September 2008 Archives

September 30, 2008

Bailout? Follow The Money!

Earlier today, I was watching the Senate Banking Committee debate the administration's proposal to have Congress write the Secretary of the Treasury a blank $700 billion check to fix the bad mortgage debt problem and other financial market woes. As Secretary Paulson was explaining the need for such awesome power, a sidebar appeared on the screen stating that Paulson's net personal worth is $500 million.

That got me to thinking: It would be very helpful for TV public affairs shows to always put up sidebars or bubbles showing the net personal worth and annual income of their various talking heads. The same would go for TV appearances by public officials, politicians, and political shills of all stripes. I found myself wondering about the Fed chairman's net worth, and then the members of the Committee and the other "experts" assembled to support the administration's request. From there, my thoughts jumped to the TV commentators and pundits who are either super rich themselves or operate in those circles.

Why should we care about someone's wealth whose views are foisted upon us 24/7? Every time one of these well-heeled folks says something being proposed is in "our" interest, I have to wonder whose interest they are talking about. Surely Secretary Paulson's interest is not the same as mine, as my net worth is slim to none. So, when Henry Paulson, or Ben Bernanke or Nancy Pelosi or Rush Limbaugh, or John McCain advises that a course of action would be in "all our interests," I'm pretty sure they're thinking of a relatively small circle of family, friends, and associates whose net worths are way up there in the many millions. There are exceptions to this class-based viewpoint of course -- Franklin Delano Roosevelt may have been one -- but for me, it holds more truth than not.

So here's what I think about the proposed bailout. It's crystal-clear that the people who have made out big time under the current credit-debt system desperately want it to continue. And for them, the bailout is a necessity. It may be that it's a necessity for the rest of us as well, but I'm unwilling to take it on trust from the people who are pushing that line.

If I had knowledge of who had most benefited from the housing and credit bubbles, I would be better positioned to assess whose interests were being served in the proposed bailout. For now, it appears to me that the "titans of Wall Street" and the government that serves them are using the same shock-and-awe approach to this power grab as has worked so well with the American people in the past -- scare the hell out of them, and then take what you like.

This, of course, implies that this was and is an engineered crisis. And why not? Everyone in a position of responsibility repeats the mantra that these high-flying finance types are very smart people. If so, they must have seen it coming. A lot of us said-to-be less brilliant people saw the handwriting on the wall a long time ago.

Of course, a possible alternative explanation is that the Masters of the Universe (to paraphrase Tom Wolfe's Bonfire of the Vanities) are far too arrogant and completely lacking in common sense. In that case, we really ought to ignore what they say and let events take their course. It's not inconcievable that "the market" will produce a better outcome. I would like to see, however, a broad-based program to help the millions of homeowners facing foreclosure, even if a larger bailout bill never makes it out of Congress.

September 15, 2008

Who Will Benefit From Housing Agency Takeover?

A couple of months before the government takeover of Freddie Mac and Fannie Mae, Congress passed a new law providing financial backing for these quasi-governmental agencies, straight out of the U.S. Treasury. The fact that they have now been taken over means very little, except that a new crop of mis-managers will take over operations at somewhat lower compensation rates.

According to a plethora of financial market pundits, the takeover will "calm financial markets" and hasten the day when real estate values can be determined with some amount of certainty. As long as prices keep falling, sales will not keep up with inventory. Undoubtedly true. However, perhaps the time has come when America really is bankrupt in deed, if not in name, and it will just take a few respected leaders (possibly a presidential candidate or two) to call out the naked emperor. In the meantime, we can expect to be treated to a series of "light at the end of the tunnel" statements by the "powers that be", all designed to calm the savage consumer beast and keep the big money in America instead of some other, more financially stable, country.

Although the real estate fiasco can be hard to understand, a brilliant article in the Sunday, September 14th San Francisco Chronicle pulls it together about as well as anybody can. The most important point in the article is that the new housing recovery law will likely only benefit the most irresponsible of the impacted homeowners -- this because of the abililty of the lenders to pick and choose which loans they will cash out at 90% of the home's current appraised value. While this approach may help the bottom lines of the various banks that got caught shorthanded, it does little for our sense of fairness. Or, to put it another way, it makes the old saw "let no good deed go unpunished" a little less funny in the case of the millions of homeowners who have struggled to stay current on their mortgages but who will now be deprived of relief because their loans aren't bad enough to justify the lender taking a hit.

September 9, 2008

How to Walk Away From Your Home With Cash in Your Pocket

If, like many, you decide to walk away from your home, your best first step is to stop making payments and stay put. Except in a few states (mostly in the old South), you can stay in your home for a long period of time--payment-free--before you have to leave. This gives you a unique opportunity save big bucks that will help you secure new housing in the future. It also does your community a huge favor by preventing your home from sitting vacant for many months, gathering blight.

How does this work? Foreclosure proceedings typically begin after you have missed between 3 and 5 monthly payments. A few more months are likely to pass before your home comes up for sale at a foreclosure auction. If your home isn't purchased at the auction--which these days is typical--you will be able to remain until your home is put up for sale by a real estate company and you are legally evicted--all of which can take a good many more months.

Depending on your state, it can take a year or more from the time you decide to act until the time you need to once again start paying for shelter. Using this opportunity to save for the future will grease the skids when you need to find new housing, and will make it easier to live without credit, a worthwhile goal in itself.

To learn more about making the most of your housing situation, see The Foreclosure Survival Guide: Keep Your House or Walk Away With Money in Your Pocket, by Stephen Elias (Nolo), an essential tool for anyone at risk of foreclosure.