with NACA borrowers buying these properties if they can qualify?
Tanta,
Thanks for raising the questions that our journamalists in the "media" (fluid that supports the growth of micro-organisms?) should be raising and seeking answers to from the politicians who make these half-assed proposals, but are not.
I just think Dodd and Schumer are attempting to funnel money though the mortgagees back into the financial institutions, a portion of which reaches their campaign coffers (hence my links above).
Its more than that, its also jobs of their constituency (NY & CT). Expecting Dodd & Shumer to be against 'helping strapped mortgage holding families' is like expecting Durbin & Grassley to be 'against family farmers' (i.e. vote against ethanol subsidies).
In short you are wasting your time writing to Dodd & Shumer...just like if you're against 'big agriculture' your wasting your time writing to Durbin & Grassely (that is unless your idea of 'family farmers' includes the Andreas family).
Write to the 48 OTHER Senators instead - that is where the wrench falling will do the most damage.
Tanta: If we can turn these things into performing loans by refinancing them at market rates (with amortization), then we the people can hold the damned note and get the interest payments. That's my point: are we lending taxpayer money or just giving it away?
OK. Some kind of support for refinance of qualifying borrowers sounds better than just throwing money at the banks. And the taxpayers should hold the note and original lenders get little or nothing, since it should be clear that a major reason for these serial bouts of collective embezzlement* we keep having is the expectation of a government bailout.
(* Calavita, Tillman, Pontell (1997) on the S&L debacle, unfortunately not free.)
Here are just a few of the questions I would want addressed by any proposed remedy. How/at what point in the failure process would a loan enter the federal orbit? E.g., would gov. be taking over foreclosures and then trying to work them out? And which loans? All loans meeting certain interest rate or payment criteria? Loans of lenders that themselves are in trouble? Would the lenders be sent on their way with a discounted payment? Should private nonprofits like NACA be used to provide borrower servicing (surely these workouts would not be done without the kinds of counselling services, at least for the early years, that NACA is supposed to provide.) And what about Tanta's idea about small multiflat buildings (which Census treats as sf up to 4 units)? Could workouts be extended to more families by using available units of that type in the program?
(Note: Chicago, where I'm from originally, has loads of two- to four-flat brick buildings in good or restorable condition, often in stable neighborhoods where they have indeed been desirable assets. But better hurrycondo conversion fever has even reached down into this category of dwelling.)
Tanta said: "...Sebastian, if that's what I said, I must have been sniffing glue. What I remember saying is that the lender has absolutely no interest in the property selling for the best possible price, only for the make-whole amount..."
Tanta, you're absolutely right, you limited it to the amount of the lender being made whole. I only slightly embellished, but my point is still sound: If there's a $300k mortgage on a house, the lender's best interest is served by having that house sell for $300k OR MORE.
Tanta, I think your questions are good and ought to be answered, especially if taxpayer funds are at stake.
But let us suppose that Citi is trying to avoid prosecution for predatory lending by paying a $1B "fine" in the form of mortgage givebacks. $1B is roughly the amount required to pay (order of magnitude) 100,000 mortgages for a year, perhaps time enough to re-sell or refinance under non-predatory terms. If that $1B avoids foreclosures on 100,000 properties, isn't that the desirable outcome, particularly if predatory practices were the norm? And so far into the thought experiment, at least, no taxpayer dollars have been committed.
As for the collectability to the taxpayers, especially for failures that impact agencies, it would be nice. However, I would predict that if the Feds try to collect, the lenders will bottle it up into court until they can buy a more favorable Congress. A lot of the practices, especially by major banks, may have been immoral, but were probably legal. The worst practices were, as far as I can tell, from companies that are already bankrupt or fly-by-night brokers. So, one would have to build a case for conspiracy between brokers and lenders, which is unlikely to succeed. As for federalizing the bad loans, I predict: Na ga ha pin.
Situations like this are what corporate taxes are for: having enough money so that we can mop up the messes they make. But I do agree with your sentiments, that this sort of ^%$# should not be tolerated. Unfortunately, it always takes a disaster before we can regulate properly.
