Mark Ireland, former Minnesota Assistant Attorney General, took a look at what the three remaining presidential candidates are saying about the foreclosure crisis and translated their campaign-speak into good ol’ American English.
According to Ireland’s commentary, only Obama has a real plan. He would increase penalties for fraudulent lending, create a foreclosure-prevention fund, create a standardized scoring system for rating borrowers’ obligations, and more. (Although Obama does not mention it, I hope he would also earmark funding to prosecute the frauds, who are pretty much going unpunished.)
Ireland says Clinton wants to offer shelter to the mortgage servicers who helped create the problem, while McCain’s “proposal” is basically to do nothing.
The Issues: Housing [NYT]
Clinton, Obama, McCain On Foreclosure Crisis [Consumer Rights Watch]
(photo: The Joy Of The Mundane)
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Economically speaking, it gets very scary when you realize that without mortgage equity withdrawal (MEW) spending since 2001 that US GDP would have been negative for two full years and flat and under 1% for 3 years. Basically, without the ‘cheap and easy credit’ that have existed for the last 5-6 years, the US would have been in a recession.
As others have mentioned, this strict “no bailout” rule has impacts well beyond those who bought more than they could afford or banks that packaged this crap for others to buy. The problem is that we seem to be bailing out the banks, but not the consumers. Sorry, the banks are just as much to blame for this. Stated income, interest only, huge APR’s, etc. There’s absolutely no way they can say with a straigh face, “we didn’t know this could happen.” They knew, but they also knew they’d get bailed out or thrown a lifeline of some sort because failing banks would create a economic disaster. So they engaged in risky lending knowing that the downside would be minimized by the taxpayers. So, my view is that if you bailed out the idiot banks, you should offer some assistance to the idiot lenders. But, it should not make them whole, there needs to be some disincentive for both of them to do this again.
@Hodo: “I could go on about this topic for quite some time, but I do actually have to get some work done today and I fear that I’m completely boring the crap out of people.”
I thought it was some kind of awesome, for what it’s worth. Very educational!
I’m not sure the popular rhetoric that the government is bailing out Investment Banks is anything more than that . . . rhetoric. Take Bear Stearns, for example. They’re the domino that started this cascade (they’re not uniquely culpable, they just happened to be first). Do you think many (if any) of the people who worked at Bear Stearns are going to make any money upon being acquired by JPMorgan? In fact, I’d just kinda’ throw out there that most of the Bear Stearns staff will lose their jobs, any employees heavily invested in their 401k in Bear Stearns shares (as stupid as this sounds in the aftermath of Enron, employees are typically still waaaay over-weighted in their employer) are going to see their nest eggs erode to almost nothing as the cherry on top of the sundae of losing their job, and virtually nobody connected with the leadership of Bear Stearns is likely going to escape from this fiasco with their reputation intact (which doesn’t sound like much of a punishment, but a lot of money gets made on the street via perception and reputation . . . having a bad one can be fatal to one’s prospects). Banks that offer these bailouts of other firms (with a nudge from the Federal Gov’t . . . to the tune of “you can either buy them out or we can start to kick the tires of your bank.”) will have access to Gov’t funds to provide liquidity (and essentially help them remain solvent after they absorb large negative equity investments), but it will take years to gradually write those bad instruments down/off, which is just a nice way of saying “poor long term earnings performance”. So, I don’t see how the above-referenced rhetoric holds up (so far) to analysis, I could be missing the point though.
So…
Obama: Regulation
Clinton: Money
McCain: Free Market
Whoo! I can spin too!
If people are forced to take their lumps, they may learn to handle money a little more responsibly.
The biggest problem is people see their house as an investment. It isn’t. This is why people are screwed.
@Trai_Dep: I second that.
I passed over it the first time due to length and attention span issues, but went back and read it when I saw your comment. Definitely worth a read. Thanks Hodo.
@Hodo: I would like to subscribe to your newsletter.
@Hodo: Perhaps the Bear bailout isn’t a “get out of jail, free” card. But don’t you think all of the interested stakeholders (especially upper management) are going to end up better off than they would have otherwise?
I have two big problems with these corporate security nets. First, they’re asymmetric and prone to awful incentives. Large corporations in key industries can reasonably rely on government bailouts to rescue them. Therefore, the public basically underwrites the risk of their business decisions — without demanding to participate commensurately in the profits. Given a free insurance policy, it should be no surprise that these organizations behave as aggresively as they do.
Second, these kinds of interventions strike a fairness nerve. Our economic system already places a disproportionate amount of risk upon individuals; it seems offensive to stack the deck even further by bailing out large corporations while letting individuals languish in their own situations. (This, of course, is in *addition* to all of the other special perks and privileges that corporate America receives.)
I agree with McCain’s. Basically bad things are done on many levels. By home buyers buying more than they can afford without educating themselves first, and lenders who passed off the risk to investors, by investors who didn’t educate themselves of the risk of morgage backed securities.
