Saving Banks, Not Banking (2nd Lien Version)
We noted yesterday Why Loan Mods Fail: Buyers paid much more than homes were intrinsically worth; Banks also lent more than they should have against over valued property.
Thanks to the replacement of Mark-to-Market with Congressionally mandated Mark-to-Make-Believe, these same banks have no incentive to reduce the mortgages. Banks get to carry property — even if its junk — on its books at full boat. Under those circumstances, Banks have little incentive to reduce mortgages.
Hence, without mortgage mod programs address the true underlying issue, we would expect these superficial mods to be destined to fail in large numbers. This is precisely what is happening.
As Twain once said, “He is an idiot and a Congressman, but I repeat myself.”
In the Sunday NYT, Gretchen Morgenson looks at a related issue — namely, what happens to 2nd mortgages and liens on these over valued, over encumbered properties.
Just four banks have $442 billion dollars in second mortgages and home equity lines of credit: Bank of America, Wells Fargo, JPMorgan Chase and Citigroup. As Morgenson notes, they have “zero interest in writing down second liens they hold because it would mean further damage to their balance sheets.”
Its yet another reason why mods are failing and the real estate sector remains mired:
“Say a troubled borrower has a first mortgage owned by a pension fund in a securitization trust and a second lien held by the bank that services the loans. The servicer is happy to modify the first mortgage under the Treasury program because the pension fund holding that loan takes the biggest hit while the second lien is untouched. This hurts the investor who holds the first mortgage and the borrower, who must pay off the second lien, which typically has a significantly higher interest rate.
The result? Yet another conflict of interest enriching financial companies while impoverishing investors and consumers.
An interesting data point: when banks do own all the mortgages on a property they seem to see the merit in principal reduction modifications. Studying second-quarter government data, the most recent available, Ms. Goodman found that when banks owned the loans, 30.5 percent of modifications reduced principal balances.
When they service someone else’s loan or hold a second lien on the property, they rarely allow principal reductions.”
This is why the Japanese model of saving banks, versus the Swedish model of saving Banking, was such a poor choice.
Banks are currently operating in a survival mode: They are hording capital, not lending, making decisions based on their needs. It is what they are supposed to do, and anyone surprised by this does not understand how coprorate entities make decisions or operate.
It is the reason why throwing billions of dollars are banks in the first place was the wrong decision: We should have followed the Swedish model. The FDIC should have put insolvent banks into receivership; they senior management is replaced, the shareholders wiped out, the debt written down to zero. The assets — the bad paper, the accounts, the healthy parts of the bank — gets sold off or spun out as a new public entity. It is adequately capitalized, without crushing toxic assets and piles of leveraged debt.
What we would have gotten for out trillions of taxpayer dollars was a well capitalized, low leveraged, low debt financial sector, capable of making loans and driving the economy forward.
Instead, we have a grievously wounded banking sector, clinging to its cash, fighting to survive, economy be damned.
How long will we be locked into this ineffective paradigm? This is the ill conceived plan of Hank Paulson, Ben Bernanke and George W. Bush during the panic months of late 2008/09. That ill thought out approach was bad enough; making matters worse is the fact that the same failing approach has been embraced by Tim Geithner, Larry Summers and Barack Obama.
The sooner we admit that TARP was a disaster and that the financial sector remains a debacle, the sooner we can get rid of the horrific Japanese model.
The Swedes brighter banking system beckon . . .
>
Source:
Why Treasury Needs a Plan B for Mortgages
GRETCHEN MORGENSON
NYT, December 5, 2009
http://www.nytimes.com/2009/12/06/business/economy/06gret.html
Tweet
Facebook
Reddit
Digg this!
December 6th, 2009 at 6:19 am
Bair as Banks’ Critic Shuns Status Quo as FDIC Term Nears End
http://www.bloomberg.com/apps/news?pid=20601109&sid=a7b1K3iCHAQ4&pos=14
December 6th, 2009 at 7:55 am
I thought that we also saved some banks by buying stock in them (BoA correct). Does anyone know how much we would lose by putting “our” banks into receivership now?
December 6th, 2009 at 8:24 am
“How long will we be locked into this ineffective paradigm? This is the ill conceived plan of Hank Paulson, Ben Bernanke and George W. Bush during the panic months of late 2008/09. That ill thought out approach was bad enough; making matters worse is the fact that the same failing approach has been embraced by Tim Geithner, Larry Summers and Barack Obama.
