Half-Measures Have to Stop

This ain't easy.

Being one who has a house for sale, I support the idea that James Cramer put forward some time ago and then shut up about: Stop giving government money to the homebuilders.

More recently he suggested that the government spend $300 billion to buy up 1,000,000 homes...and burn them down.

That is a good idea and it in line with Keynes.

Seriously.

I mean it.

I mean it, dammit!


Editorial
Foreclosure Prevention Lite
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new_york_times:http://www.nytimes.com/2008/11/13/opinion/13thu1.html
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Published: November 12, 2008
Treasury Secretary Henry M. Paulson Jr. was notably absent from the rollout on Tuesday of the Bush administration’s newest foreclosure prevention plan. Maybe he was finally too embarrassed to stand before the American people yet again and offer yet another too-little, too-late solution.
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He did send his protégé, the recently appointed bailout czar, Neel Kashkari, who dutifully mouthed the phrases that Mr. Paulson has used for a year now to describe the foreclosure crisis (“a necessary correction”) and to justify the administration’s pathetic responses (“there is no silver bullet”).
The nation’s banks and other financial firms also are undergoing a necessary correction for which there is no silver bullet. But that hasn’t stopped Mr. Paulson from intervening forcefully — using taxpayer dollars — on behalf of an ever-expanding cast of bailout recipients. The tight fist is reserved for homeowners.
That is a huge policy error. The whole point of the bailouts is to stabilize the financial system. But the system will not stabilize until house prices stabilize, and house prices will not stabilize until the government finds a way to stanch foreclosures on a large scale.
The Bush administration’s new plan applies to delinquent loans controlled by the government-run mortgage companies, Fannie Mae and Freddie Mac. They will use a fast-track process to lower troubled borrowers’ monthly payments to an affordable level, either through a longer repayment term, a lower interest rate or deferral of payment on part of the principle.
The biggest problem with the plan is that Fannie Mae and Freddie Mac control relatively few of the types of loans that have driven defaults to crisis proportions. Even if the companies successfully restructured all of their troubled loans, more than three million Americans still stand to lose their homes this year and next. As long as homes are being lost by the millions, house prices will continue to drop, making Americans poorer, the financial system shakier and the economy weaker.
Administration officials have said that they hope other lenders will emulate Fannie Mae and Freddie Mac. The notion that the government might lead by example is an improvement over the administration’s previous tack — merely urging the mortgage industry to act voluntarily to stop foreclosures. But it’s still pie in the sky.
Citigroup, JPMorgan Chase and Bank of America have announced stepped up anti-foreclosure efforts recently. But if history is any indication, their efforts will fall short. That’s because the banks do not directly control most of the loans that require restructuring; rather, the loans have been parceled out in pieces to various investors. The difficulty of getting the often-conflicting parties to agree to modified loan terms has derailed all previous attempts to stem mass foreclosures.
Not only has the government refused to compel the mortgage industry to act, but it has not provided strong incentives for them to do so. As if in tacit acknowledgement that the administration has not gone far enough, a Treasury spokeswoman said on Tuesday that the latest plan is not necessarily the last. Meanwhile, the damage is being done house by house, block by block, neighborhood by neighborhood.
The half measures have to stop.
As a candidate, President-elect Barack Obama favored amending the law so bankrupt homeowners could have their mortgages revised in court, an avenue currently denied them. The next Congress must move forward on the bankruptcy amendment first thing in January.
Hundreds of thousands of homeowners would qualify for bankruptcy, and hundreds of thousands more would be helped if lenders and investors opted to restructure bad loans rather than having to go to court. Better still, bankruptcy restructurings would cost the taxpayers nothing and concentrate the pain on those responsible: borrowers who took on more debt than they could handle, and lenders who made bad loans.