I guess, like many folks, I need to vent a bit about this "mortgage crisis". I have contacted my representatives and insisted that they oppose the current bill. Instead of giving money away and buying up bad debt (euphemistically termed "toxic paper"), how about the following? 1. Insure the mortgages. The default rate is really pretty low, so the payout from the taxpayers will be pennies on the dollar. 2. Infuse cash into the "system" for lending only and make it available only for lending (ie. it MUST be used for that purpose) to free up the credit markets a bit. Require repayment. So this would be a lending loan. 3. If the money is taken by an institution, then the standard employee severance applies to all personnel. 4. Require lending be no more than 90% of the market value of an asset. Everyone must put at least 10% down. This will take a lot of the risk out of future loans.
Most of the media coverage has it at least partly wrong. While there may be many who want revenge on big companies on Wall Street or their CEO's with the parachutes, that is not my concern nor that of many I have spoken with. My real concern is that we are throwing, probably, a trillion dollars at a problem to make life easier today. The main thing I heard at first was credit seizing up. Fair enough. That will slow the economy. However, one can still get loans. You must have better credit ratings (above 700) and a downpayment or face higher interest rates and more of a downpayment. Great. That is the way it should be. We should not get loans so easily as that is what caused this mess. It sounds cold, but not everyone should own a home. Some folks should rent and put money aside for downpayments. Not everyone should own an expensive car. You see my point. Let credit be a little tight. Let companies spend their equity to some extent to fuel growth. It will take a lot of risk out of the system. This trillion dollars will have to be borrowed by the government (us) and paid back over a long time. I think this borrowing will have an impact on the value of the dollar as well. With the current plan I see no upsides and tons of downsides.
Let's think this thing through.
Thank you.
Jim Robinson
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2 comments:
Do you think all this resulted from "deregulation" in the 80's? I am interested in the causes for such a catastrophe, and it seems that perhaps it is the practice of selling off the high risk mortgages to other companies (which I understand is not allowed in Europe).
I have started researching this. Original deregulation took place in 1979 in the Carter administration. Looks like that led to the S&L problems that followed. This is more recent ... somewhere in the 90's but I have not found the original legislation yet. Somewhere in that time we went from 5-20% down and proof of income to the more recent practice of loans for 125% of the value of the property, no money down, instant (desktop) approvals. I need to do more research.
Interestingly, I don't think the practices are allowed in Europe, but tons of EU banks bought up securities with these high-risk loans. Germany, UK, Ireland are all bailing out banks right now.
I will keep looking.
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