September 20th 2008
No, No, No! I Don’t Want Your Stinkin’ Mortgage!
Updated
I
t appears that under the plan Pres. Bush announced this a.m., the federal government (i.e., you and me) will spend up to $700 billion to buy back troubled mortgages from banks. AP characterizes these mortgages as “toxic,” and that’s a good definition.
I do not want one penny of my currently very dear money to go toward saving people who lied about their income on “‘no stated income” loans. And not a penny to people who made bad bets on the market with nothing down mortgages. And the people who sold and repackaged these mortgages? Let them stew in their own desperate financial juices.
Not one penny to any of them, and I don’t care what the consequences are!
Here’s what we should do instead: Be a government of the people, not a government of the businesses and the lobbyists. We should set up a short-term (three years ’til it sunsets) federal mortgage repackaging house. It would have only one purpose: To rewrite an individual taxpayer’s loan as a 50-year fixed (or even a 100-year fixed; such mortgages are common in Japan).
People who are in bad mortgages or are otherwise about to lose their houses would have show an ability to pay, with the term of the mortgage being flexible enough to allow some pretty underqualified people to slide through. Interest rates, though, would be competitive, not written down at our expense, so the government would be able to sell the mortgages to the private sector at auctions.
Those who are not able to meet the income requirements for a 50- or 100-year fixed would lose their houses. They don’t deserve to keep them; welcome to the wonderful world of personal responsibility. Even so, this would reduce dramatically the number of foreclosures on the market, which would help the homebuilding industry come back.
Also helping the homebuilders is the probability that new longer-term mortgages would become widely available through the private sector, to be used for new home purchases in addition to bail-outs. This is pivotal to a recovery because you just cannot underscore the importance of home-buying to the economy. In the early 2000s, the homebuilding industry had the highest sales of all industries in California – outpacing even retail for a year or two. That translates as jobs, purchases, taxes – what makes the world go round. If the “‘fix” doesn’t fix the homebuilding, it’s not a fix.
And what of the institutions, with their MBAs and PhDs that dreamed up mortgage based derivatives and other instruments of economic death? Let them all crash where they may, and watch very carefully the new institutions that will quickly rise to fill the void. Congressional hearings will be needed from day one to track what they’re doing and hold them responsible, and the members of Congress who serve on the oversight committees will just have to deal with the fact that America will no longer tolerate the acceptance of campaign funding from the industry they oversee, you SOB Chris Dodd.
Finally, we need to treat new financial products like we treat new pharmaceuticals. They need to be overseen, tested and certified by a Federal Financial Instruments Agency before they are foisted on the market, because like Thalidomide, they can create great human suffering if there’s something wrong with them.
This could work, and work without selling a lousy mortgage on America to our grandchildren and great-grandchildren, unlike the plan Bush outlined today. That plan just might prove the crazy liberals right: It just might make him the worst president in American history.
Update: Paul Krugman agrees:
I hate to say this, but looking at the plan as leaked, I have to say no deal. Not unless Treasury explains, very clearly, why this is supposed to work, other than through having taxpayers pay premium prices for lousy assets.
As I posted earlier today, it seems all too likely that a “fair price” for mortgage-related assets will still leave much of the financial sector in trouble. And there’s nothing at all in the draft that says what happens next; although I do notice that there’s nothing in the plan requiring Treasury to pay a fair market price. So is the plan to pay premium prices to the most troubled institutions? Or is the hope that restoring liquidity will magically make the problem go away?
Posted in Bush, Economic Policy, Housing Market | 1 Comment » | |
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October 8th, 2008 at 7:25 am
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