New Bailout Actually Working!

The latest government bailout, the $800 billion trash-asset-removal-plan announced yesterday, is actually making a difference, at least so far.

One of the goals of the plan is to reduce mortgage rates through government buying of mortgage-backed securities and Fannie and Freddie debt. And it worked immediately. Yesterday saw the biggest mortgage refinancing activity in a year.

If this trend continues, it will allow some homeowners to get out from under onerous adjustable rate mortgages and into cheaper fixed-rate ones--possibly even ones they can afford (at least until they get laid off). This, in turn, will free up some debt-service payments to be used on other things.

The bailout won't solve the whole problem, unfortunately: consumers are still struggling under a massive debt load, and those who are already underwater on their houses won't be able to refinance. But it's a small step in the right direction.

See Also: The Biggest Losers: 20 Global Moguls Who Have Been Creamed By The Market Collapse

Comments

[leftLibertarian]

The bailout is encouraging Firms to be more risky since the message is that the government will bail them out.

This is not supposed to be how our economics should work.

Firms who are mismanaged and fail should file for bankruptcy where their assets are purchased by new firms who try to do better.

[ReasonIsMyReligion]

The new bailout worked for me:

I just started the paperwork to refi an ARM whose initial rate was 5.875% and looking at a first reset this spring into a 30-yr fixed at 5.125%.

Whew.

[jsarets]

The government should refinance every home mortgage in America onto its credit line with the Fed. Homeowners would pay their significantly reduced mortgage payments (1% interest or less!) as a part of their federal income tax instead of paying a private bank. The risk of unaffordable debt would be explicitly backed by the taxpayer, which would put pressure on government to enforce lending standards and mitigate the plight of the working poor.

In short, this refinances millions of high- and/or variable-rate private debt obligations into one extremely low-interest public debt obligation whose burden can be partially redistributed through the tax code to provide and sustain affordable housing for the working poor.

[leftLibertarian]

Yea, why not. But since I don't 'own' a house, the gubmit should send me a check for - say one million bucks.

[OrangeSam]

Yep. It must be working. I'm getting poorer and the Wall Street Gangsters are getting richer.

[WebHubbleTelescope]

I am of the opinion that the $800 billion is phantom promised money. Like everything else in the market, it simply exists as a carrot on the end of a stick, luring people back in. That would be pretty funny if nothing ever gets transferred.

[jsarets]

It's ALL a "phantom promise". That's what money is. A dollar of money is just somebody's promise to repay one dollar of debt plus interest. The money supply is a measure of how deeply indebted we are willing to become. Recessions happen when we begin to question our unreasonably optimistic expectations of future income and our appetite for debt diminishes.

If there were no debt, there would be no money at all. But that can't happen, because the interest on the debt also has to be borrowed, and that debt also bears interest. The simple fact that money is interest-bearing debt forces banks to expand their lending exponentially in order to avoid insolvency.

Money, in and of itself, is a carrot on the end of the stick. The debt it represents is impossible to repay, yet we have to keep borrowing ever more in perpetual futility.

[Cogitoe]

Now if we only had a way to fix a trillion dollars of credit card debt at a reasonable rate, say 8%.

[BlackTom]

Since consumer spending is in the tank, and this is killing GDP, jobs, and everything else, how about the Fed and the Treas getting together to send every American oh, say $100,000. Consumer spending would shoot up, the automakers would see a windfall, and the banks would have a ton of fresh money to play with. According to the logic of the writer, all we need to do is throw huge amounts of money at a problem, and when it starts to take effect, then good things are happening.
This expanding bailout is stinking more and more as a flat out giveaway to thieves and criminals who got rich by ruining their customers.

[leftLibertarian]

Direct deposit.

[BlackTom]

Of course, if the taxpayers buy the banks' bad debt, they have more money to loan,
If you went to Vegas and rounded up the losers and gave them a fresh stake, they would go back to the tables.
Buying garbage with good money is stupid.
My kids do not deserve the debt that Tresury has inflicted upon them.
WHy not get an ownership stake, instead of a monstrous pile of steaming feces?

[BetterDeadthanRedState]

Why would anyone get an adjustable rate mortgage. If in the future you make more money and can afford to make larger mortgage payments, just move then.

[ReasonIsMyReligion]

Oversimplify much?

Some people knew their income would be going up after temporary dip, i.e. spouse on maternity leave.

Just to cite one example.

Also note it's not just the teaser rate, but the first X years are interest-only.

[leftLibertarian]

and you oversimplify too

[Northernmom]

Americans need jobs. Then they will have money to spend again. I do not understand AT ALL why we are throwing our children's money at these idiots who got us into this mess. We need jobs. Period.

[elgrabo]

Wasn't this originally McCain's idea?

[joebaggadonuts]

Let me finish the thought. If selling a fraudulent buyout facility as a law to enable buying troubled assets, which once implemented was used to instead buy bank stock is not a high crime, I guess I don't know what is.

[joebaggadonuts]

I just have to say that since Paulson and Bush sold us this TARP plan to hide what essentially were gifts to the thieving bankers who broke the system as a plan to do what you are saying now has actually WORKED, we should institute impeachment proceedings against Paulson immediately.

[ProfessorDuh]

Exactly. And by way, ordinary Americans don't need any more damn debt. They need more INCOME.

[vooter]

"This, in turn, will free up some debt-service payments to be used on other things."

Yeah, like other debt-service payments....

[peterg76]

Yes, lucky there was a spare $800 billion just lying around.