Friday, November 9, 2007



So Ben the Nursemaid of Wall Street is not satisfied providing ample supplies of mother’s milk to his tough guy sucklings in the form of ample credit. Yesterday, he proposed, get this, having the federal government (for a fee—a market based fee, I’m sure) guarantee mortgages of up to $1mm (One million dollars!!!) so that those mortgages can be packaged into securities (by Fannie and Freddie) and sold to investors. Why? Because Fannie and Freddie are currently not allowed to buy and package mortgages over $417,000.


We as taxpayers are supposed to guarantee mortgages of up to $1mm. It seems that those who are (or were) wealthy enough to qualify for $1mm mortgages somehow were misled, planned poorly, or otherwise miscalculated, turning these mortgages into toxic waste. (Those of you who continue to argue that we still live in a free market society in which people generate wealth and make money because they are smart and work hard, not because they are in “the club” or are able to hornswoggle an increasingly bewildered and idiotic consuming and voting public, please explain this to me. Oh, I get it…these masters of the universe were misled by slick mortgage “consultants”…yeah, that’s the ticket! It’s the salesman’s fault! Why, these “affluent homeowners” are mere innocents, putty in the hands of slick salesmen (who were selling shoes, or fast food, a week before becoming mortgage “consultants”)! But I digress.) The Wall Street types who bought the paper backing the mortgages (and who laughingly dismissed the warnings of us alarmist types “Ha! These aren’t sub-prime loans; these are loans to the good people, the wealthy people, the people who make America work! And, with the bustling economy, they can’t miss!!! Ha! Ha! Ha!” But I digress again.) are seeing (sniff!) losses from their bad positions. So Ben must ride to the rescue!!! After all, his job is to protect the Masters of the Universe, who make our economy work.

But of course we as taxpayers will be getting a fee. And if the borrowers default, we will be able to seize the collateral. So the taxpayers are fine, right? But if this were such a good deal, why is a government guarantee necessary? If the collateral is so good, why aren’t traders, distressed or otherwise, all over these troubled loans? Oh, I forgot. The distressed guys will only do a deal with a backstop. As Zay N. Smith (“QT” in the Chicago Sun-Times) might say, add “distressed investing” to the list of things that isn’t what it used to be. The Bernanke “plan” is a subsidy both to wealthy (and overextended) homeowners and to the “bold and swashbuckling” traders who got caught in increasingly malodorous positions and are now scrambling to hide behind Mother Ben’s apron.

Further, let us assume this scheme passes a financially and economically illiterate Congress. The federal government (i.e., you and I) end up guaranteeing $1mm mortgage loans. Borrowers default. The government honors its guarantee and assumes the mortgages (properly understood, i.e., the security interests in the homes). Does anyone think that the government will be able to foreclose? Can you imagine the pressure on the government to renegotiate with “troubled homeowners” (with $1mm mortgages)?

The Democrats, of course, think this is a fine idea. Chucky Schumer says he will introduce a bill incorporating Breanne’s suggestion very soon. “I think it’s a good idea,” Chucky said. Rep. Caroline Maloney, a Democrat from that bastion of poverty, Long Island, who chairs the relevant subcommittee in the House, is also hopping on this bandwagon. So the next time the Democrats tell you they are the party of the working person, throw this back in their face. They are at least as meretricious as the Republicans, looking for any excuse to expand government and mollify anyone who can write a check for a “campaign contribution.”

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