Congress Approves Housing Rescue Build

Foreclosures Aplenty

Congress approved mortgage relief for 400,000 struggling homeowners Saturday as part of an election-year housing plan that also aims to calm jittery financial markets and bolster the sagging economy. President Bush said he would sign it promptly, despite reservations.

The measure, regarded as the most significant housing legislation in decades, lets homeowners who cannot afford their payments refinance into more affordable government-backed loans rather than losing their homes.

It offers a temporary financial lifeline to troubled mortgage companies Fannie Mae and Freddie Mac — pillars of the home loan market whose losses have sparked investor fears — and tightens controls over the two government-sponsored businesses.
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What began as a showdown between the White House and the Democratic-led Congress over how far the government should go in rescuing homeowners evolved into a bipartisan effort that could be the last such compromise before Bush leaves office in January.

In a rare Saturday session, the Senate voted 72-13 to send the bill to the president; the House passed it Wednesday.

And America becomes even more of a nanny state were its citizens are absolved of personal responsibility.

And so much for the Democrats pledging to not spend any new money without providing a way to pay for it. This bill costs billions AND cuts taxes. How to pay for it? Oh yeah, let's just raise the debt limit:

Democratic leaders, recognizing that the measure could be one of the last items to become law during what's left of their abbreviated election-year schedule, tacked on an $800 billion increase, to $10.6 trillion, in the statutory limit on the national debt.

I am so glad responsible people like me who did not buy a house during an over-inflated real-estate market with a gimmick mortgage that they could get approved for, but not afford down the line, are being rewarded. Oh wait, we're not, we're being punished by our tax dollars going to the irresponsible people. Yippee.

So, yep, the government is now in the business of guaranteeing that house prices, too, will never ever fall. It's not just stocks that are being propped up (through massive Fed intervention, and possibly direct government manipulation, if the rumors of Reagan's Plunge Protection Team are true).... now it's housing.

House prices are going to come into balance with the rest of the economy; if they're not allowed to fall, prices of everything else will rise.

Your salary will not keep up.

We can't legislate away economic reality. We can only destroy the dollar. We took another big step toward Zimbabwe here.

I posted this in the wrong bailout thread.

Lucas Lechuga from the Miami Condo Investment blog that I read regularly has his take on it.

It’s official!  The U.S. Senate has passed a housing bailout plan that will end up costing taxpayers an estimated $25B.  This is an estimate that the Congressional Budget Office says could potentially reach $100B.  Now, it’s up to George W. Bush to sign on the dotted line to finalize it.

I’m NOT an advocate of this housing bailout plan.  I saw too many people unwisely refinance their properties to withdraw money from the paper profits in their homes in order to spend the money on new vehicles, surround-sound systems, large plasma TVs, furniture, clothes, etc.  Now, the governement wants the country to foot the bill for these people to reminisce about the times that they were living LARGE?

It doesn’t sound like a “plan” to me.  Senator Charles Grassley, of Iowa, says it best when he states, “This bill has fallen prey to the special interests on Wall Street and K Street at an unjustifiable expense to taxpayers and homeowners on Main Street”.  Who are we kidding when we think that we actually have a say in what happens in this country?  Large corporate banks, mortgage companies, real estate conglomerates, developers and any other real estate-related entities have lobbyists that have the upperhand over what the American people actually want.  We’re all just pawns with hopes to checkmate, but end up being eliminated after the third move.

For details about the housing bailout plan, take a look at CNN.com’s article entitled “Senate Passes Landmark Housing Bill“.

Since you probably have no idea who he is this is his about page.

I provided IT for the shows when developers flipped rental properties to condos for several times what they were worth and I agree with him. We can't bailout irresponsible crooks and then elect then to office.

http://eyeonmiami.blogspot.com/searc...

That guy, btw, is correct that this isn't a bailout for your benefit; it's for Wall Street. This is to save the banks, not 'the homeowners', which these people don't give a flying rat's ass about.

