Bin Laden's New Weapon of Mass Destruction

Longtime friend, Mark Steitz, an irrepressible Washington wit, described the potential threat posed by Osama bin Laden's new arsenal:

If bin Laden were smart, he'd disband his terrorist cells, and instead buy ad time on radio and TV stations. The ads could be simple: 'Remember Americans, Your mortgage is a non recourse loan. You can walk away.' Now that would be explosive.

As always, Steitz has a point. First American CoreLogic, a real estate data company, estimated that 7.6 million American homeowners were "under water" at the beginning of October, with another 2.1 million headed there. For one in four homes with mortgages, the amount owed on the mortgage is greater than the value of the house. And it's getting worse. Over the last two months, housing prices have continued to plunge. Some experts estimate as many as 19 million homeowners could be under water by 2010. That would be about half of all homes with mortgages.

Most mortgages on personal residences are non-recourse loans, secured only by the value of the house. The lender has no recourse to any other assets of the borrower. This leads to an awkward economic truth. If homeowners were "rational economic actors," as free market fundamentalists assume they are, they would turn in their keys to the banks and walk away. They've already lost their down payment. Many are struggling to pay a loan worth a lot more than the property they own. They'd be better off cutting their losses and renting a new home. If they have savings, they can wait for prices to settle and buy in at the lower price.

But if a large portion of 10 million homeowners did the economically rational thing tomorrow, they would blow up the financial system, with banks still laden with mortgage-backed securities that haven't been written down to their foreclosure value. And mass foreclosures would drive housing prices down even farther, with particularly devastating effects in the epicenters of the housing collapse, California, Nevada, Florida, and Arizona. That would deepen an already harsh recession, and shake once more the foundations of the banking system the Federal Reserve has committed over $8 trillion trying to shore up.

This is, incidentally, why mortgage relief is so difficult. Writing off excessive mortgages so 19 million homeowners can get an affordable mortgage at say 90% of current value could cost literally trillions of dollars. With housing prices continuing to plummet, not helping them means the financial system is being buttressed on top of a time bomb.

Washington is beginning to direct its attention to home prices and foreclosures. The Federal Reserve has lowered interest rates to zero, while pushing mortgage rates lower. The Treasury is talking about having Fannie Mae and Freddie Mac purchase mortgages at 4.5% interest rates. The FDIC's Sheila Blair, a lonely hero in the Bush administration, wants to spend $24 billion to help some 1.5 million homeowners avoid foreclosure. Rep. Barney Frank has insisted that mortgage relief be central to the expenditure of the last half of the $700 billion given the Treasury Secretary for the bailout of bankers. President elect Barack Obama has called for a 90 day moratorium on home foreclosures, while more comprehensive plans are put into effect.

Steitz, of course, was kidding about bin Laden, but his wit raises another question. Defense Secretary Robert Gates, who will be retained by Obama, has announced plans to add "well north of " 20,000 US troops to Afghanistan, and to sustain over 50,000 troops there indefinitely, while the US commits billions to build a nation in that land of fierce ethnic and tribal rivalries, and centuries long resistance to occupiers. "This is a long fight, 'Gates said. "I do believe there will be a requirement for sustained commitment here for some protracted period of time."

Afghanistan, of course, is the central front in the war on terror. But perhaps we'd be wiser to leave bin Laden in his cave, abandon the entire wrong-headed misnomer of a "war on terror," and give up attempting to build a new democracy in a country on the other side of the world. Make aggressive global policing, intelligence sharing, and a crackdown on financial flows the core of our reaction to bin Laden, and focus our resources and attention on the crisis here at home, which remains truly terrifying to anyone who looks at it closely.

Comments

[californiadreamer]

Mr. Borosage writes: "Writing off excessive mortgages so 19 million homeowners can get an affordable mortgage at say 90% of current value could cost literally trillions of dollars." But for who? It appears that the losers would be those investors who bought up all the mortgage-based securities with the assumption that they would have a nice return on their investment. But isn't that the risk they take. Of course homeowners gambled too when they refinanced loans, betting that they could still sell the homes with equity left over. And the mortgage brokers certainly didn't talk about housing bubbles, etc when the homeowners were signing the new loan documents. What the government needs to do is to figure out the best way to resolve the situation so that 19 million Americans can stay in their homes, and so that investors may recoup something on their investment. The Hope for Homeowners program had some good ideas, but as it was voluntary it has died in the water. New legislation allowing bankruptcy judges to modify mortgages is in the pipeline in the new Congress. Obviously there is no easy fix, but many American voters/homeowners are going to be very alertly watching how Obama handles this problem. If the mortgage banking system is too big to fail, then any program that allows homeowners to fail will be seen as business as usual with the bankers in charge.

[concerned patriot]

Aggressive Global Policing?

[windycityjim]

Another thing that is not promulagted widely is that in most states there is a statute of limitations on written contracts like car loans and credit cards - in California it is four (4) years from the date of default - it they don't initiate a lawsuit by then then it is not collectable - however, it they con you into a "good faith" payment of any amount then that reinstates the debt - which is what bill collectors try and sweet talk you into doing. I am not an attorney so this may not be completly accurate, but you get the gist of it. Check it out on the internet for the state you live in.

[runswithscissors]

"If homeowners were "rational economic actors," as free market fundamentalists assume they are, they would turn in their keys to the banks and walk away. "


But the whole concept of the free market is a scam, and hopefully more people seem to be realizing it. The threat of walking out on mortgages could be a valuable tool if properly organized, putting the banks under the control of the people instead of vice versa, but it's never going to happen.