Lama, I agree about Citi's long-established practice of offloading risk. The LatAm debt crisis of the 1980s was brought on by the lending practices of Citi and others. Citi managed to avoid any serious consequences. Historically, they have been very, very clever about being upwind when stuff hits the fan.
Going through with this bail out is going to be nothing short of insanity. It is going to bring absolute turmoil to the entire industry rather than solve any problem.
There are hardworking people right now making huge sacrifices to pay their mortgages on time, they were diligent about their credit, bought within their means and curtailed their spending in other areas so that they would not endanger their mortgages. The bailout would be a slap in the face to all these people and I don't think they would take it very kindly.
What about all the people who researched carefully and figured out that they would get into trouble had they taken a loan beyond their means? The delinquents get to continue their homeownership dreams and the person who was careful gets to rent? This is an absolute outrage!
I don't think people will be quiet if this thing flies!
Markets need to self-correct. If we start redistributing wealth ad-hoc with bailout plans that will completely wreck the economy. How many people will start abandoning their loans when they find out that the government is bailing out their neighbor who is not paying? The ramifications of this are monumental.
More crack for the addicts. This cannot be good in the long run, but hey, it gets politicians elected!
Countrywide mortgages in foreclosure nearly double
Countrywide mortgage lending in foreclosure rises
| Reuters
hard to believe that it won't end up faith based....the track record is not good...or maybe Haliburton will administer it.
rt
"Happiness is good health and a bad memory.\t
Ingrid Bergma
Citi announces significant job cuts to show its shareholders that it is lean and fit, but the analysis shows this is a job shift to the lower costs of India and emerging economies.
Have to share the suspicions with Tanta that the taxpayer is being asked to cover losses, losses which until very recently were Citi's and other financial banks's gains.
A variation on the theme where the accused pleads for mercy on account of being an orphan.
The great train robbery where the heist continues when the officials announce that to actually redistribute the stolen money will require even more funds.
You are the Jane Hamsher of mortgages.
Period.
So now we have both sides of the housing moral hazard covered - the market expects the Fed to cut rates to effectively bail out bad lending decisions, and the government will underwrite bailing out bad home purchase decisions. Welcome to the risk-free society. What's the point of saving money when it will either be inflated away or used to finance bailouts?
Okay, let's see...
Banks, in danger of losing tons of mortgage investment dollars as well as many other resulting intangibles, are offering a program (conduitively) to help switch probably their own borrowers and I assume other lenders' borrowers into their own refinanced mortgages, perhaps using tax dollars to help with this -- I may be getting this totally wrong and forgive me if I am, I am intuiting here, maybe, just maybe, the banks are not going to profit from this at all, but I highly doubt that --
And in the long run, I assume, they are going to somehow be covering their own losses as well as bringing new "sure" dollars in for themselves since it sounds like taxpayer $$ are going to be involved at some level --
And I also assume there will be some palm greasing going on too, as with the newly discovered abuses of Sallie Mae --
And this is a good thing?
My eyes are still too crossed to research all the facts, and my brain wires are currently short-circuiting. So forgive me if this post is completely wrong.
I hear Costa Rica is a nice place. I'm all ears for alternatives here. Because at this point our entire country needs a huge (federal) bailout, and I'm wondering just who is going to be involved in that... Can we tax other countries to cover our losses? Maybe NATO? I don't really want to be here when this whole train wreck thing happens...
Turbo
What is the use of a capitalistic society at all?
The Green Crack-- I mean Green Back is getting slammed this morning..so much for buying power.
aha! I've got the solution!
Let's claim the Atlantic Ocean as our own territory (let's leave the Pacific for Stage 2) and then tax every country that borders our ocean's shores! After all, they get views of our waters and they probably get fish out of them. Let's tax per fish. We could make BIG bucks that way - enough to bail everyone out, even those with low fixed rate mortgages!
Whoo hoo! I'm runnin for office, baby!
What pisses me off even more than usual is that Chuck Shumer is no Henry B. Gonzalez. At least old Henry B. kept the S&L bailout legislation hostage in committee until he got some regulations in exchange for the money. We didn't get FIRREA--such as it is--by offering to cover the losses first and then ask the business lobby for permission to regulate them later.
