Instead of bailing out banks, why doesn't the govt pay off everybody's mortgage?

[Penguin]

Wouldn't that help the economy more than bailing out banks that will most likely go bankrupt anyway?


Of course, I guess America can't afford to pay off every mortgage, but certainly we could come up with a way to choose who gets theirs paid off.


Well, I'm no economist, so I am just axing a question. Please try to dumb down your response so that somebody with a 7th grade education can understand.

[Vaevictis]

(1) Buying bad debt at a discount costs less than it would to make that bad debt good.
(2) Once you own the debt, you can choose to forgive it.

[JohnnyMack]

(2) Once you own the debt, you can choose to forgive it.

Don't look for that to happen. That wouldn't help the dollar. They're gonna have to get something for this. Good luck with that.

[Vaevictis]

Not saying that's what'll happen, just saying that if you wanted to get people out of their mortgages, it's cheaper to buy the bad debt and forgive it than to pay it off.

[Boarder]

Whaddya mean that wouldn't help? If they didn't have a mortgage everyone would have tons of money to spend on things they didn't need leading to more want, more credit, and new debt.

Oh wait.

[Penguin]

Whaddya mean that wouldn't help? If they didn't have a mortgage everyone would have tons of money to spend on things they didn't need leading to more want, more credit, and new debt.

Oh wait.


Yeah, but you would have a house that's paid off. You could sell the house, pay off your debt, and still have enough for a huge down payment on another house. No matter how bad the economy gets, you could always find a bank to loan you money if you had a 50% down payment.

[Boarder]

Oh, don't get me wrong, I'm all for it! :D

I was making a joke about how when people get their debt paid off they'll go crazy and end up with more debt. It's the American way.

[Penguin]

Oh, don't get me wrong, I'm all for it! :D

I was making a joke about how when people get their debt paid off they'll go crazy and end up with more debt. It's the American way.


Why do you hate America?

[soonerhubs]

So can someone tell me how this "bail out" plan endorsed by W is not going to kill the economy as inflation sky rockets? It's so obvious as fuel prices and gold prices jump again and the US dollar has it's weakest day ever against the Euro.

Why didn't we just let these greedy sacks of trash fall?

[landrun]

They should just let the banks go belly up and the home owners would own their homes free and clear. Wouldn't cost the tax payers a penny.

The politicians are going to make money from bailing out the rich. THAT's why they're wanting to do it. That money will come back to them through the special interest groups.

Sucks to be us, the tax payers.

[soonerhubs]

President Bush, my disappointment in you has reached an all time high. A Bailout is the most socialist action you could endorse. Conservative, you are not. I voted for you twice, and now I'm questioning those ballots I cast. Someone convince me that I wasn't a naive fool, because I'm feeling it right now.

[Big Red Ron]

Whaddya mean that wouldn't help? If they didn't have a mortgage everyone would have tons of money to spend on things they didn't need leading to more want, more credit, and new debt.

Oh wait.
It would be better and maybe even cheaper than what they are proposing. I'm agreeing with you. Even though I don't think we should be bailing anyone out. I think if we bail anyone out it should be individuals and families, not corporations.

[JohnnyMack]

They should just let the banks go belly up and the home owners would own their homes free and clear. Wouldn't cost the tax payers a penny.

The politicians are going to make money from bailing out the rich. THAT's why they're wanting to do it. That money will come back to them through the special interest groups.

Sucks to be us, the tax payers.

The way I understand it, if there is a run on these mutual funds with people trying to pull out massive amounts of cash it would literally collapse the entire market. Something had to be done to keep it afloat.

[SoonerKnight]

President Bush, my disappointment in you has reached an all time high. A Bailout is the most socialist action you could endorse. Conservative, you are not. I voted for you twice, and now I'm questioning those ballots I cast. Someone convince me that I wasn't a naive fool, because I'm feeling it right now.

To quote the Simpsons "HA HA!!!!"....................

Oh wait I didn't vote for bush the first or second time and I am screwed right along with you.

