Thursday, January 24, 2008



Who says that the two parties who have monopolized power in Washington for the last 148 years are hopelessly gridlocked by partisan nitpicking? (Would that such a situation prevailed, and would prevail, for the next, oh, 1,000 or so years, but that is another topic.) Senator Chris Dodd (D., CN) whose opinion matters because he is Chairman of the Senate Banking Committee, and Representative Mark Kirk (R. IL) have come both come up with what is essentially the same gormless idea: the federal government (i.e., you and I) should buy “distressed mortgages” at a discount and put the (in almost all cases irresponsible, or they wouldn’t have gotten into this mess) borrowers into government guaranteed fixed rate 30 year loans. Representative Kirk, a noted Bush administration lap dog, evinces a hankering for nostalgia in his plan, calling for recapitalizing the Home Owners’ Loan Corp., created in 1933 to buy mortgages and disbanded in 1951. Representative Kirk displays a rather loose handle on his history, however; the HOLC was designed to help out homeowners who were truly innocent victims of the government’s (Surprise!) complete bollixing of economic policy under the Fed, Hoover and, to a lesser extent, FDR, that transformed a nasty recession into the Great Depression. Any plan designed to “save” homeowners today would be, by definition, designed to rescue people from their own financial foppishness and shameless avarice, but I digress.

So what’s wrong with the government’s buying up mortgages at a discount and becoming the creditor to spendthrifts that have dug themselves into a financial hole, thus bailing out the economic illiterati that dominate our society and the financial services nabobs and other assorted scoundrels who abetted their miscreance? Only someone who believes in government uber alles would ask such a question, but here goes:

First, despite Senator Dodd’s assurance that the mortgages will be bought only at discounts and thus the investors in such mortgages will take some hits, don’t count on these mortgages being bought at true market prices. They might not even be bought at discounts. Why? Market pricing is impossible when the government is purchasing things from a favored constituency that has a history of keeping the politicians in their lifelong sinecures through the application of generous dollops of financial support. Wait until the financial services lobbyists go to work on this plan; we might even end up buying this financial detritus at premium. After all, we will be told, the very underpinnings of our financial infrastructure will be threatened if we don’t “do something.” Nothing will be mentioned regarding the generous pay packages of the executives of the financial firms who will be bailed out and the pink cheeked traders who got these institutions into the mess in the first place or regarding the financial well-being of the investors (many, if not most, of whom are professional money managers, who are paid big money to exercise prudence) who made fatuous bets on these ill-managed, overreaching, and clueless financial firms.

Second, if the people who own these mortgages (whoever they are; see the next paragraph) want to negotiate better terms with “troubled” lenders and take the appropriate write-downs on their mortgage paper, nothing is stopping them from doing so. If, as we are told, renegotiation is a better deal from the lender’s standpoint than foreclosure (and I don’t doubt that it is in most cases), banks do not need to be told by the government to renegotiate. People, even financial institutions, generally know enough to do things that have a salubrious, or at least ameliorative, impact on their finances. They don’t have to be told to do so by the government.

Third, the problem, which I have discussed in numerous past posts, of finding the decision maker would remain under this doozy of a plan. One of the reasons that so many of these loans have heretofore not been renegotiated is because no one is sure, once these mortgage loans have been thrown into the structured product stew, who has decision making authority. One would suppose that such authority would rest with the loan servicer, but, in most cases, the limits of the authority of the servicer are ill-defined. And, given the litigiousness that permeates our society, few servicers are willing to test the limits of their authority. The same paralysis would come into play were the government to make a bid on these mortgage loans.

Fourth, perhaps the only thing that this plan accomplishes that the parties involved could not do without any government prompting is to put the taxpayer on the hook for a lot of malodorous mortgages. As I have written ad nauseam in the past, why should the average taxpayer, and especially the financially prudent taxpayer, be forced, by the heavy hand of government, to pick up the tab for the financially irresponsible and the for witless Wall Street managements who put clueless kids in positions to cripple the institutions that they were charged with managing?

This latest plan by Senator Dodd and Representative Kirk ranks among the most moronic to arise from Washington’s latest manifestation of its never-ending urge to “do something” with your money to solve problems that arise from the irresponsibility and stupidity of those who bankroll the denizens of that den of iniquity we call the District of Columbia. The two parties, however, despite, or probably because of, the manifest idiocy of this plan, are completely consanguineous in their support of it.

1 comment:

Anonymous said...

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