Hank to Homeowners: Drop Dead!
"Homeowners: Drop Dead!" is a pretty apt summary of the message Hank Paulson and the Bush administration have sent to the American people this week.
Taxpayer purchases of "distressed assets," we'd been told by every administration figure still standing, was the only way to stabilize the nation's economy and help homeowners threatened by foreclosure keep their piece of the American Dream. And I believed them.
Absent consultation with Congress and without coordinating with the other 19 G-20 countries coming to Washington tomorrow for a conference on the global financial crisis, a brand new program is being rolled out -- one that has nothing to do with the problem that most believe created the current crisis.
Addressing homeowner woes is apparently too complicated, so Hank wants to move on to massive infusions for big banks and help for student loans and consumer credit.
Paulson's strategy is mystifying.
My constituents want to stay in their homes. There were 57,000 foreclosure filings last month in California, and 100,000 in August. (The only reason numbers have gone down is because of a wise state-imposed 30-day moratorium on foreclosures.) The recovery package I voted for twice was supposed to help homeowners, not fund a bank consolidation program.
Then there is the related Detroit auto bailout. Torrance, CA is North American headquarters of Toyota and Honda -- two automakers that are profitable, innovative and employ thousands of Americans. So as we talk about Detroit, let's remember that there are better business models that operate in America.
What to do? I think that Sheila Bair -- head of the FDIC -- has the best ideas (it usually takes a woman to figure these things out). For $40 billion, she would reach millions of homeowners by guaranteeing fifty percent of the loss on the mortgages being renegotiated. The funds would come out of the $700 billion already appropriated.
I remember Hank saying he knew how to do this. His team said toxic mortgages are like cancer. Once they were removed, the liquidity problem would be solved and banks would lend again.
Anxious homeowners are asking, "When is this $700 billion bailout going to reach us?" Fair question.
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I must wave the yellow card on the line about "better business models" for automakers.
The asian/domestic startups do not have the legacy costs that the Big 3 have. And by that I mean pensions with health benis, etc. Then again, the asian/domestics didn't and don't depend on truck-based SUV sales.
Thanks for the straight talk post, Ms. Harman.
But why oh why, when the house is on fire (to run with that old standby), did Congress see fit to entrust the firefighting to the ARSONISTS !?!
While the idea of government helping people to survive the crisis that (I believe) government allowed to happen, I can't help but wonder what percentage of these homeowners are "flippers" that simply got caught out when the music stopped. The "new financial instruments" that came into being as regulations fell became so hysterically popular that they spawned a new age in cable broadcasting. There are so many programs depicting people buying and renovating, and flipping homes that it made me wary. The airwaves and email inboxes became inundated by seemingly dozens of credit schemes that, in my view, encouraged recklessness. "You, too, can become wealthy beyond your wildest dreams. No credit check. No credit, no problem. No job, no problem!" My wife and I resisted. Too me, it didn't "smell right" so we sat it out. Now, even people that behaved responsibly are being hurt.
The point: Should people that treated this a s a get rich tactic be bailed out while those of us that held to prudence have never-the-less been hurt by these schemes get nothing. That is going to be a tough sell and Hank and everybody else knows this. What a tangled web etc, etc,
The Only Solution: The Government should demand that every Lending institution adjust "ALL" mortgages to a 5% Fixed Rate for 40 years. Any foreclosures that occured after that change would be bought by the government and those Lenders who do not comply will not have FDIC or any other federal support in future downturns. Henry Paulson was the CEO of Goldman Sachs. Whose interest do you think he is looking out for? I think the government Bailout is the biggest Heist ever perpetrated in history and this theft will make more billionaires than we will ever know.If all of the mortgages in the U.S. had been adjusted the economic collapse might have been averted but I think it was intentionally allowed to continue in order to convince congress that a Bailout for the financial institutions was the only option. If you need proof of the deception then please read about Ben Bernankes experiments in 1980 with the Computer Accelerated Economic Model where he discovered how to create a Depression by introducing independent variables. If you think this evaluation is preposterous then maybe you don't know much about History or George W. Bush.
Sounds very reasonable. And no, I do not reject your assessment of the deceptive and deliberate aspect of this fiasco. In fact, I am certain that none of this was unforeseen or accidental. I have followed this from the introduction of the 401k through the Savings and Loan ripoffs and all the large and small economic crimes made possible by lax enforcement, changes in laws and regulation, the neutering of the Justice Dept and on and on. These politicians and their appointees sell themselves to us based on their great educations, intelligence, integrity, dedication to service and general, all round readiness for the job. Then when it hits the fan they claim amnesia, cluelessness and even outright stupidity as they stand there, hand in cookie jar and icing on there lips.
I think you're right. We create the "national mortgage." Anyone with ANY mortgage is eligible to convert to it. Or apply for a new one.
Phase it out over 40 years back to free enterprise.
By saving the underlying mortgages, we prop up the mortgage backed securities and synthetics derived from them, (even if the yield decreases slightly) and therefore save the institutions holding them.
It makes too much sense. They'll never go for it.