They just need to take their losses and get one with their lives (or commit suicide). The more we involve the government to bail out anyone, the more future prospective home owners get punished.
For each person that gets bailed out of the sub prime for their bad decisions, a prospective buyer has to pay more for houses that probably should of been forclosed upon.
I’m really rather tired of news sources describing Obama and Hillary’s “plans,” which are really more like one or two sentence blurbs, and then essentially saying, “oh yeah, and McCain, but his sucks anyway why are you even asking?”
They’re all terrible, all three of them, in the regard that we essentially have NO IDEA what they actually plan to do when they get into office. It’s terrifying, quite frankly. The first presidential election in which I can vote and the media coverage is about on par with a rerun of Entertainment Tonight.
Actually, come to think of it, “do nothing” is what I wish the government would do more of. It’s cheap and it’s easy to implement. The government obviously has not even the most basic understanding of what is going on, let alone how to fix it, and the government seems to be really good at screwing things up anyway. I’m not sure I want them sticking their hand in the pot.
Funny, isn’t a war what you usually use to get the economy out of a slump? Well, we sure played that card a few turns too soon…
@Tux the Penguin:
There was a good overview of the proposed budget numbers for 2009.
Basically, we could zero out the budget for Agriculture, Commerce, Education, Energy, Health and Human Services, Housing and Urban Development, Interior, Labor, Transportation, and NSF, and still be running a deficit.
Taxes need to go up AND spending needs to go down. Hell, interest on the debt is the 4th largest government program.
@AlexDitto: Obama’s a published author — and one of his books is principally about his politics. (Info on specific policy positions is available on his web site — but The Audacity of Hope is effective at conveying overall political philosophy; I read it back when he was the extreme long shot, and have been an ardent supporter since).
As there have been several books written about Clinton (and her campaign no doubt has an extensive site), comparable information should be available there as well.
Instead of complaining about how the mainstream media only gives two-sentence sound bites, you might consider looking for more extensive sources; they’re certainly available.
Oh whatever… Clinton was the first (and only as far as I know) to suggest an Interest Freeze for Mortgages. Alot of this comes from nasty Loan Originators/Officers (My BF is a Loan Processor, I should know) continuely lying and defrauding their customers including hiding interest rate increases in 100+ page packages or just lying and saying an increase on their ARM would be nothing to worry about. This would help those victims. And YES, they should have read and understood the package, and YES the Government should have known (and have even more responsibility) but the blame lies on those who pushed Sales over Quality and thus lies squarely on the Loan Originators/Officers and the Management and CEOs that threatened to fire (and yes my BF got fired from Countrywide in 2003 for speaking up) Processors and Underwriters that didn’t play thier game.
So this is no shock to me… I predicted this in 2003 and expect it to get way worse and not limited to subprime at all. Poor Credit borrowers just default faster and obviously have less cash to try to hold on to a property when their interest rates go from 3 to 6 percent effectively doubling their payment. Interest Freeze would help temporarily solve this.
@KyleOrton: there in lies the problem, nobody can afford the condo’s to buy them up and rent them out. To buy them up would be 300-400 k the mortage is around 1200 or so then you want to make money so then add 100+ to that cost you then paying 1300 or more a month in rent for a 1 or 2 bedroom condo that you used to own.. not really something all that wonderful.
The real solution is there is none.
@modenastradale: Can’t really disagree with much you’ve written. The only thing I’d accentuate is that the issues you highlight are indeed systemic and not limited to this particular financial crisis. Whenever money and power are highly concentrated, you get very asymmetric administration of the law, IMHO.
@ARP: I actually do write a newsletter, but it is incredibly industry specific and I doubt it would interest you. One source I use a LOT for information and perspective is John Mauldin. He has a FANTASTIC newsletter, and I highly recommend it. You can sign up for it here: [www.2000wave.com]
While I realize that foreclosure sucks for many americans, it’s unfortunate that prices have been driven up as far as they have. After looking at [www.hudauctionwatch.com] I believe that foreclosures will actually be good for those of us trying to afford to buy a house.
@Skankingmike: There’s no solution, but the result is that people who made dumb decisions are having to live with them now. That’s not entirely a bad thing given the financial behavior of people in this country.
Translation:
Obama and Hillary want to make government bigger and have more fingers in more pockets so that people have less choice under the guise of “protecting the American people” so that you become even more dependent on the government so they have an excuse to make it even larger and more intrusive on your daily life.
The majority of the people in foreclosure over-borrowed and put themselves in this situation.
What next, the government is going to set regulations on how you can use your credit card?
Ban cigarettes, the government is protecting you.
Ban fatty foods, the government is protecting you.
Ban rare-cooked red meat, the government is protecting you.
Ban violence and sex from tv and videogames, the government is protecting you.
Ban thought and emotion, the government is protecting you.
@Skankingmike: Here’s a solution I think is interesting: [www.cepr.net]
There are more than three presidential candidates no matter what those media folks tell everyone…
@MercuryPDX:
you obviously didn’t see the nevada gop campaign