The Santelli Screed Hits Wrong Target on Mortgage Bailout

Commodity trader Rick Santelli made himself into a national hero of sorts with his televised diatribe about being forced to pay the mortgages of "losers" who could not afford, or would not pay, the full cost of their mortgage. Santelli apparently hit a chord among those who want to blame deadbeat homeowners for the country's economic woes.

At the risk of spoiling a promising artistic and commercial venture, people should know that Mr. Santelli is firing at the wrong target. The big gainers from the latest plan to help homeowners are not "loser" homeowners, but rather banks and investors, who will earn far more on their loser loans than would otherwise have been possible.

This is easy to see if we just adhere to the most basic rule in policy analysis: follow the money. When we follow the money, we see that the government checks do not go to homeowners.

The government checks are all made out to banks and loan servicers. In millions of cases where homeowners were not keeping up with their mortgages, the government will send checks to banks and investors that make up for much of the shortfall. In addition, the government could send them several thousand dollars more for their efforts in allowing people to stay in their homes.

While this policy is supposed to help homeowners, in many cases the best thing for these homeowners would be to move into one of the millions of vacant housing units. In most markets, they would pay a much lower share of their income for housing if they were renters rather than owners.

Furthermore, with house prices dropping at more than a 20 percent annual rate, the Cubs have a better chance of winning the World Series than these folks have of accumulating any equity in their home. Most of the homeowners who have their mortgages subsidized under this program are looking at short sales in two, three or four years.

Santelli's screed is part of a continuing effort to blame the poor and minority communities for the economic meltdown. There are millions of people who think the Community Reinvestment Act (CRA) was responsible for bad mortgages, when most of these mortgages were either made by institutions that were not covered by the CRA or were loans that would not have been covered by the Act even if the institution was covered. Of course, the idea that government bureaucrats were forcing banks to make loans that were hugely profitable at the time is laughable on its face.

At some point Santelli and his followers are going to have to deal with reality. The problem is not poor and moderate-income homeowners or African-Americans or Latinos. The perps in this case where rich bankers, the vast majority of whom were white males.

Their enablers in policy circles were not the bleeding hearts trying to help the poor, but the Wall Street envoys from both political parties; people like Henry Paulson, Robert Rubin and, of course, Alan Greenspan. The people who sank the economy were the rich and powerful, not the poor and minorities.

If Santelli wants to really be the friend of hardworking homeowners struggling to pay their mortgages, he might try yelling about the bank bailouts. According to the latest news reports, the taxpayers just sent another $30 billion to AIG, almost half as much as President Obama set aside to subsidize mortgage payments.

The checks to AIG and other financial institutions may be necessary to keep the banking system operating, but we certainly have the right to demand that the shareholders and bank executives don't profit from the bailouts. It would be great if Mr. Santelli would speak up about the real beneficiaries from these scams - the bank executives and wealthy shareholders. But the big-mouthed commodity trader probably doesn't have the courage to attack anyone with real power.

Comments

[mivogo]

Would-be bullies don't take on other bullies--they kick the little guys.
Way to go ripping the "losers", Santelli. Funny you should use that word.

[mjtaylor22]

derivatives still ar enot regulated.
hey is there another arm adjusting soon
keep your eyes the Bush years fall out is not over

[mjtaylor22]

there are formulas and lending standards, have been since the s& l crisis, i saw mortgage brokers (not bankers)manipulated the formulas to make people fit into homes, yes i am sitting across from a professional who says oh we can reduce your food and gas expense, and now u fit.
then guess what happened , the price of everything went up. especially gas.
then guess what happened. Bush called it a slow down and not a potential recession did notthing to warn the nation, we also lost lehman and bear and then aig , oh my goodness
then
3.5 million peopel lost ther jobs , now they pulling ontheir 401k to survive. and businesses we thought would be here forever are dead n gone. the fallout from the Bush decade of corruption are not over
hold onto your bootstraps
so no

[dnpvd51]

UH, actually Santelli has been speaking up against the bank bailouts.