Of course, Barney Frank throws out the idea that perhaps new regulation is needed to deal with the new reality that depositories aren't the major sources of mortgage money any longer, and the bondholders have a melt-down.
I'll be in the fetal position under my desk if anyone needs me . . .
Ah, so this is what's causing the lenders and builders to recover this a.m.
Vader - I'd argue that we don't live in a particularly capitalist, or for that matter, particularly free, society at all at the moment. More of a corporatist / big brother government model. At least it's risk free, as long as there's capital coming from somewhere to underwrite it that is.
A legislation that rewards both lenders and borrowers for making fraudulent loans? Borrowers can make false representation of income and lenders set up loan programs with no documents and no income verfication with impunity and get money for it? Let's all get behind the Sen. Charles Schumer and his committee on this abomination. Just another sign of to Apocalypse.
If this is going to be another one of those "faith-based initiatives," I consider that we've already been fleeced enough there.
I take it you're really religious.
This is the part of the quote that says it all, "avoid foreclosure by refinancing mortgages they cannot afford." The problem is not that people have mortgages they can't afford, it's that they have houses they can't afford. The politicians are trying to solve the wrong problem and thus going to be throwing taxpayers money away.
I have a great idea for my new political platform as I run for Ruler of the World...
I will propose a program whereby taxpayer funds will be used to pay all legislators to stay home and do nothing!
If you would like to donate towards my upcoming campaign, I will have a website up soon. Particularly intersted in credit card donations because I know someone will bail you out when you can't afford to pay the bill. Maybe I'll accept Paypal too.
Name, once I'm done incorporating my new One True and Universal Church of the Sacred Mortgage of Jesus, I'm applying for some block grants, baby. Caesar can just render unto me.
You think making a refi to some strapped borrower under the condition that it swear allegiance to the Holy Ghost is any weirder than making a refi to some strapped borrower under the condition that it swear allegiance to the Ownership Society? Which Kool-Aid is in this chalice?
"avoid foreclosure by refinancing mortgages they cannot afford."
Will these refinancings pay the usurious prepayment fees that have been stuck on the predatory loans, such that the lenders' slight pain from getting their principal back early than they wanted is more than offset by astonishing percentage-rate returns?
"Several hundred million" or even a billion dollars is probably not enough to keep this train on the tracks. Like the Dodd announcement, these are just trial balloons being floated so when the stuff really hits the fan these guys can pretend that they tried to do something.
April ovewview from FNM
http://www.fanniemae.com/media/pdf/berson/monthly/2007/041207.pdf
Hey,
Look what industry was Schumer's #1 contributor.
404
And here's Dodd's contributions by industry.
404
Huh, what a coincidence.
This has got to be the most absurd vote harvesting scheme I can remember. What is a few hundred million going to achieve, besides become a gravy train to those few that are connected? NOTHING! A fleecing is right.
A bailout could easily cost a few $TRILLION.
Who decides who the beneficiaries are? Rewarding irresponsible or reckless behavior, putting our financial markets and economy at peril . Remarkable society we live in.
I hope this backfires on Schumer, Dodd and all the rest of the panderers as voters hand them their asses. I will remember any politician's name that signs up for this ripoff when I make my appearance in the ballot box.
OK, let's do the math. A Billion dollars (sounds huge, don't it) divided by 7000 homes comes to an average $142.8K per.
That's not gonna cover a whole lot of ground if you're covering the entire note. Are talking a percentage, maybe? Do we get a hint?
--
Mr. Schumer is merely looking after the interests of Bankrupters and Fraudsters of New York City, his real masters. So is the Federal Reserve. So are most elected and appointed officials. And with the arrival of Mr. Paulsen in the White House so is the Executive Branch.
Who is left to oppose these Crooks?
None, right now. But we can be sure that some demagogue will come along to target these Crooks in the worst way possible. The time to worry about a problem is before it happens, but that would be very un-American.
Housing mess has exposed Americans for what they really are.
Jas
Bill Seidman was just on CNBC commenting on any bailout. He gave a resounding thumbs down to any bailout scheme and said the lenders need to eat the losses. Let's hope the elected officials allow the market work for a change. What's Bernanke's opinion?
Or am I, the taxpayer, just covering the losses?
