Monday, August 29, 2011

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?

4 comments:

Anonymous said...

Two words seemingly lost in our public dialogue on this down economy, two words never mentioned in our modern day discussions by too many who are either unaware or forgetful as to these two words that have become so vastly undervalued in modern day life, so overlooked and lost in the minds of far too many, 



two words that tend to be alien to far too many in government where subsistence relies on so many public sector salaries, two words that are so attributable to our prosperity as Americans in a country still free, two words that are so vital and essential to us all, particularly in the currently diminishing private sector world most of us still live in:



-RISK TAKING-



The great real estate bust of 2007, this last housing bubble burst and the severe devaluation of real property we all continue to suffer through is largely attributable to a strong central government (through Fannie Mae and Freddie Mac) taking on all the finance risk taking within what used to be the private sector home mortgage market. 



Without the private sector risk takers and the creative and innovative people they assemble in collaborative efforts, nothing would ever get built, there’d be no long term economic churning, real wealth creation, an expanding private sector that provides sustaining work for everyone, real job creation, and an expanding tax base, all of which allows to be paid the slew of the myriad of taxes to provide for the tax revenues of the public sector so that it can do their vital work as well and the steady slow yet real incremental growth of the wealth of a nation evolves.

When a strong central government intervenes as it has with Fannie Mae and Freddie Mac, it ruins it all for everyone and that incremental, slow, gradually created wealth of a nation. With the central planners' short term thinking and their perversion of compassion for those not owning a home, their redistribution of wealth is not spreading the wealth. It is spreading the misery. It ends in a devastating betrayal to the very citizens they are supposed to protect.

All economic risk taking must remain within the private sector and cannot be taken by or dumped on the federal government. That is the problem and the most attributable reason for the situation we're in that few recognize or are willing to admit.


Also, what needs most of all to be brought to the fore is the folly that public sector government spending can be equated to private sector spending.



Private capital and private resources applied with private risk taking within the private sector are altogether different from public sector government spending other people’s money acquired through taxes extracted from the private sector.



This is the real world of personal risk taking, privately applied capital and productive resources, the real world struggle of just making a living in the results oriented private sector that does not allow for waste, inefficiencies, bloated bureaucracies, deficit spending, insolvencies, and protracted development.



There's a strong lesson here for those willing to comprehend that as we stand now in the Summer of 2011, we need desperately to expand the private sector if we are ever to get out of this hard, deep recession.



It is the private sector from which our prosperity comes. It is the private sector that initiates, innovates, creates and provides for everything and everyone, including the public sector. 



If history has taught us anything, from the Mayflower venture to the homesteaders hard quest west in covered wagons to the present day, our great country was built much more by risk takers in the private sector than comfortably seated public sector government panels.



It is private capital privately applied with private risk taking within the private sector that is as Winston Churchill said, although not a perfect system, it is the only alternative to the socialists' road to ruin running out of other people's money.

Anonymous said...

There are another two words that make all the insanity possible.

FEDERAL RESERVE

PRINT BABY PRINT!!!!!

The Straw Buyer said...
This comment has been removed by the author.
The Straw Buyer said...

What makes no sense to me is the lengths the government goes through to protect the lenders that are responsible for the mess we're in. The prosecutors and the presiding judge in the well publicized Plantation cops mortgage fraud case refuse to allow the jury hear anything about lender negligence or lender complicity in the millions of dollars of alleged fraud...

http://thestrawbuyer.blogspot.com/2011/08/so-youve-been-charged-with-mortgage.html

What gives??