Yep, because the individuals are the driving forces of the modern economy, not those silly big businesses. I find it funny you don't want the banks protected, yet claim were headed towards Zimbabwe, obviously thats hyperbole, but if we can't protect national economic assets, were in a really bad situation.

If I may provide a counter-point from someone I trust.

It’s a really, really difficult situation to manage. Here’s an example. Let’s say that if we “bail out” a million people (by not resetting their ARM rates or whatever), that 250,000 people are going to benefit who are absolute frauds.

However, helping that million helps ensure that five million people aren’t going to be innocent victims of splash damage. It becomes really, really difficult to make accurate decisions in situations like this, because getting real data is very tough.

It’s easy for people to say what Lechuga says, but that’s not really very different from the famous story Ronald Reagan was obsessed about with the alleged woman in New York who was on welfare and drove a new Cadillac because she was gaming the system. This woman didn’t exist, but it was reason enough for Reagan to try to destroy the social benefits system.

Right now, what they’re trying to do is eliminate what appears to be a systemic risk to the economy. At a tactical level, it sucks. At a strategic level, it’s probably necessary.

No, it isn't. The bailouts are making the problems worse, not better. They're preventing the economy from adjusting. The longer it stays out of adjustment, the worse the damage gets.

They're avoiding short term pain by accumulating long-term problems. After about fifteen years of profound monetary disorder, we have two basic options: a Second Great Depression or Zimbabwe. Depressions are survivable; hyperinflations destroy everything.

To avoid immediate pain, in other words, we are committing fiscal and economic suicide. That is not exaggeration. This particular move won't kill us, but it commits us to a path where bigger and bigger problems, requiring ever-larger bailouts, will keep coming up. Each time, we'll have the choice between a major systemic collapse and some extraordinary bailout, and we will always choose the bailout. The problems will be worse next year, and the year after, and the year after. The bailouts will be larger and larger, as the economy thrashes around, trying to get back into balance, and the government desperately tries to prevent it.

I figure it'll take about another decade, maybe as long as fifteen years, but our direction is being charted right now. This, along with the other recent bailout decisions, sealed the deal, and put the United States on its ultimate path to total economic collapse. We still had a chance of recovery, a chance to get back to basics and undo Greenspan's damage, but that has now been lost. We just put a pistol to our collective temple and pulled the trigger. The bullet moves very slowly, but the destruction will be just as absolute.

if you remember this post in ten years; you'll marvel at its prescience. You're just not going to believe how bad things are going to get, or how much your standard of living is going to drop. And no matter how bad it gets, it's just going to keep getting worse. Each time you think things can't get any more screwed up, they'll surprise you. Barring some magical invention, like working fusion power, the economic pain, before it's all over, will be the worst in living memory.

America is broke. Broke, broke, broke, broke, broke. The people are broke, the instutions are broke, and the government is extremely broke. No amount of money printing will make us not broke, because money is debt.

All the government can do is borrow or print money. You can't solve a debt problem by issuing IOUs.

"As a nation of free men, we must live through all time, or die by suicide."
-- Abraham Lincoln

Oh, and, FWIW, I don't want this to be true. I know I'm right, but I wish I weren't. I've been watching this develop for the last ten years, and it has driven me mad with frustration, because it's all so goddamn unnecessary.

We refuse to let things go down; we refuse to allow large-scale bad outcomes. This means that the government progressively gets more and more interventionist, and the economy gets further and further from anything sustainable.

Central planning is bad, whether it's Congress or the Politburo doing it. We're doing something much like what Russia did before its collapse; trying to force the economy to work how we WISH it would work, instead of how it DOES work. And the things we're most focused on propping up, primarily banks, derivatives, perfectly liquid markets, and endless debt issuance, will cause a hyperinflationary runaway.

