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NYT’s “Bold Idea” – Pass the Trash
As a writer who tries to contribute to the business/economic stories of
the day I can tell you that I often sit in front of a laptop and say to
myself, “I have nothing worth writing about”. When that happens I go through the list of past articles and look for something that I
can update. Gretchen Morgenson at the NYT must have had a similar state
of mind this week. She dredged up some junk from a year ago in her
piece for the Sunday Times.
Housing Doesn’t Need a Crash. It Needs Bold Ideas.
Ms. Morgenson wrote an article a year ago that proposed a “solution” to
all those underwater borrowers. The solution was elegant and simple. The
plan was for all borrowers (including underwater borrowers) to get an
automatic refi from Washington. This would allow all of the private
holders of junk mortgages to be paid off at par. Those borrowers who
were underwater would get low interest refi’s. The result would have
been to socialize the losses to all taxpayers. The community banks, the
big regional’s, the money center banks, insurance companies and of
course Wall Street would be very big winners if this were to have
happened.
This would have been a $1 Trillion (minimum) pass the trash to the
taxpayers. I thought it was a terrible idea a year ago. I think it is
even dumber today. Ms. Morgenson wrote:
If
Fannie and Freddie bought these loans out of the pools at par and
reduced their interest rates, additional foreclosures might be avoided. The only downside to the government would be if some loans it purchased went bad.
The "only" downside would be more
losses for Fannie and Freddie? Don’t we have enough imbedded losses in
these two dogs already? The Times describes the loans to be considered,
there are big losses in this:
Two-thirds of the 1.6 million loans in those pools were 60 days or more delinquent.
The CBO already puts a number of $400b for the losses at F/F. And the NYT wants to add to that? From the original article on this:
Voilà: Investors who own the underlying interests in the mortgages would be fully repaid and the securitizations would be closed out.
Voila? Where does this brilliant suggestion come from? Two guys who have an axe to grind:
Conceived
by two Wall Street veterans, Thomas H. Patrick, a co-founder of New
Vernon Capital, and Macauley Taylor, principal at Verum Capital, the
plan calls for refinancing all the nonprime, performing loans held in
privately issued mortgage pools.
The NYT article is advocating that we take another giant leap toward
socializing the financial system. Ms. Morgenson wants Fannie and Freddie
to get bigger and to take more losses. This plan would be another
bailout of the lenders and those who hold the underlying debt. Why in
heavens name would the Times want that? The last thing we should be
doing is aiding all the banks and “Wall Street Veterans”. We have done too much of that already.
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Proof that stupid never gets smart!
Additionally, no one even thinks about the moral hazard we've created!
Goody, goody, gumdrops! A new entitlement! If you bought a house at a price you don't like or an interest rate that you can't pay, just stop paying and let the taxpayers foot the bill!
What a sick mentality we have gotten to!
"sick mentality" would include this new reality per our Congress, where we defund medical care for the elderly most in need:
"Medicare's chief actuary, noted that Medicare payment rates for doctors and hospitals serving seniors will be cut by 30% over the next three years."
Death Panels are unnecessary with process going on for three years.
sbenard,
Spot on.
See my post above responding to Mad Mad Woman.
DavidC
I want to vomit everytime I hear: "free mobility scooter" and "do you have more than $10,000 in credit card debt?"
There was a time when people would be ashamed to participate in such. Now there is an "every one is doin it and I'm gonna get mine" attitude.
Those gaming the system will soon have their day of reckoning; then they will know shame (if they survive).
Read Michael Lewis's new piece on the Greek crisis: http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds...
He describes Greece as the country with the most collectivized government in Europe yet with a citizenry characterized by the most cut-throat, every-man-for-himself, neighbor-fighting culture imaginable
Thanks for the link, that is a great story and so typical of socialism- I would say that is the path we are on.
Not defending socialism, but... care to share some non-socialist state that can't also be described as dog-eat-dog? And, according to all the right-wing blow-hards hanging around here the US is already a socialist state, meaning that you cannot count IT.
Better Bold Idea: convert debt to equity.
Typically owners of non-performing debt lay claim to other assets via bankruptcy proceedings and the like, often coming out equity holders on the other side. This kind of thing doesn't really happen in residential real estate (other than through foreclosure/eviction) but I don't see why not. There's plenty of precedent for this kind of thing in other debt default situations.
In many cases I think this would mean that the mortgage holder or some intermediary would becomes the landlord of the former homeowner. There could be rules that allow the (now) tenant the option to re-purchase the property and/or prevent the (now) landlord from kicking the tenant out within a certain period and all kinds of social policy bells and whistles like that. Both parties take a hit in this scenario but the taxpayer stays (hopefully) out of the picture - which is my kind of social policy.
