Question: Why doesn't the government just "bail out" homeowners?

[MercutioATC]

I'm no economist, but it seems to me that the fundamental issue is that there are a lot of mortgages in default. I understand it's grown way beyond that, but wouldn't bringing these mortgages back into compliance solve the issue?

Take the $700B and pay off mortgages. The homeowners win and the banks win.

I don't claim to know how the math works on this, nor do I like the idea of rewarding some homeowners for making irresponsible decisions. Actually, I'd prefer to let the market sort this out without any governmental intervention...but if we're going to do something, especially something to the tune of $1T, shouldn't it benefit more than just the banks?

[baldguy]

1. What? You some kind of SOCIALIST or something?

:sarcasm:

[dajoki]

2. I feel the same as you...

but I'm sure the "experts" could come up with hundreds of reasons why that can't be done.

[notadmblnd]

3. many of these people could pay their mortgages if they'd just drop interest rates on the loans

Why can't these mortgages just be made more manageable by the people? Lower peoples payments so they can stay in their homes. The banks can still make money (just less)and people can stay in their homes. This would slow the devaluation of the rest of the homes in the neighborhoods. Why would this be so hard to implement?

[Frustratedlady]

4. That would be resolving the problem from the bottom up.

Don't pay off the mortgage, but catch it up for those who DID NOT cheat on their applications...they know who they are...

They pay off the banks...the banks get back most of their accounts receivable and we're back in business. Well, not exactly. First, we need to fire those who made these easy loans possible.

I don't believe in bailing these people out completely. Just get them to where they can handle the rest of the debt. A ONE TIME deal.

[Cogito ergo doleo]

5. Human beings have no value whatsoever to the Bush crowd.

We aren't even countrymen to him; he's a creature of his own world and we are nothing more than commodities to be used up. I worry more and more that that's the view of most of our representatives.

[Turbineguy]

6. The problem does not lie with the homeowners

the problem lies with a fake economy propped up on a highly leveraged investment model. It was the same thing that caused the economic collapse of 1929. There was no room for a downward movement in valuations. In 1929 people could by stock with 97 percent on margin. When the market dropped slightly they could not cover their margin call and were more than wiped out.

The sub-prime mortgage market worked because people writing mortgages at a low percentage leveraged the money so while the homeowner paid a low percentage, say 3 percent, that percentage was multiplied 30 to 40 fold and spread over brokers, banks, investment firms and investors.

The low interest rates caused house prices to rise because ever more people could qualify for ever bigger mortgages, all highly leveraged, leading to a seller's market. Too much money chasing too few houses. Somehow there was an expectation (or perhaps not) that there would never come the day of reckoning. It came in the form of mortgage resets. The part that was not leveraged went away and started eating into the leveraged amount. In the mean time, the guys who invented and sold this whole scheme took their commissions.

Of course all of this could not have been possible without republican deregulation.

Phil Gramm, the Father of the Economic Collapse of the 21st Century.

So while banks benefit the most, the rest of us benefit because the economy will not totally collapse, wipe out what wealth we do have and throw nearly us all out of work, or at least reset the minimum wage to 20 cents an hour.

In the meantime, if the excesses are reigned in by judicious regulation, we can repair the imbalances in time. If the answer is to deregulate more, we have put off the Mad Max world only for a little while. And in that case, the 1 or 2 trillion dollar cost won't matter anyway.

[lostnotforgotten]

7. Debt - 596 Trillion Derivatives - 58 Trillion Credit Default Swaps - 2.5 Trillion Credit Card

Right You Are - Its The Domino Effect Of All This Debt Unfolding Overnight.

See www.wallstreetdigest.com/hotline.php for numbers.

[Krakowiak]

11. thanks for this .... (nt)

[Warpy]

8. There are a few reasons

First of all, some loans need to be foreclosed and housing prices need to fall to a more reasonable level. Everybody knows that. Simply bailing out the people who bought housing they had no hope of paying for on loans they lied to get won't do anything to restore a more rational market. Second, people who think they can't lose will simply start the next round of hyperinflation. Third, lenders will have no reason to tighten things up so that they're not stuck with a bunch of bad loans. In other words, they'll have to get the system back to one that makes sense and a bailout of loans that never should have been issued won't do it.

However, the bailout that's happening needs to have the pot sweetened for mortgagees. The teaser rates have to be extended, the jumps in rate have to be smaller, and more of an effort has to be made to keep responsible borrowers in their homes. This is to the lender's advantage as it will keep properties occupied and salable while keeping at least some money coming in. Properties hyperinflated and occupied by people who took out interest only loans with ridiculous balloon payments will need to be rented to the occupants for the same reason. Foreclosure leading to eviction has to be stopped if this country wants to keep its housing stock sound.

There is a way to do this with the bill that won't occur to GOPs. Let's hope our spineless Democrats catch a clue and insist on at least this much.

[dchill]

9. Ah, so you naively assume that the "bailout''...

is actually a legitimate effort to cure the financial crisis. No, they are pushing welfare for the criminal-minded fat cats that caused this fiasco, and hope for some gravy in the appearance of "confidence" in US financial markets. The huge gains in Friday's markets indicate that the markets are easily fooled, at times.
;)

[funflower]

10. Oooo.... noooooo. We could never afford THAT!

We have to be fiscally responsible, ya know! :eyes: