Principal reductions on mortgages: new meaning for the free market ... by gimleteye

From The New York Times editorial board: "The best, proactive way to revive the housing market is to help bankrupt and delinquent borrowers rework their mortgages through principal reductions. It is also important to ease refinancing rules so underwater borrowers who are current in their payments can trade in their high-rate mortgages for lower-rate loans. The Obama administration is considering new refinancing rules, but mortgage investors are sure to resist."

Not just mortgage investors. Why should I, as a taxpayer who never incurred more obligations than I could reasonably afford, be asked to bail out the speculator culture that used housing like gambling chips and turned the U.S. economy into a casino?

In consideration of this point, I went back through our archive section. Over the EOM years, I have posted 480 times on the "housing crash". Here is what I wrote, in 2007: "We know there’s a sucker born every minute, but for how long do we have to listen to the higher-up, blue chip crowd tell us how great the world is turning out, so long as you don’t look at the smoke and mirrors everywhere... “The economy may be stronger than we think,” Bernanke tells the world. What if it is weaker than we think?"

So here is the first post I tagged a few weeks earlier under "housing crash": printed, January 26, 2007.

The mainstream media is pumping up any piece of good news on the housing markets. There is a reason we dissent, and it is not because we are doom-sayers or gold bugs. Our goal is to pry local and state government from the death grip of land speculators, road pavers, growth-at-any-cost'ers, and from elected officials who are charged with protecting the public health, safety and welfare and the future of Florida.

Their disinformation campaigns have gone unchallenged for so long, we have to track back to explain our point of view.

In 2000, the Federal Reserve replaced one financial bubble it created, in equity markets, with another, in real estate. In the past six years, since the bubble burst in the nation’s equity markets, fully half of all job creation has been related to the fabulous expansion of real estate markets.

For all practical purposes, our economy now depends on real estate fueled by speculation. Its by-products have caused serious harm to the public interest. In Florida, more than 84,000 acres of wetlands have been lost to development permits at a time that “no net loss” of wetlands was official federal government policy. The speculators vanish, but the footprint they leave on Florida’s landscape is permanent.

The go-go years have swept up farmers and developers, diverting legislatures into one scheme after another to aid and abet the speculative boom and a magic carpet ride for Florida’s elected leadership. ... The cognitive dissonance is reflected in the landscape: for sale signs sprouting in potato fields turned to tract housing while in downtown Miami, a thousand construction cranes are blooming.

The Miami Herald reports today Bank United, the largest Florida thrift “nonperforming assets” more than quadrupled to $45.1 million from a year earlier. But the bank also reported “record net income of $27.4 million for its fiscal first quarter… up 69 percent from the $16.2 million a year earlier.” Bank United CEO Camner said that nonperforming loans could double from this level but that “we don’t look at losses to be significant” because they will still be below the one percent level.

We see a much steeper rise in problems for the real estate sectors. ... Timothy Warren Jr., CEO of The Warren Group, said of the Massachusetts market, “We still see this as more of a soft landing than a crash.” In Miami, “We feel optimistic,” says Bank United president Ortiz.

In its recent story disappointing financial results for Lennar, the Miami Herald wrote, “For Lennar the earnings announcement concludes one of the toughest stretches in years for home builders.” We 'conclude' that’s what you will continue to read in the mainstream media until there is so much blood in the streets you can’t side-step it, at which point you will read, “there is blood in the streets” but not a whisper how it got there until it has dried."

Our model is what happened to Florida’s water quality, wetlands, aquifers, and estuaries. The damage is severe and accelerating, because of the misdirection and misallocation of financial resources by elected officials to stimulate a bubble in real estate markets."

Fours years later Ben Bernanke and the economists tell us the solution to our economic woe is to reward the risk takers, now that the big thieves -- the too-big-to-fail banks have been rescued with years of no-interest "loans" from the federal government in order to recapitalize their balance sheets; ie. printing their own money and profits. What Bernanke is suggesting is that the U.S. government bring the underwater mortgagee up for air, too. But what about the little people who paid their mortgages every month? What about the "idiots" who saw through the ARM's and the balloon mortgages and settled for fixed rate so they wouldn't be surprised. What about the renters and the students and the families crammed together.

The lesson here is that you only get rewarded if you speculate. If you are not a speculator, then by supporting mortgage reduction for the speculators, you are throwing the unfortunate a life vest in a stormy sea. That is the New York Times message.

Now I'm not a misanthrope, but I am guided by what I know. And I know perfectly that the banker boyz in Miami, the Bank Uniteds and US Century Banks, the lobbyists for developers, and the big land speculators who are the verge of losing their big tracts outside the Urban Development Boundary did everything in their power to make sure that reasonable arguments for the environment or sustainable development or protection of Biscayne National Park or Everglades National Park were throttled and snuffed at their points of origin during the past two decades. In this whole argument about principal reduction for mortgages, they are like the generals of Saddam Hussein who have melted into the general population.

They had and still have their candidates and elected officials willing to lie through their teeth while the little people in the Redland or Kendall or Coral Gables were kept in governmental processes like cages or running on the hamster wheels of regulatory processes designed to fail. Now we are supposed to do the Christian thing and embrace all the corruption that led to this point in time?