It's not all set in stone Malor. It could get bad... but in the position the US is in, it can't get as bad as it was in the last depression. I'm not saying it won't happen. But with as tightly woven as the global economy is, it'll get worse in the rest of the world, but not near as bad as in an one place. Really, all that needs to happen to prevent a dramatic crash, rather than somewhat of a tightening (a slightly worse recession, but not a gigantic recession) is the fed letting the banks down easy.

Besides, a bank bailout is a mere formality. Either way, the fed would pay out bunches of money due to the FDIC. What really, really needs to happen, is that the banks take the hint, and realize that they just got their asses saved, and be more responsible. Things will adjust gradually (think recession), and we won't crash. Even when things are out of whack nearly vertically, they can adjust, if it's fixed before it actually crashes.

Or a republican congress that lets the adjustment happen in a way that the little people get f*cked, and the end result is oddly similar to what happens when the bottom of something hits an obstruction and the top keeps going at great speed...

Besides, on an actual tactical level, it does look like the houses are adjusting themselves. I mean, no one is actually trying to prop up the values of their houses. (Well, and it actually going.) Most are selling, or buying houses cheaper. Seems pretty normal behavior to me.

The best thing that could possibly happen is an alt. energy breakthrough taken quickly to market. Reliable fusion would be incredible, but something like much more efficient batteries would likely work better. Especially if someone took to market a cheapish drop in engine replacement. (Which, looking at the mechanicals wouldn't be too hard.)

I don't know, I think America's big and rich enough that we can give people a hand up now and then. Besides, if they get assistance then surely I'm going to get even more since I'm a responsible homeowner who managed not to get in over his head. Right?

...right?

Kannon wrote:

Besides, a bank bailout is a mere formality. Either way, the fed would pay out bunches of money due to the FDIC. What really, really needs to happen, is that the banks take the hint, and realize that they just got their asses saved, and be more responsible.

If the government keeps bailing the banks out, this will never happen. Human self-interest is against it - if the top dogs in a corporation can make money for themselves and rely on government bailouts to help when things go bad, they have no incentive to change their behavior. The banks will NOT take the hint - they will keep doing what they are doing, because it didn't hurt. It's basic psychology.

Really, all that needs to happen to prevent a dramatic crash, rather than somewhat of a tightening (a slightly worse recession, but not a gigantic recession) is the fed letting the banks down easy.

The banks are floating hundreds of trillions of dollars in derivatives. Either the Fed steps up and monetizes a large fraction of those, or the banks will collapse. If it does step in and guarantee ones that are blowing up, as it did with Bear Stearns, and quietly continues to do with many institutions it wants to preserve, that just capitalizes them to start a whole new round of derivative issuance, which makes the problem worse.

The entire derivative industry is bankrupt. The insurers can't insure against real losses, and they're trading notional amounts that have nothing to do with the actual economy. It's increasingly unstable, and worse still, these abstractions of debt are being used to suck REAL wealth out of the REAL economy. There's probably never been wealth transfer from the many to the few on quite this scale before.

Let's put it another way: it will never be less painful to take the economy off life support than it is right now. The problem will only get larger. It's already dependent on massive government intervention, and if you reward dependence, you get more dependence.

At every step along the way, we'll have the choice, over and over, of letting things fail or propping them up. Each time, we'll choose to prop up, because each time, the alternative will look worse and worse. (that will be true, because the economy will be more and more damaged from all the prior intervention.)

All the government can do is issue debt. You can't use debt to solve a debt problem. You have to sell assets or generate new wealth. We're not going to be doing much of that. Our manufacturing base has been gutted, and the interventions will screw up what's left even more than it already is. And there's only so many national parks we can sell.

The 'soft landing' scenario is staying on the cash drug; it has now gone entirely toxic to us, and our refusal to go through withdrawal means we're going to die of overdose.

Economists hit the panic button when the economy shrinks by a couple percent; optional consumer spending needs to drop by about a third just to get us back to break-even, where the problem isn't getting worse. That, at least, stops the consumer bleeding. Think of how much economic pain that will cause. Discretionary spending has to drop by a THIRD. Then, we have to cut EVEN FURTHER to start actually paying back our debts.