The sooner we admit that TARP was a disaster and that the financial sector remains a debacle, the sooner we can get rid of the horrific Japanese model.”
Japan still isn’t out of it…it’s the gift that keeps on giving. And I vividly recall in the late 90′s US economists criticizing Japan for not taking the losses and starting over. The reason is simple…admit the losses and have a Great Depression…or you can spread them over 20 years (and counting) and have a 20 year malaise…I think 90% would go for the latter choice, but we don’t really know how the Japanese model ends up.
December 6th, 2009 at 8:35 am
About those wonderful unemployment numbers we’ve been hearing about on the news:
http://www.businessinsider.com/trimtabs-the-real-job-loss-number-was-255000-2009-12
December 6th, 2009 at 8:43 am
May see more and more of this as we fall into the black hole:
http://theburningplatform.com/groups/quinns-daily-dose-of-reality/discussions/bernanke-should-get-the-death-penalty
December 6th, 2009 at 9:01 am
it’s your government at work, why someone would use estimates when facts are available is fairly dumb, imho
TARP is considered a success, that is what you will hear, imho, it’s the un-intended consequences, it really sets up a clear fence of those who have government influence and those who don’t, whereas this has always been pretty clear, it is now almost a law, give money too politicians or else
i remember a few folks saying a few years ago we will be like japan, and i thought, nah, we’re a little smarter, have a model by them of what not to do, and yet, as time goes on, it is hard too deny
December 6th, 2009 at 9:19 am
Admit to Mistake?!?!?!
Does anyone believe Bernanke, Paulson, or Geithner is capable of admitting error?
December 6th, 2009 at 9:57 am
OT, tebow wins the criesman http://bit.ly/5Surrj
December 6th, 2009 at 10:27 am
torrie-
as before, I’m not the World’s Expert on syntax, though, w/that, you may care for:
http://www.totootwo.com/
http://www.karlonia.com/2008/04/05/english-grammar-lesson-to-too-two/
http://www.lernado.it/english/english1/terze_1/An%20English-Zone_Com%20Quiz%20TO%20-%20TOO%20-%20TWO.htm
~~
to the post..
rather than: “The sooner we admit that TARP was a disaster…”
The sooner we admit that this:
“..This is the ill conceived plan of Hank Paulson, Ben Bernanke and George W. Bush during the panic months of late 2008/09.”
is a complete COS/cover-story for the wholesale looting of the USTreas, the sooner we can “put insolvent banks into receivership; they senior management is replaced, the shareholders wiped out, the debt written down to zero. The assets — the bad paper, the accounts, the healthy parts of the bank — gets sold off or spun out as a new public entity. It is adequately capitalized, without crushing toxic assets and piles of leveraged debt.”
much else should be seen as ‘blowing smoke up one’s ***’
December 6th, 2009 at 10:53 am
When you have people like Brian Wesbury, a mainstream economist, claiming that Mark-to-Market accounting was one of the main causes for the collapse you know that fantasy has become reality.
The new normal is in fact acknowledging this new reality, the incumbent corpacracy will have it no other way.
December 6th, 2009 at 10:57 am
That’s the key distinction the “all or nothing” bailout defenders miss – it should have been about saving the system, not the individual banks (and people).
December 6th, 2009 at 11:08 am
For the bank to hold dead assets in a zero-rate environment is not painful for them at all. When rates start to rise, then the pain for the banks kicks in… then they will flood the market with the junk. They’ll price it too high, thinking they survived by fooling everybody, but the stuff will not sell.
That’s the beginning of either the second rapid leg down or of another “Japanese” decade.
December 6th, 2009 at 11:12 am
I sent a significant excerpt to the White House and suggest every reader do the same.
Geithner/Summers are a disaster
December 6th, 2009 at 11:23 am
OT: anybody else read Yves’ post about the lawsuit alleging the tranification of some schmuck at SAC? Crikey.
Barry, this is a nice lucid follow-up to yesterday’s nice lucid loan mod post.
December 6th, 2009 at 11:26 am
the time to save the system was back in 2005, 2006 when people shouln’t buy inflated mcmansions, take out home equities (assume debt that can’t be repaid), investors shouldn’t buy CDOs, banks shouldn’t offer housing ATMs. now all we can do is extend and pretend, or accept that we’re insolvent. are we sure that insolvency is better than turning japanese?
