Wall Street Embraces Government to avoid losing money

Parent Cafe
1

<p>That’s what the title of this article should say. </p>

<p>The biggest free market people in the world turn tail when they are about to lose money.</p>

<p><a href=“Bloomberg Politics - Bloomberg”>Bloomberg Politics - Bloomberg;

<p>"The worst drop in new home sales on record has turned financial leaders into champions of big government with everyone from Russo to executives at Citigroup Inc. and JPMorgan Chase & Co. supporting public measures to keep the housing market from sinking the economy. It’s a change from Wall Street’s usual stance that markets work best without government interference. </p>

<p>``Sentiment can change when there’s money on the line, even in an industry that up to now has been doctrinally opposed to government having a role in the markets,‘’ said Thomas Schelling, a Nobel laureate in economics who taught at Harvard University for 30 years."

"Now, many of the same people who profited by putting buyers into properties they couldn't afford are advocating federal help to manage the bust."

"Many who are calling for action point to the 1930s, the last time the U.S. national median home price fell, as an example of what government should do.

Great Depression

During the worst economic slump of the 20th century, HOLC issued tax-exempt bonds and used the proceeds for below-market- rate mortgages. It refinanced one-fifth of U.S. homes between 1933 and 1936 after negotiating with the original lenders to accept less than the amount owed on the defaulted mortgage.

Former Treasury Secretary Edward Carter Glass opposed President Franklin D. Roosevelt's expansion of government after the 1929 stock market crash. Senator Robert Taft, a critic, said it was socialism. Most Americans supported Roosevelt and his ``New Deal'' plan. He won every state except Maine and Vermont when he ran for re-election in 1936".

"In the 1930s, lenders were seizing homes at an average rate of 3,000 a day, adjusted for today's housing stock size. In the fourth quarter of 2007, new foreclosures averaged 2,939 a day, double the pace of a year earlier, according to RealtyTrac Inc., an Irvine, California-based real estate data company.

Statistics like these are managing to change even the most ardent opponents of big government. William McCarthy, a mortgage broker in Parker, Colorado, said he has been against federal intervention his entire life. Now 62 and facing eviction Feb. 11 after his lender foreclosed on his $199,200 mortgage, he said the government has to take action."

"Bailing out borrowers who take risks creates a ``moral hazard'' that leads to riskier behavior as people assume the government will step in to save them, said Kiesel. In March 2006 Kiesel sold his house near Pimco's headquarters in Newport Beach, California, and rented a home in anticipation of the housing slump.

``The housing market will find its own bottom, without a government bailout,'' Kiesel said. "</p>

2

<p>I’m fundamentally opposed to a bailout of the real estate market. And I don’t buy all this “predatory lending” stuff either. We know a couple that we’re just finding out is dead broke and that’ why they’re so nervous 'cause their mcmansion won’t sell. Both college educated, both business people, great careers. Lots of funny money mtges and other types of bank loans the average joe wouldn’t know how to get (or have the banker friends to get them from). When you see people and can’t figure out how they afford their lifestyle, well, the chances are they actually can’t afford their lifestyle. I’d like to see if there are figures on now many lower income/lower education level people there are who may truly have been mislead into buying more house than they can afford.</p>

<p>That said, however, we are also finding that due to the ripple effect caused by the way these mtges were bundled and sold, the implosion is starting to affect businesses that have nothing to due with either the mtge industry or the housing industry. We are seeing the negative impact ourselves first hand, so while I don’t think we should bail out all the stupid people who should have known better (or the mtge industry people who enabled them), I do think we need to perhaps tinker with certain aspects of the “ripple” to protect the innocent.</p>

3

<p>This is how capitalism really works. You “privatize” your gains and “socialize” your losses.</p>

4

<p><a href=“http://news.yahoo.com/s/nm/20080202/bs_nm/ubs_investigations_dc[/url]”>http://news.yahoo.com/s/nm/20080202/bs_nm/ubs_investigations_dc&lt;/a&gt;&lt;/p&gt;

<p><a href=“Bloomberg Politics - Bloomberg”>Bloomberg Politics - Bloomberg;

5

<p>It’s just good ol’ corporate socialism at work. Housing development is already heavily subsidized, from tax credits, to water and roads and superhighways, to mortgage interest rate deductions, to “highest use” tax standards. Nothing new here. </p>

<p>If the rich aren’t subsidized by the poor through corporate socialism, who else will do it?</p>

6

<p>Stimulus Plan A Scam To Benefit The Rich </p>

<p><a href=“http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/02/03/IN8LUO095.DTL&hw=stimulus+plan+scam&sn=001&sc=1000[/url]”>http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/02/03/IN8LUO095.DTL&hw=stimulus+plan+scam&sn=001&sc=1000&lt;/a&gt;&lt;/p&gt;

<p>"Congress is about to sell us the biggest fraud in American history.</p>

<p>It’s been highly touted as an economic stimulus bill that will help millions of Americans - and has the backing of both President Bush and House Speaker Nancy Pelosi. In the coming year, individuals would receive rebates of up to $600 and families up to $1,200. There are other goodies, too, including tax write-offs for small businesses and an expansion of the child tax credit.</p>

<p>But, as the old adage goes, nothing comes for free. As part of the bill, Congress is set to rush through an increase in the mortgage loan limits for Fannie Mae and Freddie Mac (and Federal Housing Administration insurance, too) - from $417,000 to $729,750 - the first step toward a massive financial disaster in which taxpayers will end up paying through the nose.</p>

<p>Here’s how we got to this point. Domestic and international investors hold hundreds of billions of dollars in bad debt, because U.S. investment houses sold them junk securities based on often fraudulent mortgages. Many of these mortgages were sold to unqualified buyers under terms that made widespread foreclosures a certainty once the housing market began to fall.</p>

<p>Investment banks and bond rating agencies sat down and tried to figure out how to describe Americans with insufficient incomes and little for a down payment as great credit risks on loans too big for their incomes. The new rules focused on credit scores, because it was a good excuse to avoid looking at income and down payment, factors that would have restricted this moneymaking fiasco.</p>

<p>Now, thanks to Congress, junk bond investors will be able to pawn off their bad debt to Fannie and Freddie, instead of suing the big investment houses for ripping them off. This shift will certainly doom Fannie Mae and Freddie Mac, so don’t be surprised if we, the taxpayers, have to bail out poor Fannie and Freddie - to the tune of more than $1 trillion.</p>

<p>Why more than $1 trillion? If Goldman Sachs is correct in its recent projections that home prices in California are going to drop 35 to 40 percent, the state’s losses alone would top $2 trillion, because California has a disproportionate number of jumbo loans. The irony here is that the collapse in housing prices could make Fannie insolvent even without raising the loan limit. Increasing Fannie’s limit is like going on a spending spree with your credit cards because you know you are going to file for bankruptcy in a few months. Only here the taxpayer is left holding the bag. Our children will pay interest on this debt in perpetuity. It is our debt. It is inescapable.</p>

<p>In the coming months, Fannie and Freddie will buy up mortgages based on old, fraudulent appraisals and on loans with bogus inflated incomes. Unfortunately, many of these loans will still default."</p>