Let us beware of giving bankruptcy judges the power to adjust mortgages. The Judical System, and attorneys, in general, have become so corrupt that giving the power to bankruptcy judges would just be setting up more complex scandals.

Wouldn't it be more prudent and reasonable to set up a Fed RTC type program to re-evaluate relatively exorbitant loans on a more standardized basis? The problem is: "Where does one "draw the line" as to determing who is reasonably entitled to this assistance?" Meanwhile the criminal corporate management is "getting bonuses"? How equitible is this? Paulson has revealed his lack of integrity with his failure to addrss this problem.

Paulson's "problem" is that he is "too close" to the people in the financial industry, and the politicians who enabled and supported this economic debacle.

Why hasn't he (and the Federal government) done like the German government and 1) cap the management salaries, 2) FREEZE all "bonuses" and "extra compensations".

Otherwise, where are these management people going to find alternative employment under the situation that they have created? There is ABSOLUTELY NO BASIS for the payment of "bonuses" . . . and why doesn't Paulson and the government require a "salary reduction" because of the FRAUDS that have been committed by these individuals.

Paulson is only a temporary front man until the new administration is installed in January. He is almost as bad as Greenspan.

Paulson is going to protect his Wall street buddies and Congress is either to lazy or stupid to prevent bounses to these thieves.Maybe its time for us to elect new people to Congress who will address this problem and take care of honest hard working people istead of protecting the people who got us into this mess.

Peter,
As far as I can tell, you've got the most common sense of any of the columnists on Bloggingstocks. You'll be doing many people a great service if you'll address this question:


What would be the effect of paying off all the mortgages that are in foreclosure now?

That is, rather than trying to fix the CDO problem at a FI level, why not fix the underlying problem with CDOs and MBSs? Namely, that the mortgages on which they're based are defaulting?
If the mortgages don't default, the assets aren't worthless, balance sheets aren't wrecked, nobody gets margin calls, and nobody needs bailing out. Right?

The major problem is clear- pay people to default on their mortgages and they're going to default on their mortgages. Sure, no doubt about it. But I sumbit that a moral hazard at the homeowner level is no worse than a moral hazard at the FI level.

If we incentivize FIs to maintain irresponsible leverage, they will. If we incentivize homeowners to buy homes too big and then default, they will. I call that a draw.


But the difference is this: fix the problem at the FI level and the FIs are fixed (maybe), but the homeowners aren't. Fix it at the homeowner level and the homeowners AND the FIs are fixed.

This seems too easy to be possible. Take the $700B and start paying off mortgages. I bet it wouldn't take a tenth of that to solve the problem, but I don't know that for sure. What am I missing here?
It can't even be the greed problem! Because if there's no "subprime meltdown", then everybody's getting their same old massive profits and bonuses, right?

Fill me in, Mr. Cohan! What's the deal?

-Mike in Michigan

Peter, great article! Just watched McCain speechin' about this subject. My take:


The Deceivers leading the easily Deluded.

"Let's go out and Buy those bad mortgages and adjust those interest rates, to keep those homeowners in their homes"


Sounds good. Too bad that plan's first act is to reward the culprits of the economic crisis. The asking price for those Bad Mortgages is HIGHER than their actual Value. That would require MORE of our TAX dollars than is necessary to help those homeowners.

Fairness: the idea behind the plan is that housing values will (should) increase in the future, so there'll be no long-term, net loss by paying the inflated mortgage value. (estimates place that figure at 7-10 years, at earliest)


How about:

The banks keep the mortgages. Their interest rate is reduced to the same rate as the GI Bill / FHA rate. In exchange for the rate reduction, the banks receive a Guarantee of Payment, which is backed up with our Tax Dollars. If our Tax Dollars will be required, at least it will be only a small PORTION of the Mortgage value.

If worse comes to worse and the buyer defaults completely, the Difference between Actual Value and remaining mortgage value can be paid from our Tax Dollars. Still, only a Portion of the "other plan". Perhaps, that amount of Difference can be negotiated - maybe the FHA finds a worthy Veteran that will assume the mortgage, which will benefit the bank in terms of efficiency and confidence.

Yes, that would require a close working relationship between lenders and our FHA and Veterans Affairs organizations. That is what's called "making government work for the People". Our Vets are part of that group that will drive our future economy - Young Americans. Fact: old people don't buy much.

And YES, that will require Tax Dollars, as will any attempt to correct the economy. It's time to chit or get off the pot. If you want Free Market and you believe that it can live/thrive/expand without ANY help and/or ANY regulation of ANY kind - you need to take a look around you - this is the Free Market under total FREEDOM. This is it, baby! Enjoy!!

While we're on the subject of Facing Reality, let's talk about Health Care as a Right of every citizen of this country. You think universal health care is too much Socialism? OK, then stop ALL social programs and let 'em ALL die!

Just don't complain when the stench is everywhere - remember, garbage collection is a social program (the dead homeless are garbage, right?). CHIT or get off the pot. Quit picking and choosing what YOU term to be Acceptable Socialism and what you find to be Too Much.

Open your G-D eyes! Every Government Action IS socialism. Everything done towards The Public Good is, WHAT? Go ahead, answer! As written, "No man is an island" - re-written in a PC fashion, "No person is an island".