[SoonerKnight]

The way I understand it, if there is a run on these mutual funds with people trying to pull out massive amounts of cash it would literally collapse the entire market. Something had to be done to keep it afloat.

Isn't that a free market? I mean gas goes WAY WAY up in like a matter of days and Bush says "That's the free market working" People take money out of businesses hands and now we gotta buy the companies. Oh and bush wants to allow these CEO's their golden parachute's.

[Vaevictis]

They should just let the banks go belly up and the home owners would own their homes free and clear. Wouldn't cost the tax payers a penny.

No, the home owners would not be free and clear. Someone would buy the debt at a discount and come looking to collect.

[Vaevictis]

President Bush, my disappointment in you has reached an all time high. A Bailout is the most socialist action you could endorse. Conservative, you are not. I voted for you twice, and now I'm questioning those ballots I cast. Someone convince me that I wasn't a naive fool, because I'm feeling it right now.

Is risking a new Great Depression worth sticking to conservative (or liberal!) ideals?

Keep in mind that based on our current understanding of economics, this is a real possibility, and the best way to deal with it is to do what's being done.

[OUthunder]

President Bush, my disappointment in you has reached an all time high. A Bailout is the most socialist action you could endorse. Conservative, you are not. I voted for you twice, and now I'm questioning those ballots I cast. Someone convince me that I wasn't a naive fool, because I'm feeling it right now.

I agree with you 100%. He's the worst President since Jimmy Carter and that's saying a lot.

When I ask myself why I voted for him, I look no further than the Democratic Party as they had little to offer and they were even more pathetic than he was/is.

Am I better off than I was eight years ago? Hell yes, but it isn't because of George W. Bush or any other stinkin politician.

[JohnnyMack]

Isn't that a free market? I mean gas goes WAY WAY up in like a matter of days and Bush says "That's the free market working" People take money out of businesses hands and now we gotta buy the companies. Oh and bush wants to allow these CEO's their golden parachute's.

Yeah it is a "free market", but I've read that one of the main reasons the great depression was so...well...great was that the government didn't step in. If the government had backed some of the first banks to fall some theorize that it wouldn't have gotten as out of hand as it did. You have a run on cash like that and it can cause a panic. Froze prolly knows better than I do, but if everyone pulled their money out of every bank we'd be looking at some ridiculous inflation rates. Then the Soviets would invade. And Kevin Costner would deliver the mail and Mel Gibson would drive around in a dune buggy while Tina Turner sings. We don't want that. Do we?

[soonerhubs]

Is risking a new Great Depression worth sticking to conservative (or liberal!) ideals?

Keep in mind that based on our current understanding of economics, this is a real possibility, and the best way to deal with it is to do what's being done.

So causing the potential collapse of our economy by destroying the value of the dollar doesn't bother you?

This is way beyond ideals.

[Vaevictis]

So causing the potential collapse of our economy by destroying the value of the dollar doesn't bother you?

Yes, it bothers me.

It just bothers me less than the higher likelihood of collapse (not to mention likely higher severity) of our economy due to allowing our monetary system to fail.

Of the options I know us to have, inflation is the least of the evils.

[Lott's Bandana]

I just bought my home. I have 359 more payments.

In.

[soonerhubs]

Yes, it bothers me.

It just bothers me less than the higher likelihood of collapse (not to mention likely higher severity) of our economy due to allowing our monetary system to fail.

Of the options I know us to have, inflation is the least of the evils.

You may be right, but I am not yet convinced that the bail out is the lesser of two evils.

[Vaevictis]

Well, we had a very similar situation in 1929, and we decided to let banks fail and let the markets self-correct.

Except they didn't self-correct. It just got worse and worse.

Generally speaking, I'm disinclined to do the same thing twice hoping for a different result.

