Posted by
tony on Sunday, October 19, 2008 8:11:17 PM
It would seem that The Bailout, hereinafter referred to as TB, and, yes, the double entendre is intended, is not understood by the average person, nor, perhaps, by the commenting pundits. This should concern us all since we are all paying for TB. Okay, perhaps not ALL; perhaps everyone who is actually paying personal income taxes, which account for three-fourths of the Treasuries revenues. At last check less than half of registered voters earn enough adjusted gross income to pay federal taxes, and about 35% of W-2 filers (people with jobs) don't pay federal taxes.
Here is what I think I know about TB. The private companies at risk of bankruptcy, and/or of large financial losses, are the private companies and investors that own mortgage backed securities (MBS) whose component residential homes are worth less on the market than they were when the MBS was presented to the private companies by the mortgage brokers and banks just prior to the sale. In other words, the only entities that are benefitting directly by any proposed government bailout, or TB, are those that own loans whose collateral isn't worth enough on the market to suffer through default by the homeowners paying against the loan.
So who are these companies and individuals, and why is the government so all-fired intent on bailing them out? I don't see that they are anybody special. It seems to me that the shareholders of these companies, or the investors, should suffer the possibility of bankruptcy, or asset value reduction, or revenue stream interruption, or whatever would naturally happen if no Bailout occurred. Let market forces prevail. Let whatever happens, happens. At worst, it seems, the investor or company would still own the title to the collateral properties. And at worst, it seems, these properties could be offered to the market for market prices. Somebody will want to live there, if the price is right.
Will the credit market dry up if these companies and investors are not made whole; are not repaid by the government for the paper value of the collateral houses? Hey... rich folks gotta park their money somewhere. And whatever money there is will be for sure parked wherever the best return can be had, as has always been the case. After the rich folks lose 30% of their MBS collateral value, and lose 10%, or so, of their revenue stream because of loan defaults, life will continue. And it certainly seems a better approach for the government NOT to buy titles to houses at prices GREATER than the market value, which wold mean a loss for the taxpayer, but instead for the government to guarantee loans to mortgage brokers and banks for future mortgages, and the newly adjusted market values of the houses, which the people and the appraisers and the banks will figure out. Little risk to the taxpayer - perhaps the traditional 4% to 6% default rates, with the resuting house being worth what the paper says it's worth.
Here's my thesis - let the loans default, pursue the defaulters by reporting them to the credit agencies and issuing judgements for the loan principal, have the government provide new loan money rather than purchase properties, and let's go about our business.
There are lots of bad guys in this whole business, and those bad guys should be rooted out. Some of the bad guys are those associated with Argent, AmeriQuest, CountryWide, Lehman Brothers, Fannie Mae, Freddie Mac, Bear Stearns. Some of the bad guys are those associated with the Community Redevelopment Act and its standards, or lack of standards. Some of the bad guys are appraisers and the appraisal process, which allows for ever escalating home prices. Some of the bad guys are home buyers and re-financers that think they should get 100% or 125% of home value in loans. But the government should not sell the idea that the only answer is for the government to buy houses at elevated prices.
Oh, and by the way, it is unconstitutional for the government to do so.