[cironius]

I say to Gehennem with Fannie Mae & Freddy Mac.
This sub prime mortgage mess would have never happened if "We the People" who do not have high paying jobs would have been granted the right to borrow a low interest home mortgage loan based on income directly from the Federal Reserve Bank which should be nationalized for the moderate income working class people of our nation who for too long have been enslaved by bank's and lending institution's by high interest rates on money that they receive at a low interest rate from the Fed.
"The Change We Need" from President elect Barack Obama which I doubt very much he will do since he is a proponent of Moratorium's which has been proven to only delay the unavoidable, is to federally mandate long term loan modification's (interest) on behalf of "all Americans" with Sub Prime and ARM Negative (minimum payment deferred) interest mortgage loans at a fixed rate for 40 or 50 year's to spread out the payments.
The majority of these loan's (due to death, relocating of familie's etc) would be paid off way before 40 or 50 years.
Leaving it up to the bank's to do this is akin to putting the fox in the hen house to protect them.
"The Change We Need" for these American families with children, the elderly & those caring for them, must come from the Federal government

[cironius]

Due to the foreclosure mess. It would not surprise me that in the near future a 5th column in support of Al Qaida ("The enemy of my enemy is my friend") will evolve within our own borders from some of the children of these American familie's who watched our government bail out the bank's & did nothing to help their parent's from losing their homes to these very banks.

[berrycooda]

Why does the media give this terrorist any attention at all.

This is the only way he can get his messages across, so why help him to do that......

[chariotdrvr14]

Whatever makes you think that Osama Bin Ladin is still alive? ...unless you need his personage around to have something to scare small kids with.

[sloreader]

How many homes are sitting empty already? With the bailout, are Banks motivated to sell properties they have already foreclosed upon?

[disgustedwithall]

News flash on war and what it costs, since the R;s were sharp enough, along with plenty of D help, to assure the citizens if they were not to interested in war, they did not have to attend. There is neither draft (per sec) nor taxes to fight the wars, so "war of convenience". want it stopped yesterday. Bring back draft and tax surcharge for war... other then that. just a lot of hot air about seriously fighting or winning.. as sorry truth the public, other then political animals do not care.. get used to it.

[nogimmicks]

The industries making profit of war are happy with Obama and Gates. It does not matter for them if the troops are moved to Afghanistan, or stay in Iraq, as long as the level is the same of increased they are more than happy. It is too bad that in the meantime the whole world is getting destroyed .

[miamia]

People are already walking away from their mortgages.

You can't continue to pay a mortgage you can't afford.

[FelixC77]

I believe that this war is severely misguided as well. The best way to fight the terrorists is by hunting them down and killing them wherever they are, not be occupying a country with a huge Army. Using intelligence to find them and small teams to kill them makes so much more sense. Democracy has no chance in the Middle-East, their culture is all wrong for democracy to work. Over there, might makes right. Votes and agreements mean nothing.

[dustdevil]

No, the best way to fight terrorism is to learn why they feel compelled to terrorize or kill you and see if you can stop doing whatever that is. It may be as simple as ceasing to support Israel's crimes against the Arabs (Palestinians).

[Ipanemagirl]

I think this was a wise comment. Leave the middle east to fend for itself for the time being , while we settle our own mess at home, that Bush has left us with. If the need arises we can still just bomb out those caves and border towns in the area to smithereens if necessary. Those who protect this man don't deserve protection from us .In the meantime , lets concentrate our efforts in rebuilding our own destroyed country, with renewable energies and global warming in mind.We are already in debt up the gazooo, Why waste more money there? They dont even want us there. Leave some weapos to the people to fight off the talibans themselves if they want to.
Arianna should call the Bush legacy: The Bush Depression. Funny that he is still desperately looking to find a good legacy for himself as he slimes out the back door with his disgusting and evil Cheney! Yes, I will remember them both as having the WORST presidency in my lifetime!

[amessenger]

The U.S. and its mighty "King's Army" doesn't do defeat well -- they have no idea how to cut their losses and "fallback". If we don't emplace our failed Federal Republic system on Afghanistan, which seems VERY unlikely, than that's losing --- and we don't do that here in the land of Touchdowns and Home Runs.
You see, our arrogance and hubris, so effectively demonstrated by Bush and still alive in the Grand Ole South, doesn't allow intelligent actions. It's do or die, in a guerilla warfare world. At the moment, we look like the King's Legions while the Talliban plays the "ran through the briar patriots", having been sold the false World of Terrorism Bush mindset.
Then lets remember, WAR is money here in the USA. Halliburton, Bechtoldt, Blackwater, the kids in the barracks building reconstruction club and the militatry toymakers who turn out the CAMO gear and war making vehicles lobby for a new fight for right, at a hefty profit.
We need to remember, "those who live to run away, fight again another day".
1) complete rapid withdrawal from all. 2) return to the continent and protect the borders 3) moratorium on all immigration 4) restriction of international visas by sensible profiling 5) rebuilding the assets of the USA.
Let them have their revolutions,...we survived our own.

[dhinds]

If you put a moratorium on all immigration, you would have to harvest your own food, except that most of those that pick our crops don't bother with visas.

Why was Gates allowed to remain in the Dept. of War? That doesn't bode well!

[runswithscissors]

His relationship with Zbigniew Brzezinski is much more alarming to me. This is the guy who wrote a book about militarily controlling Asia. And we've got Obama pledging more troops to Afghanistan and hinting at military action in Pakistan...and he's not even in office yet. We need to keep an eye on this