How To Fix The Mortgage Mess 101

Here's the problem with the nation's troubled financial system in a nutshell: Americans don't have enough money to pay their mortgages.

President Bush's plan to bail-out the banks by having the US government buy troubled mortgage-backed securities is the wrong way to fix this problem. This is like handing a $700 billion blank check to the people -- bankers and investors -- whose greed and risky behavior caused the problem in the first place. The right way is to help homeowners who've already lost their homes buy them back and to help homeowners on the brink of foreclosure from losing their homes. (And then adopt strong regulations so it won't happen again.)

For the past few weeks, banking and real estate industry lobbyists have been swarming all over Washington, while mobilizing their industry members in Congressional districts to make phone calls, send emails, and write more checks to Congress to get the bail-out they wanted -- one without key pro-consumer provisions that help homeowners.

On Monday, the House of Representatives defeated the industry-backed bill by a 228-205 margin. The bill they voted on didn't include the key pro-consumer language that would provide homeowners with bankruptcy relief . Even so, the Republicans who opposed the plan thought it had too much regulation on lenders, while the Democrats who voted "no" believed that the bill didn't go far enough in helping consumers.

The banking/real estate industry couldn't win the over-all bail-out so far, but they kept the pro-consumer provision out of the bill. It is amazing that this corporate lobby can still exercise so much clout while holding out a tin cup for a $700 billion corporate give-away. The very industry that got us into the current mess in the first place still has enough credibility -- or at least enough money to provide campaign contributions -- to sway many members of Congress to hand banks a huge bail-out check without doing anything to help homeowners. If nothing else, the industry lobbyists deserve an award for chutzpah.

"We are literally spending hundreds of billions of dollars on subsidies for financial institutions," Christopher Mayer, a professor of real estate finance and vice dean at the Columbia School of Business told the New York Times recently. "This won't do anything to help the housing market. This plan is about buying mortgage-backed securities, not mortgages, and there is a big difference."

There are several ways to help homeowners, restore balance to the housing market, and stabilize the financial system. First, give homeowners cash or a one-time tax break, requiring them to use it to make their mortgage payments. Second, have the federal government buy the troubled mortgages directly and write them down, paying for it with a future tax on the financial services firms once the industry rebounds. Third, require banks to renegotiate mortgages on terms that existing homeowners can afford by lowering the interest rate or the loan amount, and by turning "adjustable rate" mortgages into long-term fixed-rate loans. (This is better than the Bush/Paulson approach, which is to urge lenders to do this voluntarily -- a scheme that so far hasn't worked, for obvious reasons.) FDIC chair Sheila Bair took this approach in July when she seizeed IndyMac bank and refinanced subprime loans at affordable rates, rather than foreclose on borrowers.

Helping homeowners directly is a lot cheaper, more direct, and more cost-effective than handing banks $700 billion. It focuses on consumers, not lenders. It stimulates demand, but requires banks to provide home loans that consumers can afford. It doesn't reward banks and investors for their greed and mismanagement, but reduces the toxic mortgages that are now turning Wall Street banks into a house of cards. (Congress could limit help to homeowners with incomes under, say, $200,000.)

Senator Barack Obama and other Congressional Democrats had proposed one tool to do this -- allow bankruptcy judges to reduce an owner's loan amount or interest rate in the same way they now decide how much money most other creditors receive. (Since 1978, bankruptcy laws have prohibited judges from changing the terms of mortgages primary residences.)

Consumer, labor, and community groups like the Consumers Union, the Center for Responsible Lending, and ACORN have been pushing for months to get Congress to take this approach (called a "cram down") as a way to cut through legal red tape and give consumers more bargaining power with banks and other mortgage lenders. This is what consumer advocates and politicians mean when they say that Congress should focus on helping "Main Street" not "Wall Street."

In a speech in Colorado on September 16, Obama said: "Unlike Senator McCain, I will change our bankruptcy laws to make it easier for families to stay in their homes. Right now, if you're a family that owns one house, bankruptcy judges are actually barred from helping you keep a roof over your head by writing down the value of your mortgage. If you own seven homes, the judge is free to write down any or all of the debt on your second, third, fourth, fifth, sixth or seventh homes. Now that may be of comfort to Senator McCain, but that's the kind of out-of-touch Washington loophole that makes no sense. When I'm President, we'll make our laws work for working people."