Tanta, I think we all know the answer to that one.
Jas, what is this supposed to mean? Has a decidedly elitist tone to it. Do you have a complex?
"Housing mess has exposed Americans for what they really are"
Max is right about the scale/trial but I'm not sure it's a CYA position for later rather than the appearance of responsibility for current realities.
I wonder if Lurker read the recent piece on Fannie and the flotation of it's current uncertainties. I could not relocate the article which concluded that the recent overhaul (perhaps still ongoing...this is part of the negligent accounting) by the 2500 accountants is that their eventual departure will mean that Fannie's original staffing will be inadequate to manage its new structure. This after recent reports of job cuts and shutting down its Foundation.
Taxpayers don't cover the losses- that would imply higher taxes, which won't happen until '09 in a desparate attempt to make it look like we have a fiscal policy beyond print and spend.
Time to contemplate buying some real estate- the Greenspan put is being invoked by congress!!!
And will the people who took fees to write junk mortgages be required in any way to refund those fees? Ha.
Therein lies a conundrum: the people who took those fees have, for the most part, already cut and run (into bankruptcy). There are bagholders on both sides and there is empty air in the middle. As in every single Ponzi scheme ever run, the bagholders - on both sides - were lured in by greed.
Tanta, I don't think Citi is holding a really significant amount of bad paper. I don't have hard figures or inside information, but I have been looking at publicly-available information and think they are on the least-endangered species list. In Zelnick et al. (March, Credit Suisse), they are listed as originating 6% of subprimeAltA, or $38B. If 20% of those go down, it would be a major hit, of course, but (a) they have a lot of depth, and (b) they have a history of offloading risk. I don't know, but I would guess that high net worth individuals are the ones most likely to be getting a worth adjustment.
As for what comes out of all of this, I hope that it will be forcing mortgage holders of extortionate mortgages to renegotiate with people living in their primary residence. Naturally, politics will play a role, and the lenders will want to be compensated for giving up a sure but large loss for a sure but small gain. But the governmental budget is so tight, especially with the re-establishment of PAYGO that I don't see any room for major payoffs to companies like Citi.
Countrywides March 2007 results
Expired
CNBC question of the day:
Should the government bail out subprime borrowers?
cnbc.com
they've gotten almost 100 emails so far in last two hours and all are against bailout lets keep them flowing in
and patrick's website has a link and a letter to email your state's congressmen & senator against a bailout.
patrick.net/housing/crash.html
I say we stop this now before it gets any deeper.
Email him:
www.senate.gov - This page cannot be found.
Charles,
Citi is very agressive at offloading risk. My wife's maiden name is Spanish. After making timely payments on a mortgage for some time, Citi sent us a letter demanding proof of citizenship.
I think they were on a fishing expedition; trying to scare any illegals that may have mortgages with them into refinancing elsewhere.
Charles, I guess the reason I raised this question is that one does want to ask, if Citi (or BoA or anyone else) dislikes subprime lending so much, why are they committing $1B of their own money to take a loan off the subprime lenders' hands? This would count as a new subprime origination: the history on these loans suggests that the borrowers are not prime credit. So why are they doing this? For mere CRA credit? Because they're such good corporate citizens? Or because they think, perhaps, that Mr. Shumer will direct the GSEs to take them off Citi's balance sheet?
ed in texas, that's actually the only part of this that didn't make me want to puke. If those numbers are correct, then we really are dealing with low-to-mod income borrowers who own low-to-mod priced properties, which has a degree of appropriateness to it, rather than low-to-mod income borrowers owning giant piles in the bubble markets that they'd never be able to afford if the interest rate were in negative territory.
I really don't think NACA would have anything to do with bailing out the janitor who bought the $500K home on a stated/stated deal.
Spare me the moral outrage over even a billion in this program- instead use it on the 300 million borrowed EVERY DAY for the war in Iraq.
Neal, I share your horror over the war.
But if we are not buying regulation designed to prevent Mortgage Bubble II with that billion, count me outraged.
From Bloomberg.com:
"Kenneth Heebner, manager of the top-performing real-estate fund over the past decade, said U.S. home prices may plunge as much as 20 percent because of rising defaults on riskier mortgages.