But remember she has Japanese Car company headquarters in her district. She wants to make sure any auto bailout does not disadvanatge them... Hmmm .. all dealerships in Japan are owned by the automakers ( not allowed here), they dont pay employee healthcare cost there, they get zero percent interest loans and their research is paid for by the government, they sell their cars for twice as much in Japan thus guaranteeing a profit, but never show a proft on U.S. sales or pay corp taxes...
Yes lets worry about our competitors. You cant even sell American grown rice in Japan.
Regards
Regards
One thing that helps Japanese car companies compete favorably in the US is that health care in Japan isn't totally the responsibility of employers. Businesses don't need to provide health care for retired former employees.
The Japanese health care system includes free screening examinations for particular diseases, prenatal care, and infectious disease control. These are provided by national and local governments. Payment for personal medical services is offered through a universal health care insurance system that provides relative equality of access, with fees set by a government committee. People without insurance through employers can participate in a national health insurance program administered by local governments. Since 1973, all elderly persons have been covered by government
It is compulsory to be enrolled in a Japanese insurance program if you are a resident of Japan. The two main categories of health insurance are referred to as Kenkō-Hoken ([social] health insurance) and Kokumin-Kenkō-Hoken (national health insurance). National health insurance is generally reserved for self-employed people and students, where as social insurance is normally for corporate employees.
Why would anyone buy a poorly designed, unreliable, gas guzzling US made car when long lived reliable, efficient, value-holding Japanese cars are available?
The Japanese car companies in California are American corporations. They pay healthcare costs just like other companies do. They pay taxes the same as any other company. And many of their cars are manufactured in the United States too. Toyota and Honda beat the US companies on the US companies' home field, based on making superior cars. A year or so ago, I heard the president of Ford Motor Corp. moaning about the fact that these days his competition is not just GM and Chrysler but also Toyota and Honda, like he had just noticed it. It reminds me of the tortoise and the hare. The hare assumed there was no meaningful competition and took a nap. And we all remember who won the race.
Yeah, but the Japanese make much better cars.
I think the point here was that the Government could renegotiate and oversee the questionable assets (mortgage loans) purchased from the lenders. Buying equity in the lenders will make it nearly impossible to oversee this aspect and offers nothing to the debtors who cannot make payments for a variety of reasons. Mr Paulson is from Goldman Sachs and is part of an Administration that has a culture of lying and using unnecessary secrecy to cover up their actions. In addition they want to make things difficult for President Obama. I don't agree with you on everything Jane, but I think you're right on this.
Just because you got a loan you can't afford we as tax payers should bail you out?
That is insane.
No more insane that handing billions to the banks with no strings attached. Are you holding them as responsible as the overextended homeowners?
And by no strings, I mean compared to the deal that the Brits cut with their banks.
I think bailing out banks is insane as well.
Dear Congresswoman Harman,
If President to be Obama has any thoughts for our future, he'll ask you to head up the new "Intelligence Alliance Agency," and give you the powers of search and discover our enemies, both foreign and "DOMESTIC!
You gave it to him so join the gop on oversight.
The issue is that the real collapse is that of trust in the financial system. We have gone through a series of ever-increasing bubbles as wealth was sucked out of the middle class into Wall Street.
With the latest burst in the CDS side-bet market, the banks can't even trust each other, and this has dried up the credit markets, which cascades throughout the economy. Once again, Main Street pays because Wall Street played.
Without trust, the financial markets don't work. Buying the bad mortgages won't restore the trust. Handing money over to the same corrupt bunch that over-leveraged themselves playing in the CDS market won't work either.
While we're at it, we need to let the corrupt financial institutions fail just like they are allowing home buyers to fail. The complete irresponsibility of these institutions has placed the world's economy at risk, so why should they be rewarded?
We'd be better off using the bailout money to rebuild our national infrastructure. Thanks to Wall Street, there will be plenty of us available to participate in infrastructure projects soon enough.
Representative Harman, pity poor Hank Paulson. He's completely over his head and doesn't know which way is up. Remember, Paulson got rich off the very financial mysticism that is in the process of transforming itself from Prince Charming back to into a wart covered toad.
Of course stabilizing the mortgages is the way to address the problem of collapsing leveraged mortgage securities, but Paulson and Co are straitjacketed by their economic ideology. They see helping mortgage holders as some sort of socialist handout, where in actually it would be an act of capitalistic self preservation. Paulson, and Bernanke are trapped in the contracting box of Milton Friedman's failing economic model and they can't imagine a way out ... they're doomed.
But we aren't ... all it requires is a reevaluation of the current economic reality. If you look at the trillions upon trillions of leveraged CDS and derivatives as what it truly is ... fraudulent wealth ... we can use all manner of unique approaches to solve the problem. In the case of the collapsing CDS contracts due to counter party failures, how about this? Create Virtual counter party banks to replace the collapsing ones. In essence, pretend the banks didn't fail and use virtual banks as a stalling mechanism to buy time to reasonably unravel the contaminated contracts over a prolonged period of time at lesser impact to the greater economy. Remember, this is fraudulent wealth so why pretend we have to address its deflation?
