Effort to Save Bear Stearns Must be Matched by Effort to Save Homeowners

"Who are you working for?" It's a simple question that carries a lot of meaning depending on who's asking and when. It's the question millions of Americans - struggling with enormous mortgage payments, gas nearing $4 a gallon and unappetizing higher prices at the grocery store -- must have wanted to ask the Bush administration when they heard that the federal government had bailed out one of Wall Street's main investment banks.

Clearly, assisting Bear Stearns was necessary to stave off further economic collapse, but the message it sent was unsettling. The federal government, at the direction of the Bush administration, will pull out all the stops, spare no expense, and burn the midnight oil to bail out Wall Street, but that same administration has put in only a fraction of the effort over the past year to help homeowners on Main Street.

The effort to rescue Bear Stearns was nothing short of extraordinary. It featured top Treasury officials, the Federal Reserve, experts, and lawyers, working around the clock, racing against the ticking time bomb of a failing investment bank that threatened to further sink the economy. War rooms were established, conference calls held, plans of action drawn up and decisions executed -- all in a matter of days.

Yes, when it was clear that a major investment bank on Wall Street was in trouble, the Bush administration rushed to the scene like firefighters responding to a five-alarm blaze. But a full year into the subprime mortgage crisis, they have done nothing but hit the snooze button on the alarm as 20,000 Americans watch their dreams of homeownership go up in smoke every week. For families facing foreclosure, the housing crisis doesn't mean red ink on a balance sheet, but a padlock on their door.

Some have argued that when families can't keep up with out-of-control mortgage payments, they are at fault and should be left to fend for themselves on the streets. These are many of the same people, incidentally, who have no problem with the idea of bailing out irresponsible Iraqi politicians with $120 billion dollars of taxpayer money per year for the next hundred years, but don't think the government should step in to prevent widespread homelessness here in America.

That argument blaming homebuyers for their irresponsibility is as exaggerated as it is heartless. It ignores the irresponsible brokers in the subprime market who did everything they could to make a buck -- including selling mortgages to homebuyers who could not make the payments.

Furthermore, foreclosure is in no one's interest. Lenders say they lose tens of thousands of dollars on each foreclosure. Families see the American Dream turn into the American Nightmare. Their neighbors see the values of their own homes decrease. And if recent job losses, weak earnings reports and stock market swings are any indicator, foreclosures have shockwaves that reverberate throughout the entire economy.

Americans deserve far stronger efforts from their public officials to end a crisis that affects us all.

For a while now, Democrats in Congress have been trying to offer a ray of hope to struggling homeowners with a plan that would give those facing foreclosure more options and assistance in refinancing bad loans. We don't have a magic wand to wave and immediately make the economy whole again, but we do have a series of helpful measures, including a bill being considered in the Senate today, that can extend a hand to homeowners where now there is none.

For weeks, our Senate Republican colleagues, adhering to the president's directive, have blocked this particular proposal from consideration -- even as more and more Americans fall further and further into debt and their homes slip away. Yesterday, however, the ray of hope that this measure represents shined a little brighter upon the announcement that a bipartisan deal is in the works. We should all hope that the product of these negotiations is not too watered-down to be effective -- in situations like this, Americans deserve bold action, not more empty promises.

Even if we are successful in our efforts to attack the symptoms of the housing crisis, much more work will be needed to address the root causes. It will require a sustained effort to get our regulatory mechanisms to catch up to the intricacies of modern finance. Make no mistake, our efforts are way behind the times.

It's going to take aggressive, sustained action to bring our oversight up to speed and to stop the tsunami of home foreclosures that is ravaging our communities. And to start, it's going to take a government that cares just as much about the well-being of the occupants of a row house in Newark or Camden as it does about the occupants of a billion-dollar skyscraper in Manhattan.

Comments

[AmericanSon]

As these large corporations continue to increase in size, their impact on the economy can be tremendous. We saw the same problem with United Airlines. These corporations merge with other large corporations to create super large corporations, then the company fails, the executives become enormously rich, workers are fired and the economy suffers. It is well past time for antitrust laws to be enforced again, like they were before Reaganomics. Antitrust can be used not only to increase competition, as it was first intended, but also to prevent catastrophic company failures that affect the entire economy.

Now that Bear Stearns has been absorbed by JP Morgan, look for JP Morgan to fail within the next couple of years. Rather than create a larger problem, these huge corporations should be split up. Ten smaller companies have less chance of total failure and devastating impact than one top-heavy giant.