[caphillprof]

I think we can see the double standard at play int he Bernie Madoff scandal, where everybody is blaming Bernie (the originator of the bad paper if you will) but few if any are blaming the brokers or the wealthy, many of whom put all of their wealth in Bernie's hands. The idea that the poor, near poor, or working poor should somehow decline homeownership when the entire society says homeownership is the way to go, offers it in fact as the only chance to pull oneself up from destitution and moreover when the bankers are telling you you can afford this loan, are somehow responsible for the housing debacle is absurd on its face.

[CharlesMac]

The bad mortgage doesn't exist unless the mortgage company creates it and sells it. It used to be that the mortgager was responsible for the quality of the loan. And it was held accountable for the loan by the secondary mortgage market. Too many defaults and the primary lender was shunned by the secondary market.

The victim as the culprit is getting very old and stale. I have to admit it worked on New Orleans for the ROWGs and that doesn't say much for our character. I was hoping by now we were a little too sophisticated to fall for that. Apparently Washington isn't.

A couple thousand guys in jail who sold the loans, securitized them, then sold the MBS...

I think that's a nice thought.

[outnow]

Predatory lending used to be a tort - a "civil wrong." Unqualified buyers could sue the lender for an unjustified extension of credit with subsequent refusal to refinance. I was amazed to learn this fact. My point is that lenders are the responsible ones in the market place. But being able to take loans off the balance sheet by derivatives allowed the banks to leverage further and lend to subprime borrowers.

The recent blow up of derivatives in all areas of lending underscores the corrupt system we live in. It is not the borrowers' fault; consumers are living beyond their means no doubt, but lenders are totally irresponsible. Unlike the dot.com bubble, citizens are being hurt where they live, more than in the dot.com bust - a very big difference.

The Obama hit people from the GOP would fault Obama no matter what he did. But Obama is bailing out the CEOs of banks and the bank shareholders and bond holders who should take the haircut.

Personally, The bailing out of homeowners leads to higher real estate prices, as does the home mortgage deduction, which is regressive - meaning that the more you earn, the higher the marginal tax bracket, and the better the taxpayer makes out. A ceiling is necessary so McMansions are not used as piggy banks to shelter money for the very wealthy while renters pay as sitting ducks on the W-2 withholdings. Obama's bank bailout is wrongheaded and inflationary, the stimulus is OK .

[HeevenSteven]

It seems CNBC's mission is always to fire at the wrong target--liberals.

[LindaWarnke]

Of course, blame the homeowners for this mess. That's the fashionable thing in some circles, is it not? How come Santelli didn't do his 'rant' when the first round of big bailouts happened? Maybe because the recipients were large companies. So, it's ok to give those guys a handout, but when it's an individual, it socialism?

[KataVideo]

The Santelli "rant" was prehearsed, planned for MONTHS and financed by one of the craziest right-wingers in the vast right-wing conspriacy.
http://www.youtube.com/watch?v=OczU-5gtauw
Big Business was planning to oppose President Obama no matter what he did, and the catch phrase "Chicago Tea Party" was cooked up before Mister Obama was even elected!

[Raphi]

Great youtube post! Fits in w/ the Fox talking heads repeating the propaganda that "as history, showed, the New Deal didn't work" before any policies had even been announced. The corporate/ right co-conspirators are afraid of New Deal II. Even more of an awakened electorate, resentful of the power of economic privilege. So now the attempt to distract us with the spectacle of pseudo-populism. They think we're idiots and will fall for gimmicks like Joe the Plumber, Sarah Palin, and a Chicago tea party. But we watched while the Wall Streeters continued their sense of entitlement, and their Republican minions thought nothing wrong. The economic emperors have no clues. Blaming the recipients of bad loans is as logical as blaming the patient for an operation gone wrong. We see how the system really works, regardless of the sideshows. That a bunch of peasant mortgages caused a world-wide crisis makes it obvious that's the base, regardless of the machinations of the elite. Then there's all the noise about consumer confidence. We need economic theories, indicators, and economists who acknowlege where the true strength is. If that happens, the defenders of econ privilege will be sounding sirens.