December 6th, 2009 at 11:35 am
Barry, I’m going to keep haranguing you until you concede that the Swedish plan was politically impossible to achieve. Sen. Dodd tried a miniature version of the Swedish plan in the form of cramdown legislation…it was defeated 60 to 40. In fact, some might say the banks’ defeat of the American people in the cramdown bill fight was the first measure that actually achieved genuine bipartisan support in 2009. The American people opposed the bill as well–remember all the comments (here and elsewhere) along the lines of “We shouldn’t help those deadbeats…the housing decline isn’t going to hurt me anyway?” How would you overcome the fact that the Senate was bought and paid for by the banks, and the American people were too blinded by stupid selfishness to understand what was really happening?
Whether nationalization/receivership was the *best* solution is irrelevant, since it was never a *politically viable* solution.
December 6th, 2009 at 11:37 am
@franklin411: So you KNOW for sure that it wasn’t “politically feasible” when it was never even tried? (even by your hero)
December 6th, 2009 at 11:40 am
@Mannwich
Cramdowns would have been a VERY mild form of what Barry’s talking about. The Dodd Amendment to achieve that failed miserably.
http://en.wikipedia.org/wiki/Helping_Families_Save_Their_Homes_Act_of_2009#Cram_down
December 6th, 2009 at 11:48 am
The Swedes may have done the right thing the first time around using the Swedish Model, but the Swedes obviously did not learn any lessons except to have the EU/IMF dynamic duo bail them out next time (following the Japan/US Model). Where’s that book about bailouts? [for the Swedes]
“Recovering from Neoliberal Disaster
Why Iceland and Latvia Won’t (and Can’t) Pay the EU for the Kleptocrats’ Ripoffs”
http://www.globalresearch.ca/index.php?context=va&aid=14800
US Model
Bail out connected banks no matter what.
http://www.engdahl.oilgeopolitics.net/Financial_Tsunami/Geithner_Secret/geithner_secret.html
Thanks Clinton.
I agree that the model to bailout banks is the wrong direction, but investment in infrastructure (all kinds – education, research) using federal deficits is appropriate because the value created is worth a lot more (excepting bridges to nowhere, and the like) than not doing it. Especially for future generations of Americans.
http://www.infrastructurereportcard.org/
How many more of these does our country need:
http://www.state.ny.us/governor/press/press_1109092.html
The only danger with investment in infrastructure is privatization of public commons, and you end up with a “Gridlock Economy”.
http://www.powells.com/biblio/18-9780465029167-0
and/or Malfeasance Financing
http://www.bloomberg.com/apps/news?pid=20601103&sid=aRVxedq2.x4U
December 6th, 2009 at 11:49 am
Sunday, December 6, 2009
The New Submerging Markets
Banks should be required to mark to market and those that are insolvent should be nationalized and put out of their misery.
It is not too late. Perhaps it would have been unwise one year ago, but today the financial markets have stabilized and will be better able to handle the truth concerning the insolvency of certain banks.
As long as we play this game of balance sheet fiction, we will continue to misallocate capital and generate (literally) false profits by some banks while other banks operate in zombie mode. All the while allowing these institutions to continue the practice of excessive salaries and unconscionable bonuses.
Under the present scenario, the working class is decimated, the middle class is impoverished and the nation’s economy as a whole continues to slip to second rate status.
Yet we continue to allow investment banking liberals and corporate management conservatives to game the system and self-justify, rationalize their indulgent and destructive practices.
This will not going to end well.
The United States is rapidly transitioning from being the leader of the world to becoming the leader of the banana republics, where the vast majority are impoverished and controlled by a few ultra-wealthy elite.
We are the antithesis of the “Emerging Markets”. The United States now is the leader of a new economic movement. The movement should be called the “Submerging Markets”. For we are certainly drowning in our own corruption and greed.
December 6th, 2009 at 12:03 pm
I can somewhat understand why Obama is following the Paulson/Bush playbook; Obama’s #1 priority is to get re-elected in 2012, and anything that he can do to mitigate the pain between now and then is what he will do. In addition, for him to do what is in the country’s best long-term interest with regard to the banks, he would have to create a lot of enemies within the financial services sector, and he doesn’t want to do that because he’s got higher priorities like healthcare.
But one would think that Bush could have taken the long term view. By mid-2008, his term was almost over. He could have tried to do what was in the country’s long term interest (with regard to the financial sector), but if unable to get Congressional support, he could at least have gone on the record publicly to articulate the right policy. Instead, Bush just stuck his head in the sand and let Paulson enrich his Wall Street buddies at our expense.