[pergdaddy]

Here's my opinion:
If they do a bailout, the failing companies should bundle up all their mortgages and sell them to the Fed at a discounted price. The Fed then owns those loans, the companies get some liquidity in the form of cash. The Fed should then renegotiate the loans into a better rate with better term length. While this would take some time, it would allow homeowners the means to gain liquidity while not forgiving their debt. The companies were wrong for lending out the money on bad loans, but the customer is just as guilty for taking the loan on homes they couldn't afford. In the process, as part of the package, each of these companies executives should lose all rights to bonuses and golden parachutes. Bonuses and the such are rewards for reaching company goals, I highly doubt running a company into the ground counts. I mean, I can't believe how far Lehman Bros stock has fallen in price. Redicorous.

THe only problem with that is how are the people who already were forclosed on going to gain in this whole bailout scenario that is playing out? I mean that isn't necessarily fair, for those that held on as long as they could are going to get help while those that fell early are not? Of course, that's the way the government works isn't it? Reactive instead of proactive.

I don't see another Depression. We're only talking about a handful of economic institutions, not all banks. Not all banks lent out money on shaky loans. FNMA and FHLMC needed saved because of the amount of mortage debt that they had. Lehman, Merrill Lynch could fail and we will be alright. It will get bad, but not Depression bad.

I think the Government is rushing into something that they necessarily shouldn't be rushing into yet.

[pergdaddy]

Oh, and never ever ever ever do an ARM loan. Never. You are now seeing why you shouldn't.

[sooneron]

And Kevin Costner would deliver the mail and Mel Gibson would drive around in a dune buggy while Tina Turner sings. We don't want that. Do we?

Well, yeah.

Anything that gets Costner off the screen would be a bonus.

[Vaevictis]

I don't see another Depression. We're only talking about a handful of economic institutions, not all banks. Not all banks lent out money on shaky loans. FNMA and FHLMC needed saved because of the amount of mortage debt that they had. Lehman, Merrill Lynch could fail and we will be alright. It will get bad, but not Depression bad.

We are, in point of fact, talking about all banks.

If banks of that size fail in the way investment banks fail, the money supply would likely contract considerably. Banks would stop lending to each other for fear of default, increasing their reserves.

Maybe you know this, but I'm going to go over it anyway: there's this thing called the reserve multiplier that results from depository/lending institutions -- if you deposit $100, the bank keeps $10, and lends out $90. It gets spent, and deposited in another bank -- who keeps $9 and lends out $81. It gets spent, and deposited in another bank, who keeps $8.10, and lends out $72.9.

This repeats until the various banks have a sum total of $100 on reserve and $1000 in outstanding loans.

Let's say banks increase their reserve requirement from 10% (current mandatory requirement) to 25% due to fear. Doesn't seem unreasonable, or excessively large, right? Except now, the multiplier yields $100 in deposits and $400 in outstanding loans. From a 15% increase in reserve requirement, we have a 60% decrease in money supply.

This yields deflation. Deflation is very, very bad news. It increases the real cost of borrowing, it really puts the screws to people who have debt outstanding (like say, America at large, both government and populace), etc, etc.

Don't think that the fallout of these banks failing is limited to a few select banks. It impacts every last one of them in a big way.

[Scott D]

Oh, and never ever ever ever do an ARM loan. Never. You are now seeing why you shouldn't.

ARM's aren't the same thing as Sub-Prime, and that also needs to be remembered. Also, notice since the mortgage "crash" pretty much every network that had them has been pulling those house "flipping" shows. Since that was the main reason the whole thing crashed in the first place.

[RUSH LIMBAUGH is my clone!]

So can someone tell me how this "bail out" plan endorsed by W is not going to kill the economy as inflation sky rockets? It's so obvious as fuel prices and gold prices jump again and the US dollar has it's weakest day ever against the Euro.

Why didn't we just let these greedy sacks of trash fall?Best solution!

[JohnnyMack]

ARM's aren't the same thing as Sub-Prime, and that also needs to be remembered. Also, notice since the mortgage "crash" pretty much every network that had them has been pulling those house "flipping" shows. Since that was the main reason the whole thing crashed in the first place.

Werd. This isn't about people losing their homes, it's about speculators getting greedy and then banks getting greedy and then packaging these loans as safe investments. Oops.

