Remember Back When This Was a Lot of Money?

GM told the federal government Tuesday that it needed to increase its loan request to $30 billion, $12 billion more than it had initially sought in order to avoid bankruptcy.”

And if we’re lucky, that will tide them over for a few more months.

I really don’t know what else to say about this disaster, except that it makes the extra $2B Chrysler requested look like a bargain. Just to be clear, that’s an EXTRA $2B, totaling $9B for Chrysler.

Fortunately, I doubt I’ll have to stew over the auto disaster for long, as Obama will unveil his homeowner bailout plan tomorrow afternoon.

I recommend CNBC’s special “House of Cards” – about the entire housing and MBS/CDO boom and bust. It highlights the complete lack of responsibility at every step in the mortgage food chain. As I wrote in my Blowjobs and Mortgages post almost a year ago, I take issue with people blaming “Wall Street.” Wall Street was guilty of making bad loans – and you can never blame the lender in that situation, as lending money to people who cannot repay it is never a profitable business model. CNBC did a good job reminding the viewer that each of the troubled homeowners they focused on took out mortgages they could not afford, while not absolving mortgage brokers and Wall Street securitizers from their role in picking up a piece of the pie. As one mortgage originator explained it, “What could I do? If I wouldn’t lend them the money my share would go to zero and 20 others would lend it to them.” (not an exact quote)

I would have liked to see more hard questions asked to the bond rater from Moodys who they focused on. I still think that if anyone other than the borrowers are to blame, it’s the ratings agencies. I also didn’t realize that Alan Greenspan himself had, back in 2004 I believe, encouraged mortgage issuers to come up with alternatives to the traditional fixed rate mortgages.

As I watched this special with my wife, she was shocked when they started describing negative amortization loans. This is a mortgage where you actually pay LESS than the interest due each month, so that your outstanding balance goes UP over time. “Who is that good for?” She asked me. I had no answer. (In truth, I think the only people NegAm loans are good for are those who can afford to speculate on future home prices and want additional leverage. Unfortunately, they were used almost exclusively for those who could NOT afford the loans if the home prices failed to continue their steep upward trajectory). “These people aren’t even renters,” she continued, “they’re paying LESS than rent essentially,” and she was right. That’s a key point that I hope won’t be glossed over when we structure any homeowner bailout plan – just because you took out a mortgage doesn’t mean you were a homeowner and certainly doesn’t mean you deserve help.

My big issue is that I have yet to find a borrower I sympathize with. It’s not that I hate humanity – I’m a compassionate conservative – a Libertarian – socially liberal, fiscally conservative – call it what you want. But I believe people should be held accountable for their decisions. My father has driven the same car and lived in the same non-renovated house since the early 90’s. He didn’t cash out his mortgage equity to get a shiny new kitchen and a mortgage he couldn’t afford – and he shouldn’t have to pay the price for those who did. Similarly, my wife and I twice failed to buy homes, once during a vicious bidding war in 2000 that made no sense to me, and once in 2005 when we couldn’t make numbers work because the condo fees were too high. “But you’d be building equity,” people would say. “Sure – if home prices go up, which is not something I’m willing to bet on,” I’d reply. So now I’m stuck paying rent still as I wait for house prices to come back to normal levels. I read a comment on a Clusterstock article last week that said it perfectly:

This is amazing…I did not buy a house for years because I didn’t think the pricing made any sense. Now the government is going to use my tax dollars against me be trying to re-inflate the market.

Prudent people should not be held liable for the greed and poor decision making of the masses. There is an old saying, “If you owe the bank $10,000 you have a problem. If you owe the bank $1mm, the bank has a problem.” I’m all for people trying to renegotiate their mortgages with their banks – that is a BUSINESS decision for the banks – but I’m adamant that the government should not be involved.

anyway… we’ll see what the administration comes up with. Then I’ll rant some more.

KD

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