The banking industry, struggling to contain the fallout from the mortgage debacle, is urgently shopping proposals to Congress and the Bush administration that could shift some of the risk for troubled loans to the federal government.
One proposal, advanced by officials at Credit Suisse Group, would expand the scope of loans guaranteed by the Federal Housing Administration. The proposal would let the FHA guarantee mortgage refinancings by some delinquent borrowers.
Credit Suisse officials have met with senior officials from the Department of Housing and Urban Development, which runs the FHA, and other policy makers to discuss the proposal.
The risk: If delinquent borrowers default on their refinanced loans, the federal government would have to absorb the loss.
This news infuriates me to no end. What makes it worse is because this is an election year, the plan might actually gain traction.
Let's review all of the actors that caused this mess.
Mortgage brokers: Because the person brokering the loan knew the loan would be sold to a third party the broker has no obligation to make sure the borrower would actually repay the loan over an extended period of time. In addition, some brokers were given higher commissions for selling riskier loans.
Investment Banks: These organizations were hungry for collateral and pressured brokers and originators for more loans to pool and sell. This is the type of pressure that led the mortgage bankers to stop looking at things like "credit history." In addition, investment banks were lax in their due diligence to deeply inspect collateral.
Ratings agencies: who actually said most of this paper was AAA and therefore could be purchased by practically anybody.
All these people are now suffering. Many businesses have gone out of business or are suffering serious declines in their share price. GOOD. Let me repeat that. Good. Yes, I know that sucks for the rest of the economy. But the only way for these organizations to change their behavior (which was the proximate cause in starting the mess in the first place) is to feel the pain. And publicly traded companies feel pain by reporting losses to their shareholders.
Bernanke has already demonstrated that he is Wall Street's bitch. Let's hope Congress can grow a spine and tell the financial industry to grow up. Of course, this is the same organization that is now investigating steroids at the beginning of a recession, so who am I kidding.
7 comments:
But bonddad! Corporate welfare is different. It's... ya know... um.. different!
It seems to me that the reason that major financial problems develop is a refusal to allow minor financial problems to play out as they should. There is an assumption that underlies a lot of the financial system that, if things get really bad, the government will rescue people. This discourages a focus on the very real risks involved in these financial deals.
Basically, so long as you follow the pack and do the same stupid crap everybody else is doing, you're always going to be safe. Once the scope of a problem becomes larger enough, the pressure on the government to bail people out becomes too great, and so you're covered. Sure, you might wreck the economy in the mean time, but you probably aren't going to face any real consequences, so what does it matter to you?
And lest we forget, the first lesson of finance:
If you want to be reckless, make sure you're too big to fail.
The one player this post doesn't mention is the Bush Administration. Elliott Spitzer has an excellent Op Ed in the WaPo this morning about how the OCC helped create the conditions to make this mess:
http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html
Amen!! I remember when MBA's were revered as gods for their incredible business insight and ability to turn anything into gold. Now I realise that most of them seem to have gotten their MBAs the way Bush did: a legacy "education". How these supposed geniuses got away with such "business" practices for so long is simply astonishing. And now to be asked to be excused for the damage they've done to the economy? Better we should strip them of their "credentials" and forbid them from ever working in the financial sector again.
Not to put too fine a point on it, but I recall when MBAs got to be a hot item, so everyone went and took classes to add that to their sheepskin. Many companies would pay the tuition. The result, of course, is that now everyone is an MBA.
Ben and the Fed should recognize the current trend for what it is--natural selection. The idiot lenders are being weeded out by natural market forces.
Trying to hold off the forces of economic Dazrwinism is the province of the old Communist regimes, isn't it?
Lenders and how we get them to listen!
As many borrowers know from their own experience is that the resistance from
their lender is high and just getting through to the appropriate person is very
difficult. However, when MyRecast is
involved it seems as if the calls start to get answered and the letters are
responded to. On our MyRecast Team we have the best HUD advisors involved, state
wide attorney representation and the BEST sub-prime underwriters to QC / and
audit the original files.
We use powerful laws like the Truth in Lending Act (TILA) and the Real Estate
and Settlement Procedures Act (RESPA) to bring lenders to their knees. So,
naturally, the lenders will be very amicable to working and negotiating with
MyRecast Team for a modification of the note and work out to more
affordable terms to avoid costly
litigation. Not to mention your credit and
how this will affect your ability in the future.
Jackie
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