My thoughts on the mortgage crisis have been chronicled, like Narnia...get it. All jokes aside, because this is a real serious situation that I sighted her on Urbanomics almost a year ago. I plead that people really think situations through and hold people accountable for the deals, offers, and negotiations that they make with you. And I understand the average person doesn't have time to pay attention to the economic indicators out there in the economy. So my compromise to you is that you tune in here and I will give you the real deal in average people words.
A recent example that I can cite is my dealings with my insurance company. When I got into an unfortunate car accident which wasn't my fault, I really thought the situation through. My insurance company, BELIEVE IT OR NOT, works for me. Let me remind you, I send them monthly payments and because of my good driving record they don't have to use the money on me...rather they reinvest the money so that it can make them more. So, when it comes time and I actually get into an accident...they have the responsibility of making it a smooth transition so that I can get my life back to normal. I will speed up my example by saying there were difference in what my SUV was valued once it was totaled. Here is the ACCOUNTABILITY part! I did not trust their methods for determining the value of my car even though they used a reliable industry expert. I asked many questions and made them explain in plain english how they value my truck. It was my job to be skeptical and guess what!!! We negotiated a higher settlement because I challenged the status quo.
In this article here (http://urbanomics.blogspot.com/2006/02/huff-puff-blow-houses-down.html), we were asking a few questions and challenging the status quo about the housing market. And I wish many more home buyers would have done the same. But whats done is done and now the government is being forced to step in and take unprecendented moves to try quiet the uneasy storm that is developing. I was glad that I did not bite my tongue then and I will continue to write what I believe. I have mentioned before that the data leads me to believe that the economy is grinding into a period that feels like a Recession. I think the markets will rebound slightly but the economy is still feeling like its taking a beating. So to ease the pain good ole Bush and his buddies have decided to get involved and set requirements that will offer struggling homeowners a five-year freeze on their mortgage rates... if they qualify. I agree with others that are protesting that this is a late move on behalf of Bush because the number of foreclosures have risen to the all - time highs.
Again this mainly effects the people who own subprime mortgages, or loans that are offered to people with not so great credit. Subprime loans often get you excited by their low rates for the first few years but then they jump very high making it difficult for your homeowner to keep up with payments. I don't think that this latest effort will change the economy that much in the short term. The plan helps a small group of people whose rates will adjust from 2008 through 2010. So where is the relief for the folks already impacted or that will be impacted before 2008?
This will not help the economy immediately. Again this move helps the investors of the world sleep easier at night. There is now some stability in sight for the markets and Wall Street got what it wanted to hear. Notice the last two days of the market have increased sharply. Because this means that homeowners payments won't rise which helps the retailers (whose customers have $$$ to shop), banks (don't have to take ownership of as many foreclosed homes), and other industries such as credit card companies who were worried their customers would't pay their bills.
3 comments:
"So where is the relief for the folks already impacted or that will be impacted before 2008?"
As a government you have the hard task of having to draw the line somewhere. And as human beings, you will never make people happy. (This is a classic example that also relates to the gov't funding or withholding funds from public services)
That being said the purpose of the bailout plan is not to save people. The purpose of the bill is to stop the economy from getting worse over the long term.
So why not help the people who have already defaulted? Or help people who are about to? It is already too late for them. The economy has already adjusted to the current and near future defaults. So it would be pointless to try to help them. The economy has already adjusted. Sadly for the worse.
So the plan focusing on the more important issue is the long term health of the economy.
There is not a whole lot the gov't can do to help people in the short term unless they start giving out checks. But the best for the economy is to let the housing market deflate from its inflated levels and adjust back naturally.
This is a well written response, my friend. But as you mentioned the government does have a hard task of drawing the line. But what you fail to realize is that you are agreeing with me. The purpose of the bailout IS NOT TO SAVE PEOPLE…SO WHY IS THE PRESIDENT passing a measure to help a “small” amount of people affected by just one industry. Where we disagree is that this small bailout DOES NOT STOP the economy from getting worse over the long term. When I wrote that article, I was trying to articulate that the true bailout needed to address the entire economy and that it’s not too late for anyone. Because if it’s too late for the average American that it’s too late to try and revive the economy. And we also AGREE on the fact that the plan should be to focus on the long term health of economy, so why pass this stupid measure that affects only a few. What we needed…was what we finally got! A $145 Billion dollar stimulus package and a .75% rate cut to the Federal Funds rate (largest in over 20 years). There is a whole lot the government can do and they can help people in the short term by doing things like giving out checks. I have written a number of times that we are in the “R” word…Recession. If I am a junior investor and wannabe economist, and I realize that economic indicators are absolutely horrible, then hopefully you would expect your government to identify these indicators and act swiftly and responsibly. The mortgage relief was a band-aid for the government to say they were acting, when in reality they should have been reacting. (See my next piece on why I think we are in recession)
It is all smooth man. Again my post was regarding your statement,
"So where is the relief for the folks already impacted or that will be impacted before 2008?"
Nothing else. As you said we are on the same line of thought.
To address your other statement..
"The mortgage relief was a band-aid for the government to say they were acting, when in reality they should have been reacting."
I agree with that too. But I do not think it was a bad move on their part. To quote that Russian dude from the movie 'Sum of All Fears' ..
"In this day and age, it is better to look guilty than incompetent."
Yes the first plan was for "appearances" but you know people would have been hatting on them more if they did nothing.
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