Joe Nocera’s column in the Times today described a really innovative idea for giving homeowners some relief from the credit collapse. In short, owners of homes that are worth less than the mortgage would give them back to the bank, but the bank would have to rent the home at market rates to the former owners for five years. At that point the former owners could repurchase the home at the value at that time. It costs the government nothing, people aren’t kicked out into the street, and both buyer and seller suffer a little, which is probably as it should be. Nocera’s explanation is more complete and compelling. Read it here.The most irritating and pathetic recent example of how celebrity trumps substance was Senator McCain’s embarrassing appearance on David Letterman to apologize for pulling out of a scheduled appearance a couple of weeks ago in order to go to Washington during the Congressional credit debates. Letterman has skewered McCain nightly since then, in the most unflattering terms possible, until McCain was forced into his mea culpa. So a self-important, goofball acting like a 3-year-old throwing a temper tantrum can force a major party Presidential candidate to drop everything to come on his juvenile show, where he then ambushes (and I think this is the appropriate term in the case) him with question about his relationship with G. Gordon Liddy. Candidates used to make pilgrimages to visit Harry Truman, Eleanor Roosevelt and Dwight Eisenhower. Now it’s Oprah, Ellen, Dave and Jay.
If you think the financial crisis is under control, read this recent Fortune article on the $55 Trillion (yes – with a T), totally unregulated market in credit default swaps. The casino-like nature and size of this “financial weapon of mass destruction,” as Warren Buffett calls all derivatives, makes the sub-prime mess look staid and petite.
I’m loving the new Lucinda Williams album, “Little Honey.” Don’t buy it unless you love great country/rock/blues, kick-ass guitar-playing and a voice like a angel from down below.
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21 comments:
Thanks for sharing the article. Having read the long version I can see two issues.
1) It does not address the single family homes owned by investors. What percentage of investment homes fall into foreclosure and how will they effect over all home prices.
2) The lease agreement in the plan is for 5 years. Which means in 5 years the Real Estate market will be saturated again with an over supply of homes. It would like having a balloon payment of the 1980’s style mortgage.
Dennis, if McCain had actual gone to Washington like he said he was going to do then maybe I could see your point. But since he didn’t why are you so bothered. Is it because Letterman’s show has a bigger audience than your blog?
I don’t think McCain was forced to go on Letterman. I don’t think it was a pilgrimage. He was just using the show to make him look like the “good cop” while Palin and the ROBO calls continue to claim Obama hangs out with terrorists.
And when McCain wouldn’t answer the question about Ayers I think that the Liddy question was a fair comparison.
It’s hypocritical for a Politian to use TV shows when it suits them but the call foul when it doesn’t go their way.
I believe the goal of the plan is to keep people from being evicted. investors are in less need. the inventor feels that the need for housing will grow, while very few new homes will be built in the next 5 years, so the two trends will meet in balalnce at some poit -- and rentors do not have to stay 5 years, that's just the max.
as for McCain/Letterman, we'll just have to disagree, and my point wasn't which of them was right, anyway. i was lamenting the fact that it matters at all. the man who brought us "stupid pet tricks" should just leave politics to others.
Is it fair to accept the prevailing cultural notion that the political campaign is separate and distinct from policy and governance once in office? Do we view the electoral process as we view advertisements where sex is sold and obsessed over but our society really doesn't function that way.
If direct and indirect prevarications, bantered around in the campaign process are fair game and the slate is cleared for the winner, all is fair under the basket. Am I the only one who is a little too high minded in balking at the hypocrisy?
The 5 yr rent/buy plan is ridiculous. First of all, there aren't any investors out there right now that want exposure to single family real estate. I should know, I run a private equity real estate fund that invests in the equity in single family residential real estate. Why should the banks subsidize US housing? Beyond the absurd idea, the banks can't hold real estate on their balance sheet for 2 reasons (1) they don't want to--too much risk (banks shouldn't be paid for taking that kind of risk--investors should) and (2) they can't--US banks are prohibited from owning equity in real estate beyond 5%-10% of their total assets
And, yes the dumb idea (leave it to a FORTUNE editor for such genius) would result in a glut of housing on the market in 5 years--markets would anticipate that and price it in. The best thing we can do now is take our medicine and work through the current inventory of foreclosures and bad loan portfolios.
Keeping people in their homes? Let's not forget something here--those people bit off more than they could chew and it shouldn't be the government's or the banks responsibility to step in and balance their check books. Where do you draw the line? Credit cards, car loans, student loans and every other method of debt financing--where does it end, socialism?
McCain's appearance on Letterman just brings the absurdity full circle. After all, it was on Letterman's show that McCain announced his candidacy. I think this is called be "hoisted on one's own patard". I think the Liddy issue was completely fair game. I'd knew about this association and it's implications well before Letterman's question. McCain should have been prepared for this. It wasn't an ambush by any means. Just a case of rampant hypocrisy on the part of McCain.
I have no opinion on the financing of forclosed homes. Anything that falls short of a perp walk of the wall street charlatans that treated our economy like a Tunica, Mississipp casino won't do it for me.
OK Yogi -- you could have read the column before flaming the idea as it calls for appropriate legislation to cover the ownership issue, so it would be legal and it wouldn't matter if they liked it or not, and -- let me stress this again: it would cost the taxpayers nothing. how novel!
and while many people were stupid, putting my out in the street and allowing their former homes to become vacant shells does no one any good and costs otherwise innocent consumers in the form of further reduced property values.
Birdman -- you are just plain wrong and the Redskins suck, too.
