if these limits may, at any time, be passed by those intended to be restrained?"
-- Chief Justice John Marshall, Marbury v. Madison, 1803
That’s No Fair! Bail Me Out Too!
by Hal_10000
We all knew this was coming.
The federal government is keeping Bear Stearns out of bankruptcy. Are you next?
Momentum for federal assistance to struggling homeowners, a non-starter with the Republican administration and many members of Congress only a few months ago, has picked up steam in Washington.
The tipping point came March 16, when the Federal Reserve agreed to back up to $30 billion in Bear Stearns (BSC, Fortune 500) losses as part of JPMorgan Chase’s (JPM, Fortune 500) fire sale purchase of Bear Stearns. (The Fed cut its guarantee by $1 billion earlier this week when JPMorgan boosted its offer for Bear.)
“I think there’s a growing populist feeling that if you’re going to bail out Bear Stearns you better bail out individuals,” said Greg Valliere, political economist with the Stanford Group, a Washington think tank.
So, we should follow up a questionable bailout with an even bigger bailout because two wrongs make a right?
First of all, Congress did not bail out Bear Stears. The Federal Reserve loaned out money. Second, there is a very good reason to keep banks from failing. You might have heard of this thing called the Great Depression which was spurred by bank collapses. This is the entire reason we have a Federal Reserve. It’s not the same with individuals. If my neighbor goes bankrupt, that doesn’t destroy everyone else’s wealth.
So the solution to the problem of having too many bad loans? Make more bad loans backed up by the Feds.
The proposal, likely to be introduced soon after Congress returns from the Easter recess next week, would have the Federal Housing Administration guarantee hundreds of billions of new, lower-cost loans to troubled homeowners. Many borrowers would see their total principal on these new mortgages reduced under this program.
According to an outline of this bill, homeowners could receive $30 billion in mortgage interest subsidies. But it’s uncertain just how much this proposal will ultimately cost taxpayers because it depends on what will happen to the housing market going forward.
In other words, the government will pay off that $300,000 mortgage then give you a new federally-backed mortgage for $200,000 on the same house. Obama supports this. McCain is cautious. Apparently, it hasn’t occurred to them that giving money to people for making bad decisions may create more bad decisions. And what happens if real estate prices rebound and these people have positive equity? Do we get those subsidies back? Because otherwise we will have transferred $30 billion in wealth to people with bad loans. Your “punishment” for having speculated on the real estate market or bought more house than you could afford will be tens of thousands of dollars in taxpayer-funded equity.
But it takes Hillary to come with an idea that’s even dumber:
However, Clinton proposed a step beyond his plan Monday. She suggested having the FHA become a temporary buyer of so-called “underwater mortgages”—loans where the principal is now more than a home’s value.
Clinton has also talked about a new housing stimulus package to provide $30 billion directly to states and local governments to buy foreclosed or distressed properties. The cities and states could then resell the properties to low-income families or convert them into affordable rental housing.
So, Hillary’s solution is that out government should (unconstitutionally) buy up a bunch of property for above market value, then turn around and sell it to people who are, by definition, the most likely to default on their loans and start the whole collapse over again. Or better yet, get back into the “affordable” housing racket so we can enjoy yet another generation of crime-ridden, dilapidated, drug-infested, insect-overrun government flophouses.
Democrats. They never learn, do they?
Update by Lee: Hell, I have an even better solution to the problem. Sieze every foreclosed house using the eminent domain powers deemed Constitutional by the court’s liberals in the Kelo decision, then give it to Wal-Mart. They’ll figure out something good to do with it.
Comments
Apparently, it hasn’t occurred to them that giving money to people for making bad decisions may create more bad decisions.
This doesn’t apply in the case of banks? When we take away risk for banks and corporations are we REALLY going to avert a Great Depression meltdown? I would argue we will only delay the meltdown and increase the severity of the crash. These guys take the bailout money and run, they always do. The fat cats on top just get richer. They won’t learn anything in the end with regard to not making stupid financial decisions.
I think the line that these large banks and corporations being different because “if they fail we all fail” is a crock of shit. We’re all gonna fail regardless. These bailouts just insure that the people at the top of the food chain stay way on top when it all collapses.
Considering that a great deal of the economic problems we are currently experiencing were caused by the federal government directing lending institutions to quit being so “racist” in their lending practices, I think the most obvious lesson to be learned is that the government has no business sticking its nose into the banking industry....
At a conceptual level, I think the idea of federally-insured “bailout” isn’t necessarily wrong, as long as it’s tied to appropriate penalties.
I’ve mentioned this concept before; I’ll recap the concept I’m thinking of. It’s basically a modified form of bankruptcy, in which you get a re-financed/guaranteed mortgage, and you get to keep your house, your car(s), the essentials needed to remain gainfully employed, etc, but the rest is forfeit, to pay off your debts. I’d also like it to be done in a way that the impact to the credit rating is more manageable.
Many personal bankruptcies are actually implemented this way, but I don’t believe it’s codified this way (perhaps in some states?) - it’s more at the discretion of the bankruptcy adjudicator.
This would only apply to your primary residence; it’s not a bailout for real estate speculators. It also shouldn’t apply to people with chronically bad credit; traditional bankruptcy is fine for people who are real screwups.
At the most basic level, I would support a program that helps out people who made A mistake with their purchase/refinance of their home, which requires forfeit from them but doesn’t destroy their lives (via loss of a home, debt load and/or credit rating impact) for that mistake.
Of course, this being an election year, both parties are going to be falling all over each other to see how much money they can throw at people in exchange for votes.
Considering that a great deal of the economic problems we are currently experiencing were caused by the federal government directing lending institutions to quit being so “racist” in their lending practices
You routinely make this bigoted pronouncements, without any actual, you know, FACTS…
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Well, I’m ni economist...but I find it hard to beleive that EVERYONE who is in bad shape is in bad shape soley because they speculated on the real estate market or just got in over their head.
A couple years ago, my GF and I were looking at houeses. We weren’t sub-prime candidates, but we had moderate deabt and no money...Some of the mortgages were were offered would have totally put us in a upside down situation in five years.
Not ALL the offers we got were bad, but some of them were terrible. And some of them looked great in the mortgage guys office, but lousy when we read the fine print at home.
This bailout is a horrible idea, but putting all the blame on the borrowers is wrong.