Not surprisingly, Wall Street -- meaning the banking and securities industries and their friends in the real estate industry -- don't agree. And in the past few weeks, they've used their lobbying clout to make sure that the Democrats' cram-down provision was removed from the bail-out bill. In particular, the American Bankers Association, the Mortgage Bankers Association, the National Association of Home Builders, and the U.S. Chamber of Commerce used every tool in their political warchest to kill the cram-down provision.

The Bush administration and Congressional Republicans, including John McCain, took the industry's side. But why did the Democrats -- who have a majority of votes in both the House and Senate -- let them get away with it? Why not pass a pro-consumer bill, put it on President Bush's desk, and dare him to veto it?

As documented by the nonprofit, nonpartisan Center for Responsive Politics, the finance, insurance and real estate sector has been the largest campaign contributor in federal politics, giving more than $2 billion to federal candidates and political parties since 1989 -- 55% to Republicans and 45% to Democrats. In this election cycle alone, members of the House and Senate have received more than $180 million from PACs and individuals associated with finance, insurance and real estate -- the industries with the most at stake in the ongoing legislative debate.

With the Democrats now in control of Congress, however, the lobby groups recalculated their partisan priorities, directing 57% of their campaign donations this year to the Democrats.

Handing out $180 million to Congress this year is a pretty sweet deal if they wind up giving the industry a $700 billion bail-out. That's almost $4,000 in bail-out bucks for every dollar contributed to Congress. Even John McCain, whom the New York Times has documented is an inveterate casino gambler, can't do that well at the black-jack table.

Republicans, including McCain, have long been in the pockets of the financial services industry in addition to sharing an ideological view that opposes government regulation of business to make them act responsibly toward consumers, employees, and the environment. But the Democrats generally support more consumer-friendly laws. Indeed, both Senator Chris Dodd (D-Conn) and Rep. Barney Frank (D-MA), the chairs of the banking committees drafting the legislation, included the "cram-down" provisions in their original bills, even though they are both major recipients of industry funds.

So what happened to gut this important pro-consumer provision from the compromise bill that the leaders of both parties hoped to enact this week, with President Bush's blessing?

Why did so many Democrats, including the leadership, support the bill even after the pro-consumer provisions had been eliminated? The fact that 140 Democrats voted "yes" to the industry-backed proposal requires a deeper look into the dynamics of the legislative process.

For sure, some Democrats believed the Wall Street "chicken little" propaganda that unless Congress passed a bail-out bill quickly, the entire U.S. economy would go into free fall. They wanted to put the bail-out on the fast track and were willing to eliminate the pro-consumer provisions in order to keep more banks from failing and the credit crunch from imploding even more.

Even Obama reluctantly agreed last week to support a bail-out bill that didn't include the bankrtupcy relief, viewing the provision as a deal-breaker. As the Los Angeles Times reported: "Some analysts saw Obama's statement as a practical recognition of political reality: Republicans would never accept the bankruptcy provision, and the bailout plan was too important to the economy to jeopardize."

Given Obama's long-standing advocacy for the cram-down law, it is probably accurate to view his willingness to compromise as political pragmatism. But it is hard to avoid the conclusion that some Democrats, especially those from "safe" districts who don't face serious contests for re-election, simply caved in to the finance lobby -- and stopped fighting to keep the pro-consumer "cram-down" provision in the bill -- because of the industry's generous campaign contributions.

As CRP documented, the 140 Democrats who voted "yes" on Monday to the bail-out package -- the version that had eliminated the pro-consumer "cram-down" provision -- have received, on average, $792,744 over their careers (since 1989, when CRP began collecting this data) from the finance/real estate/industry sector and an average of $188,572 in the current election cycle. The 95 Democrats who opposed the bill have received $420,686 over their careers and $105,878 in most recent cycle. In other words, the Dems who voted to support the industry-backed bill received significnatly more funds than those who opposed it.

