Obama Proposes *Mandatory* Community Service

[Pangloss]

Well maybe but the real "entitlement" money each year goes to stuff we've deemed important and relevant to our future, and therefore worth the cost. It's more like an investment than altruism, especially since it's taken away at the point of a gun to begin with (at least figuratively speaking).

 

Anyway, for better or worse (and there are good arguments both ways), Paulson declared a 180-degree about-face today and said that none of the $700 billion bailout package would go to homeowners in trouble.

[npts2020]

Well maybe but the real "entitlement" money each year goes to stuff we've deemed important and relevant to our future, and therefore worth the cost. It's more like an investment than altruism, especially since it's taken away at the point of a gun to begin with (at least figuratively speaking).

 

Anyway, for better or worse (and there are good arguments both ways), Paulson declared a 180-degree about-face today and said that none of the $700 billion bailout package would go to homeowners in trouble.

 

Some will eventually go to homeowners, just probably not till after most that actually need it are alredy bankrupt. Oh wait, didn't they just change bankruptcy laws a couple of years ago.........

[waitforufo]

Just my opinion, but if the government had gone through with purchasing bad loans, the government would have very soon had two options.

 

1) Foreclosing on loans and forcing bankruptcies.

 

2) Forgiving the loans.

 

Both options were untenable. Option one would have put the government in the position of putting families on the street. The evening news would have been full of pictures of little homeless waifs put out on the street by government. With option two, you would have angry crowds of people wondering way their neighbor was getting a free house from the government, but they still had to pay their mortgage.

 

The new policy of purchasing stock means that the banks have to deal with the bad loans. So yes, more foreclosures. Everyone will think the banks are evil. But didn't we think that already? Aren’t the banks good at filling that roll?

 

This new policy will clean the bad debt problem up quicker, but it won't be nice.

[john5746]

The new policy of purchasing stock means that the banks have to deal with the bad loans. So yes, more foreclosures. Everyone will think the banks are evil. But didn't we think that already? Aren’t the banks good at filling that roll?

 

This new policy will clean the bad debt problem up quicker, but it won't be nice.

 

The Banks don't want to foreclose - they make much more money if people keep paying the mortgage, even at lowered rates. They will foreclose and try to sell a reduced price asset in an already reduced market. Many of the people losing their homes will just lose the interest they paid - basically rent and a hit to their credit rating. The Banks are the big losers, while the people who can afford to take a risk and buy these cheap houses win. Wealth redistribution.

[waitforufo]

First, we are off topic and perhaps a new thread should be started.

 

Yes you are correct, banks don't want to foreclose for the reasons you mention. Bank loans must however perform. I believe this is actually required by law. If people aren’t making loan payments something must be done. Sometimes banks will forgive a portion of the debt to reduce the borrower's payments. (I think this is done by "short selling" but I'm not sure that is the correct term.) By forgiving part of the debt the loan then begins to perform at least marginally. The bank takes a loss, the borrower's home value is reduced, and the borrower credit takes a hit. Since this transaction is recorded it has an impact on all home values. Even when this is done, it is at the discretion of the bank. On the worst loans they will foreclose just to establish what the market will bear.

 

Foreclosure of debt reduction, my argument is still valid. This is best done by banks than directly by the government. The correction will be quicker and less politics will be involved.

 

Above I mentioned that I believe that bank loans must perform by law. The reason I say this is that banks have restrictions on property ownership. If someone stops paying on a loan, the bank in effect owns the property, they just haven’t gone through the legal motions to complete the transaction. To keep banks from having hidden ownership, I believe they must prove that their loans are performing.

[ecoli]

This new policy will clean the bad debt problem up quicker, but it won't be nice.

No, it seems like we're just delaying the bad debt problem, because now the American people are the owners of the bad debt... We're trying to absorb the bad debt from thousands of people who couldn't pay their mortgages. How else can this end, but with people without homes?