[davesideas]

Not with my tax money, thank you. I've played by the rules; bought only what I could afford; made all of my payments on time; and saved rather than gambled. I'm not interested in bailing anyone out who did otherwise. Period. I'm not being heartless; I'm being fiscally responsible.

[BOfever]

If you are responsible, Democrats punish you. It's the code they live by.

[ClosetExtrovert]

And Wall Street lives by the law of "trickle down" profits and socialized losses.

[ordinaryguy]

so you're against the bear stearns deal?

[Sepiastar]

It's ironic, everytime there's a proposal to assist the average citizen, the first thing I read is "socialism" or why should we have to help you for making bad decisions (welfare, FEMA for Hurricane Katrina, etc). But it's acceptable to keep bailing out Big Business (Corporate Welfare).

[elbzee]

Thank goodness Sepiastar. It doesn't seem any commenters have any empathy or a single a clue as to how easy it is to manipulate simple people. They seem o believe these folks walked in FULLY INFORMED AND FAIRLY SOLD TO and signed those contracts that were clearly doomed despite that knowledge. Our credit/finance industry is now so predatory it terrifies me (as a former bill collector that should say a lot!) In the old days the abuses were very risky and complaints/violations were feared. Seems nowadays, there's a feeding frenzy. Bankruptcy relief is reduced and there are no usery laws left in the US thanks to US Government legislation.

[BOfever]

"It doesn't seem any commenters have any empathy or a single a clue as to how easy it is to manipulate simple people."

So is it my financial responsibility that someone can be easily had?

[Sepiastar]

HuffPost's Pick

I am in the industry & it saddens me to see the "average citizens" are also blaming the homeowners for this crisis. There were MANY unscrupulous lending institutions that blatantly lied to new homeowners by advising them that they could easily refinance the home in a stipulated amount of time. They never informed the homeowners of prepayment penalties (in many cases) and in the event their financial situation in the least bit fluctuated (job loss and had to accept a lower wage, i.e), refinancing would not be an option. The problem is many of these first time homeowners were qualified for fixed rate mortgages and the lenders still elected to place them in adjustable rate mortgages and unsuspecting buyers were not aware of this until CLOSING. However, the problem is our government finds it acceptable to bail out financial institutions that make bad investments but not the homeowners! I have yet to see anyone objectively compare the number of job losses across the country and it's effect on the high foreclosures and the number of homeowners that have faced job losses and are now underemployed and it's effect on the escalating foreclosures. It's easy to state that many of these homeowners just decided to take on mortgages that they could not afford but there are additional extentuating circumstances that resulted in this extraordinary amount of foreclosures. Plus, I would rather my tax dollars assist the average homeowner than BILLIONS of dollars be wasted on some government official's insignificant "pet" project!!

[davesideas]

Whoa, there; buying a house with no down, interest only, ARM mortgages and hoping, HOPING, everything will be alright when they refinance in two or three years is not fiscally responsible. You sign a contract involving hundreds of thousands of dollars, you need to have read the fine print. I don't want my hard-earned going to anybody involved in this fiasco.

[ordinaryguy]

wow, the only perfect person in the world that has never ever made a mistake. everybody look and marvel at davesideas!!!!

[BOfever]

"There were MANY unscrupulous lending institutions that blatantly lied to new homeowners by advising them that they could easily refinance the home in a stipulated amount of time."

How is this any different then when you goto Target or Sears and they try to get you to pick up one of their credit cards? How is this different than someone at Best Buy trying to upsell you on a bigger more expensive home theater system?

At the end of the day it is the consumer's choice and when making large investments only the consumer can be blamed if they don't take a hard look at the details before signing their name.

The government cannot reward bad or stupid behavior while punishing those that were responsible. Could you imagine the outrage if the government took the same appoach with criminals?

[ordinaryguy]

your analogy is awful. shows an illogical mind. please nobody carry on conversation with this guy, it is a waste of time.

[jason10006]

What is this BS that we "resued" Bear Stearns? HALF of the employees, and that includes the millionaire bankers AND their secrataries and the mailroom, will lose their jobs, according to media reports. About 30% of employees owned stock, and for the millionaire banker/traders/etc types, sometimes half their net worth was in stock - which is being sold to JP Morgan in a fire sale for 94% less than what is was worth a year ago and 75% less than what is worth a MONTH ago. This is a far greater destriction of individual wealth than in even the hardest hit of real estate bubble cities (San Diego, Miami, etc.) Furthermore, no taxpayer money has been spent yet, and none may ever be spent - since the Fed is insuring the deal, essentially, IF Bear's assets devalue more, but many analysts expected written-down bank assets to be WRITTEN UP later in the year or in 2009.