The funding gap among Republicans between the "yes" and "no" voters was considerably smaller. According to the CRP, the 65 Republicans who backed the President's no-strings-attached bill have collected an average of $1,078,533 from the finance sector in their careers and an average of $185,461 in this election cycle so far. The 133 Republicans opposed the President's bailout plan have collected, on average, $705,297 over their careers in Congress and $150,381 in this election cycle alone. Despite these Republicans "no" votes this time, the corporate lobbyists are likely to keeping filling their campaign coffers anyway.

There was a time, not too long ago -- before the free-market fundamentalists like George W. Bush, Phil Gramm and John McCain took over the White House and Congress -- when Washington did regulate banks. The Depression triggered the creation of government bank regulations and agencies, such as the Federal Deposit Insurance Corporation, the Federal Home Loan Bank System, Homeowners Loan Corporation, Fannie Mae, and the Federal Housing Administration, to protect consumers and expand homeownership. After World War II, until the late 1970s, the system worked. The savings-and-loan industry was highly regulated by the federal government, with a mission to take people's deposits and then provide loans (at a government-regulated profit) for the sole purpose of helping people buy homes to live in. Washington insured those loans through the FDIC, provided mortgage discounts through FHA and the Veterans Administration, created a secondary mortgage market to guarantee a steady flow of capital, and required S&Ls to make predictable 30-year fixed loans. The result was a steady increase in homeownership and few foreclosures.

The deregulation frenzy that began in the 1980s -- first pushed by the S&L industry (like Charles Keating, owner of the Arizona-based Lincoln S&L, whose name will forever be associated with McCain's as part of the "Keating Five" corruption scandal), and later by the commercial banks -- wiped out the once stable and sound system of requiring banks to help homeowners buy homes rather than act like gamblers at a casino.

We're in the current mortgage meltdown mess -- the escalating wave of home foreclosures, the growing number of bank failures, and the tightening credit crunch -- because Congress tore down the last remaining legal barriers to combining savings-and-loans, commercial banking, investment banking and insurance under one corporate roof. Banks, insurance companies, credit-card firms and other money-lenders became part of a giant "financial services" industry. Washington walked away from its responsibility to protect consumers with regulations and enforcement. While federal regulators looked the other way, banks and private mortgage companies indulged in risky loans and speculative investments. They invented new "loan products"--such as subprime loans and adjustable rate mortgages (ARMs) --that put borrowers, and their own banks, at risk. Wall Street packaged these loans to investors without scrutinizing their risk. Deregulation encouraged the industry to create this house of cards. Every aspect of the financial industry was so short-sighted and greedy that they didn't see the train wreck coming around the corner. Now major Wall Street banks are imploding.

As Obama said in a speech last week, "The American people should not be spending one dime to reward the same Wall Street CEOs whose greed and irresponsibility got us into this mess."

The way to fix the problem is to require banks to act responsibly toward consumers, particularly homeowners, some of whom were victims of illegal "predatory" lending scams while others were simply seduced by lenders offering subprime loans and ARMs with too-good-to-be true interest rates, assuming that their incomes and home values would steadily increase so they could afford to make the monthly mortgage payments even after they "ballooned" upwards. But the stagnating wages of the Bush years -- along with the widening economic gap between the rich and everyone else -- turned the dream of homeownership into a nightmare for millions of Americans.

The Democrats who opposed the bail-out for Wall Street -- and who resisted the banking industry's arm-twisting -- are right. The lenders who gambled with high-risk loans and paid executives outrageous compensation packages have to be held accountable. If these lenders are to survive, they have to learn to live with more regulations that protect consumers and restrict wanton speculation. By helping homeowners keep their homes, Congress will get to the root of the problem, dramatically right-sizing the mountains of bad loans now plauging Wall Street, and removing those "for sale -- foreclosure" signs from all those Main Streets across the country.

Comments

[research]

mortgage crisis is small.

The Derivatives crisis is HUGE.

[BigAl1317]

Here's a simple solution. Take the $700 billion and payoff every mortgage in the U.S. I think that would really get the housing market going and in turn rev up the sagging economy. Imagine the possibilities.

