Why not solve the mortgage crisis by giving money to homeowners?

[Rick-o]

$tevie wrote:
You would rather have the economy go down the crapper than risk "helping" someone who was "bad". I can't buy into that.

$tevie, I respect your point of view, but how can you be certain the economy will not go down the crapper after the "bailout" is approved? There are no guarantees, are there? Who's next? The big three? The airlines? Are we going to bail them all out?

Throwing money at a problem rarely solves the problem, and the folks proposing this "bailout" aren't to be trusted IMO.

[BCam]

1. Home Mortgages: People going into foreclosure because they can no longer afford their loans got there by a COMBINATION of over-reaching when buying a home and over lending by the banks. These groups of people got into this mess by not being reasonable, prudent nor practical with their money. They probably need some kind of assistance, but they are not first on the list.

Perhaps a Government mandated to reduce loan payments to 33% of Gross Income based upon the homeowner's 2007 IRS statement of Gross Income. For this reduced rate, say for 5 years, the homeowner agrees to stay in his home and to repay the Government, when he sells the home, the sum difference between actual loan Payments and adjusted loan Payments from any equity he may have in the property.

This plan should be available only to home owners who actually LIVE in their homes. Investors, Speculators and Flippers do not qualify as they are in a business venture.

2. Foreclosed Homes: The Government buys these bad loans at $.20 on the dollar - thus taking the "bad debit" off the bank's books and giving them some liquidity. The Government will then sell these homes for what they paid for them to FIRST TIME BUYERS who qualify by having a proven income of $40,000/year and can make a 5% Cash Down Payment. The Government will then LOAN these first time buyers the balance due on the selling price on a 15 year Fixed Mortgage at 6%.

Home Buyers agree to stay in the home for a minimum of 5 years, and if and when they sell the property, they Agree to return to the Government 20% of the Net Profits from the home sale.

Thus home will not stand empty. Communities will be made whole. Local taxes will be paid. And we, the Taxpayers who finance this deal, have a shot of at least getting some of our "investment" back.

It's very clear now that the American Taxpayers are in no way interested in bailing out the Kingpins of Business and their minions. Did they know they were at risk when they massaged the "system" to their advantage? Of course they did.

Let me get this down to a level most of us can understand. If you build a house or add to it, there are Building Codes that must be adhered to. Walls MUST have a 2x4s on 16 inch centers. The builder can save 25% by putting them on 24" centers, BUT, when the local Building Inspector shows up to sign off on the work, if he sees that code has been violated, he has every right to, and in most cases actually will, stop construction, and tell the builder to do it right, or tear it down.

That's how REGULATION is supposed to work, and I have yet to hear anything from Washington DC or Wall Street about what happened to their building inspectors.

[decocritter]

I am with you CAM in many ways.

How many of these people would be in foreclosure anyway, without adjustable interest mortgages?

[swampy]

Like we gave money to the Katrina victims who went out and spent it on booze, bling and whores?

[Seacrest]

The crisis isn't about housing.
It's about debt.
Our financial system's only sustenance is more and more debt.
It's the pieces and dice that animates the action on their huge board game.
It's the real pitchers and batters on which they play their fantasy games of metaphorical baseball.

Housing was simply the most convenient and efficient means with which to convince the masses to take on so much debt. Mainline it, if you will.
As long as the debt continues rising, and new debt can be created to cover old, there isn't a problem.
Until you reach the point at which there are not enough productive means at anyone can continue to work to pay off the debt.

Which is where we presumably are now.

BCam's plan isn't in the cards because it would subvert the game completely, and they won't let that happen. The game is about partly raiding the treasury, but it's also about making the rest of us believe that the players serve some purpose, which the rest of us would be lost without. The wizards cannot allow us to pull back the curtain to see what's really behind it, no matter what.

On a more practical note, BCam's plan would also immediately lower the inflated values of surrounding houses, and that can't be allowed to happen either as this would further expose the real vs nominal values of all shady assets derived from these loans as well -- not to mention piss off the neighbors.

[BCam]

Seacrest: I'm afraid that the housing market bubble is bursting, whether my suggestion is taken or not. Housing prices are going to continue to drop, and my guess is for at least another year, no matter what steps are taken.

And I agree with you that the "game" would be completely subverted. And it should.

Maybe this is really the moment when the financial system reboots: American Economy v2.0. I have been surprised and pleased to see that Taxpayers are making it clear to the Washington politicos that they aren't interested in saving CEOs on Wall Street. I'd extend the pain down to the Manager level myself.

[Bill in NC]

There's no political will for dropping house prices in an election year.

No one wants to be the one to tell a California homeowner that their home which sold for $250,000 in 1999 still is worth no more than that today, while zillow shows a "zestimate" of $450,000.

No new taxes in an election year, but monetizing a trillion dollars worth of bailout will do wonders to raise domestic price levels enough to stop declines in the price of residential real estate.

Though I'm not looking forward to spending 9 bucks for a gallon of milk.

[Wags]

I'm not an economist, but I reject the idea that this has to be done immediately to stop an imminent meltdown. There is a tremendous amount of inertia in our economy. GDP is close to $14 Trillion - that's around a quarter of the entire world's GDP. Something that colossal does not stop on a dime. This is another Bush and Co. smokescreen to further line the pockets of the ultra rich and undermine entitlement programs. Judging from the public response so far there will be a price to pay for those legislators who sign on, if the electorate can remember through an election cycle - and that's a big if.

I like BCam's on the ground approach. A program like the one he outlined that is carefully conceived and overseen could do a lot of good, IMHO. Home ownership generates a lot of money flow and leads to better communities. I would also like to see retirement plans protected, if only for the fact that we can't afford to take care of all the baby boomers when they leave the workforce.

There's plenty of money awash in the system and tons of profit to be made by offering credit. The stronger players will step up to the opportunity. Let the Wall Street elite take the hit they deserve. Meantime, pass some regulations and untie the watch dogs. If that means there's not as many Escalades and Hummers being sold, a lot less McMansions blighting the landscape, and some people have to wait awhile to get an HD TV, so what? The current level of consumerism is unsustainable.

[Seacrest]

Here's what I don't get (or I do, but hear me out).

P&B say that this bailout is needed to "unfreeze the capital markets."

They claim that they need US to give the banks $700B so that THEY can have capital in order to start lending again.

Then the news media regale us with stories of how businesses engaged in doing productive work in the real economy can't get bridge loans for operating expenses, to meet payroll during slow times, etc.

OK, fine.

Why do we need the middle men?

Why not give loans directly from the Treasury to businesses so they can make investments in their businesses, create jobs, sell products, buy raw materials?

Why do we need to give the OUR money to the banks to loan back to us?

What's the difference? If government assistance is needed to lubricate the wheels of commerce, what difference does it make if they do it directly rather than indirectly, and without rewarding previous incompetents (or criminally negligent, take your pick)?

[freeradical]

Seacrest wrote:

Why not give loans directly from the Treasury to businesses so they can make investments in their businesses, create jobs, sell products, buy raw materials?

This is sarcasm, right? I hope...

:S