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December 10, 2007
Bush Co. plans to bail out corporate cronies by artificially propping up inflated housing prices
From Dr. Housing Bubble: We are allowing the fox to guard the henhouse. This plan is flawed since it gives power to the corruptors that caused this mess to begin with. There is a source of irony that the same administration that is criticizing “socialized medicine” is socializing corporate losses. I’ve been digging deeper into the current Bush plan and if this doesn’t smack of political posturing with no meat, I really don’t know what does... ... Here’s a question for all of you armchair economists; if people stop paying or are unable to pay their mortgage, the note holder is still requesting payment, who ends up paying the 3 month moratorium? You need to remember that a primary reason this housing bubble expanded as it did was of the massive amount of easy financing being bought up by Wall Street. No one really cared about the underlying asset as investors trusted hedge funds and rating agencies to ensure that the asset was worth what they were paying for it. Now that we know NINJA loans were more prevalent than anyone wanted to acknowledge, this secondary market is going to dry up quicker than a prune in the sun since investors realize the government can step in and alter loans at any first sign of weakness. Why do you think businesses don’t do so well in communist regimes? Why work harder when at any moment, the government can step in and assume ownership? It has a lot to do with psychological motivation and human nature but suffice it to say that the asset back securities markets are not coming back. We are seeing a sharp jump in many lending companies such as Countrywide and Washington Mutual but this is partly due to the implication that they will be bailed out. One caveat should have been thrown into this plan and the political effect would still be the same. All 48 states except California and Florida qualify for this plan. I assure you that Countrywide and WaMu under the guise of helping the greater good of the nation are looking at the 45 to 50 percent of mortgages in their portfolio and realize that half of what they own is in one state, California. If you live in Ohio, Missouri, North Dakota, Texas, Arkansas, Montana, Michigan, or Iowa you are going to subsidize stuntman mortgages and stuntman lenders here in California. How does that make you feel? The plan could have also had a caveat that it would only apply to mortgages under the national median home price. You will rule out bubblista states and give satisfaction to the large 70 percent of homeowners in the United States. Heck, in Los Angeles County, an area with 10,000,000 people 50+ percent of the population rents and I assure you that many of those kamikaze subprime mortgages are attached to some of these Real Homes of Genius. And these are your $350,000 to $500,000 notes. Do you think people in these homes are going to fight to stay or contact their lenders? I understand the desire to help communities such as Detroit and Cleveland. There we are dealing with serious neighborhood declines, crimes, and keeping people in their homes is part of maintaining communities. See, this is the language that is palatable to the country and helps push this under the guise of helping all. Keep in mind that Treasury Secretary Hank Paulson was talking with Countrywide and Washington Mutual much before this plan was unleashed. You notice that California or Florida are not mentioned specifically in a public forum touting this plan? You think this is unintentional? How can it be that the state that will benefit the most is nowhere in the picture? Whereas in Detroit and Cleveland you will have mortgage notes of $100,000 to $150,000 here in California, you have mortgages on homes that triple that amount and rest assured many of these people are speculators. Take a look at some stats: Median Home Price: Notice a slight difference? Now you have an idea why these lenders are pushing so hard... You’ll notice that the plan also specifies that places be owner occupied. There have been so many cases where people bought second homes and lenders “checked” owner occupied to bring in better rates for their clients. Now what is going to happen when lenders start scrutinizing documents (something they should have done to begin with) and realize the owner isn’t living in the property? Will they fudge the numbers again? Thankfully we are allowing the fox to guard the henhouse. This plan is flawed since it gives power to the corruptors that caused this mess to begin with. Now they are asking them to resolve it? If the plan would have more teeth and substance, they would ask a neutral third party to serve as a trustee in reworking the mortgages. But again as you are surely realizing, this plan is designed to bailout the lenders more than the people in need. There is a source of irony that the same administration that is criticizing “socialized medicine” is socializing corporate losses. I know there are many doubters out there but just take a look at who Paulson has been meeting with and you’ll get the idea. Why wasn’t the OFHEO, you know, the OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT at these meetings? Bwahaha! We already have a governmental agency that is setup up to oversee housing and they aren’t included in this deal! As the plan stands, it won’t have that large of an impact - estimates range from 10 to 12 percent of subprime loans - and the plan will be more of a political ploy in a hyper political year. Bush doesn’t want to go out with a crashing housing market and Democrats don’t want to inherit a faltering market which they will be blamed for... |
"Life can be wildly tragic at times, and I've had my share. But whatever happens to you, you have to keep a slightly comic attitude. In the final analysis, you have got to not forget to laugh." ~ Katharine Hepburn
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