Subprime loans, made to borrowers with a history of missed payments or untested credit, and ``Alt-A'' loans, which require little or no documentation, account for about $2.5 trillion of the $10 trillion in outstanding mortgages, according to Moody's Economy.com. As much as 40 percent of these loans may default, flooding the real estate market, Heebner said.
``It will be the biggest housing-price decline since the Great Depression,'' Heebner, 66, said today in an interview in Boston. Prices may fall by a fifth in many markets, he said."
(I wish I knew how to do links)
Okay - is this believable? Because this puts a whole new light on my househunting plans...
"Okay - is this believable?"
Only for the non-bubble markets. If you live in California, say, the drop will be more like 50%.
Happy renting!
so true so true yet scary as hell...Oh my poor grandchildren.
Doomsday for the Greenback
Seriously, if there's a bailout, it amounts to an implicit guarantee that in the future no matter how much risk lenders want to take, there will be a bailout program to cover any losses. It encourages exactly the behavior that needs to be curtailed.
Write to any elected official you can.
Outsider asked: "...Okay - is this believable? Because this puts a whole new light on my househunting plans..."
No, it's not believable. It's important to not paint all housing markets with the same brush.
For example, in a neighborhood with lots of "For Sale" signs (foreclosures or not) there is competition for your "housing dollars" that will keep a lid on prices, or even push them lower.
In another neighborhood with fewer signs the local conditions aren't the same and you won't have the same bargaining power.
This is at the core of the mistaken assumption the housing bears are making, that housing weakness in certain cities or regions is everywhere, which absolutely isn't true.
The only point I'd concede is that FORECLOSED houses will sell for 20% discounts. Tanta, in her excellent description of the foreclosure process, explained how a mortgage lender has a powerful interest in a foreclosed property selling for the best possible price, i.e., more than the money owed them.
That interest will serve to put a floor under how low housing might go.
If you truly want to own a house, strike a hard bargain on a good one in a good neighborhood (since now's the time) and don't be scared off by the doomsayers.
Sebastia
Neal, I agree with your outrage over the money borrowed for the Iraq War.
How do we get Congress to get off their collective end and pass appropriate funding for it?
Tanta, in her excellent description of the foreclosure process, explained how a mortgage lender has a powerful interest in a foreclosed property selling for the best possible price, i.e., more than the money owed them.
Sebastian, if that's what I said, I must have been sniffing glue. What I remember saying is that the lender has absolutely no interest in the property selling for the best possible price, only for the make-whole amount.
Sebastian, "If you truly want to own a house, strike a hard bargain on a good one in a good neighborhood (since now's the time)"...
LOL! Somehow, based on the content your posts, I think you're D Learah. You have about as good a grasp of the principles of economics.
WE ARE IN THE BIGGEST BUBBLE OF ALL TIME AND YOU SUGGEST BUYING RE? Did you read your own book about how RE busts are impossible? Is that it?
I expect the entire country to experiance 20% declines, on average. Bubble areas will see 50% declines. Now is the best time to SELL!
Before everybody gets all worked up about these bailout proposals, lets do some basic math.
One billion sounds like a lot of dough, but if we assume the average loan balance of an underwater J6P sub-prime debtor is 200K, that only bails out 5000 people. I can't back this up with data but my guess is there are at least 2-3 orders of magnitude higher people at risk for foreclosure.
Taking the national foreclosure rate of about 1.5%, IIRC, and doing some back of the envelope calculations with the US population of about 300 million and homeownership %-age = 68%, gives about 3 million potential bailouts. Even if we figure that only 10% of these actually need to be bailed out, that is 300000 homeowners that Citibank, BoA, Trump or whoever (ultimately it will be the taxpayers) will need to rescue. Multiply that number by 200K, and you get 600 Trillion dollars.
By comparison, the total federal budget of the US govt is about 3 trillion <a href="http://en.wikipedia.org/wiki/United_States_federal_dubget>link
Better get those printing presses working overtime, Ben.
