April 13, 2008
The Eight-Hundred Pound Gorilla

Here's a skill we’ve all developed by now, but too often get rusty on: looking for the unsaid.

Take this article in the New! and Improved! Wall Street Journal, “Washington Takes On the Mortgage Mess”. Thank God someone’s doing something.

What started as a slump in home building and rising delinquencies on dodgy mortgages has evolved into a financial crisis and a likely recession. U.S. authorities are scrambling to respond.

Last week, the administration said the Federal Housing Administration may guarantee mortgages for up to 100,000 homeowners, many of whose homes are now worth less than they owe on their mortgages.

In addition, the Senate passed a package of measures including a tax credit for buyers of foreclosed properties, funds to state and local governments to buy and rehabilitate foreclosed homes, and tax breaks for home builders. The bill’s prospects in the House and the White House are uncertain.

Okay, I know I’m not educated in the ways of haute finance, but doesn’t the Senate’s package focus on help for buyers of foreclosed houses and the construction industry? I mean, a hundred thousand mortgages guaranteed when projections mention four million defaults? If so, why are the sellers hurting more than the buyers? They were making out like bandits, you should pardon the expression, during the boom and now they’re not, so the relative gap is significant, that’s certainly true. But they’re not on the street, like the people who fell for the subprime scam.


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The Journal, personfully struggling for identity in the Murdoch era, tries to focus the blame on the consumer for borrowing too much, and on the government for not co-signing the loans, with the following questions.

  1. “Did government contribute to the housing crisis?”
  2. “What steps has the government taken to expand its support for housing since the crisis began?”
  3. “What other steps are in the works?”
  4. And of course the critical issue: “Will these programs boost home sales or prices?”

Okay, so an attentive person would have considered that an adjustable-rate mortgage begun at a time of historically low interest rates had essentially only one likely future. Can’t go down, won’t stay here forever, what’s left?

But here we are, and the question now is, who benefits from the public largesse? The less perspicacious who fell for a financial scam? Or the financial corporations who perpetrated that scam?

I’m betting on the latter.

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Posted by Chuck Dupree at April 13, 2008 03:16 AM
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...who benefits from the public largesse? The less perspicacious who fell for a financial scam? Or the financial corporations who perpetrated that scam?

Well, actually, it will only be the ones that survive which benefit. The rule of Darwin for banks is at play here. The Republicans have a penchant for bringing Darwin into the financial realm. I read recently that the FDIC is preparing for 200 bank failures. I think the plan that was in place didn't actually turn out like the planners had hoped. They were hoping that when interest rates turned up that millions would be stuck with those adjustable rate mortgages, that the economy would be humping along just fine, and that workers would have to be willing to work two or three jobs at low wages to pay the bill. But the plan didn't quite work out that way. It's too easy for a homeowner to walk away from a home that's depreciated sharply in value. So they can't let that happen.

I'm not believing the hype that homes are going to fall precipitously in value (except in select markets) - it would crush the whole banking system if that happened. Instead interest rates will head up and inflation will beset us. The last time that happened home values went up in value if my memory is serving me correctly. But so did the price of everything else.

Mrs. Batard tells me that the banks are STILL trying to con people into adjustable rate mortgages, even now. Go figure.

Posted by: Buck Batard on April 13, 2008 4:38 PM
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