that the stimulus i...,
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glass it and start over...,
the banks aren't just insolvent anymore:
The reason the banks oppose cramdown measures is because a cramdown would force them to write off the mortgage debt and force further government action to either prop up or tear down the banks. They would much rather continue the game of pretend until Geithner and Bernanke discover a way to finally achieve Paulson's dream of paying them near the full value of loans worth cents on the dollar.
Senator Idiot (R-AZ) lays out the argument against allowing judges to cramdown mortgage loans to something still well above the market value of the home:
THE HONORABLE SENATOR IDIOT (R-AZ): Senators Durbin’s amendment would allow bankruptcy judges to modify home mortgages in bankruptcy court by lowering the principal and interest rate on the loan, or extending the term of the loan. This concept, known as ‘cram down,’ would apply to all borrowers who are 60 days or more delinquent on payments for loans originated before January 1, 2009, and would set the maximum value of loans that qualify at $729,000.
That sounds pretty smart.
IDIOT: Interest rates on home loans are substantially lower than other types of consumer loans because of the guarantees that current law provide to lenders.
A bank is guaranteed a home worth a fraction of the loan!
IDIOT: If we eliminate this security for lenders, and increase the risk inherent in making a home loan, then lenders will have to charge higher interest rates for home loans to cover the risk.
Hey, I've got an idea - let's only eliminate the security for mortgages that already have set interest rates, so new interest rates don't go up!
IDIOT: The net result of the amendment will be higher interest rates for home loans, and fewer Americans who will be able to afford to buy a house – not what we need to end the housing crisis.
The net result of not passing the amendment will be higher foreclosure rates, pushing down home prices for neighboring homes and resulting in higher ruthless default rates and lower collateral values in a death spiral to a bottom secured only by mortgage borrowers' tolerance for negative equity and taste for shit pie. Plus extra homelessness!
IDIOT: [A bunch of incredible hacks on the payroll of insolvent banking institutions that are now keen on raiding the public treasury while wringing every last penny out of their customers agree with me.]
Unlike prior proposals, this bill is not limited to high-risk 'subprime' loans or other non-traditional loans, but would allow cram downs for all loans.
This proposal would actually be effective, and that's unacceptable.
Congress should not incentivize bankruptcy by making it the only means to save one’s home.
Instead we will take the suckers for all they're worth in order to cover our losses from the walkaways and bankruptcies.
If it wasn't the case that the banks were insolvent, they would support narrow cramdown measures like what failed today because it would save them more money than it would cost them. The cramdown proposal would still leave the mortgage value well above the market value of the home: home prices are in fact still declining at a record pace so even if mortgages were crammed down to present market value it would be worth more than the future value of the collateral on the loan. If it means the home owner could afford their new payments the cramdown mortgage is worth significantly more than a costly foreclosure in which the bank's collateral may very well be wiped out entirely by the systemic looting and eventual decay of the abandoned homes.
Even before you consider the second order effects of foreclosures on neighboring home values you have to conclude from their opposition to this amendment that the banks have gone criminally insane.
Cramdowns wouldn't prevent the banks from continuing to loot the treasury, but they would reduce the cost of future bailouts. Since our representatives and civil servants are so clearly serving the bank's interests and not ours, one could argue that we should just give in and give them their 90 cents on the dollar so we can save ourselves from the downward spiral the banks are creating.
I think that's a pussy argument though, and we should instead revitalize our construction industry by building a gallows large enough to handle the volume of bank managers and puppet politicians we're going to have to string up before this charade is ended.