Sorry, link above is broken. Real wikipedia link to US federal budget:
<a href="http://en.wikipedia.org/wiki/United_States_federal_budget>US budget
Did anyone catch Schumer saying that we need a bailout in order to prop up prices, trumpeting a "study" estimating $80K in losses for each foreclosure (i.e., the neighbor's equity)? Of course, the $80K in neighbor's equity was really ill gotten third party gains from subprime loans which never should have been made in the first place. The government has no business protecting "equity" and noone can be both in favor of "affordable housing" and in favor of protecting "equity."
central_scrutinizer, are you assuming that the bailout would involve 100% debt forgiveness?
Look, if the borrower cannot pay amortized principal every month at market rate for prime loans, then there's no reason on God's green earth to try to work the loan out. The "subsidy" here should be to lower those interest rates. That, in turn, would require subsidizing some credit enhancement if you are to allow a bank or any institutional investor to buy the loan (since it would be mispriced for its credit risk).
But that doesn't cost 100% of the unpaid principal balance.
So let's distinguish between capital needed to lend on these potential bailout refis, versus net loss on them.
Tanta, yes I was making that assumption. You are obviously correct that a subsidy to totally forgive a debt vs, one to merely reduce the monthly nut are two different things, the former being plainly more expensive.
However I still think that while a billion sounds like alot, it may end up being the proverbial "brick in the grand canyon" when it comes to the scope of the problem we are facing. Also subsidizing just the monthly interest and principal just pushes the problem out into the future, does it not? Of course our politicians are quite good at that number.
This is a great blog, and I read it all the time. However, I do feel the need to get something off my chest: I find it has a definite anti-capitalism, anti-free market bias. For lack of a better term, it is a kind of "soft socialism," which seems to be increasingly common, especially among those too young to remember any Presidents prior to Reagan.
For example:
I can imagine few things that would be more harmful to our long term welfare than a federal bailout of mortgage borrowers, subprime or otherwise.
People who take out bad loans should be allowed to fail, as should the lenders who make them. This is not for the "benefit" of the failed borrowers or the lenders themselves, who obviously don't benefit.
It is for the benefit of the many, even tens or hundreds, of thousands of people who will see them fail and will be able to apply the lessons learned in their own lives.
As for "predatory lending practices," there, too, the last thing we need is more regulation. People need to learn, the hard way if necessary, that "caveat emptor" is a cliche for a reason, that they, and only they, must take responsibility for their own lives. Only if predatory lenders are allowed to exist (and to face common law sanctions for their wrongful conduct) will people have the opportunity to see, in the broken lives of others, what can happen to them if they are not extremely careful in their borrowing.
If you think I am heartless, then so be it. But think about the alternative, what will happen if the government bails everyone out of their bad decisions. Then everyone will make bad decisions.
If the Republicans in Congress had any cojones, they would be speaking this truth. Unfortunately, they don't, so we will be forced to face the consequences of more bad laws and regulations.
Mortgage lending is a mess, but the free market is working and should be allowed to work, even though the process is messy and causes extreme hardship for some.
We Americans either believe in freedom and competition or we don't.
If we do, then we should stop assigning fault to others for our own mistakes and trying to have "Uncle" bail us out of every bad economic outcome.
If we don't then we should just let the government tell everyone what to do. After all, that's what socialism is all about.
3 x 10^5 x 2 x 10^5 = 6 x 10^10, or 60 billion dollars.
Scrutinize your zeros.
I say we take a collection to send Tanta to Washington with a Louisville Slugger.
This legislation Chuck Schumer and his committee are proposing is like giving a new car and alcohol to a drunk after a DUI accident. Isn't the legislation supposed to create disincentives for borrowers who misrepresent using inflated incomes numbers and lenders who created no doc. and no income verification loan programs?
"Spare me the moral outrage over even a billion in this program- instead use it on the 300 million borrowed EVERY DAY for the war in Iraq."
Have you considered that the entire war is nothing more than an inflation machine, designed to prevent a deflationary collapse and keep stoking the giant bubble economy for a few more years? The war kicked into high gear right around the time that we were having our deflation "scare" and the war had it's intended effect: Deflationary collapse delayed (not prevented, btw.)
