Sunday, August 28, 2011

Against: mortgage reduction ... by gimleteye

Mortgage reduction. When the idea appears as "quotes" in the New York Times from prominent officials and then on the editorial page, know that trial balloons are in the air to gauge public reaction. So.

There are not enough four-letter words in the English language to express how I feel about "mortgage reduction".

Why should I bear the cost of others' mistakes? To keep the economy from sinking into a depression. Then why shouldn't renters, college students living at home who are old enough to vote or serve in the military, why shouldn't Americans who scrimped, saved and sacrificed to make their monthly mortgage payments be given the same deal as someone who would benefit from a reduced mortgage? Free money for a free market.

Real estate speculators drove the U.S. economy into a ditch. I use the term generically. During the bubble decade, speculation became a cultural obsession as well as an economic one. It also became a virtue due to changes in U.S. banking laws that knocked down barriers between investment banks and commercial banks. Phil Gramm, anyone? This was the "free market" at work, giving free-passes to banks to use complex financial instruments turning mortgages into casino chips to "shift risk" and grow the economy. The bankers and law makers who allowed this to happen should have been made to wash their mouths out with soap, but who would have held their heads over the sink? No one.

On a conceptual level, mortgage reduction is the retail version of what banks already got: a "get-out-of-jail" card as in the game of Monopoly. TARP and the various stimuli packages from the Fed (what we know about and don't know about, because the public hasn't been told), have been freebies for the banks, allowing them to repair (somewhat) their balance sheets by giving them no-interest money (fees and compensation, all the same) and allowing them to "lend" money to borrowers vetted more carefully (we learned our lessons!) on their capacity to repay.

Conceptually, mortgage reduction is along the same line: give retail customers their own personalized TARP. Allow mortgagees to break contracts with banks in order to recapitalize their personal finances. The logic goes: when homeowners can afford their mortgages, then they can begin expanding their purchases of consumer goods again in copious quantities to revive the economy. That goal is so important on a societal scale we need to forgive their sins, they know not what they have done. In concept, this means repegging home values to levels of value in line with what had always been deemed reasonable in the past: that mortgage expense should not exceed more than a quarter of disposable income.

It is not hard to guess who is pushing this come-to-Jesus moment through the halls of power. The homebuilders holding reports in their hands, waving terrible statistics to support their case for mortgage reduction to the White House and to Congress and to Ben Bernanke at the Fed. Shamelessly Alan Greenspan intones the same, to the TV cameras. That's right: the same homebuilders who screamed bloody murder whenever the mainstream media cast a negative spell over the housing mania, putting casino chips into Alan Greenspan's pockets on the sly, are now walking up and down legislatures, Congress, and the White House with their hair on fire. "We were sinners but we have been saved!"

Their justification is that the economy is in crisis because of the crushing weight of home mortgages on consumers; ergo, only homebuilders can pull the economy out of this depression. "We create jobs." It never occurs to the powerful that some of these same "job builders" should be behind bars serving ten to twenty. With their frantic rutting they spawned "the ownership society"-- the last tranche of the scam that brought down the economy-- and egged on Fannie Mae and Freddie Mac to absorb trillions of mortgages in their ticky tacky platted subdivisions that funded countless county commission campaigns. They should be in jail today instead of roaming the halls of Congress or pleading their case with the Fed for mortgage reduction.

So who would hold the bill for the cost of mortgage reduction? Obviously, someone has to pay the banks the difference between the contractual value of an individual mortgage and the new reset. That would the taxpayer; you and me. On millions of mortgages. Think about the opportunities for corruption. It is mind-boggling. Financial industry executives took down billions in pay for mass marketing mortgages according to the business of speed and friction-less execution, they took down billions through the TARP free pass, and would reap additional billions from any mortgage reset policy. That's the free market at work.

The United States economy is on the horns of a dilemma. My own view is that the homebuilders are the least likely candidates to help the economy on the way out based on their culpability on the way in.

You didn't have to be a genius with a Phd in economics or Alan Greenspan to see what direction this nation was heading a decade or even two decades ago. There is plenty of "conservative" in the idea of "conserving" natural and financial capital; as in, saving for a rainy day. On mortgage reduction, I will have more spleen to vent this week.


Anonymous said...

I have to agree with you on this one. I initially agreed with this government mortgage modification stuff back in Feb/March 2008 at the depths of the recession when I was scared that the whole economic system would come crashing down and it would eventually impact MY job. No longer - There are many vacant foreclosed properties in my neighborhood that are not the result of a homeowner being down on their luck; they are the result of artificially inflated appraisals and outright fraud. I know of many people who are currently gaming the system, living for free even though they can afford the payments because the bank is so screwed up, they haven't gotten around to kicking the occupants out on the street. Some are not paying solely in order to negotiate a mortgage modification.

It is bad enough that this economic crisis has resulted in crooked nutcases like Rick Scott and Allen West being elected. Why should I have to pay for this? I have done without many things in my life and now my mortgage will be payed off within the year.

Grillo said...

You are so right! But the thieves and schemers will go on to do it again with the assistance of our so-called leaders.

Anonymous said...

There are too many out there with upside down mortgages who refinanced and pulled out the equity buying second homes and making investments. It's not right that they get bailouts on our back.

Anonymous said...

You dont want mortgage reduction because you are against us poor people. You are a typical Republican.

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:


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.

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.

David said...

Being a strong proponents of the welfare state, I would think you would be all for mortgage reduction programs. I guess it's give, give, give; until you perceive it's starting to come out of your pocket.

CATO said...

Why stop at mortgages? Uncle Sam can just print up a few more bucks and make my car payament, nip those credit card bills in the bud, buy my groceries (already does for alot of folks), pay my utility bills, settle up my overdue bar tab and pay the dude who brings me my "medicinal" marijuana.
Gimmspierre you ain't going all capitalist on me now?