Carlton--I did read Mr. Alperts 8 page concept and that's the one (and major) issue his plan doesn't account for. Who will own the asset? He addresses the taxation, depreciation and some minor regulatory issues but doesn't account for the limits on how much real estate equity a bank can own, not to mention the current 100% capital requirements on equity vs a tiny fraction thereof for debt. So he can't assume that the US banking sector can absorb these assets on their books without having significant implications on their liquidity and valuation. Beyond those significant issues he does not address the issue(s) investor side of the equation. Who owns the asset if this this doesn't cost taxpayers anything? Perhaps I'm missing something here.
Isn't it just a legislative issue? we adjust the laws to allow it. i mean the bank was going to forclose and sell at a loss anyway, so they are better off owning, having cash flow thru the rental, and selling at what presumably will be a better time down the road. meanwhile, people have a place to live. neighborhoods aren't destroyed. both the bank and the owner lose something, but that's how it should be.
What did Ebenezer Scrooge say? "Are there not debtor prisons sir?" This creeping socialism could lead to laws that ban AK 47s or restrict torture. This country could turn into Great Britain.
Morally, there is a divide between unrealistic borrowing and unrealistic lending. The lenders are the ones who took from us. The borrowers just saw an opportunity. If Soylent Green is the answer, it should be made from the lenders. We can have the borrowers do community service by transporting it around.
Well, let's think this thru. If you are the CEO or even shareholder of a bank, would you want to be forced to own real estate? If it's not forced and the bank has a choice (like it does now), how does this solve the problem? If it is legislated, the enterprise value of the bank(equity+debt-cash) would plummet because the equity would be tied up in assets that are yielding less than they are now. If the homeowner can't pay their $200K mortgage at 6.5% and is converted to "renter" at market rates, the bank is now taking a loss on revenue and it's future earnings are impaired. Furthermore, the banks cash is now tied up capital requirements for owning the equity. Hilary Clinton suggested at one point freezing all rates at 5%---that too would be devastating as would any legislature that steps away from a true market economy. Sure, you've got people still in their homes but the damage that will occur to the economy/markets will be much worse than the alternative of taking our medicine and letting this overindulgence work its way through the system.
No cost to the tax payer=no money in the deal. No moneysoon enough in the deal= Not going to happen. I am starting to get used to the idea of socialism.I'm hoping that with the spread of wealth comes the spread of education and common sense.I will also be looking for what the revs' Jackson and Sharpton will base their platform on. I will have to check out the album. Oh, and since most of us are in denial of getting older. i think there is some of the buckeye nation that suscribeds to DEB blog. I do believe an old washed up has been 83 year old man will be in Columbus next Saturday,who everyone says should retire, and will take Tressle to the shed for a good old ass whooping sandwich hold the mercy. So Dennis Earl, give it a twirl, spin the wheel this week, No politics, give only opinions on business, money,tales of foreign lands,sports,leisure ,music,American history. good luck.mrb.
Warrenout - you know that old man is going down on Saturday. will do my best to entertain unless somethingdramatic happens. i'm looking forward to the Obama TV show. it has to be better than the infomercial/debates.
Yogi -- i'm going to yield to you on the relief plan because i know you never will and because Warrenout is right -- there's no money in it for anybody in power so it will never happen anyway.
1) BRAVO IAN CHARLES! (You get 'em So-jah Boy, an' Ting-Ting rove you rike she-devir!)
2) I believe I settled this inane debate with my Sept.26 post, below:
"The sit-on-your-ass-link-arms-and-sway-as-you-sing-Woody-Guthrie-tunes crowd are the villains. The ones who believe EVERYONE -- regardless of effort and income, is ENTITLED to a 3,500 sq. ft crib and 2 Escalades.
The kumbaya legislators relaxed the lending regs and human greed did the rest.
Predatory lenders? BULLSHIT!
How about greedy, stupid borrowers? Morons making $90k who had to live LARGE and thought they could swing a $1.7 million home.
Wall St. deserved NO bail out. Neither does John Q. Jackass Public. Let him foreclose and go swing a mop at Mickey D's - it's more in keeping with his talents and intelligence."
And by way, Ian, socialism isn't next - it's HERE!
For those so DEEPLY CONCERNED about evicted "victims" of the mortgage meltdown -- why don't you PUT THEM UP IN YOUR HOUSE?
fistinyoface, you are more Old Testament than I am. And I am of the Tribe.
Blame is simple: everyone. Greatest blame? Do you dislike those who ate the free lunch more than those who offered it, while you were surreptitiously made to pay for it? Some of these honestly felt it would work as it was presented to them in the contract. Sure there were opportunist sc*mbags who thought they could get to heaven without dying first. Or legislators who bought into deregulation but didn't see it as a train wreak down the line. Or us, the taxpaying electorate, who didn't follow the ball.
This was a case of financial cold fusion: the promise of something for nothing.
As this thread reveals, there are no easy fixes on digging out of this when you look at the chess board 2 and 3 moves ahead. You can't please both the goose and the gander.
The bottom line is not to sink the boat no matter how repugnant the solution.
FIYF -- i'm just as heartless and uncaring as the next guy, but i like this plan because a) it costs taxpayers nothing b) niether of us ends up with 6 vacant houses on our block driving down our property taxes and c) it doesn't increase the number of people looking for public housing. it's self-serving, and therefore a good thing, doncha think?
Lucinda Williams for President.
hey, I am trying to sell my home like Herdman is trying to sell a painting. You have to offer him more as he deserves it. Lord knows I can't afford him.
You people get a little too serious for me.....personally I think Sarah Palin is a breath of fresh air.
Honestly, tell me why BO is more qualified than her?
You can't. jb
the amount of money for this presidential election is gross.
do you realize the programs we could have fixed based upon the money raised to elect a president?
The BO campaign raised $150 MILLION in this month alone.
We Americans like to give others our money.
BO, let's give a drive to build bridges in this country based upon your contributions.
Really, we are a giving people, let us give to build the infrastructure of this country.
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