So now that the Dems are making noises about a timetable and the public's getting real sick of this war, a new inflation machine needs to be created. Presto! Schumer to the rescue with a trillion dollar RE bailout. And make no mistake, it will need to be in the trillions to avert a complete RE collapse and deflationary depression. Hundreds of millions won't even put a dent in it. These guys are risking a hyperinflationary depression with this garbage. This is like stagflation's bigger, badder brother.
I'm not even sure that Bush really cares about Iraq in the slightest. His puppet masters know that a deflation is on the horizon for the US and they will choose when the time is right for it.
Of all the reasons to be disgusted by the idea of bailing out predatory lenders, it seems to me there's also excellent reason here to be disgusted by the incredible lack of imagination on the part of idjits like Dodd and Shumer.
My point in the last bullet point of the post was to get us thinking about whether there are, actually, any ways to do a work out for victims of predatory lending that can end up reimbursing the taxpayers. I like IRS liens on subprime lenders, but let's even accept the assumption (which I think is probably bogus) that there are no deep pockets to pick somewhere among predatory loan originators.
If we can turn these things into performing loans by refinancing them at market rates (with amortization), then we the people can hold the damned note and get the interest payments. That's my point: are we lending taxpayer money or just giving it away?
Moopheus, I was off by one zero, not three or four as you state. My math skills may stink, but check the quality of your own dwelling before you throw stones ...
60 trillion is still 20x the current US fed. budget.
So just giving it away isn't a real option, unless you are a shameless crook like Schumer just trying to jack up your approval numbers.
Tanta,
I just think Dodd and Schumer are attempting to funnel money though the mortgagees back into the financial institutions, a portion of which reaches their campaign coffers (hence my links above). They can accomplish this while looking the part of Robin Hood.
Heck, why can't we just pay for it all. As for me, I "Won life's Lottery" as they say. Passing the CPA exam and working 60 hours a week is, after all, the same as a lottery ticket.
I don't think people really understand that no bank in their right mind would average $200K loans for subprime borrowers. If you take a look at the books of various mortgage originators and servicers (and check out REOs on their websites), you'll see that the average loan value is anywhere from 90K-115K (and the highest values are only a recent phenomenon).
That's a pretty substantial difference from what's being assumed here. In addition, as Tanta explains, the federal government would only bail out those with decent jobs and a liklihood to benefit from a bailout. Equity extractors are pretty easy to spot out when scrutinizing the original loans and corresponding documentation. (Personally, I think the bailout is a waste as well; but the fact is states like Ohio and New Jersey have already begun state-wide bailouts.)
click on a regional office and u will see loan cutoffs. goes up to 4 unit owner occupied. oh, and they want u to attend 5 activities a year put on by their organization in return.
Not Found
Frank, entirely off subject, but I do think that every war should be funded as it goes and that there should be universal draft with no exceptions. Perhaps these decisions would be taken with a little more forethought.
goes up to 4 unit owner occupied
A lot of older neighborhoods in cities have lots of 2-4 family dwellings in them. And when you have an owner-occupant in a 2-4 family dwelling, you have net rental income from the other units. They quite often perform better than a 1-unit property as long as there's a rental market. Is there some problem with NACA borrowers buying these properties if they can qualify?
Tanta,
Thanks for raising the questions that our journamalists in the "media" (fluid that supports the growth of micro-organisms?) should be raising and seeking answers to from the politicians who make these half-assed proposals, but are not.
I just think Dodd and Schumer are attempting to funnel money though the mortgagees back into the financial institutions, a portion of which reaches their campaign coffers (hence my links above).
Its more than that, its also jobs of their constituency (NY & CT). Expecting Dodd & Shumer to be against 'helping strapped mortgage holding families' is like expecting Durbin & Grassley to be 'against family farmers' (i.e. vote against ethanol subsidies).
In short you are wasting your time writing to Dodd & Shumer...just like if you're against 'big agriculture' your wasting your time writing to Durbin & Grassely (that is unless your idea of 'family farmers' includes the Andreas family).
Write to the 48 OTHER Senators instead - that is where the wrench falling will do the most damage.
Just an FYI.
Tanta: If we can turn these things into performing loans by refinancing them at market rates (with amortization), then we the people can hold the damned note and get the interest payments. That's my point: are we lending taxpayer money or just giving it away?