And then, on top of that, to pay all the government bills we know about, tax receipts need to double. Paying 30% now? You'll need to be paying 60% to cover your share of the debt.

Doesn't leave a whole lot of available wealth for little luxuries like eating, does it?

Payouts from FDIC aren't bail-outs. FDIC is a government-ran insurance company, funded through the member banks fees (which, in turn, come from the money that banks make by using the clients' deposits).

That's correct. The takeover of IndyMac, or whatever it was called, was not a bailout. It was, in simple form, covered by insurance. But if the problems grow, the FDIC will itself fail very quickly, because its backstop of capital is very small compared to the market it's insuring. Its capitalization is perfectly fine for 1960s-style banks, but the modern derivative monsters can take staggering losses in days; a bank's entire capital base can be lost literally overnight. The Fed is trying to prevent that by doing actual bailouts, but if it doesn't manage to, the FDIC is the next stop.

If the FDIC runs out of money, which it will after just one or two really big failures, it will be forced to approach Congress for money. At that point, it'll be bailout territory again. But what it has done so far has definitely been insured and fully paid for ahead of time. It prevented a lot of the pain that the bank's customers would otherwise have experienced, and they did an excellent job of preventing even inconvenience for most. So nice to see a government agency that's actually functioning.

Also note that, if I recall correctly, the FDIC was unable to find a buyer for the bank's portfolio, and had to take it over directly. I'm pretty sure I read that this hasn't happened before. So, even though it's not a bailout and was covered by insurance, it's an extremely severe insurance claim. They will not be able to handle many of those.

Malor wrote:

Doesn't leave a whole lot of available wealth for little luxuries like eating, does it?

Does if you're already a millionaire...

Malor wrote:

Oh, and, FWIW, I don't want this to be true. I know I'm right, but I wish I weren't.

Well I guess that settles it then. Thread over.

Malor wrote:

So, yep, the government is now in the business of guaranteeing that house prices, too, will never ever fall. It's not just stocks that are being propped up (through massive Fed intervention, and possibly direct government manipulation, if the rumors of Reagan's Plunge Protection Team are true).... now it's housing.

House prices are going to come into balance with the rest of the economy; if they're not allowed to fall, prices of everything else will rise.

Your salary will not keep up.

We can't legislate away economic reality. We can only destroy the dollar. We took another big step toward Zimbabwe here.

What will you do when you can still buy a loaf of bread for $2 at a grocery store in 5 years?

Nosferatu wrote:

What will you do when you can still buy a loaf of bread for $2 at a grocery store in 5 years?

Thank whatever deities that Bush is out of office?

Paleocon wrote:
Nosferatu wrote:

What will you do when you can still buy a loaf of bread for $2 at a grocery store in 5 years?

Thank whatever deities that Bush is out of office?

And if bread is $100 thanks to new policies put in place by whomever suceeds him?

Nosferatu wrote:
Paleocon wrote:
Nosferatu wrote:

What will you do when you can still buy a loaf of bread for $2 at a grocery store in 5 years?

Thank whatever deities that Bush is out of office?

And if bread is $100 thanks to new policies put in place by whomever suceeds him?

If they are due to his policies, by all means, blame him.

Paleocon wrote:
Nosferatu wrote:
Paleocon wrote:
Nosferatu wrote:

What will you do when you can still buy a loaf of bread for $2 at a grocery store in 5 years?

Thank whatever deities that Bush is out of office?

And if bread is $100 thanks to new policies put in place by whomever suceeds him?

If they are due to his policies, by all means, blame him.

or HER, such a sexist Paleo

kaostheory wrote:
Paleocon wrote:
Nosferatu wrote:
Paleocon wrote:
Nosferatu wrote:

What will you do when you can still buy a loaf of bread for $2 at a grocery store in 5 years?

Thank whatever deities that Bush is out of office?

And if bread is $100 thanks to new policies put in place by whomever suceeds him?