The businessmen failed, lets
... try something creative instead.
like purely negative criticism
he's not over his head, he's lost some of his $700 - $800 million, and only wants to recoup all of it, plus another $100 million plus!
My family was hit with this 5 years ago. Ever heard of United Airlines? My wife spent 20 years and all she got was pennies on the dollar for a pension, while her CEO got a 7 million bonus for taking the company nowhere. People should have paid attention to the airline industry de-regulation and it's effect years ago.....bu
Good luck to all of you with your investments in the companies you work for.
I worked for Alaska Airlines and took the early out...stil
I know that the United Pilots got the shaft....i
It's a crime.
It all began when Reagan convinced the middle class those "uppity air traffic controllers" were making too much money.
Next came the American belief that autoworkers were overpaid, just because they could send their kids to college, buy a house, and replace a rusted out car every few years.
Then came "trickle down" -- which worked. Millions of Chinese are living better than they could have ever imagined 25 years ago.
Wal-Mart hasn't helped matters any.
68% of Americans are now "working class." What used to be MIDDLE class. 'Cept they can't afford much more than the basics.
And what, exactly, do we RENTERS get out these misguided efforts to keep these deadbeats in "their" homes? We pay taxes, too, you know. Some of us even hope someday -- when foreclosures sales finally drive prices down to affordable levels -- to own. Anyway, there are many more of us than there are folks angling for a rescue from the consequences of their free-spending ways.
Excellent comment, 100% agree
I agree 100%! Yup, I 'feel their pain', but many of us did not wrangle loans we could not afford and were priced out of the housing market by greedy speculation and not just by 'entities' but individuals. Now we are supposed to foot the bill so they can stay in their homes? WTF? I believe there is some fairness in trying to relieve consumer credit card debt. At least that has a direct affect on almost everyone and levels the field for this relief. Everyone will benefit instead of just a certain group. Recently the Financial Services Roundtable, a consortium of banks joined with other consumer advocates and sent an official request to John Dugan, Comptroller of Currency, requesting a package that would relieve up to 40% of principle on consumer credit card debt. Virtually every credit card banking institution signed on, believing all parties would benefit and it would boost the economy. Summarily rejected! Apparently, the working stiff's taxes are better spent bailing out the partying BigBankers, BigInsurance, BigAuto, and WallstreetFatCats! God Bless America!
contact your reps about this 'sleeper' story!
It was rejected because they wanted to defer reporting the loss until the other 60% of the bill was paid off. That would just prolong the crisis for years and years, as it would take that long for the accounts to be paid down. If they're going to take a loss, it should be now so we can get past it already. And the help was only for people with something like $10,000 or more in credit card debt, apparently per account. So if you had several cards with less than that each, or have a lower income and consequently lower debt but the same ratio of income, you are SOL. It wasn't that great of a plan. But you are right, they need to come up with something.
True, but renters can also get screwed by foreclosures. If your landlord goes into foreclosure, you may have 2 or 3 days notice to get out of your rented home.
Further, renters do not get a mortgage interest tax deduction. So... why should renters subsidize homeowner mistakes?
Bailouts for Wall Street, bailouts for banks, insurance companies, car makers, cities and bailouts for homeowners. What do all of these have in common? Greed. Wall Street big shots like Hank Paulson pushed to have their capital requirements lowered to lend more and make more. They all misrepresented bogus securities as AAA and made billions. Banks and insurance companies lobbied to rescind Glass Steagall to get in on the action. Car makers lobbied to have CAFÉ standards rescinded to keep making their once profitable SUVs and trucks and not modernize their products. Homeowners, especially in California, bid up housing and pocketed their gains They made so much that neighboring states where they invested their profits experienced the “California effect”. Everyone wanted in not just to own a home but to watch it appreciate and cash in.
Now like everything that was too good to be true it’s all come crashing down. Those on Wall Street who once made billions and scoffed at regulations as unnecessary encumbrances are demanding bailouts or else the credit markets will blow up and we’ll lose everything. Carmakers with overpaid and stupid executives use their employees as leverage for bailouts. Homeowners who may have made thousands in previous deals are stuck with their overpriced “investments” and are crying for help.
So what’s it going to cost? Three trillion, five who knows? The one thing that’s certain is the bill will be sent to those who didn’t participate in or profit from the greed.
Your analysis sounds so perceptive it seriously made me misty-eyed. I just cannot imagine selling out other human beings, not to mention my country, to pad my own pockets some more. Yuck. What kind of people are these "leaders"? Thank you, I enjoyed your post.
With all due respect, I would rather you stood up for us taxpayers and voted against this bailout debacle. The spending continues, the tax burden of future generations rises, and you are wondering why people who made poor choices on a personal level aren't being helped. Who is going to help when costs of everything rise, and those of us who bought smart are forced out of homes we can afford, by government irresponsibility? This congress and senate can blame noone when they are as much to blame as anyone. The fat-cats on Wall Street are the first to be blamed, but the Legislative branch should look in the mirror to see the true perpatrators of the selling out of the citizenry.
Amen, good comments, blame where blame is due
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