Unless you are an island and stand totally isolated from all humanity in this country.. YOU stand in the very midst of the greatest Social program in the history of our world.

Again, I must applause your brilliance!!! "it will take a new president to realize that the way to minimize the pain for citizens and banks may be to allow a bankruptcy judge to renegotiate mortgages so that people can stay in their houses". Why stop there? Let's let those same judges decide how much of your bank account savings you get to keep! Better yet, let's put the judges in charge of everything so we can have someone decide everything for us! We all know how well our judicial system works...

Good article. $125 Billion would go a long way to relieve the stress on stocks and banks - but Paulson won't do that. By allowing the proper channels of monetary flow - either by signifying the present value of mortgages on creditor's books or paying those billions to suspend taxes or a years payments - whichever flow is easier - they give it to the cadre who made these decisions as if they were blind to risk management and CHOSE to reap greed where it was sown. I have no feeling for the CEO's who put the kaibash on their own people, the American Taxpayer - or the crooks in Congress who take everything told to them by this body of illicit fiends as proper and true. The latter showing the lack of power the People have to parlay their own destiny against the wiles of this sector of the Market. Credit was handed out hand over fist. When it became known the financial institutions couldn't cost the derivatives accurately and that they were holding a worthless asset - they cried poor and threatened the American People with Doom and Gloom. They did because they can. They're deregulated and to help THEM pay the Piper Congress has been hoodwinked into a course that "would be easier" than the great gouts of foreclosures that cannot even be measured for the future. A mistake. Nothing will change in the future. Layoffs, recession and the inability to get credit will be just as tough as if they didn't cry to the American Taxpayer. Go get a mortgage now if you dare. Caveat emptor. Better to wait and see how much the financial monopolies will take in dimes on the dollar. Too many have been touched in some way to enjoy the fruits of this mess. The real CONTRACTION will be enourmous. Taking the bandaid off fast or slow won't make any difference, but at least the Companies would deal with their CEO's contracts and not the US Taxpayer in the belief of honorable Justice.

Thomas Paine's solution could be tenable. When it comes to the point where American's will help every other nation in the world to the tune of gad-billions to get rid of tyrants - I find the thoughts of fellow American's towards their own countrymen nebulous and malicious. If someone just needs a hand up - I'll do it. Mr. Paine has found a way. Workable perhaps even in it's abbreviatedly stated form or not I find it more patriotic than letting families, lured by the dream of a home by tantalizingly low rates and approval from a lender (hello? who among us wouldn't try? Also, you weren't there!) to have a home? Then the bottom drops out and even the LENDER couldn't have foreseen this with all their computer simulations of the Markets. How many among us wouldn't reach for a family home? The Lenders preyed on this emotion. Now they get all their problems solved by going to Congress. Don't we all wish we could? I paid for a driveway - but I should've gotten my livingroom painted. I didn't have money for both. Will Congress bail me out? Sweet Jesus no!~ But they will bail out these multi-BILLION dollar corporations who made short sighted decisions and got burned. Many don't need credit - they pay in cash. So? I don't care if they get bailed out except that my taxes are doing it. My hard cash backing up their non-backed parlay on risk. Why? So they can paint their livingrooms? In one form or another ~ you betcha.

Amazing some one else not in Congress who can see the trees while standing in the forest Too BAD that election to public office means you have to compromise and protect (not the public, but) those who make substantial contributions to your funds.Accountability= Give it back you did not earn it. You should have to pay a penalty for lying about the financial state of the company. The sale of your stock before the disclosure that dropped its value--Does Martha Stewert suggest anything? Congress and some readers suggest we buy the bad?? loans and we negotiate new payments--They made the loan- they collected the profit- let them keep the bad paper and a committee of volunteers arbitrate a FAIR rate and payment schedule that the lending institution (not the taxpayer) has to honor. I do not have the car-They added at least $500 to the debt rather than extend me time (90 days) and doubled the principle from $5,000 to 10,000---who are both Obama and McCain helping? Want to stabilize the stock market,control the credit problem within ONE WEEK, and get people back to work?
Do what Warren Buffet did --BUY THE STOCK--If it is going up when we bail them out-We should get the benefit. As stock-holders with voting rights we could control the pay and performance of the companies. It would not be government regulation, it would be stockholder regulation. If you qualified for a credit limit and that limit was reduced without warning -90 day notice- that limit should be restored at the rate used and arbitration to recover damages done by the sudden loss of credit. That can be done today not three months from today and either candidate can propose it and get it passed this week.

The problem is JOBS. It makes no sense to redo a mortgage if the income is gone. The company that you were working for was borrowing money to pay its bills, includeing your salary. Like me it considered its current limit as earned by past performance. When the bonuses reduced the money available the Lending Institution either increased the criteria for the present loan limit or reduced the credit limit without notice leaving the borrower without funds. Further, reporting the request to the credit bureau (normal) and its denial without explanation led others who read the report to believe that something they couldn't see was wrong so they also refused to loan money. Until the credit is restored the employee doesn't get paid so it doesn't matter if you redo his mortgage. Without an income it does not matter..

Great story.

I write about this all the time, but nobody listens.

Hopefully they will listen to you.

Virgil
http://www.KeepAmericaAtWork.com