December 6th, 2009 at 12:03 pm
How long will we be locked into this ineffective paradigm? This is the ill conceived plan of Hank Paulson, Ben Bernanke and George W. Bush during the panic months of late 2008/09. That ill thought out approach was bad enough; making matters worse is the fact that the same failing approach has been embraced by Tim Geithner, Larry Summers and Barack Obama.
Pretty much forever. The Master of Ceremonies at the Kit Kat Klub explained it most succinctly:
A mark, a yen, a buck, or a pound
A buck or a pound
A buck or a pound
Is all that makes the world go around,
That clinking clanking sound
Can make the world go ’round.
Before the roaring ’90s became the roaring ’90s Clinton and Carville were desperate to counter the Republican’s advantage in raising campaign cash. Enter Robert Rubin and Wall Street money and, voila, problem solved. Good luck breaking Wall Street’s strangle hold on the Dems. Good luck waiting for Republicans to do anything.
December 6th, 2009 at 12:08 pm
F411 has a point. A year ago it was too drastic to shift from the EMH/screw-the-weak mindset that has been the leading US ideology since the Reagan years. It’s still too drastic a shift for most people.
December 6th, 2009 at 12:10 pm
@Franklin
I fail to see how the cram down would have been a mild version of what Barry is talking about. Barry is talking about putting insolvent banks into receivership.
The cram down would have been about reducing the principal for borrowers in bankruptcy. For starters, there isn’t any mention whether the lender is insolvent or not. Why would you allow the reduction of principal if the lender can afford to foreclose and would rather do so? Oh right, to save the ass of those people who are living in houses they can’t afford! Well, for one I am glad that didn’t happen!
December 6th, 2009 at 12:13 pm
DL
Bush didn’t have a f*ing clue about what was going on. He was like a dog watching TV during that whole fiasco. So he abdicated all his responsibility and authority to Paulson and Bernanke, figuring that no matter what happened his ass was safe with all his ill gotten goodies over the years. Just more of the self serving arrogant crap from that POS. Why be surprised? (not that you are, I’m sure)
And Obama went along with this B.S., trusting Summers and Geithner, no doubt, not really sure what to do either. He had his own agenda to get to. A huge disappointment. And now we’re going to turn up the volume on the hose that’s spilling blood and treasure in that black hole called Afghanistan. Oh, what we would give for a truly courageous and wise leader.
December 6th, 2009 at 12:21 pm
These banks get to sit here with these 2nd mortgages fictionally worth something, instead being worth pennies on the dollar at best, paying themselves royally from their govt subsidized stream of cash flow. Their skimming at this point is worse than it usually is. It’s just a friggen crime being committed right out in public, under the guise of something only vaguely resembling capitalism. What a joke. What a travesty.
This whole 2nd mortgage in lieu of downpayment sham better well be over forever. Can anybody confirm that that beast is truly and finally dead? I can only assume so, but in this environment I would believe anything. Hell, there are still companies out there hawking “debt consolidation” home equity loans. And I’m sure Uncle Sam (or the Fed for him) is the only buyer of that crap.
December 6th, 2009 at 12:22 pm
franklin,
A cram-down program is not a miniature version of the Swedish solution. The Swedish solution punished specific groups – bank equityholders, bank management, and bank bondholders. Cram-downs merely reward irresponsible borrowers.
Would large scale cram-downs lead to punishment of bank equity holders, bank management, or bank bond holders? Maybe, but there is no guarantee, and the evidence from what we have seen of Dodd, Geithner, and Bernanke and Summers is that they would cushion that blow.
December 6th, 2009 at 12:23 pm
@Onlooker: I don’t believe that it’s dead at all. I may be wrong though. Hope I am.
December 6th, 2009 at 12:31 pm
Don’t the second two paragraphs of the Morgensen excerpt directly contradict the first two paragraphs?
December 6th, 2009 at 12:32 pm
Sunday, December 6, 2009
Welcome To The WTF
Ben Stein opined on Wall Street’s windfall on the CBS Sunday Morning show today. I cannot find his piece on the internet yet. It was excellent.
Stein first discusses the severe hardships and economic fears of the typical American family today, then he points out that the banks were rescued from certain oblivion only through hundreds of billions, if not trillions of dollars in taxpayer bailouts and finally discusses how banks are now rewarding themselves with record bonuses.
Stein then concludes by asking (to paraphrase); “Is this the America that we are asking our sons and daughters to fight for and defend?” “Is this the America that we were brought up to believe in?”