OK. Some kind of support for refinance of qualifying borrowers sounds better than just throwing money at the banks. And the taxpayers should hold the note and original lenders get little or nothing, since it should be clear that a major reason for these serial bouts of collective embezzlement* we keep having is the expectation of a government bailout.
(* Calavita, Tillman, Pontell (1997) on the S&L debacle, unfortunately not free.)
Here are just a few of the questions I would want addressed by any proposed remedy. How/at what point in the failure process would a loan enter the federal orbit? E.g., would gov. be taking over foreclosures and then trying to work them out? And which loans? All loans meeting certain interest rate or payment criteria? Loans of lenders that themselves are in trouble? Would the lenders be sent on their way with a discounted payment? Should private nonprofits like NACA be used to provide borrower servicing (surely these workouts would not be done without the kinds of counselling services, at least for the early years, that NACA is supposed to provide.) And what about Tanta's idea about small multiflat buildings (which Census treats as sf up to 4 units)? Could workouts be extended to more families by using available units of that type in the program?
(Note: Chicago, where I'm from originally, has loads of two- to four-flat brick buildings in good or restorable condition, often in stable neighborhoods where they have indeed been desirable assets. But better hurrycondo conversion fever has even reached down into this category of dwelling.)
Dryfly,
I guess all any individual can do is to write and warn their own senators or congressman.
Tanta said: "...Sebastian, if that's what I said, I must have been sniffing glue. What I remember saying is that the lender has absolutely no interest in the property selling for the best possible price, only for the make-whole amount..."
Tanta, you're absolutely right, you limited it to the amount of the lender being made whole. I only slightly embellished, but my point is still sound: If there's a $300k mortgage on a house, the lender's best interest is served by having that house sell for $300k OR MORE.
Sebastia
Tanta, I think your questions are good and ought to be answered, especially if taxpayer funds are at stake.
But let us suppose that Citi is trying to avoid prosecution for predatory lending by paying a $1B "fine" in the form of mortgage givebacks. $1B is roughly the amount required to pay (order of magnitude) 100,000 mortgages for a year, perhaps time enough to re-sell or refinance under non-predatory terms. If that $1B avoids foreclosures on 100,000 properties, isn't that the desirable outcome, particularly if predatory practices were the norm? And so far into the thought experiment, at least, no taxpayer dollars have been committed.
As for the collectability to the taxpayers, especially for failures that impact agencies, it would be nice. However, I would predict that if the Feds try to collect, the lenders will bottle it up into court until they can buy a more favorable Congress. A lot of the practices, especially by major banks, may have been immoral, but were probably legal. The worst practices were, as far as I can tell, from companies that are already bankrupt or fly-by-night brokers. So, one would have to build a case for conspiracy between brokers and lenders, which is unlikely to succeed. As for federalizing the bad loans, I predict: Na ga ha pin.
Situations like this are what corporate taxes are for: having enough money so that we can mop up the messes they make. But I do agree with your sentiments, that this sort of ^%$# should not be tolerated. Unfortunately, it always takes a disaster before we can regulate properly.
Lama, I agree about Citi's long-established practice of offloading risk. The LatAm debt crisis of the 1980s was brought on by the lending practices of Citi and others. Citi managed to avoid any serious consequences. Historically, they have been very, very clever about being upwind when stuff hits the fan.
Going through with this bail out is going to be nothing short of insanity. It is going to bring absolute turmoil to the entire industry rather than solve any problem.
There are hardworking people right now making huge sacrifices to pay their mortgages on time, they were diligent about their credit, bought within their means and curtailed their spending in other areas so that they would not endanger their mortgages. The bailout would be a slap in the face to all these people and I don't think they would take it very kindly.
What about all the people who researched carefully and figured out that they would get into trouble had they taken a loan beyond their means? The delinquents get to continue their homeownership dreams and the person who was careful gets to rent? This is an absolute outrage!
I don't think people will be quiet if this thing flies!
Markets need to self-correct. If we start redistributing wealth ad-hoc with bailout plans that will completely wreck the economy. How many people will start abandoning their loans when they find out that the government is bailing out their neighbor who is not paying? The ramifications of this are monumental.