[outragedbystupidity]

first time ever poster, but had to weigh in on this issue.

do you want to subsidize the following homeowner: 1) put no money down, got a teaser rate, lied (or told the truth) about income, can't afford a fully-amortizing 30-yr mortgage no matter what the interest rate; 2) owned a home for a number of years, refinanced and took money out, can't afford a 30-yr mortgage on the new, higher balance? the problem is that because of the drop in home values, there is NO equity in these homes, otherwise they could sell at prevailing market prices and pull the money out.

[joebiz]

Thanks for joining.
No. Nobody should reward them for playing a game where homeowners were pawns in a cruel game that ultimately "duped" them. Let me explain.

Bush and CATO Institute developed a public policy initiative called the Ownership Society at the beginning of his first term. It has some good points that allow Americans access and ownership to health care, housing, and even small business.

However, many Americans could not afford housing considering its cost and falling wages and dwindling higher paying union jobs among other reasons. What's a country to do?

Well, mortgage banking and Wall Street pushed ARM loans to sub-prime borrowers (teasers and all) to help with policy initiative's stated goals. When all homeowners that could buy and bought and refi-ed, the housing market peaked. Housing begins a backward slide and we're in this mess.

Who is to blame?

Lenders for allowing sub-prime lenders to borrow (they assumed a huge risk);

Borrowers that believed in the illusion of perpetual and rising real estate values;

Scarcity perception, for rearing its ugly head;

State and county governments for living off the reassessment of property taxes and the sudden windfalls;

Realtors, loan officers, brokers, appraisers, home inspectors, bankers, all that at one time benefited from the frenzy;

Economy because people bought all kinds of things with their equity loans: rims and wheels, trips and vacations; plasma tvs, home remodeling, and on and on . . . .

Welcome to the HuffPost.

[outragedbystupidity]

i agree that there is lots of blame to go around. but none of the guilty parties could have been guilty if not for the total lack of regulation surrounding credit default swaps. research is correct -- the derivative crisis is huge.

in addition, these problems could not have been caused solely by first-time, low-income borrowers -- there aren't enough of them. housing ownership went from about 64% to 69% during this super bubble. historically, it fluctuates around 62-64%.

rich5861, there are problems with doing cram downs on interest rates and/or mortgage balances. the bottom line is that many people paid a price for their homes that is not sustainable, given average income levels. anything that prevents these prices from dropping to their sustainable price levels merely prolongs the agony and prevents first-time home owners from affordably purchasing a home.

i agree that foreclosures are costly in many ways. however, even trying to work out something on a loan-by-loan basis would not solve this problem fast enough. perhaps banks can work out something so that homeowners who could no longer afford their homes would pay some lower amount of rent (instead of being evicted) until the house can be sold. this way the bank would continue to receive something, the former-own­er-now-ten­ants would have a place to live for a while and the property won't be abandoned and subject to vandalism and neglect.

i don't know if that would work, just a thought.

[felkakarp]

“Ownership Society” is a bad pun, a conjugation of problem ownership and property ownership.
"An ownership society values responsibility, liberty, and property."
(http://www.cato.org/special/ownership_society/)
As a pop-psycology term, problem ownership is fine. It encourages an attitude of self reliance.
As a way to run a society, it's a recipe for disaster. It translates literally into “That's your problem.”
So what “responsibility, liberty, and property” really means is “what's mine(property) is mine, what's yours(problems) is yours, and I'm free to do whatever I can to keep it that way.”

[rich5861]

Welcome to the bus.
Renegotiating the terms of a loan where payments can be made is the right answer. That doesn't mean subsidizing anyone, it just means changing the terms. This wouldn't cost the gov't anything!! Did you know the difference on 200,000 at 10% and 4% is over $ 1,000.00 a month. How many people do you think can afford the 4% note but can't afford the 10% note? Any new money spent to do that? No!! If a person gets behind on their payments, there is usually a good reason. The government should step in now and say it is mandatory for the bank or mortgage company to sit down and work it out where it is possible. Make the rate as low as possible and stop trying to be greedy. The gov't should review all negotiations.
Also, make loans assumable and remove the "due on sale" clause. Just verify the income of the new buyer and make sure he can afford the payments. What would that do for home sales? It would be awesome and values would begin to climb almost immediately.

