When the rich get poorer...
Sunday's Globe reports that even rich people with excellent credit increasingly are struggling to borrow money. That's the type of problem that gets the attention of the U.S. government, and so we have a report that the Federal Reserve is in discussions with its European counterparts about buying billions of dollars of mortgage-backed securities -- the stuff no one else will touch. Such a bail-out would give lenders the money to start making loans again.
The U.S. government naturally denies that it's even considering such a plan. This is typically how the U.S. government signals that it's about to do something. It also reflects the government's general approach to the mortgage crisis, which has resembled nothing so much as a drunken bumblebee.
Economist Brad DeLong writes on his blog that some kind of intervention is necessary and inevitable.
Everyone keeps on asserting that all of these plans are not intended to help the people who are responsible for their own problems, but a fellow blogger makes the excellent point that pretty much everyone in trouble bears at least some responsibility for putting themselves in this position, from the lenders to the enablers to the borrowers.
No one has yet accused the Bush administration of plotting to bail out borrowers, but various members of Congress continue to push those kinds of plans, most prominently U.S. Rep. Barney Frank. The gist is that lenders would write down mortgage loans to the present value of the property, swallowing the loss, and then the government would assume responsibility for the rest, protecting the borrower. But don't take my word for it. Read Frank's op-ed in the Washington Post.
The same two sides -- the executive branch and Congress -- also are facing off about whether the current collapse indicates a need for more regulation in the future of the mortgage industry specifically and the financial industry in general. The New York Times had an excellent survey on Sunday.
Finally, if you're looking for a reminder about the nature of our problems, I'd recommend this excellent piece in the Washington Post, relating the troubling tale of one very troubled borrower.
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Frank's actual proposal is not nearly as much of a bailout of the reckless as his Op-Ed piece appears to propose.
In any case, we do need to encourage sensible lending in the future. However, that is quite different from bailing out stupid lending in the past. The government--and most of the press--continues to conflate the two. So does industry, not surprisingly. It's in their interests to pretend we're giving institutions "the money to start making loans again," when we're really just letting them stuff their pockets full of taxpayer money.
Yes, we do need banks making smart loans. We don't need these particular banks, however. These can bloody well fail, and wipe out their shareholders and executives. That's the way we've handled banking crises in the past.
Oh, and let's cut the BS on one other thing. The Federal government doesn't have the money to bail out all the damage, though that won't stop them from trying to make whole a select coterie of cronies, insiders, and campaign contributors.
I think a more accurate statement would be, "Sunday's Globe reports that SOME rich people with excellent credit" are struggling to get approved.
Or, "A reporter interviewed SOME rich people who were having trouble getting approved to buy a home."
Often, it seems as though the Globe's reporters try to find people to fit their pre-conceived notions.
For example, in that same article, the reporter writes the following:
A mortgage-market contraction could prolong the housing slump and hurt the US economy, which most economists believe is already in a recession.
Um. "most"?
Not accurate.
"Many", maybe.
The Wall Street Journal recently polled a bunch of economists, and 70% said they believed the US was in a recession.
Many ... most.
Why worry about semantics, right?
The bigger fool theory of real estate .... this was a trap my father pointed out to me 30 years ago. One buyer pays an infllated price for a home, hoping a bigger fool will come along in a year or two and pay a greater amount. While the market is in this mode, those in and out make a killing, but when the music stops, the last person holding the mortgage on the overly valued home is out of luck.
why should we use tax dollars to bail these people out? Let the lenders and borrowers sort a deal out. They got themselves into the mess. Let them get themselves out ... without tax payers footing the bill or the risk.
As for tight credit, if lenders won't lend, they won't make money. This will go away with the natural forces of the market. Sooner or later, lenders will start lending again. Or they won't be in business very long.
70% sounds like most to me
"70% sounds like most to me"
Correct, most, as used in that example means majority. However, many terms are defined differently in realtor world. For example, a down market means "great time to buy", an up market means "great time to buy" and a stable market means "great time to buy".....
That's Brad, not Ed, Delong
[Ed. Note: Right you are. Changed in text. Thanks.]
However, many terms are defined differently in realtor world. For example, a down market means "great time to buy"
Yes, and "a reporter's preconceived notions" means a national survey conducted by the Federal Reserve.
Are some of these people struggling with loans because they are trying to buy the kind of properties that we previously very overvalued? Is it because of the tier they are trying to buy into? In other words, would rich people with good credit have trouble buying cheaper homes too, or just the homes representing as much as they can afford?
This blogger might want to review your comment before posting it.
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