Bailout
Not that any of you asked, but I want to go on record as saying I think the bailout is probably a bad idea. I am not for doing nothing, but the sad reality is that there are more waves of trouble in the financial sector right behind this one centered in the mortgage crisis. Automotive and other big-ticket item financing and credit cards or other revolving credit are those gathering storms making your joints ache.
There simply is not enough money to bail out all of the problems on the horizon. Well, the fact that we're once again raising the debt ceiling pretty much proves that there isn't enough money now. Not only that, a flood of foreclosures that would almost have to result from government servicing or enforcement of substandard mortgages will create a disastrous real estate market with a glut of homes but very few who can qualify to buy them. It will be great for landlords like myself, but homebuilders and building material suppliers will be sucking wind and asking for their own bailout.
If the the government is spoiling to get into the fray, I would suggest they pass legislation wherein all loans in default are brought to current status. In this scenario, the amounts in arears along with any interest, penalties and fees would not be forgiven but would be added to the end of the note with interest. Doing this would allow many to regain their footing and enable them to continue to manage their mortgages. Some would still eventually default on their notes, but to a lesser degree than if all the notes were demanded and over a more spread out impact than all at once. The fact is, for most people living close to the margin, owing 6 months of payments is akin to having to pay off the entire balance- out of reach- so they give up. Having a clean slate from which to pick up (a'la the Year of Jubilee) would give them an opportunity to keep their homes. They would be more likely to meet this obligation given the new stricter underwriting standards already being implemented.
Lenders could still service the loans but all lenders would be responsible for the nonsensical underwriting procedures they used rather than passing that burden to the government and would hopefully apply improved procedures to future lending. Now the one area where the government might be somewhat heavily involved would be in the investigation of how loans pools have been assembled and distributed. Fraud is bound to have been rampant and sooner or later such opportunities must be blocked. The best part, the burden of default would still ultimately lie with those who caused the problem in the first place.
This is not to say that some problems will completely go away, but I think to try this and let capitalism (even if it is capitalism on training wheels) would still have a chance. At least until the next crisis comes along- and it will- in the form of automotive credit. And I have something to say about that, too. If I feel like it I may spew more of my ideas of ridiculous auto financing that not only encourages but creates a total lack of equity for the buyer, of flaws in the securities markets and of glaring issues in consumer credit. Regardless of whether the $700 billion buyout plan gets passed, it is going to be a very bumpy ride.
Again, so much of this would never have been reality if we had term-limits. Forcing those elected to govern rather than perpetually run for office would have meant that legislators would never have bowed to the pressure to allow such shenanigans to take place.
Okay, rant over...at least for now.
There simply is not enough money to bail out all of the problems on the horizon. Well, the fact that we're once again raising the debt ceiling pretty much proves that there isn't enough money now. Not only that, a flood of foreclosures that would almost have to result from government servicing or enforcement of substandard mortgages will create a disastrous real estate market with a glut of homes but very few who can qualify to buy them. It will be great for landlords like myself, but homebuilders and building material suppliers will be sucking wind and asking for their own bailout.
If the the government is spoiling to get into the fray, I would suggest they pass legislation wherein all loans in default are brought to current status. In this scenario, the amounts in arears along with any interest, penalties and fees would not be forgiven but would be added to the end of the note with interest. Doing this would allow many to regain their footing and enable them to continue to manage their mortgages. Some would still eventually default on their notes, but to a lesser degree than if all the notes were demanded and over a more spread out impact than all at once. The fact is, for most people living close to the margin, owing 6 months of payments is akin to having to pay off the entire balance- out of reach- so they give up. Having a clean slate from which to pick up (a'la the Year of Jubilee) would give them an opportunity to keep their homes. They would be more likely to meet this obligation given the new stricter underwriting standards already being implemented.
Lenders could still service the loans but all lenders would be responsible for the nonsensical underwriting procedures they used rather than passing that burden to the government and would hopefully apply improved procedures to future lending. Now the one area where the government might be somewhat heavily involved would be in the investigation of how loans pools have been assembled and distributed. Fraud is bound to have been rampant and sooner or later such opportunities must be blocked. The best part, the burden of default would still ultimately lie with those who caused the problem in the first place.
This is not to say that some problems will completely go away, but I think to try this and let capitalism (even if it is capitalism on training wheels) would still have a chance. At least until the next crisis comes along- and it will- in the form of automotive credit. And I have something to say about that, too. If I feel like it I may spew more of my ideas of ridiculous auto financing that not only encourages but creates a total lack of equity for the buyer, of flaws in the securities markets and of glaring issues in consumer credit. Regardless of whether the $700 billion buyout plan gets passed, it is going to be a very bumpy ride.
Again, so much of this would never have been reality if we had term-limits. Forcing those elected to govern rather than perpetually run for office would have meant that legislators would never have bowed to the pressure to allow such shenanigans to take place.
Okay, rant over...at least for now.