So if you "resecued" homeowners like you rescued Bear Stearns, you would be angering a lot of people.

[davesideas]

yeah, right; "loans" against now worthless sub-prime mortgages that are, and will remain to be, worthless as collateral.

[ClosetExtrovert]

Work on reducing energy costs, Senator, and you won't have a mortgage problem.

[Novelene]

....from Mendez' keyboard to God's ears.

[1pappy]

"... gas nearing $4 a gallon and unappetizing higher prices at the grocery store..."
And exactly what has this to do with people who made bad decisions to by more house than they could afford? Or took out equity loans to party with?

"...20,000 Americans watch their dreams of homeownership go up in smoke every week."
Yes, they will no longer be mortage holders (home owners), they will just revert to the renters that they were before. They lost their homes not their jobs. It is not like they are now homeless for Gods' sake.

"...the irresponsible brokers in the subprime market who did everything they could to make a buck -- including selling mortgages to homebuyers who could not make the payments."
True subprime brokers tried to make a buck, I do too by working 40 hrs a week. However, I knew I couldn't make the payments on a $200,000 home, that is why I bought a $100,000 home.

[johnie2xs]

Please make the correction on my comment on the Senators name. Mendez, not Martinez. Sorry for the screw up.

[johnie2xs]

I hope, Sen. Martinez, that you read this stream and take it to heart, that which I'm going to mention. First off I agree with you 100%, in regards to the failures of this administration, in relation to the trials and tribulations of the American people. We truly have no representation, in this government, and for the most part the electorate is mute due to having been overwhelmed by all that has happened the last seven plus years. That being said I wish that you and your colleagues would turn your attention to a far more grievous situation facing us and give it as high a profile as possible. Information coming out of Russia, Germany, and Saudi Arabia point to the fact that this Illegal Administration intends on perpetrating an attack on Iran in spite of the desires, and warnings, of our Legislature, the world community, our Constitution, and the will of the American people. Those of us who monitor the happenings in the world are greatly concerned and I would wish to hear this concern voiced loudly by our Congress. Please, please, do something in this regards or all other concerns would be mute.

[JoeBlough]

Mortgages are financial investments, just like stocks and bonds. With all investments, there will be winners and losers. At no time is the Government required or encouraged to bail out bad investments to the determent of the taxpayers who played by the rules.

People who bought huge homes they couldn"t afford, thinking they could game the system should not be subsidized by the pruedent taxpayers.

For that matter, Bear and Stearns should not have been bailed out. That will only encourage the bottom-feeders to try and game the system somewhere else; knowing the suckers in Government will again bail them out.

[whimsicalpig]

I totally agree.

I own a business, if I make a bad investment or decision, no one is going to come and bail me out.

bailing out bear sterns was wrong, bailing out chrysler was wrong and useless and bailing out greedy homebuyers that thought they could get something for nothing is definitely wrong.

this country , as a whole, needs to learn a big lesson about who they are and how they fit into the grand scheme of things.

what congress did and wants to do is like the mommy who stands in for her kids instead of letting them learn a life lesson.

put your energies into fixing our infrastructure, our schools and our broken military, leave the leeches and greedy middle class to fend for themselves.

[elbzee]

When ever I read about the Fed bail out and the lack of urgency over the foreclosure crisis, I flash to images of black people stranded on roofs in the 9th ward. What enraged me then,was the idea that our Federal government could so glibly disregard those people's suffering and knowingly leave them there. How can we possibly be surprised this time? What intrigues me is the different profile of this newest disaster's victim. I honestly thought bigotry was part of the lack of response. Glad to find out it wasn't that. They don't care about color at all. In fact, they don't care about any of us at all. Gotta be really rich to get a speedy, fat bail out in the USA!

[BOfever]

In relation to New Orleans, you do know that the state and local government time after time turned down proposals to renforce the areas that flooded?

[pa104inf]

First off, it is not my job or the government's job to save you from yourself. If you are too stupid or ignorant to heed the warning that a category five Hurricane is coming your way and it might be a good idea for you to leave an area that is seven feet below sea level then it "sucks to be you". There was a major Hurricane during the Clinton Administration and it took over a week for FEMA to get into the affected areas. Further, the Governor of Louisiana did not request FEMA's till 48-hours after the Hurricane which is a Federal requirement. On to your second point, again it is not my job to bail you out if you make 40 grand a year, have four kids and want to buy a 1 million dollar home. Again, "it sucks to be you". We all have to live within our means which gets harder and harder since it now seems to be my job and others to save you from yourself every time you make a mistake. Given your viewpoint, I wouldn"t be surprised to see you screaming for help from a rooftop someday. When that happens, I hope that anger keeps you comfort has the flood waters get higher and higher.