Foreclosures average around a 20- 30% loss off the face value of the note. This would avoid that loss and home values would stop going down and start increasing almost immediately.

[sisoto]

Peter, let me explain why your solution is far more expensive than the proposed bailout. Over the last two years 1 out of every 4 home purchases were made by speculators. Another portion was from people who could not qualify -sub prime lending. The rest were legitimate qualified buyers who bought at the peak of the market. Now, imagine allowing everyone who is facing foreclosure to re negotiate. 5.5 trillion dollars in real estate value has been erased in this bubble. If I am one of the few home buyers who sees that my neighbor is getting their mortgage written down, what incentive do I have on paying off the inflated debt on my mortgage. Every household in America will be looking for a bailout. Moreover, just to give an example. A friend of mine who works in the hotel industry just got fired. His company laid him off because their multi million dollar company depends heavily on banks to finance their sales. He bought his home at the peak of the market, he had excellent credit. He got bad luck. But if he kept his job he could still pay the mortgage. If the banks write down his mortgage how can he pay it without a job? So, it is unfair to bail out the finance sector, but it is the fastest remedy, the best option to unfreeze the credit crunch and to stop the bleeding of jobs which will generate far more foreclosures down the road.

[eryksun]

Have you considered Martin Feldstein's proposal to firewall the falling housing prices by swapping part (20%, up to $80k) of mortgages for government bonds to creditors? The catch is the loan can no longer be defaulted like a normal mortgage. Feldstein estimates a cost of around 700 billion dollars, but unlike the Paulson bailout, it's not spending tax-payer money on depreciating assets.

Martin Feldstein on Charlie Rose:
http://www.charlierose.com/shows/2008/09/30/2

Mort Zuckerman and Andrew Sorkin:
http://www.charlierose.com/shows/2008/09/30/3

They say that, even with the bailout and some kind of firewall in place, we're due for a long recession.

[Possumpaul]

Every farmer knows that you only get something to grow when you get the water and manure down to the grassroots. Spraying it into the stratosphere means that most drifts off or evaporates.
Every builder or engineer knows that to shore up a shaky edifice, you put concrete into the foundations. You dont try and save the gargoyles on the roof. You know who I mean.
Use the people's money to help the people.
There is seething anger, against the wider than ever income gaps, the fat cat greed, the corrupting lobbying system, and much more. Maintain the rage! Fundimental changes need to be made to the financial and political systems.
Now to grasp the nettle. The accomplices to this debacle, brothers and sisters, is you and me and debt. Sure, we can claim we have been led into debt too big to manage by advertising creating unrealistic expectations, by lenders who should know better encouraging us to to paddle then swim then flounder in the deep waters of debt. It seemed good at the time, so we went along for the ride. We have to suck our heads in and downsize our lifestyle. Downsize our houses, downsize our cars, downsize our heating bills, generally downsize our consumption. Flatten the income distribution and live within our means. Sorry, no options. We have got to do it before the japanese, chinese and saudis show up at the door with the papers evicting all of us from what we thought we owned.

[billw8017]

Much is made of how the national debt is an obligation on succeeding generations. Since this is patently absurd (within a money system, money encourages and distributes production: It has no other value except as wood pulp), nobody is much impressed. We will, however, pay for what the government buys even if it seems they are covering costs with extra wood pulp. The extra money is a complication which gathers more to those with more influence. When commodity and the prices of ordinary things may hold, the extra money, which must be spent, supports a trade in exotic financial instruments. Some descends in extravagant purchases so ordinary prices are not that stable. The exotic financial instruments tend to be fantasies and support irrational bubbles.

When taxes raise the prices of things or fall on wages, the economy adjusts circumstances according to social standards. For example, an income tax requires wages be raised to maintain the wage earners lifestyle and tend to work out so as to distribute the pain.

The crisis is due to deficits and too much money. Pumping money into the system will postpone and compound the problem.

[apeman637]

Sounds like Both parties are tring to cash in one last time before the party's over. Listen to LOU DOBBS on this one were being sucked in and the congress is complicit again. Free spenders with taxpayer money. That's why they won't listen to plans that won't cost tax payers anything.

