Bush Unveils Sub-Prime Assistance

Bush Unveils Sub-Prime Assistance

news.bbc.co.uk

President George W Bush has outlined a plan to freeze mortgage rates for five years to help homeowners hit by the crisis in the US housing market.

Many believe these mortgage rates should be temporarily frozen, to make it easier for those caught out by the credit crunch to meet their mortgage payments and keep their homes.

But others say such measures would bail out homeowners who made imprudent decisions and delay the necessary correction that home prices must undergo in order to resolve the

(visit the link for the full news article)

So much for the Free Market!

Rescue the irresponsible lenders, the reckless borrowers and punish the good people who spent within their means by having their mortgages re-adjust but not those of the idiots who don't have a clue.

In addition to flying in the face of established principles of contract law, people will now have an incentive to act recklessly.

I mean what does a contract mean if the government can just step in and dictate the terms to you? Kinda makes contracts useless doesn't it?

How many people will plead poverty to avoid adjustments? How many people who really can't pay be denied for the program? How much bureaucracy will be needed to administrate the program?

This will make the situation much worse not better.

Banks will require higher interest payments from future mortgages (from those same responsible people shafted by this move) to make up for the loss of revenue on the trillions of loans they can't adjust. Expect even higher interest rates and thus the default threshold to move up the "quality ladder" as a result of this. They're just postponing the day of reckoning for the bad loans anyways. They'll still eventually result in default (with much higher future rates) but at least the banks will have five years of extra payments in their pockets.

I thought world history proved that central planning of an economy (the FED's raison d'être BTW) doesn't work?

This market intervention will have far reaching repercussions, and not the positive ones expected.
.

news.bbc.co.uk
(visit the link for the full news article)

Wow, something I would have expected from a Clinton. Well, now that I think about it, no one said that being a modern Republican makes one a conservative, a capitalist, or a constitutionalist. More like a moderate socialist party.

Can we get a friggin capitalist president already?

We haven’t really had one for what, over 100 years?


T-1 second until this turns into a Ron Paul thread.

[edit on 6-12-2007 by cavscout]

this is nonsense. Sure there were people duped into thinking they could afford their homes but what about all the people that knew going in that they were taking this risk? What about the lenders who duped the masses? The banks who knew they were getting jacked up appraisals (WAMU I'm talking to you)? What about the real estate brokers who over-inflated asking prices knowing that their shady mortgage broker friends would find ways to get the money needed to close?

Rather than bail out, punishments should be meted out to all who helped create this fiasco. The sub-prime lending houses, the appraisers et al should pay the price. Bailing out the masses sends the wrong message. It tells them it's ok to gamble away your home without any thought to the possilbilites of higher rates, decreasing home values etc.

What shocks me most about this is that Bush has, for 7 years, continually shown a complete disregard for his public approval rating and now he seems to be playing into that rating, trying to get it up.

Weren't most of their mortgages fixed for a five year period already? I mean, they couldn't handle it then, extending it another 5 years seems to be delaying the inevitable.

Guess Bush just wants the financial collapse to be on someone else's watch.

Honestly, there are two parties that I blame here

The lender, for lending people they knew couldn't possibly make payments ona 450,000 dollar home.

The buyer for being naive enough to believe the lender's tripe. "Oh, yeah, sure you can afford this 865,000 dollar home on the 50 thousand a year you make." Uh, yeah, sure thing.

This gets back to the old saying, "People try to live above and beyond their means." Then you'll always have some bleeding heart lib, in this case, apparently Bush, who doesn't want to see someone take PERSONAL RESPONSIBILITY for their choices in life, so they bail them out. That's real nice.



[edit on 6-12-2007 by SpeakerofTruth]

Originally posted by Gools
So much for the Free Market!

There is no free market. The U.S. government doesn't care about free markets for the sake of free markets. The U.S. government is the enforcement and insurance arm of high finance -- sometimes free markets are the best institution for lining the pockets of high finance and sometimes, such as right now, they aren't.

Top government economic officials are all straight from Wall Street. Just look at the Treasury Department. Secretary of Treasury Henry Paulson was CEO of Goldman Sachs before his current job. Even the lauded Alan Greenspan was once corporate director of JP Morgan. These people aren't looking out for the economy or for people who's interest rates have gone up.

Thus, people who think this is a bail out for unwise homeowners or questionable lenders are barking up the wrong tree. This bail out is NOT for the people who (whether it be their "fault" or not) can no longer afford their mortgage. Nor is it for the lenders who made specious loans to people who they knew who could not afford it.

Rather, it's a bail out for the big institutional investors and big personal investors who packaged and bought these bad loans as securities. It's the government watching the back of those who put them in power. To borrow from biology, it's a quite evident and clear symbiotic relationship between Wall Street and Washignton.

EDIT: Formatting issues.

[edit on 6-12-2007 by ArbitraryGuy]

[edit on 6-12-2007 by ArbitraryGuy]

reply to post by Karlhungis



good point. in another 5 years rates could be even higher and these poor folks will be in even deeper waters.

i'm in ArbitraryGuys camp...



