Hmmmm. News is mostly bad and the market is going up. Have we got a bottom?
Rumor says AMBAC has worked out a bail-out, er, recapatilaization. Apparently Ambac will sell warrants to get US$2.5B; the warrants will be guaranteed by the banks in trouble because of AMBAC.
Why shouldn't the banks expect a taxpayer bail-out? It worked last time. :-)
Altruistic banks? When pigs fly!
Frankly, I think those who fell victim to this mess shouls take the consequences. That includes buyers and lenders. The pain will teach the necessary lessons. The gov't refuses to back up to regulation that worked.
Barring that,I'd go for modification of the loan terms. The problem with that is it punishes the wrong people - savers who will get lower rates in the future and future buyers who will have to pay higher rates on mortgages to float the ne'er-do-wells.
Lenders object that by giving homeowners the right to modify their mortgages under court supervision, the bankruptcy amendment would raise the cost of mortgages for everyone, forever. That concern is surely overstated, but not entirely without merit. To address it and other industry worries, lawmakers have proposed constraints, such as limiting the bankruptcy relief to junk mortgages of the past few years.
How about the lenders are right? Faced with the possibility that a bankruptcy court can arbitrarily and capriciously modify the terms of its contracts, including the interest rates, will force lenders to charge higher rates om mortgages and pay less to savers to offset that uncertainty and potential loss.
Saying that "What's good for the mortgagees is good for America" is no more valid than "What's good for GM is good for America". If the first is true, the second is.
The bankruptcy amendment has another virtue: it could bolster a worthy rescue idea floated recently by the Treasury Department’s Office of Thrift Supervision, one of the nation’s bank regulators. The idea is that if lenders voluntarily agree to loan modifications, they would become entitled to a share of the house’s appreciation, if any, when the house is ultimately sold.
The lender can include that as part of the mortgage agreement. Some have. But it fails to handle a situation when house prices fall. They do, and this is not the first time.
Like other Bush administration plans, this one suffers from its emphasis on voluntary cooperation, which has been shown to be inadequate.
If the borrowers don't like the loan terms, they have the option of walking away. Even under your plan, cooperation remains voluntary on the borrower's part, just not on the lender's.
If enough borrowers walk away, the lenders will get the hint and come up with terms to get them back.
The bankruptcy amendment, however, would give lenders more incentive to go along, by providing a real downside to not acting voluntarily — losing control to a bankruptcy judge.
And I'll move savings offshore, out of the reach of those judges.
In the end, taxpayer-funded bailout proposals may make sense, but only if other prudent measures have been exhausted. That has not happened yet.
Nuts. I neither made an idiotic loan nor took one.
There are two good, complementary ideas on the table — the carrot for lenders offered up by the Office of Thrift Supervision, and the stick provided by the bankruptcy amendment. Congress and the Bush administration should move forward quickly on both of them.
Maybe more sense can be beat into potential borrowers and lenders by letting the idiots go under and keeping the gov'ts big stick out. |