After his piece, I had an epiphany of sorts. Perhaps the greatest error of all in the past for Ben Stein (“everything is OK”) and Alan Greenspan (“the markets will self-correct”) was an error in judgment regarding the basic integrity and sensibility of people. Perhaps it was an assumption that: “Surely in a democracy no one would ever be allowed to intentionally destroy an economy in the pursuit of self-interests.”
I suspect they both now understand that some people will take greed and selfishness to this level of destruction. Further that the political and financial processes can be and were manipulated to where the traditional self-correcting mechanisms of democratic institutions were corrupted and rendered inoperable.
What is mind boggling to me is that we allow these behaviors to continue when they are clearly leading us down a path of self-destruction. That is the great WTF of the moment.
December 6th, 2009 at 1:23 pm
oh, imho, it’s perfectly clear you get folks in power who do not understand human nature, bush, cheney, greenspan, cox, stein…………..stein does do a good job of defining sentiment, i’m in that sub-division, i’m not proud of what has been allowed because is supposedly is the opposite of what we stand for
big bonuses now, for fear they will never be there again, as in 2010, it’s dawning on the general public, when u dont pay a debt you don’t go too jail, so whats the downside, nothing, especially when u see what others have done
December 6th, 2009 at 1:37 pm
Every time someone I know offers an opinion on the banks, I ask 2 very simple questions that determine the value of the opinion.
1. Should they have been bailed out?
2. What should happen to the shareholders?
The zeitgeist at the moment is that they shouldn’t have been bailed out, but that the shareholders should not be wiped out.
How do you even begin to argue with that logic?
December 6th, 2009 at 1:45 pm
“We should have followed the Swedish model. The FDIC should have put insolvent banks into receivership; they senior management is replaced, the shareholders wiped out, the debt written down to zero. The assets — the bad paper, the accounts, the healthy parts of the bank — gets sold off or spun out as a new public entity.”
I agree with most of this in principle. Wiping out shareholders and replacing management, absolutely. Restructuring the assets and spinning off a new entity, absolutely. The problem is the bondholders. Yes, they should have taken haircuts, been forced into equity for debt swaps, and in some cases been wiped out entirely. There are strong moral and economic arguments to be made in favor of this. There was a practical problem however. Who are these bondholders? Almost entirely 1) other banks 2) pension funds and 3) insurance companies. If the bondholders were wiped out, you’d have 3 immediate problems – 1) a cascade of further bank failures, for which the taxpayer would have been on the hook via the FDIC, 2) failure of pension funds, for which the taxpayer would have been on the hook via the PBGC, and 3) the immediate bankruptcy of large insurance companies, which, while not federally regulated and protected would have likely bankrupted numerous states and started a fresh wave of financial panic the likes of which has never been seen before.
It’s unfortunate, but this was the reality of the situation. This is why we need to re-instate a modern, stronger version of Glass-Steagall, why we need to jack up FDIC insurance premiums, and why we need a financial transaction tax. The financial sector (including the ordinary investor) is exposing the economy to inordinate degrees of risk and must start paying for the safety net that the government is providing (and must provide) . The alternative is to turn financial services into a utility business with every facet of their operations strictly regulated like a utility and their employees paid like employees of utilities are paid. I prefer the former approach, but if the industry resists they will end up with the latter.
December 6th, 2009 at 2:18 pm
why the “abortion debate” and the “keep folks in homes debate” are alike .. every person (dislocated pet) who is alive and breathing is a meal ticket to the bottom half of the the trickle down double pyramid diamond via the social survival structures in place for the Corporatocracy
be aware of a growing market for the individual ie adopting individuals of a flavor for their social benefits and/or Save the ____
twist n shout .. “I Now Pronounce You Chuck and Larry” .. another beware there .. paperwork ruins a good thing .. imo work thru the benefits 1 by 1 and everyone will be happier for it
December 6th, 2009 at 2:25 pm
& to bobmitchell to get back totally OT … I’m with the cascade theory if banks were not bailed out … baby steps now … and as much as I’d like to see another system of getting stuff for labor for all .. I realize its not to be in my whats left of my lifetime … aaawwwww
December 6th, 2009 at 2:25 pm
ruetheday
Indeed the systemic contagion risk was, and is, huge. The whole system is massively undercapitalized (aka overleveraged). Once we got there, there was no good way to resolve things. And unless we deal with that problem instead of continuing down the same road we won’t ever have a healthy economy. We’re a long way from that.