I don't see how this is a worse idea than socializing the losses of bad mortgage debt and it should be more practical and politically palatable than mass foreclosures.
the only reason unemployment is so high is because the real estate lobby of both parties continue to subsidize the real estate interests to the tune of trillions. the only solution since insofar as the suicidal DC culture is concerned "let 'em kill all of us...they're just white people" you'll get no change whatsover is what Bill Gross says it is: subisidize only the fannie and fred mortgages and let Wall Street "reorganize" under "the One" also known as JPMorgan. The ridiulous notion that we can afford to subsidize "the other banks" is simply leading to an exceedingly violent revolution where (ideally) the military simply "runs things for spell." As Bill Gross stated: "Do what I said jerk-offs or you'll being paying 8% on your mortgages within a matter of months." Threats from Tim Geithner simply "don't exist" since he is "yet another g-man who has a government program to solve the problem of the difference between a bid and an ask." In short: he ain't listening to a guy like Gross who at any time can become the only friend the entire federal government can have since "all of our debt is being BOUGHT by foreigners." And amazingly by him as The One as well. (So far he appears to have made money on it!) Far from "kicking him out of bed in the morning" I think i'd "find new and creative ways to engage in love making." And that WOULD BE mano a mano given the profound and deleterious consequences should that "mere bond trader" be...well, right. God forbid if the guys who hate the government (like me????) "get it right." In short "you want government financed by the pro-government bond guy...or the crazy equity guys called Cramer and Doolittle?"
I still say the government and the banksters should just forgive all debts. All mortgages, car loans, etc. Let everyone start over at zero. It would be a hell of a lot cheaper than continually rescuing Fanny & Freddy. people then would have money to revive the economy and jobs,especially since the economy is 70% dependent on all of us. The banks have already sucked the Treasury dry, and most of the other countries treasury's, so they can survive forgiving debts. The banks get to write off all of their bad debts, so why not let the little people have a slice of that too?
All this would do is quicken our demise... if this ever happened, nobody would have any reason to pay for anything ever again. Every company would go out of business when all future loans are never paid for.
Besides, we are hosed anyway as long as 70% of our economic activity is based on consumer spending. We need to reduce imports, produce more stuff, export it, and slash about 3/4 of government. This is our only path to future prosperity.
Mad Mad Woman
Yup, that's right.
And completely shaft all those who took a responsible approach to debts and repaying mortgages.
For the record, I haven't taken 'proper' holidays for as long as I can remember. My primary objective was to to get my mortgage paid off, which I have done.
Those who read my posts will know that I don't swear. However on this occasion I WILL say why the fuck should people who have taken a less responsible attitude towards debt be forgiven and I, who have foregone present gratification for future security, not get anything?
Your post makes me angry.
DavidC
I wish things were that easy. Your simplistic hopeful solution is cute. Sounds like something a young wife in her early 30's would write- enjoy your youth.
Housing Doesn’t Need a Crash. It Needs Bold Ideas.
Let the hyper debt unwind so the free market can operate again...
Every time somebody mentions Washington, and Bold Ideas, I resume my search...for the exit
Half a trillion in losses at the GSEs? We should be so lucky
That's a $2-3Trillion proposition I think.
Good Job Bruce ... This shows that one person can make a
differance...
Add a kicker to the TBTF banks and others responsible for this mortgage mess?
Reward debt-aholic consumers for buying a home way beyond their financial reach?
NOBODY can be this naieve or stupid.
What is the agenda behind these ideas?
My thought, a plan to get another several million or so people dependent on the government.
Sit, roll-over, fetch, vote for me - or else I will kick your ass out of your home.
Bruce,
Check with banking and CRE contacts. These forced FDIC marriages are NOT resulting in mass lay-offs and idjits getting kicked to the curb. For the most part, it appears that there is some sort of retention agreement being imposed by the FDIC - the dead weight and incompetence is factored into the merger agreement. So what did these people learn? Well, worse than learning nothing they learned that bad decisions and unethical behaviour have limited consequences... Gretchen applies the same logic to mortgage markets.... She must have had trouble thinking up something to write about - "Gee, lets just pay off all the bad debts by the casino and the gamblers and it will all be okey... no one loses? Ha!
Gee, is it too late for me to take out a mortgage and default on it so i can get some of my own money back?
This is no different than all the settlements that keep going on between a number of federal agencies and a number of aggrieved social-groups ... billions of dollars sloshed around to ostensibly spread the wealth for the net effect of buying the vote. It is truly a blessing that the Republicans are too clueless to figure out how to get as much bang for the buck as the Democrats, for if they were as skilled we would have been in this mess years ago and already in the worst of the soup rather than simply coming up on it.
"This is no different than all the settlements that keep going on between a number of federal agencies and a number of aggrieved social-groups ... billions of dollars sloshed around to ostensibly spread the wealth for the net effect of buying the vote. It is truly a blessing that the Republicans are too clueless to figure out how to get as much bang for the buck as the Democrats, for if they were as skilled we would have been in this mess years ago and already in the worst of the soup rather than simply coming up on it."
