Quote of the Day, 2008-09-29
by tgirschSeptember 29th, 2008
Rep. Barney Frank (D-MA), responding to the allegation by John Boehner (R-OH) that they had “at least a dozen more votes” for the failed financial rescue bill before Pelosi’s speech:
“Give me those 12 peoples’ names and I will go talk uncharacteristically nicely to them and maybe they’ll think about the country,” Frank said, eliciting laughter from reporters.
For a guy who looks for all the world like a disheveled substitute teacher, he does show an alarming amount of wit.
H/T: RealClearPolitics
Categories: Humor, News & Current Events, Politics |
Barney Frank is hilarious.
However… Why the fuck were Democrats pushing for this bill? Heck, why is anyone who claims to be the slightest bit progressive pushing it? If we need $7E11 to cover these “mortgage products”, then just use that to pay enough of the mortgages themselves to prevent default.
But no, actually helping pay for homes is too pinko commie for this country. Money can only be given out for free to those who already have money, not people who might spend it on living…
I’m not sure I get the joke.
Dan M, I’m not an economics expert, but my understanding is that the point of the bailout was to provide liquid currency to provide these banks with enough “real” money to continue to provide relatively inexpensive loans, not merely to make sure that the loans are paid.
Paying for all of the 700 billion USD worth of loans would have paid off houses (primarily for individuals who could not afford them in the first place, which presents a certain moral hazard), but does not provide liquid money to these banking groups at any reasonable rate. It would also involve permanently giving away those 700 billion USD, whereas the bailout would have required the United States government to provide the 700 billion USD in currency, but done so in exchange for the loans.
Because the federal government has no incentive to purchase wisely and imperfect information as compared to the loan owners, this would almost certainly end up with most of the loans being unprofitable, but it would (over ~25 years or so) eventually returned a fraction of the investment.
Of course, the idea of the federal government owning the loans on a vast amount of land around major cities currently undergoing economic issues is a rather frightening moral hazard of another kind, as well…
But isn’t the reason for the illiquidity that the junk products that were being traded as liquid assets have lost their dubious value due to the mortgages that are now threatened? If those mortgages are covered (and I mean by loans, not as a hand-out), doesn’t that reverse the loss of value that caused the illiquidity?
I’m not sure, but I don’t think so.
It’s not that the mortgages have a chance of foreclosing that is the direct issue; it’s that the mortgages are perceived as not worth the value any bank is willing to sell them for on the free market. That’s partially due to the risk of foreclosure, but if the collateral would quickly (foreclosed items decrease rapidly in value) sell for a sizable portion of what the mortgage was being sold for, foreclosure rates wouldn’t be much of an issue.
It’s not merely that the perceived value of these things dropped like a stone; it’s that people expect them to continue doing so, and no one in their right mind is willing to buy them. Even ones that are highly unlikely to result in a foreclosure (banks can check the real income and other statuses to do so) aren’t great buys right now because in many cases the debt is worth more than the real value of the collateral.
Paying it off instantly presents a few extra issues, even if it would provide the necessary liquidity. For starters, these homes are certain to lose at least 10% of their value over the next four years. Most homes are going to, or I’ll eat a hat. That’s the minimum required to fit up with the pre-2004 trend of home prices, and the minimum required to confront the ridiculous number of homes made from 2003-2006. I’d wager larger, although not much money. Paying off a portion of those mortgages would screw up the equity of entire areas, and probably only prolong the mess.
Also, it’d be political suicide. The current bailout bill already is perceived as being equal to taking money and handing it to a Monopoly character, complete with top hat. Having the story switch to taking money and handing it to the very folk that helped push off the mortgage stuff would be just as bad, and impossible to push off as a Republican job like Pelosi tried today.
In either situation, you’re asking the United States federal government to pick up the entire value of these loans, rather than just paying for the loss in value as compared to today’s “low” prices. You’re also presenting the sort of moral hazard that the S&L bailout provided to individual people who, as a definitional group, make really bad contract choices (the folk making decisions at AIG and every other subprime lender are gone, whether they know it or not yet).
There’s also an argument that home prices do need to be allowed to go down, which is unlikely to occur with a loanee bailout which would likely encourage larger prices in the future. Trying to prop up inflated bubbles has been a very bad thing historically. It also tends to result in stupidly high costs of living and overconstruction that would perpetuate the issue and result in suburban blight.
I should also note that I’m not convinced that the problem is liquidity, or if the problem is solvency (in which case the 700 billion is either not enough or going down the tubes, the latter being a significant concern), or even that this isn’t a typical if large contraction that will even itself out once Congress decides to leave DC, or that is isn’t a bunch of flying pink hippos. I’m not an economist, and I don’t even play one on TV. Liquidity is just the thing cited most often by proponents of the bailout bill. My opposition — surprising as it may be to agree with a tgirsch post — simply comes from my mistrust of the government’s ability to get most anything complicated right, and that nearly anything Chavez thinks is an good economic plan does not strike me as a worthwhile expenditure.
Whatever is happening it all means one thing at the very least….infalation on the horizon.