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Halting the Mortgage Mess
Big hits on Fannie Mae and Freddie Mac yesterday show that the mortgage mess has gone too far, and full-scale panic has set in.
I suggest a mortgage "stand down" for at least a year or until some positive economic news comes out. All foreclosures would be stopped, banks would treat the properties as "non-performing" but not write them down (this is what happened in Japan in the 1990's).
People could stay in their homes as long as they maintained them, paid taxes and made an arrangement with the lender as to partial or even eventual payments.
The holders of the mortgaged-backed securities would see foregone income, but this is better than having their entire investment written off as is happening now.
Comments (3)
It also prevents the over-priced homes from getting back into reasonable turf and would shut down the economy.
There are those that opine had the government not bailed out the S&L's back in the 1980s, they wouldn't have been brazen enough to offer junk mortgages 20 years later. In other words, the banks learned the lesson that if you are big enough, the Fed will bail you out.
This is a bad lesson. It's time to teach another one. It will be painful for some -- but not to those who had fiscal responsibility, who are already paying for a culture of private debt of others.
July 8, 2008 12:44 PM | Reply | Permalink
You can't "teach" society a lesson. Those who act foolishly or fraudulently now are not the same people who will do it in 20 or 30 years. Your example proves the point. There are no S&L's involved in the current crisis.
As for "pain" it never gets applied to those who caused the problems. The CEO's, even the ones who have been forced out, are doing just fine with their golden parachutes. I don't know why so many people have such uncharitable attitudes as yours.
What's to be gained by forcing some poorly advised home buyer onto the street? It is a complete myth that house flippers are the majority of those defaulting.
July 8, 2008 1:45 PM | Reply | Permalink
Also, IndyMac, the second largest independent lender behind Countrywide, cut over half its workforce after losing $900 million and 95% of market value.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a5C0PPmqjpYA
July 8, 2008 3:00 PM | Reply | Permalink
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