[Sepiastar]

What do you think is the purpose of FEMA? I know, sit by the sidelines and watch as a tragedy unfolds and then do NOTHING! (Now, you talk about a WASTE of taxpayers money)! What are the hospitals suppose to do (pack up and leave), what are the elderly and handicapped suppose to do (hide out), and many of the ordinary citizens that were affected by this deadly Hurricane? You actually stated that there was a Hurricane during the Clinton Administration and it took over a week for FEMA to get into the affected areas (is that suppose to be a plausible argument). Do you live in Louisiana, Mississippi or Alabama? Were you aware that many did attempt to leave but the area was in crisis due to panic by the citizens. The highways were bombarded, gas stations were shut down and out of gas, and the classification of the Hurricane did not initially start out as CAT 5. I know, I know - it's their fault because it's not the government's job to save you. No, but it is the responsibility of the government to have disaster planning and a plan for disaster relief? That's what tax paying citizens should expect from a government that they support with their tax dollars!

[KOisGod]

At some point, like in an Amway scheme, it takes a constant influx new, naive suckers to enter the pipeline, paying for overpriced goods, under the guise of "owning your own business", to keep the game alive.

Once that stream of bottom feeders drys up, the scheme collapses, and the rent is due.

Kill the middle class, the Rights hidden agenda.

Mission almost accomplished.

[BOfever]

Have you ever placed any responsibility on the homeowners themselves for getting into the loan or not realizing that they can't afford the house they are buying?

[BassMonk]

Absolutely. Any thinking person saw this coming long ago. Having purchased my first house about 5 years ago, I noticed the huge prevalence of 'interest only' mortgages and 'equity loans'. A wave of foreclosures was inevitable.

[ditsylilg]

What is so interesting is that despite the fact that the government draws monies from its citizens, it is reluctant to return any of it to individuals struggling. For years citizens have paid for everything from R&D for just about anything you can think of; citizens have bailed out every industry and still subsidizes many and yet when citizens themselves suffer, the government can't help.

Perhaps this April 15th should be boycotted by those with taxes to pay. Although I doubt that would help clear the wax out of the ears of the current administration.

[BOfever]

"it is reluctant to return any of it to individuals struggling"

Are you kidding me? Food stamps, Welfare and Social programs are at an all time high.

[rachel88]

I wonder why there are more people than ever, who have to depend on welfare, food stamps and social programs.

[NABNYC]

Here's the problem: I don't want my tax money being used to bail out Bear Stearns or the lenders who made these absurd loans, or the home "owners" who took out loans for which they did not qualify, bought homes they could not afford, and could not afford to stay in the home if the loan was a traditional 30-year fixed. They can't afford it. Taxpayers should not be giving this select group of people our money to artificially prop up a collapsing housing market. Let it fall.

People who bought homes with interest-only loans for the most part cannot afford to buy the home. It's just that simple. They have no down payment, no equity, and with the tax write-off they've received they've probably paid less than they would have paid if they'd been renting. But they don't own the house. The bank does.

For property dropping in value, the solution is for the lender to write down the loans. If not, the "owners" need to move out and deed the house back to the lender. Let the market crash. Houses in many areas are priced at 3 times what they should be. If an average family earns $50,000, and can "afford" a loan of $200,000, then that's what the homes have to sell for. In many areas, it's three times that, and no one can afford to buy. Propping up this balloon with my money is a terrible idea.

[babylonandon]

Amen.

While I will agree that there are a small part of the folks out there who got scammed by unscrupulous lenders, the vast majority of these folks should never had been given loans for the size of homes they got and some of them should have never been given a mortgage period.

Their past credit histories proved they were not responsible with money and anyone who got an ARM (who didn't have money to burn to start off and who wasn't ready to jump into a fixed loan when the market visibly started to go south) was out of their mind.

People in this country think they have rights to things that are only truly priviledges for those who have proved themselves responsible.

Even worse is that there are quite a few of these folks with second and third equities or mortgages that they took out to buy fancy new toys like 50 inch tv's, Hummers, art, vacations, landscaping, etc. Now their debt is way over the value of their homes.

No matter all of the other crap that our money is wasted for, why should folks like me (who don't make a lot of money, skimp on things to get by, and who haven't gotten over our heads in debt because we have been patient) have it suck it up and cleanup the financial bottoms of these idiotic and irresponsible babies and the further feed the sharks who have fed on them.