POLITICAL observations & opinions

* who should pay to rescue “underwater” homeowners?

Posted by Lew Weinstein on March 24, 2012

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  • It has been reported that Fannie Mae and Freddie Mac are on the verge of reversing their positions and coming out for principal reductions for homeowners, the number one solution for the mortgage crisis.

I am all in favor of helping people who are in trouble,

especially when it is clearly in the national interest to do so.

  • But this should not be a U.S. taxpayer cost, at least not until others have paid for what they caused.
    • People took stupid mortgages, often because they were greedy to own homes they could not afford.
    • Banks who knew better gave those mortgages, because they were greedy and could pass the problem to someone else.
    • Wall Street developed and peddled derivative securities, based on those mortgages, making obscene profits.
    • Congress encouraged all of this in its pandering to voters.
  • And many who did none of those things have lost value on their property and will perhaps pay a significant share of the taxes to help those who were stupid and greedy. Is this fair?

The cost of rescuing people whose homes are “underwater”

should be paid, to the greatest extent possible,

by those who caused the problem.

Only then should American taxpayers

be asked to make up the balance.

  • If you think my logic is wrong, I await your comments.

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2 Responses to “* who should pay to rescue “underwater” homeowners?”

  1. CeCe Inwentarz said

    I believe you need to look much, much deeper before you can choose to point fingers
    or engage in name-calling. Maybe you did not live through this in enough gritty detail to scratch below the surface to all that is happening and has happened.

    ◦”People took stupid mortgages, often because they were greedy to own homes they could not afford.” WHERE IS YOUR DATA ON THIS? Often, the mortgages were affordable when received, until the Wallstreet nightmare changed the rules of the game; both accelerating and then destroying the home buying and mortgage marketplace, destroying rental incomes and vacationing, greatly contributing to a job-loss economy.

    ◦”Banks who knew better gave those mortgages, because they were greedy and could pass the problem to someone else.” WHERE IS YOUR DATA ON THIS? The U.S. Government first passed regulations for Fannie Mae and Freddie Mac requiring banks to give mortgages to people who did not deserve them. The U.S. Government also allowed banks to run freely to generate revenue by releasing banking regulations. Many realtors and mortgage brokers passed on sub-standard loan applications in a “wink-wink” cooperation with builders, before the loans were approved individually by bankers, on whom homeowners relied, then batched and sold to Wall Street.

    ◦”Wall Street developed and peddled derivative securities, based on those mortgages, making obscene profits.” WHERE IS YOUR DATA ON THIS? If it was only about their greedy high profits, why did the U.S. Government bail them out? Because U.S. Government was their partner? Why do you say U.S. taxpayers can pay to bail out banks and not pay to bail out homeowners until banks pay first? No sense to me. Are you saying homeowners are stupid and greedy instead of just being greedy like Banks/Wall Street? Who controlled this game? What was the ultimate payoff and who won? More specfically, who won more power?

    ◦”Congress encouraged all of this in its pandering to voters.” WHERE IS YOUR DATA ON THIS? The Federal Reserve Banking System controls our money system and Congress is not in charge. The common denominator in all of this seems to be BANKERS.

    • Lew Weinstein said

      Thanks for your thoughtful comments. May I respond …

      There has been extensive reporting of home buyers who thought they could ride an ever-increasing tide of rising home prices and who took mortgages or home equity loans way too close (80%, 90%) to the then current value of the home they were buying. Likewise, many reports of banks and home buyers who knowingly processed incomplete and fraudulent mortgage applications (phantom income never documented or checked). Likewise on the derivatives instruments and markets and the profits they generated for what many in the financial industry seem to have known was virtually worthless paper.

      I have not seen fully researched analyses on any these issues, but the many reports I have read over the past several years seem to make it clear these practices were widespread.

      I agree that the U.S. government was complicit in all of this. I think I said that in my post (Congress encouraged all of this).

      The Wall Street nightmare was caused by the greed of many parties, and in turn hurt many home buyers and others who did nothing wrong. It is the point of my post that the people who caused the problem (banks and Wall Street) should be called upon to help the innocent bystanders, especially since the taxpayers bailed them out with the expectation that such help would be forthcoming.

      I have great sympathy for people who did nothing wrong and have been badly damaged, and we should help them, but not so much for those whose own high risk behavior had a lot to do with the problems that came crashing down on them. It’s not so easy, however, to know who fits where.

      Nowhere did I say that help should not be forthcoming nor that taxpayers would not have to bear some of the burden to help people who are hurting. But we should not be letting those who were culpable off the hook.

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