Monday, September 22, 2008

The Irony of the Fall

It is ironic that the financial institutions, who are now going, hat in hand to Washington, still insist on playing hardball with their troubled borrowers, and those attempting to buy their properties.

Lack of oversight and public scrutiny exacerbated this financial meltdown as banks hastily approved loans and threw cash at anyone that could “fog a mirror”. So forgive me if I am incredibly nervous about the haste at which this rescue plan is coming together. Shouldn’t we subject the financial sector to the same scrutiny that they subject their troubled borrowers to?

From my feet on the ground perspective, the banks are making things worse by holding on to assets when they get a "reasonable offer." For example, the foreclosure my father purchased for under $140k in Stockton had a much higher bid on it back in May. We know because, the gentleman who put in the bid stopped by and asked what he paid for it. Our personal experience has been similar. Banks are holding out for more $$ only to pass up offers that will be considered generous in 6 months when they finally capitulate.

So my proposal is this…..If troubled borrowers are going to be given better terms by the Fed, how about we also make provisions that banks must make every attempt to sell their homes to people who will actually occupy them. This would help stabilize communities, and give first time buyers a fighting chance against all the investor money. It also puts something on the table for everyone…not just the ubiquitous homeowners.

Of course my favorite idea comes from Tanta of Calculated Risk:
"What I really really like is the idea of subjecting CEOs to the same petty humiliation everyone else gets treated to. I suggest that for every separate asset these CEOs sell to the government, they be required to write a Hardship Letter over a 1010 warning (that's a reference to the statute forbidding lying in order to get a loan) explaining why they acquired or originated this asset to begin with, what's really wrong with it in detail, what they have learned from this experience, and what steps they are taking to make sure it never happens again."

13 comments:

Paul said...

Although I love your idea, I'm sure you read Paulson's comment to a similar suggestion. "This (legislation) is not intended to be punitive."

Why the heck shouldn't it be punitive? It's certainly punitive for me and my descendants who have to pay the bill!

Buying Time said...

"Why the heck shouldn't it be punitive?"

Right there with ya Paul....I really don't understand why it shouldn't be. Their dealings have pushed the entire U.S. economy to the brink. If they don't participate because of the compensation cap or other punitive measures, then they obviously don't need the help that bad.

PeonInChief said...

I like punitive. I think they should have to fill out lots of forms, like people do when they apply for food stamps or Medi-Cal, and have to go back to the office to get more documentation, and then sit in a stuffy room on uncomfortable plastic chairs, and then, and then... I am so ready to be punitive. And these are the people who deserve it.

Anonymous said...

I don't see how wiping out the investors is going to do anything to stabilize communities.

Some people are responsible, stable, and keep a clean house. Others don't. It doesn't correlate to renting vs. owning.

Deflationary Jane said...

Amen Paul and Peon and hearty "Rock On" on to BT! Tanta has long been a hero of mine.

No equity share and compentation cap = no bailout - period

I've been saying this isn't over until a city burns and frankly, if they shove through using paulson's version, they is quite likely what they will get.

Buying Time said...

"I don't see how wiping out the investors is going to do anything to stabilize communities."

It probably wouldn't, but I still like the idea.

Has Sippn disapeared completely? I figured he would have chimed in on this....

Anonymous said...

"It probably wouldn't, but I still like the idea."

Why? Without any investors you'd be living in an apartment complex right now.

alba said...

Take their houses away from them, equity, bbq, riding mowers, garden hoses; beach houses in the Hamptons; vacation homes in St. Barts...everything.

patient renter said...

Without any investors you'd be living in an apartment complex right now.

You're implying that real estate investors are the same as stock market investors? Clearly not so. Regardless, neither deserve to be subsidized at the taxpayers expense.

Deflationary Jane said...

Ditto to Alba and Patient.

What I just don't get is how shoring up inflated assets is going to do jack without wage inflation. There is nothing in the bailout about job or job market stabalization (unless you are a banker worried about your weekend shore house).

why not move that 700B into a job creation package? Nahhh can't do that and still preach small government. But how does tossing 700B to wall street equal small government? Something just smells wrong here.

PeonInChief said...

DJ--

Sometimes you are so innocent. It has long been true that bailing out some poor guy who lost his job is an inappropriate subsidy while bailing out some rich guy who may have to give up his yacht is proper management of the financial system.

That's why I've never liked the "subsidy good, subsidy bad" argument. What I really want to know is: to whom does the subsidy go, for what purpose, to whose benefit. Compare the answers to those questions for the $700 billion and the $7 billion Bush vetoed for SCHIP and you'll see what I mean.

Deflationary Jane said...

Chief,

I prefer to think of myself as a constantly dissapointed optimst >; )

What I'm more worried about is why they are calling the 3rd Infantry Division’s 1st Brigade Combat Team to active duty at home.
http://www.armytimes.com/news/2008/09/army_homeland_090708w/

Even people out here are spooked bad. I can only imagine how most of CA is reacting.

blackwomanblogging said...

Funny, about a year ago I railed against "pricing Viagra" in the real estate market -- how sellers needed to get real about the "value" of their properties in light of a declining market and stop trying to "prop up" sales prices.

Now, it looks like the Wall Street folks want some "pricing Viagra" for their bad assets. Or better, they just want the American taxpayer to blow them. Either way, bad outcome all around.