[shakker]

BBC AMERICA had a woman on who made all her payments on a balloon type mortgage. The value of the house dropped and she needs to finance the remainder of the house she has a good job and can afford the payments.

She faces foreclosure, homelessness, and financial ruin because the value of her house dropped on paper. If this type of thing isn't fixed, any money spent is throwing good money to the crooks.

[sisoto]

Peter,haven't you been watching the news? The housing market has lost 5.5 trillion dollars in value over the last year. How would you even try to erase that gap? The values were over inflated because 29% of the purchase were speculative. Yes! lots of first home buyers got caught in the middle of this speculative exhuberance but throwing massive amounts of taxpayers money into the values of this homes will only result in blowing up a ballon that is full of holes. This values should not be propped up artificially. In the end taxpayers will wind up absorbing the mountains of bad debt just to create another bubble. The underlying problem with this country is that it has being relying in closed economies for way too long. We import way more than we export and therefore the capital generated is simply getting swaped from Mr. Smith to Mr. Johnson. We need more trade with other nations, we need to invigorate the economy by investing in new industries, in energy independence, new infrastructure, and the educated workforce that will be behind the helm. Our economy won't remain competitive if we continue the economic model that relies so intensively in the service and finacial sector. Credit needs to roll again, the bailout is aimed towards that end, but that is just the begining. A lot more of imagination, political will and entrepreneurial capital will be required to get out of this hole.

[lynjs]

This is a mess. I think the best way to go with this is to go to each person who is in trouble with their mortgages/credit cards, renegoiate them for an amount that they can pay. I'd rather have them pay on the house 40, 50, 60 years than to have an empty house stand that is ripe for break ins, fires, etc. bringing down the neighborhoods in question.

And for people who keep saying "people getting into mortgages they can't afford": Question? How do you know? Life happens. People lose their jobs, fall ill or their family members fall ill or die. Stuff happens. When it does, things fall apart, sans paying the mortgage, especially when that mortgage has doubled and tripled due to an adjustable­/variable/­subprime rate that they were talked into getting because they didn't know any better because they trusted the loan officer and a realtor whom put them in too much house.

So before you point fingers at the victims whom are caught up in this mess, think about the fact that it could be you. Life screws everyone. Even those that are pointing fingers.

[Herkybird]

I agree with you lynjs and Peter. I wonder how many of these people who are part of the statistics are victims of the hurricanes in 05? A good portion of them were probably just getting by before the canes and now they have to pay for a dead horse. Having been in the "getting by" category several times in the past 30 yrs I know what it was like trying to get a home loan during my first marriage. Back then I too would have been sucked into fulfilling a dream everyone has if I could have gotten a "sweet deal". I am now married to a smart woman with a good paying job. Together we just break the six figure income(65% hers). We bought our house 10 yrs ago when Clinton had interest rates down around 4.5-5%. Living in the upper plains the value of our house has not dropped yet. None the less I am a heartbeat away from being homeless because my income alone would not pay the mortgage. Yup it happens that quick.

[billw8017]

It's possible to be more generous. People can be allowed to rent and live in their foreclosed properties until these are put up to auction. Then, they can be granted a favorable condition in the bidding. JEBush got such a deal for an office building in the S & L bailout.

[hypnotoad72]

Well said. There are too many variables afoot.

[AZDream]

I concur with Peter Dreier’s, “How to Fix the Mortgage Mess 101”. The fix you so eloquently posted is one I have been pushing.....on deaf ears. Unfortunately, few folks in Washington think like us. This proposed bailout is the very picture of lifeguards rescuing the sharks while people are left bleeding and dying in the water. If it's going to benefit the people it has to be authored by the people and for the people! Maybe it's time we clean house and replace these sell-outs with folks who understand they are elected to serve "The People" and not the special interest groups with the deep campaign contributing pockets.

[Star2000dancer]

Those who voted NO for the bial out know. Keep calling every house & senate member to say NO to the Bailout for Wall Street. This is another Bush scam. Like he said, I'm going to sprint out of office. Let's let him sprint out of office in flames!

NO BAILOUT!!! KEEP THOSE CALLS & EMAILS GOING TO THE SENATE & CONGRESS!!