[Partial Qualifier]

Ron Paul's take -- I don't wholly agree with his 'cause' determination but he makes a few good points re: a bailout's possible effect:

http://www.cnn.com/2008/POLITICS/09/23/paul.bailout/index.html

Commentary: Bailouts will lead to rough economic ride

By Ron Paul
Special to CNN

(CNN) -- Many Americans today are asking themselves how the economy got to be in such a bad spot.

For years they thought the economy was booming, growth was up, job numbers and productivity were increasing. Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression.

Unfortunately, the government's preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention.
Ever since the 1930s, the federal government has involved itself deeply in housing policy and developed numerous programs to encourage homebuilding and homeownership.

Government-sponsored enterprises Fannie Mae and Freddie Mac were able to obtain a monopoly position in the mortgage market, especially the mortgage-backed securities market, because of the advantages bestowed upon them by the federal government.

Laws passed by Congress such as the Community Reinvestment Act required banks to make loans to previously underserved segments of their communities, thus forcing banks to lend to people who normally would be rejected as bad credit risks.

These governmental measures, combined with the Federal Reserve's loose monetary policy, led to an unsustainable housing boom. The key measure by which the Fed caused this boom was through the manipulation of interest rates, and the open market operations that accompany this lowering.

When interest rates are lowered to below what the market rate would normally be, as the Federal Reserve has done numerous times throughout this decade, it becomes much cheaper to borrow money. Longer-term and more capital-intensive projects, projects that would be unprofitable at a high interest rate, suddenly become profitable.

Because the boom comes about from an increase in the supply of money and not from demand from consumers, the result is malinvestment, a misallocation of resources into sectors in which there is insufficient demand.

In this case, this manifested itself in overbuilding in real estate. When builders realize they have overbuilt and have too many houses to sell, too many apartments to rent, or too much commercial real estate to lease, they seek to recoup as much of their money as possible, even if it means lowering prices drastically.

This lowering of prices brings the economy back into balance, equalizing supply and demand. This economic adjustment means, however that there are some winners -- in this case, those who can again find affordable housing without the need for creative mortgage products, and some losers -- builders and other sectors connected to real estate that suffer setbacks.

The government doesn't like this, however, and undertakes measures to keep prices artificially inflated. This was why the Great Depression was as long and drawn out in this country as it was.

I am afraid that policymakers today have not learned the lesson that prices must adjust to economic reality. The bailout of Fannie and Freddie, the purchase of AIG, and the latest multi-hundred billion dollar Treasury scheme all have one thing in common: They seek to prevent the liquidation of bad debt and worthless assets at market prices, and instead try to prop up those markets and keep those assets trading at prices far in excess of what any buyer would be willing to pay.

Additionally, the government's actions encourage moral hazard of the worst sort. Now that the precedent has been set, the likelihood of financial institutions to engage in riskier investment schemes is increased, because they now know that an investment position so overextended as to threaten the stability of the financial system will result in a government bailout and purchase of worthless, illiquid assets.

Using trillions of dollars of taxpayer money to purchase illusory short-term security, the government is actually ensuring even greater instability in the financial system in the long term.

The solution to the problem is to end government meddling in the market. Government intervention leads to distortions in the market, and government reacts to each distortion by enacting new laws and regulations, which create their own distortions, and so on ad infinitum.

It is time this process is put to an end. But the government cannot just sit back idly and let the bust occur. It must actively roll back stifling laws and regulations that allowed the boom to form in the first place.

The government must divorce itself of the albatross of Fannie and Freddie, balance and drastically decrease the size of the federal budget, and reduce onerous regulations on banks and credit unions that lead to structural rigidity in the financial sector.

Until the big-government apologists realize the error of their ways, and until vocal free-market advocates act in a manner which buttresses their rhetoric, I am afraid we are headed for a rough ride.

[SoonerProphet]

Until the big-government apologists realize the error of their ways, and until vocal free-market advocates act in a manner which buttresses their rhetoric, I am afraid we are headed for a rough ride.

Like that is going to happen.