A roll back/5 yr. halt of the contracted increases should come with a price for both the lenders and the buyers...

** the home buyers should be assessed the dollar ammount being 'reliefed' and have those sums counted as taxable income...
at a gift tax rate ? 55%$?

**the lenders should not write off those ammounts not realized via the adjusted higher payments of the ARMs
as the money bankers presently could count this moratorium as resulting in a capital 'loss' on their accounting balance sheets & thus get a tax advantage.


that's where i think the 'bail out' should be headed, (iow, no free rides)




secondly, the administration only did this to help head off the publics
preception that the federal gov't was hamstrung...the small % of real
foreclosures this symbolic action will headoff is negligible,
the administration is using this 'incremental action' as a means to restore
a little confidence that the economy is not yet in a 'Panic' mode...


cheers

This what is going on right now with the bailing out of the banking system and the lost of home by the homeowners,

Is not working either way.

The government is expected to step in and do something about it, why? because is out of control that is why.

Right now lenders are trying to lure (once again homeowners in crisis) into getting more loans to pay off their debts to the bank if they are already late.

Again opportunist are trying to cash out this why government intervention is needed.

Originally posted by ArbitraryGuy
Rather, it's a bail out for the big institutional investors and big personal investors who packaged and bought these bad loans as securities. It's the government watching the back of those who put them in power.

Absolutely right. What this does is give the big financial corps an extra 5 years until they have to write down the losses. We've just seen 3 months of them all scrambling to save their asses and the Fed pumping billions into the market to shore it up, buyouts and write-downs and restructuring going on everywhere. The forecast was for the poop to really hit the fan next year when the foreclosures are actually finalized and the losses appear on the balance sheets.

By holding that off for 5 more years, they're not saving the homeowners they're saving the investment bankers.

I was an executive in a large mortgage bank for years, right up until I retired to pursue ATS full time and I have to emphatically AGREE with ArbitraryGuy.

This is nothing BUT a bail out for the most important sector of our economy's source of funds.

You know what? I don't necessarily disagree with bailing that sector out either as long as the greedy morons who created this fiasco go to prison, the money they made gets put toward the cost of jailing them and the system GETS REAL ENFORCEMENT at the underwriting level.

I STRONGLY disagree with couching it as a bail out for the "homeowner". It's NOT.

I also think those who stand to lose their homes should lose their homes, unless they can PROVE that the necessary disclosures were not given to and signed by them. There was lots of that going on apparently.

If the home buyer was lied to and not told the mortgage was adjustable (this will be a very LOW percentage of those losing their homes however) then they should be bailed out IMHO. The proof will be in the title abstract files in every county across the country.

Springer...

Operation “White Noise” worked well until major institutions needed international investments in order to survive. Since the first strategy could no longer function, plan “B” was put into action utilizing the Goldman Report, the Paulson presentation and the presentation of Paulson’s speech by President Bush with a few wrinkles.

If I was to point out one glaring mistake it would be negations with Citicorp on means and methods to rescue the inevitable bankruptcy. Was not Citicorp recently in serious financial trouble limiting their client’s ability to bank wire transfer client’s deposits? Citicorp, if they maintain their dividend, will burn 70% of funds they received by selling themselves to any bidder. This is a party Citi would invite Iran to as long as they sent money, any kind of money, preferably euros.

Now what is Citicorp going to do for the inevitable bankruptcy? Nothing meaningful will occur but a meaningful lot of window dressing.

Have you ever heard of re-foreclosure? If you have not, get ready as that is the only product of Plan B that has significant long term prospects.

Price controls have a really poor history of doing anything but making a bad situation FUBAR. If you freeze interest rates of any kind you have implemented a price control.

The next problem coming down the highway is one you have been informed of here. It is a total collapse in auto debt, total meaning more than 50% of all outstanding auto debt. If you are amazed at how mortgage companies gave money away wait until you hear about auto loans. All you had to have to get a loan was a body temperature above 70 degrees F.

The give away of money came from securitization of debt instruments. Securitization is a first derivative of debt. The lending arms of all auto companies are up to their headlights in bad debt and even worse, derivatives.

Another area of growing concern is the derivatives of debt that supported the huge takeover craze that is to a degree still in action.

Nothing has changed except for the worse. To promise relief but simply put off the inevitable will make people quite a bit more upset when they finally feel responsible for their condition. An indication by government that they will give hope but instead of hope, more pain comes, will come.

jsmineset.com

Big Jim's take on today's events. Auto debt is next domino in line.

Originally posted by Gools


So much for the Free Market!



This will make the situation much worse not better.

Banks will require higher interest payments from future mortgages (from those same responsible people shafted by this move) to make up for the loss of revenue on the trillions of loans they can't adjust. Expect even higher interest rates and thus the default threshold to move up the "quality ladder" as a result of this. They're just postponing the day of reckoning for the bad loans anyways. They'll still eventually result in default (with much higher future rates) but at least the banks will have five years of extra payments in their pockets.

