Monday, September 03, 2007

Thanks to Chuck for the feed. President Bush recently unveiled his plan to help homeowners in this time of increased foreclosures and mortgage defaults. Bush wants to see the FHA play a role in helping people refinance their homes at lower rates to keep them from defaulting. Of course, the FHA is a government program, funded by taxpayer dollars. The people in question originally financed their homes with adjustable rate mortgages, that when matured converted to a much higher interest rate...such is the risk of the ARM. You get a lower rate, but it's a dice roll. Now, President Bush feels it's the government's job to bail out those who rolled the dice.

Bush’s proposals unveiled Friday are designed to help combat those defaults. They would make it easier for borrowers now holding adjustable rate mortgages that are resetting to higher monthly payments to refinance those loans using the resources of the Federal Housing Administration. The FHA is a Depression-era agency created to help low and moderate-income Americans afford homes....Bush’s proposals follow a number of measures already introduced in Congress to deal with the mortgage lending crisis. Many Democrats said while they welcomed Bush’s ideas, they felt they did not go far enough and should be modified to help more people....Sen. Charles Schumer, D-N.Y., said he believed Bush’s announcement Friday represented a major ideological shift for the administration, which has generally favored free-market solutions to problems rather than increased government involvement. “The president has gotten out of his ideological straitjacket and seen that in times of crisis, one of the jobs of government is to help,” Schumer told reporters at a Capitol Hill news conference.....FULL STORY

Chuck Schumer's definition of help is rather loose. Remember, the people in question basically made bad financial decisions. Everyone knows the risk of an ARM mortgage. But Schumer and, apparently, President Bush feels it is now the government's job to grant these people a reprieve, at taxpayer cost. No longer are we responsible for our own financial decisions. No longer do we have to take into account financial risk. Big brother government will bail us out.

And this is life in a "free market".


The Loop Garoo Kid said...


I don't think the president's decision to intervene is a compassionately consrvative act to grant a reprieve tohome owners who made bad financial decsions. Rather, it appears to be an attempt to calm the financial markets which have reacted badly to conditions in the subprime lending market.

From a practical, if not philosophical, standpoint I think that governemnt action is a better solution to the alternative.



What's the matter with these poor people? Don't they realize that these problems would magically disappear, if their sons/daughters would just get Law & Accounting the best schools, of course! reb

John Washburn said...

Sorry, but I'm leary of the government intervening in situations like this. It sets a dangerous precedent and encourages irresponsible behavior. At some point we have to let people suffer the consequences of poor decisions.

The Loop Garoo Kid said...


You wrote: "At some point we have to let peple suffer the consequences of poor decisions" and I think you meant "their poor decisions."

Unfortunately, the sentence as you wrote it is more accurate. I have the distinct impression that you believe that home owners who bought beyond their means made poor decisions, which indeed they did, but let us examine the other poor decision makers: the deceptive mortgage brokers and lenders; the institutions that rated the bundling of subprime mortgages as creditworthy investments; the buyers and sellers of such bundled mortgages.

What about the rest (of us) who are affected by the poor decisions of others: those who though creditworthy cannot obtain loans b/c lenders are hinkey. Investors in what they thought were safe securities whose investments lose value when the market tanks b/c of issues w/ subprime lending.

To me, the most amazing, and disconcerting, part of watching the markets was not only the number of bad judgments but also the way all the markets are interconnected.

I would rather see a few undeserving people get bailed out than watch world markets melt down

I regret to advise of the death yesterday from leukemia of former Federal Reserve Board memeber Edward Gramlich. In June, Mr. Gramlich's book, "Subprime Mortgages: America's Latest Boom and Bust" was published. It is likely to serve as a blueprint for Washington policy makers seeking to find ways to stem a rising tide of mortgage delinquencies.