My Side of the Fence

The danger isn't going too far. It's that we don't go far enough.

Bailout Nation

Dear Reader, I would like to shake your hand and congratulate you on our latest acquisition: GM & Chrysler!! Champagne all around!

Perhaps that was a shade over the top but I believe the government is close to the point of forgetting why this whole fiasco started: mortgages handed out to anyone with a pulse. Until that problem is rectified and the foundation of the housing market is restored, the rest of this is just window dressing because bad mortgages are at the root of the problem that ails us.

At some point, even the princes of Washington will decide that the government cannot single-handedly fund industry and that consumer spending is required. With the TARP and the upcoming Obama stimulus package, we’re up over $1.5 trillion dollars in debt fueled spending. Now, I’m not against careful government spending to avoid a fiscal calamity but it seems that at some point we need to address the fundamental problem: housing. With housing prices falling at 25% year people are terrified. Those who aren’t underwater are close and many are just walking away. We need to stem the foreclosures and the devaluation of our housing stock.

Paulson, over at Treasury, walked into Congress with a four page memo demanding $750 billion within 72 hours to “fix” the problem – or else. That alone should have been sufficient to disqualify him from the process, but, far from that, the Congress gave him the money to bail out Wall St. and Banks with little or no oversight. Paulson doesn’t want to hear about Main St. bailouts.

For my money (and it is) Sheila Bair over at FDIC seems to have the right focus – foreclosure mitigation. This is the program that we need to get serious about. One could make the argument that recapitalizing the banks was necessary in any event in order to make mitigation possible and I suppose I would buy it. However, it doesn’t seem as though our leaders in Washington are very serious about it as FDIC can only really work with loans from banks that they have taken over. At that point, it’s too late…..


  1. “Foreclosure mitigation”? What does that mean Andy? How many of the foreclosures are on people that never should have been able to get a loan in the first place? The banks that made these bad loans IMO ought to have to live with them, the govt shouldn’t be bailing them out.

    AND, my personal feel is car makers should be allowed to go through the bankruptcy re-org process. Not get govt loans to “survive” until the inevitable filing.

    Sure hope the nation is happy with what is coming next year. This sort of socialism is going to destroy a LOT of the fabric of what made America great.

  2. andy

    December 21, 2008 at 4:41 pm

    It means that we begin to separate symptoms from causes. Filling the banks with cash might be a worthwhile goal but it will be meaningless until we wind down the housing fiasco because no bank is going to lend.

    At this point we need to minimize the damage to our country. If we can keep any significant percentage of those people in their houses by modifying loans or renegotiating principal or other terms it will do just that.

    Is it fair to everyone who shopped carefully for a mortgage and purchased within their means? No. However, at this point, being punitive to those who didn’t is counter-productive for all of us.

    I agree that lending standards were essentially abandoned but that discussion, while necessary and illuminating is best left for the future when we figure out how to re-regulate the entire mess.

    btw, I don’t like that answer but it is what I believe. I bought my house about 15 years ago and the price I paid gave me up front equity. However, in order to get a loan I had to write letters explaining every little ding on my credit report, provide bank statements and all the rest of it. It infuriates me that things have come to this and somebody – perhaps many somebodies need to have their hats handed to them for this stunning failure in regulation both governmental and inside the industry.

    Sorry for the long reply…:)

  3. Andy,

    There comes a point in every storm, we’re all we can do is lash ourselves to the mast, let the storm blow itself out, and hope the ship doesn’t sink in the meantime. I read in the WSJ yesterday that developers are looking for their bailout. Where does it end? I think the main problem IS government intervening on such a massive scale. The market hasn’t a chance to work. I agree, the housing market needs to bottom out and stabilize. People who shouldn’t have purchased homes in the first place will most likely lose them, but we should remember it was government intervention and lack of oversite that set the stage where these people could purchase homes, not to mention a lot of greed on behalf of the lenders. I think in the long run, the country will be better off. Lending standards will lossen over time, but not to the point where people can carry as much debt, especially unsecured debt. Household debt is shrinking marginally. Let’s hope this trend continues. We each have a responsibility to right our own ships, get our own finances straight. Then we can hold the Fed and State Gub’ments accountable too.

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