I thought world history proved that central planning of an economy (the FED's raison d'être BTW) doesn't work?

This market intervention will have far reaching repercussions, and not the positive ones expected.
.

news.bbc.co.uk
(visit the link for the full news article)

I'm with Gools on this. Anytime the Gum-mint steps in and freezes any thing and then lets go prices sky rocket.

Now think back... What happened to steel prices over the last three or four years? GB stepped in to help the US steel industry and t-post. wire, sheet metal, pipe all shot up.

I can also remember the '73 cattle market. More Government help that just about ruin me.

Best thing to do is let the market work this out on its own.

Roper

Originally posted by Springer
I was an executive in a large mortgage bank for years, right up until I retired to pursue ATS full time and I have to emphatically AGREE with ArbitraryGuy.

I'm in finance here in Canada, and we have more than a few rules that prohibit borrowers and lenders from entering into these arrangements. It can be done, but most banks are diligent in their credit approvals, so the borrower is not usually put in jeopardy.


This is nothing BUT a bail out for the most important sector of our economy's source of funds.

I'm not sure I agree entirely here. I think it's more a pre-emptive strike against a possible recession and accompanying real-estate meltdown in your beautiful country. That said, I believe there are more than a few unscrupulous bozos that have been saved today. Not that they should have been mind you. While an unpleasant occurrance, a retraction in real-estate and the economy in general would be a good thing at the moment.

You know what? I don't necessarily disagree with bailing that sector out either as long as the greedy morons who created this fiasco go to prison, the money they made gets put toward the cost of jailing them and the system GETS REAL ENFORCEMENT at the underwriting level.

Good Luck with that! Your system of enforcement for securoties in the envy of the world, but unfortunatley, when it comes to loans, it's more of a caveat emptor scenario. Or Roy Rogers, not sure which is better or worse.


I STRONGLY disagree with couching it as a bail out for the "homeowner". It's NOT.

We agree here. The homeowners were suckered in my opinion, because they were sold a dream they could NEVER afford. Here in Canada, we do not allow this to happen to such a degree.

I also think those who stand to lose their homes should lose their homes, unless they can PROVE that the necessary disclosures were not given to and signed by them. There was lots of that going on apparently.

Right on. If you need a special deal to get into a house, by and large you can't afford it, and don't belong in it. When you have nothing into the deal, you have only nothing to lose. There is no incentive to fight a foreclosure or power of sale.

If the home buyer was lied to and not told the mortgage was adjustable (this will be a very LOW percentage of those losing their homes however) then they should be bailed out IMHO. The proof will be in the title abstract files in every county across the country.

This is true, but I doubt it will be easily proved. While the abstracts will be there, records of discussions will be notably absent.

Overall, I think this was a mistake, and has only postponed the inevitable by about 5 years. Were I a property owner in America, with no mortgage difificulties, I'd be pi$$ed because my real estate will no doubt be reduced in value today, and going forward.

Springer...

I STRONGLY disagree with couching it as a bail out for the "homeowner". It's NOT.

Well, as I said before, the "homeowner" shouldn't be so naive as to believe that he/she, whatever may be the case, can mortagage a 600,000 dollar home on a fifty thousand dollar a year income. It is just a perfect example of people thinking they should "have it all." I say, they made their bed, now let them lay in it. Why should it be up to the federal government and other taxpayers to bail them out? It really doesn't make good damn sense to me.

Does anyone really think this is going to save people's houses from foreclosure? The people having problems are NOT going to be saved from interest rates freezing. Bailout of naive borrowers and lenders? The lenders were just doing their job, and not everyone is as intelligent as us here on ATS.

The CEOs of JP Morgan and Citibank etc., etc. did all of this on purpose. They are richer than ever before off of FAKE MONEY!!!!!!!

All those securities don't really exist; they are based off of debt. If this is a bailout of the average joe and lowly banker, then those people will actually be helped.

Unfortunately, the cost of living is increasing, wages are stagnant, even dropping, and the value of the dollar is dropping dramatically. The middle class is being wiped out.

Originally posted by jmilla
The middle class is being wiped out.

Yep...Declining Middle Class and The Coming Civil War

I talk about it extensively on the linked thread. You may find it of some interest.

This whole thing reminds me of the thing John Titor said about people who make foolish mistakes:

A while ago (on one of the posts), I related an experience I had with my parents while we were driving down a highway. Every now and then, we would pass someone who was in obvious distress with their vehicle. I was amazed that so many people could pass them by without stopping to help. ... the walk to a gas station would be good for them and teach them a lesson for running out of gas.

Cannot help but feel this way about those with the ARM's. The government is picking them up, I think the walk would do them good.

At this rate- most people who aren't rich are just going to go for apartments- buying a house will be worse than a bullet to the head. New homes pop up now and no-one's buying them. Freezing the rates for 5 years is just stalling and creating even more instability! Bush is really going out with a bang- unfortunately this is just the beginning. Expect more idiotic decisions this way when we all are in the next depression- we won't be surprised.