mavSolve

Well, we’re about to see it all. The legislature’s latest trick is a new bill designed to further cloud the reality of our situation. In this WSJ article by Elizabeth Williamson and Ruth Simon, we are told a tale of how the forthcoming stimulus bill will allow poor mortgagees to “forcefully” renegotiate their loans with lenders, but only if they have already filed for Chapter 13. Hmmm.

So, once again the government has taken it upon themselves to redistribute wealth. See, in the economic bailout package, when the banks were given money by the FED in order to stay afloat, the exchange was to move many of these “underwater” loans onto the FED’s balance sheet. This allows the FED to shield the fact that the corresponding value (asset value) of the homes within the portfolio are seriously deflated. So, the banks are now agreeing to renegotiate loans for which they have already been made “flush”. ??? How does this make sense? Well, let’s go back to basics and ask the questions: At whose expense? To whom goes the benefit?

1. At whose expense? The expense continues to be heaped upon the taxpayer, whether in the form of future inflation (your dollar will buy less in terms of goods other than housing), or in the form of future taxation, Joe taxpayer is accruing the debt and cost of every move they make; including their (congress’) deliberations.
2. To whom goes the benefit? They want you to think it is the “homeowner”. Not so.  The banking industry as a whole, and especially the FED are the benefactors, and the winning factor is the continual payment of interest at an inflated rate on an asset which never really existed.

The homeowner gets to renegotiate an already bad situation to aid in his ability to do one thing: continue paying interest. The renegotiation of the terms of the loan will never fix the real, underlying issue, which is: This home was NEVER worth what you paid for it. The asset has been over-inflated through hype and circumstance, and the overly free flow of money into the Mortgage markets. All of the hype and circumstance created around the situation for a single purpose, to expand the money supply so that banks can charge more interest and make more income.

But, how long can it go on? The real value of the assets is falling much faster than they can control. Housing prices are down so significantly that we don’t even talk about it anymore. Why aren’t they falling even faster? I think it is because the banks can’t evict tenants and put the houses on the market fast enough. And with the government giving them money to continue operations, why should they? What is the incentive to go and make money, or recover money, when someone is handing it to you and asking you to continue the problem?

We need to start thinking about this problem much more critically. You don’t have to be a conspiracy theorist to be a skeptic. Just ask the two simple questions above and follow the results.