I don’t have the expertise to know exactly how this should have been done. I do know that at a minimum there should have been haircuts taken by many parties that instead came out whole. And the banksters who got us here should have been bankrupted, that’s for sure. That they walked away smelling like a rose and back to their ways, is a travesty of the highest order.
December 6th, 2009 at 3:44 pm
I still think Credit Suisse got it right a year ago: pay their directors’ annual bonuses in MBS. (Assuming they didn’t also give them rights to CDS’s on those MBS… ;-)
December 6th, 2009 at 4:39 pm
“Perhaps the greatest error of all in the past for Ben Stein (”everything is OK”) and Alan Greenspan (”the markets will self-correct”) was an error in judgment regarding the basic integrity and sensibility of people.”
If “error in judgement” means moronic faith in stupid, simplistic ideology then I would agree.
December 6th, 2009 at 6:08 pm
BR: “This is the ill conceived plan of Hank Paulson, Ben Bernanke and George W. Bush during the panic months of late 2008/09. That ill thought out approach was bad enough…”
My question is whether the approach was in fact “ill thought out”? It seems that it was very well thought out by the big banks. Part one is big banks get to hide their negative balance sheets until the Fed pumps enough taxpayer dollars into them through TARP, TALF, cheap Fed loans and other programs, all hidden from public view. From the banks’ point of view it is a great plan. Since Paulson and Bernanke work for those banks (directly or indirectly, through the big banks’ control of the Fed) they are doing their jobs very well.
Part two will be: The small banks won’t get those capital injections (i.e. taxpayer gifts). Many will fail. The recapitalized big banks will then purchase cheap assets with the free money received from the taxpayers through the Fed.
It is a one-year-old plan and Part one has been executed very well. Part two will come soon. The question for America is whether we citizens want to force a change in the Fed’s priorities.
December 6th, 2009 at 6:46 pm
Marc P,
w/this: December 6th, 2009 at 6:08 pm post..
while I agree that this: “The question for America is whether we citizens want to force a change in the Fed’s priorities.” is an accurate statement, think about it some..
esp. this part: “whether we citizens want to force a change in the Fed’s priorities.”, in light of the fact that you’re one of the few, even on these boards, that can appreciate the sheer beauty, from the ‘Banks’ POV, of the recent series of efforts, undertaken by the USTreas, FedRes, FDIC, FASB, and associated friends, shills, and carnival barkers, putatively for the benefit of, said, Citizenry..
leaving aside, of course, that most of said Citizenry couldn’t, even, give one the textbook definition of ‘What does the Federal Reserve do?’, let alone answer the Q: “How do ‘Banks’ fund loans?”.
the Idea of ‘force(-ing) a change in the Fed’s priorities’, seems fit for a different Time..
esp. not now, DWTS is coming on..
but, to be sure, w/this: “My question is whether the approach was in fact “ill thought out”?”, you are, more than, correct in such questioning. It’s, only, too bad, that more, of our fellow Citizens, aren’t near as brave, or, emboldened by Logic.
December 6th, 2009 at 11:28 pm
Hank Paulson, a football player. My mind is boggled.
Anyways, you get what you pay for, and in this case it was a touchdown.
December 7th, 2009 at 1:18 am
“Thanks to the replacement of Mark-to-Market with Congressionally mandated Mark-to-Make-Believe, these same banks have no incentive to reduce the mortgages. Banks get to carry property — even if its junk — on its books at full boat. Under those circumstances, Banks have little incentive to reduce mortgages.”
In one short paragraph, Barry summarize the situation. Could anyone get Obama to read it? Or is he just a tool of Wall Street?
December 7th, 2009 at 11:08 am
It is always about the incentives not about the rules. Yet politicians rarely conduct even a basic incentive analysis before they come out with rules to “fix” the problems. Now when are they going to realize that lenders will not fix the problems and modify loans for consumers who can be saved? It should have been obvious from the start that bankruptcy judges need the authority to wipe out or modify home loans. Lenders cannot handle this one on their own.
December 7th, 2009 at 12:40 pm
Mark-to-Make-Believe created an incentive for banks not to modify loans. However, things really went off the tracks with the insidious practice of the government using Freddie / Fanny to refinance problem loans. This is the best of all worlds for the banks. They get paid 100% on a bad loan. A simple and perfect solution for them.
For the taxpayers, not so much.
December 7th, 2009 at 12:45 pm
BR, I’d like to see some current data on the dollar volume of these bad loans that have been refinanced by federal agencies at par. How much is the implicit dollar transfer to the banks? It must be a staggering amount.