The Republicans figured out it was cheaper to bribe the guy who runs the voting machine. This has saved the taxpayers a fortune. The big $$$$ boys still have to be paid off for their "campaign contributions" though.
And to think, the NYT (and others of its ilk), may well receive bailouts of their own when the outgoing current Congress meets after the midterms to pass the budget it was required by law to have passed back in mid-May.
... when the outgoing current Congress meets after the midterms to pass the budget it was required by law to have passed back in mid-May.
That's very interesting Hamster. Of course it makes perfect sense. How else can they slash money from the widows and orphans and yet still keep the GWOT rolling?
The NY Times... The toilet paper of record...
That is the quote of the decade, and maybe next decade as well.
You mean if MORE went bad.
If -- if -- if. What's that quote around here about skittles and unicorns?
Why would the NYT want that? I'm not sure who owns the NYT, but maybe they have a lot of underwater real estate that would benefit from some low interest refi's at the taxpayer's expense.
And you are finaly realizing that tootsie roll errr I mean Ms. Morgenstern is vapid and brainless?
A lot of high income funds only exist these day because the gov. stepped in.
Decreade local regulations for businesses and incread patent laws: anything imported in violation of a US patent = ban the importer from importing anything anymore for the next 10 years.
Just stopped reading that paper after Judith Miller's ficticious WMD stories promoting an obvious war bias.......it was Trojan Horse propaganda posed as journalism.
Morgensen offers nothing except more of the same stylized delusion, just adapted to fit whatever issue of the moment sells to the Times braindead readers.
It is difficult to believe that people actually pay money to subscribe to the shit - NYT formula; lowest common denominator.
No doubt Morgensen will be invited back to Charlie Rose again to explain the elloquence of it all to more dumfucks; Rose is another self styled expert intellectual on everything arrogant preening useless dickhead.
Just easing into the week.
From today's NYT obit of French director Claude Chabrol, a quote the paper's editors might want to ponder: "“Stupidity is infinitely more fascinating that intelligence. Intelligence has its limits while stupidity has none. To observe a profoundly stupid individual can be very enriching, and that’s why we should never feel contempt for them.”
Either the NYT keeps getting worser, or I keep getting smarter!
Charlie does stretch himself a little thin. From international politics to abstract art to the brain science series. Even I am not that smart. Result: Makes one look like a fool in some areas of intellectual pursuit. Now, if we could just stop Charlie from putting words into his guests mouths...
RR.........has Charlie Rose ever had MadHedgeFundTrader as a guest blowhard?
Yes, I agree, that 'putting words into people's mouths' thing is so annoying, but then again I also stopped following CR just like I stoppped reading the NYT.........
I live in the dark.
r0ro-
_
Sounds like she's got friends or relatives in the real estate business.
Fannie 'n Freddie[noun]. Debt-is debt -is-debt.
The only possible purpose of a plan like this would be to transfer all the risk from the shitty paper from bank balance sheets to the public. That would, of course, be in keeping with everything that's happened since this crisis began.
Frannie should have been put into runoff two years ago. Stockholders get beheaded, bondholders take a serious scalping, home prices readjust to reflect the deflationary reality. Banks thrived for centuries with no concept of securitization. They can put on their big-girl panties and issue covered bonds against the mortgages they hold on their books.
Bank shareholders and bondholders will also have to accept haircuts from principal reductions. In the short run, it would be brutal, but the albatross would be gone from around our necks forever. Any solution must also involve substantial losses for both borrowers and lenders. Of course, this is the least likely possible outcome.
Instead, policymakers chose to use it as an undeclared RTC 2.0, simply because they lacked the balls to put it to an up-or-down vote for funding. Public losses will be half a trillion from the GSEs by the time this is all over. When you find yourself in a hole, the first thing to do is stop digging.
+100 Amen.
If this happened, you better believe she would write a follow-up exposé about how all the Wall Street fatcats were profiting at the expense of the taxpayer. The fact-challenged crap that she wrote about vanilla interest-rate swaps should be enough evidence of that.
The AIG bailout was egregious enough, but it was small-dollar in comparison to this proposal. Moreover, most of the parties here have already taken write-downs, so it would be a windfall. It would amount to a transfer of wealth from taxpayers (or, since this is deficit-financed, their kids) to overextended borrowers, banks and fund managers.
And I don't even know what problem this solution would cure. Banks have built up huge credit reserves and taken huge credit write-downs. They have a low cost of funds. I just don't see any balance sheet constraints. What's more likely to blame for stagnant lending is the consumer is a much worse credit these days and the economic outlook is foggy, if not downright negative. What makes anyone think that just shifting creditworthiness between taxpayers and the above parties is going to jumpstart lending? Completely unnecessary.