Major corporate loss is always socialized and the citizenry is always penalized for the obscene excesses and the attendant economic disasters of the wealthy classes.
It is only profit that is privatized.--Pete
By ZACHARY A. GOLDFARB, DAVID CHO and BINYAMIN APPELBAUM, Washington Post
Under the plan, engineered by Treasury Secretary Henry Paulson, the government would place the two companies under "conservatorship," a legal status akin to Chapter 11 bankruptcy. Their boards and chief executives would be fired and a government agency, the Federal Housing Finance Agency, would appoint new chief executives.
The action, which would be one of the most sweeping government interventions in private financial markets in decades, is planned for today, according to several sources.
Authorities see Fannie Mae and Freddie Mac as crucial to the recovery of the housing market. They have funded 70 percent of home loans in recent months. A reduction in their activities could send mortgage rates that ordinary home buyers pay soaring and result in a new, deeper crisis for the already reeling housing market.
Moreover, regulators are trying to prevent Fannie Mae and Freddie Mac's problems from triggering a new wave of failures among banks, which hold vast reserves of bonds and preferred shares issued by the two firms.
The administration is not expected to say how much the bailout ultimately will cost, in part because it does not know how much the Treasury will be able to ultimately sell the assets for. It could be politically uncomfortable to put a price tag on a huge bailout, only two months before the presidential election. The Congressional Budget Office said two months ago that it was impossible to say how much a bailout would cost, but estimated $25 billion based on the companies' projected losses at the time.
As most of the present foreclosures are a result of people simply not wanting to pay their mortgage rather than not being able to, I have mixed feelings regarding the proposed bailout. As a 20 year participant in the mortgage industry, we were doing fine until the values bottemed out. I have the good fortune to live and work in Ft Myers/Cape Coral, Florida, one of the three foreclosure capitals in the US at the present time.
ReplyDeleteIn 2005 we exploded for no apparent reason onto the national real estate scene. Partially due to the fact that Cape Coral had just reached the point at which national "chain" type businesses start to consider investing in your area. The demographics look good, the income is where it should be per capita, etc. This means a regular Wal-Mart isn't good enough any more, it has to be a Super Wal-Mart.
In that year I attended a meeting of the Cape Coral Builders association where the guest speaker(s) were our local elected and appointed officials who were to boast of the new commercial developement which was taking place at an alarming rate. Long story short, of the hundreds of thousands of proposed square feet of commercial developement, it would not bring a job that paid over $6.50/hour and never would in the future. Floridas' economy is pretty easy to figure ou; you are either eating in a Outback or working in one.
So for about 18 months we allowed about 2000 homes to be built PER MONTH in a city that had a current absorbsion rate of perhaps 10% of that figure. Thank you local government for keeping an eye on that one for us. Most of these homes were speculaton purcases by investors all over the country and around the world. Prices skyrocketed over what was perceived to be and endless demand for said homes. It worked for a while. Buy at $200,000 and sell the contract (not the actual home as it has not even been built yet) for $300,000. I saw this happen on a daily basis. Please bear in mind that I do not lend money but simply inturpret lending guidelines and find people that fit that criteria who wish to borrow. I am a broker. We had more lenders knocking our doors down throwing money at us to lend; each month under less and less restrictive guidelines.
Then it all goes to shit. Come to find out, there was no shortage of raw land or building materials and there never will be. And even with the influx of outside investors, we are still to this day sitting on thousands of homes which, again at our current rate of absorbtion, will take us several years to get rid of. Not to mention that they will be sold at about 30% of what was lent to buld them. And as the construction industry dried up and ded, so did the thousands of jobs for the people who were buying some of those homes. And as soon as the investors figured out they paid $350,000 for a home that is nw worth $89,900 the mortgage payments stopped being sent. They sent the keys to the lender instead and walked away. Roughly 75% of the distressed properties in the area here are owned by investors. Now they are owned by the banks. But we will all take a big bite of that shit sandwich now won't we?
Another crippling effect from all of this was the loss of the sub-prime lenders. Sub-Prim lenders said this to clients; OK, your credit score is less than it should be because you made some mistakes in the past. Here is the deal, take this mortgage which is fixed for 2 years at 7%. During which time please pay off some of those minor collections and reestablish some new credit accounts, wich if you are so inclined, is pretty easy to do. I'm talking about 2 $500 secured credit cards which you pay on time for 12 months. Because if you don't do that during the alotted time, at the end of the 2 years your rate will g to 12% and adjust from there on out. Many folks signed up for this deal (approximately 30% of our business) and about half of them did clean up their credit and we refinanced tem into a nice 6% Fannie Mae fixed rate which they are enjoying to this day. The other 50% are "habitual offenders" and we would simply refinance them into another 2 year fixed sub prime loan and give them another chance. Sad but true. Well can you imagine what happened to the latter group when ALL of the sub-prime lenders went out of bsiness and their 2 years were up? 12% rates and payments they could not afford as there were no more second chances.
Finally my point is this; I could not agree more wth the ttle of the article referenced in Petes' latest diatribe. Make no mistake, we will have to bail out Freddie and Fannie to keep interest rates low for future generations, but the wealthy got a golden parachute as they always seem to in matters of this kind. While there is no help fr the local owner occupied homeowners who either lost their jobs or their rates went through the roof to the point of not being able to afford any more, the investors will end up with write offs and bailouts from a government which not only created the problem in the first place but cannot afford the remedy.
And who is really going to pay for all this anyway, like you don't know the answer to that one.
Wireless keyboard. Sorry for the typos.
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