10-28-2008, 01:18 AM
The issue isn't really whether those being foreclosed are second mortgages or flippers or poor old grandmas who cashed out their equity to pay for health care (or grandpas to buy vi@gra).
The issue is once you start bailing out one group, it's hard to stop.
And that's assuming it's apparent who is whom.
(There are statistics out there, but I am not about to go dig them up.)
Regardless, whatever the proportion of 'predatory loan' originations, the action taken at this point needs to involve prosecution in those cases where it is possible to show malfeasance and fraud in the loan origination process, and maybe some kind of workout or 'cramdown' where there are good-faith borrowers and lenders who are willing to accept the fact that they are going to suffer some kind of financial loss. We also need to recognize that some purchases simply do not make financial sense to the borrower, and many of them would be better off taking a temporary hit to their credit ratings and walking away. The banks/brokers made these loans (and investors bought the bonds) without doing the proper due diligence, so I don't care a whit about 'personal responsibility.' (certain execs at S&P, Moody's et al need to see jail time, but that's a whole thread in itself.)
Until all the fraudulent and/or just overly-optimistic purchases that knocked the market out of whack are absorbed back into the system, the market will continue to be unbalanced -- and that hurts everybody.
The issue is once you start bailing out one group, it's hard to stop.
And that's assuming it's apparent who is whom.
(There are statistics out there, but I am not about to go dig them up.)
Regardless, whatever the proportion of 'predatory loan' originations, the action taken at this point needs to involve prosecution in those cases where it is possible to show malfeasance and fraud in the loan origination process, and maybe some kind of workout or 'cramdown' where there are good-faith borrowers and lenders who are willing to accept the fact that they are going to suffer some kind of financial loss. We also need to recognize that some purchases simply do not make financial sense to the borrower, and many of them would be better off taking a temporary hit to their credit ratings and walking away. The banks/brokers made these loans (and investors bought the bonds) without doing the proper due diligence, so I don't care a whit about 'personal responsibility.' (certain execs at S&P, Moody's et al need to see jail time, but that's a whole thread in itself.)
Until all the fraudulent and/or just overly-optimistic purchases that knocked the market out of whack are absorbed back into the system, the market will continue to be unbalanced -- and that hurts everybody.