Great Society Part II: Fed Tries to Save Itself From...Itself

The scuttlebutt is that FHA (Federal Housing Administration) is being retooled to assume lots of the bad paper issued by those nasty sub-prime lenders. Now that the proverbial fan is mired with economic reality, the options are bleak. Tap dancing from the Feds let us know that this problem is obviously too big to be rescued by an airdrop of cheap money. The choice is foreclosing on hundreds of thousands of new home owners and preparing for the economic and social tsunami or saving the day with something like a "Great Society II".

Such an unprecedented number of foreclosures will not only disrupt the financial order but perhaps the social order too. In as much as all those new loans invited many of the "have-nots" to become part of the "haves" through home ownership. That is, after all, the definition of a sub prime mortgage. Just like Katrina's anti-government backlash, so too will these forlorn foreclosures find the Government ultimately to blame. The last time we've seen this degree of (potential) wholesale displacements was the Great D and we were, by and large, much more appreciative of just how wonderful life was in these great states. That's not quite the case today.

Cynicism is pervasive and far too many Americans are both on the Government dole and quite convinced that the government is morally obligated to underwrite their folly as well as their happiness. So you have to at least entertain the idea of "what if".

LBJ sought mass compensation for the institutionalized imbalances through lots of well intended programs. A trillion was transferred from the "haves" to the "have-nots" and that redefined the concept of "opiates or the masses". It felt good but left the systemic problems untouched (if not exacerbated), Great Society I. Considering the magnitude of this debacle, maybe it's time for another dose of opiates. President Bush hasn't much of a legacy so why not tack on "no home owner left behind" plan? After all, if you're not quite up to a conforming loan, you've been preyed upon by those unscrupulous mortgage companies who virtually forced you get in over your head, you've suffered institutional oppression. You deserve a fix and this is America. A newly expanded FHA would consume a goodly portion of the bad loans to quell the public (and the markets), pay the defaults by fiat, and thus avert a catastrophe. It feels good, keeps the peace and forgets the binge ever happened, Great Society II.

Only, where do you think all that inflation came from in the 70's?

Comments

[Rocktex:]

Ha!
It is a showtime of our society. Handout shall overcome. Who cares about hard working anymore?

2007 Aug 24 11:37 AM

[Carl leason:]

Having been in Real Estate for 25+ years, and seeing the huge differences in prices from City to city and state to state, NYC and California being the prime examples, it truly appears insane that a home in one city can be priced so differently than another. No one can explain why a house in Florida can cost less than one third of a similar home in California. It just doesn't make sense. Cost of materials are the same in both states, cost of labor is fairly close in both states and the cost of land can't possibly make up the difference. The four most populated states are Ca, Tx, Fl, and NY and the costs even within a state vary tremendously . There is no way a 500 sq. ft. apt can cost a couple hundred thousand in NYC and the same 500 sq. ft. apt in Fl will bring only $75,000. at best. That's a case of people gone mad !
Also, why does a 1500 sq. ft. home in FL have have a price that's 50 pct. more than Georgia, just across the state line ? Taxes in FL have more than doubled in FL so it should bring prices down but doesn't and in GA. taxes and prices are way lower. It comes down to unreasonable Gov. interference in costs of living and peoples notion that moving 10 miles north into GA simply makes a home worth less ! Thats where the insanity come in ! One final example is that one acre lots in Tenn, are selling for $60,000. to 80,000. and are selling like hotcakes, same goes for N.carolina, which is very much more expensive than S. Carolina ! How can one explain all this insanity ?
My feeling is that we are in an economic "shake out" where brains will eventually win out and those people who over pay are going to be the big loosers....No other explanation works ,...LC

2007 Aug 24 01:01 PM

[brynaw:]

I think it's a super idea for taxpayers to bailout hedgies and banksters for having originated $Trillions in bad loans they knowingly bundled up as MBSs/CDOs and then pawned off to sucke-- er, "investors". And let's not forget all those Casey Serin clones out there that bought up millions of "investment" properties that they knew they couldn't afford, using neg-ams and NINJA loans.

I think the government SHOULD reward individuals and institutions that habitually speculate and make reckless financial decisions --that way we'll be sure to have even MORE giant asset bubbles to bailout in the future! Anyone who refused to participate in this massive Ponzi housing scheme obviously hates home"ownership" and our Freedoms™.

TAX the savers!
TAX the renters!
TAX people who refused to speculate!
SAVE the banksters!
SAVE the reckless stupid people!
SOCIALIZE risks and PRIVATIZE profits!

No moral hazard here folks, move along (and keep paying those taxes)...

2007 Aug 24 03:02 PM

[brynaw:]

Oh, and for those of you out there who suspect it *might* not be such a good idea for the taxpayer to bailout reckless Enron-style banksters and other Ponzi-scheme participants, you might want to write, email or call your Congresscritters (or, even better, do all three):

www.senate.gov/general...
www.house.gov/writerep/

2007 Aug 24 03:14 PM

[Dawson Lodge:]

I like your style David, keep up the good work.

2008 Jan 05 03:33 PM