[marilyn1227]

I wholeheartedly agree with this article and the previous comment that Congress is supposed to serve "The People" and not the special interest groups who contribute heavily to campaigns. Our government should buy only the subprime mortgage loans on primary residences and that should free up money at the banks for other loans and to get things going in the economy.

[TheIndependenceParty]

And to end my comments begun below, ... my apologies for the reverse chronology in the post.

As we said of Al Quaeda, ... "Follow and seize their funds to prevent them from acting against us again". The same could be said of some of the Administration officials, Congressional members, Lobbyists, and the Financial Houses who on the one hand, through their hireling Paulson, demand $ 700,000,000,000 from the people of America, ... and on the other hand say they will not budge on including any prohibitions on bonuses, parachutes, dividends, stock options and other perks promised to these abysmal executives of failed firms.

Shut them down. Seize their books and records. Refiance their obligations from the bottom up, ... house by house. Doing anything less constitutes the greatest theft of wealth in the history of the world.

[TheIndependenceParty]

As I began below, those financiers who "bundled" the paper, ... some worthy and much not, need to be investigated for that process. How did they select the paper they bundled to constitute the offerings? We deserve to know before we invest in anything! We need to have the next DOJ review their descriptions of those funding instruments to their investors. What they said about that paper, and what they actually knew may very well define many cases of fraud!

When they had packaged these deceptive instruments, how did the financial rating services calculate, analyze, and publish their worth? Are they complicit? We deserve to know! Are they legitimate in their efforts to rate these new instruments, or was there collusion with the Wall Street firms that bindled these hollow investments?

Lastly, who lobbied Congress, and the White House to influence their actions with regard to these totally unproven, perhaps even fraudulent, instruments of investment. Give us their names, and subpoena them to appear before Congressional Hearings in the coming Congress(es). Remove statutes of limitations on the findings and charges, and allow the People to investigate those who were hired to divest us of our collective wealth in these waning moiments of the Bush Administration.

[midhenry]

Let's say that rats get into your house. Let's say this causes you and your family to contract the plague.. At this point would you say the highest priority problem is that there are rats in the house and that efforts should be directed towards removing the rats, suing the contractor who did the shoddy construction that allowed the rats entry in the first place, and voting out of office the bums that allowed lax building codes?

Unless you are prepared to have the US government guarantee full payment of all mortgages you still have a confidence problem in the value of the mortgage backed securities. The bubonic plague problem we have at the moment is that banks will not loan to each other, nor can they raise any capital. Could we just get some medical care first, and take care of the rats, say, next month?

You say "....handing banks $700 billion" Really? Aren't you willfully misrepresenting the plan? The way I heard it the government would purchase the securities at a significant discount that at some point in the future could be sold, perhaps even at a profit. You, I suppose, might argue that those securities are worthless, but then you would also have to say that all the underlying mortgages are worthless also. Why all the posturing? I thought that was Congress's job.

[TheIndependenceParty]

The "derivatives" at the top of this stinking finance system "derive" their value from instruments at the bottom, ... mortgages and loans to individuals and speculators, and other banks. The houses are still standing. The sturdents who borrowed are hopefully still working, and the goods that were purchased on credit are mostly still in service, I suspect.

So what has gone wrong? Trust, first and foremost. Fraud tends to have that effect!

Where was the fraud? Not at the mortgagee or buyer level at the bottom in most cases. They are obliged to reveal and confirm their numbers. Even at the broker level, the wink and nod were encouraged by underwriters to loan the money. Above that level, things become interesting. The instruments that were created to screen the questionable quality of the loans at lower levels were masterful in their complexity. More importantly they were made overly complex to confuse the institutions that bought them. To my mind that constitutes fraud, pure and simple.

Instead we need to resolve the issue from the bottom up. If a mortgagee is being foreclosed we, through a bipartisan special administration, need to review, case by case, what they can continue to pay based upon their income. Then we need to revise terms, including interest rate and length of loans, to preserve the cash flow to the lenders who own that paper. If they are speculators, investor-owners, or mortgagees with failing financial prospects, ... they need to suffer through foreclosure.