If they are due to his policies, by all means, blame him.

or HER, such a sexist Paleo :P

bwahaha. A woman president? That's as likely as a MORMON!

If bread is still $2 in 2013, Nosferatu, you'll be making maybe 30% of what you do now.

What could happen is BOTH; bread could go way up and your salary could still drop. Easily possible. There's an amazing quantity of dollars in the world that we have to compete against for goods.

14% inflation cumulative per year over the next 5 years, Malor? Really? You must have a scenario in mind...

Robear wrote:

14% inflation cumulative per year over the next 5 years, Malor? Really? You must have a scenario in mind...

I believe he's already expressed it, and it rhymes with "JimNobSway".

Well, can't argue with that. First, we reduce the economy to ineffectiveness and put 98% of the population in dire poverty, destroy most industry and agriculture, and get rid of all banking. Then, the government must decide to pay off it's debts by literally - not figuratively or abstractly - printing higher denomination bills and sending them to creditors.

Then we'll be Zimbabwe. Failing that, though, we are likely to see a crisis develop differently. That's what I'm interested in.

The biggest thing everyones forgetting, is that in order to become a Zimbabwe situation, we have to give all out business and farms up to uneducated Native Americans who have no experience running them. The collapse of white business in Rhodesia was a major factor everyone seems to be discarding.

MaverickDago wrote:

The biggest thing everyones forgetting, is that in order to become a Zimbabwe situation, we have to give all out business and farms up to uneducated Native Americans who have no experience running them. The collapse of white business in Rhodesia was a major factor everyone seems to be discarding.

Yup.

Nigeria is making out like bandits. They have been offering white farmers 99 year leases to bring their capital, equipment, and farming expertise to Nigeria. The resultant brain and capital drain has been akin to Ross Perot's "giant sucking sound".

Nigeria is making out like bandits. They have been offering white farmers 99 year leases to bring their capital, equipment, and farming expertise to Nigeria. The resultant brain and capital drain has been akin to Ross Perot's "giant sucking sound".

And you'll notice Nigeria's GDP has boosted nicely in the last few years, their even paying down a lot of IMF debts because their stable enough to start exporting oil, unemployment is 5ish percent. Their not just getting Rhodesians, most of them had to leave too long ago, their getting people from all across Africa and Asia to come in.

I realized after I posted that that 5 years is probably too soon; the vastly expensive bread is probably still a decade off. We still have a lot of wealth yet to piss away into fruitless bailout attempts.

Overall global inflation, as defined by the expansion of the giant global pool of money, appears to be running in excess of 12% anyway, and many smaller countries are reporting double-digit inflation figures. (they can't afford in-house statisticians to massage away all that nasty truth, you see.) So 14% annualized isn't as outlandish as it might first sound. But I just don't think it'll fall apart THAT fast. Economics is slow. I reacted to Nos' comment off the cuff instead of thinking it through.

It won't work out exactly like it has in Zimbabwe, because we have multiple levels of abstraction that they don't, but at the most fundamental level, we're trying to do the same thing they are: extracting more value from the economy than the economy can support, and issuing debt that we can't repay to make that happen.

Again: we have a gigantic debt problem. And all our government can do is issue more debt; it doesn't generate wealth. You can't solve a debt problem by adding more debt. You have to work it off, or default. We're trying to default by devaluing the currency, but doing that is just issuing more debt claims into the marketplace.

Eventually, we'll end up with a dollar that's worth zero, and an economy in total ruin. Our exact path is unknown, because of the intelligent agents at the core trying to manipulate outcomes, but at the deepest level, we're trying to do what Zimbabwe did: live beyond our means through theft by deception. Steal enough wealth out of an economy, and it will fall apart.

I'm hopeful our bailouts will fail, and that we'll have a depression instead(which is a horrible thing to wish for, but it's the best outcome I can see).... but I don't think that's going to happen. I remain convinced that if the Fed really wants to destroy the dollar, it can.