Friday, November 30, 2007

Trust Your Government

I know the title isn't particularly descriptive, but let's hope Hank Paulson is really trying to do the right thing. The idea is good, getting all the lending-side parties together in order to speed up the process of potential mortgage restructurings. It is reasonable to assume that as long the process isn't co-opted by some other part of government (Congress would be a disaster), the best possible outcome can occur. Secretary Paulson is one of those "smart guys" from Goldman Sachs and knows what needs to be done. If, however, a wave of populist sentiment overtakes this process, the outcome would would devolve into something far worse than taking no action.

Certainly the banks and other financial players involved know what is involved in restructuring. That can't be said for most homeowners. Remember, many of these homeowners are now complaining they weren't informed of what could happen (Last word on this: the blogosphere is full of people with strong opinions on both sides, however if there was fraud involved in the mortgage creation, then prosecute the involved parties. Otherwise, admit you made a mistake, didn't read what you signed and live with the consequences). How are they supposed to negotiate in a restructuring? The information that is coming out so far is limited to freezing rate increases, but there has to be more to it. A rate freeze may help a few that can't make month to month payments and keep a few in their homes. However, it doesn't help the increasing negative equity situation caused by falling housing prices. I'll wait and see, but I'm optimistic that the Treasury does the right and necessary thing.

2 comments:

Anonymous said...

I think Paulson will be allowed to do what nees to be done, but he is not doing it so save homeowners who made poor decisions or were defrauded.

This is a bailout of the banks and investment banks. It just so happens that to save the institutions borrowers are helped in the process. This makes the bailout politically palatable.

Homewonwers will be underwater in many regions for quite some time. People bought overvalued hoems. wait for inflation to play catchup.


What Paulson will not do is what the treasury should do in the case of bailouts. That is to investgigate the banks. Ask them what they knew and when the knew it.

That will never happen. If it ever became known that the banks kenw all along that they were writibg bad mortages, but thaought they could push them off balance sheet and onto investors, the political and regulatory fall out would be devastating for the banking industry. How would Congress react if they had to address Merrill's acuiring several small subprime lenders and pushing them to write more mortgages to facilitate more CDOs?

No, all will be swept under the carpet and the guilty will be free to come up with another derivative scam. If any one besides investors who really gets hurt, it is the subprime borrower who does his or her homework and is repsonsible. No mortage for that person anymore.

Anonymous said...

Mr. Hilter, YOU ARE SO RIGHT. I hve written on this topic. Some of what I have written are on www.TheMortgageCorner.org. If you do go there please read the article, "Caveat Emptor, Buyer Beware".

There was fraud in the mortgage industry, I know, I am in it, saw it and turned down deals that involved it as well as advised fellow brokers to walk away from deals.

But Wall Street DID know what it was doing. You are right about Merrill Lynch, they did buy some not so small subprime lenders to increase the flow of paper for their securitizaion sales..billions of dollars worth.

The other Wall Streeters did the same. They and the banks know that the guidelines THEY were creating could not go on forever without a total collapse. I saw and said that early on. The play that was made was not for the consumer or for the American Dream, it was using the American Dream for enrichment by the "creators" of these programs, their companies and THEIR brokers.
Larry

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