I voted "No, but with mods" below. Here is why and my suggestion. (If you agree send your version of it to your Congress reps, NOW.):

Paulson’s plan will fail because it treats only a symptom and not the cause of America’s financial illness, which is: Too many were persuaded to buy more house than they could afford by irresponsible, greedy writers of innovative new mortgage types. Everyone was operating on the “greater fool” theory and assuming the un-payable mortgage would clear later when the house was resold.
Many of these mortgages writers knew it was a CRIMINAL Ponzi scheme, designed to collect large bonuses. Throw some in Jail and recover bonuses etc. - more below.

A real cure must:
(1) Restore liquidity to financial system. (Make the toxic paper worth face value.)*
(2) Get Joe American into housing he can afford.
(3) Transfer real assets, not toxic trash, to Uncle Sam.
(4) Not significantly increase US’s already excessive debt.
(5) Prevent repetition of the problem.

This is possible as follows:
SUMMARY:
U.S.'s money automatically buys houses at foreclosure auctions if highest bid is less than the mortgage debt, not toxic trash from banks. The banks are helped as they know the foreclosure sales will cover the mortgage so this is an anti-dote to the toxic poison they now hold. I.e. from POV of the banks, not one piece of this paper is worth less than face value. Everyone knows this so, it becomes a marketable security. If the bank needs more liquidity, they can sell it and make new loans. Goal (1) accomplished.

The ex CEO of Goldman Sack’s plan helps GS and others holding toxic loans by transfer of them to Uncle Sam. It just sticks Joe American with the toxin but is no anti-dote for the poison.

Here is the anti-dote:

The government buys partial ownership of EVERY foreclosed house, if it would otherwise sell for less than the mortgage. Joe may remain in the house for up to one year with deferred interest bearing rent. During that year, Joe must find a home (house, apartment or trailer) he can afford, at least to rent. Then, when opportunity exists to recover the price paid, Uncle Sam sells his ownership share of house, which may be more than the price paid as this plan is taking houses off the market. - Keeping price of houses from falling every month as they are now, and will continue to fall under Paulson's plan, which only aids the banks, not the real-estate industry or evicted Joe. When Joe gets out from under some of his debt, he begins to pay his deferred months (<13) of rent and interest, over 5 years if need be.
Goals (1, 2, & 3) accomplished.

Goal 4: Instead of an immediate $700 billion increase in US’s debt ceiling, banks send bills to Uncle Sam for ONLY the DIFFERENCE between the unpaid mortgage amount and the price some buyer paid at public foreclosure auctions ONLY as they occur, if sales price was less than the mortgage still due. Uncle Sam then receives that fraction of the house’s title in exchange for paying this difference. Individual auction sales are semi-automatic with bank processing all transactions details but periodically inspected. I.e. US is a “silent partner” (minority owner or land-lord renting**) for a few years, but investors may buy the US’s share of title anytime provided US profit equals what US would have received in interest by investing in 10 year Treasury bond, as well as full repayment of the “difference funds” provided initially.

As individual auctions are expensive, many “under water” owners may avoid foreclosure auctions and simply transfer the entire title and debt to US (FHA?) for later sale*** in collective auctions. By avoiding auction expenses, Joe hopes to get small check later, if the house sells for more than the mortgage debt. If house is re-possessed by the bank and not sold at auction, the bank may also transfer title to US and receive the unpaid mortgage due. In any case, bank receives full repayment of the mortgage due.
Goals (1) & (4) accomplished.

Goal 5 may require new legislation and/or adequate enforcement of existing laws; however, criminal miss-representation by greedy creators of these inventive new mortgage types should not go unpunished. Bonuses they received for writing and selling these trouble making mortgages should be return 100% with interest to their firms (golden parachutes of their now retired CEOs included). If they cannot afford to do so, some of their assets should be ceased. They also may transfer titles to US (FHA?) to avoid extra cost, criminal prosecution and probable**** jail time. It is a well accepted principle of law that criminals are not allowed to keep the loot they took. Ponzi schemes are illegal and these greedy CEOs should have known that was what they were doing. Do not let them now pass their toxic trash to Joe.[/b]

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*The "feet dragging" Republicans refusing to accept Paulson's plan, even with the CEO bonus caps etc., have a good point (as do I). We only need to insure that ALL mortgages will be paid in full, not buy them all. These Republicans no doubt want to give this job to private insurance compainies, but as the biggest (AIG) has already failed, that will not work.**If Uncle Sam receives a fraction of the title of house sold at auction, and it is rented by buyer, Uncle Sam receives that fraction of the rent and pays none of the maintenance expenses.

**If Uncle Sam receives a fraction of the title of house sold at auction, and it is rented by buyer, Uncle Sam receives that fraction of the rent and pays none of the maintenance expenses.

*** Joe American remaining in “his house” after US (FHA?) holds the entire title via "rent to buy" instead of sale is best option, if Joe can afford it. Many who cannot pay their old mortgage will be able to, especially if they still have any equity in the house. Effectively, the US (FHA?) grants Joe a new mortgage with principle equal only to the old unpaid balance.

“Better” socially and economically because Joe as renter will not damage “his house.” - That is hard to control. - It is very tempting (to a transitory renter) to sell the dishwasher etc. during the last month of the rental contract, if he is planning to move to another house. That renter can always claim it was broken and did not bother to tell Uncle Sam. - "I just discarded it as the repair man said it was not worth fixing." etc.

Second reason "rent-to-buy" is better is it eliminates the sales commission the real estate agents would take and other title transfer expenses. (US got title cheaply directly from Joe without auction expenses. - No one can claim US does not own the house, even if not recorded at the local court house etc. but it should be. The county can contribute by making no charge to US for recording in land records as this plan helps hold up their assessment based taxes on the house.)

****Joe American is likely to be part of the jury. ;)

as i said, i agree with you to a point. that point is that the house should be on sold to the origional owner at cost rather than sold at market costs.

I would rather see a goverment moving to help the people rather than the fat cats

...the house should be on sold to the origional owner at cost. ...At what cost? (construction? original purchase price? price it last sold for, perhaps four years ago? cost of repair if destroyed by fire? what if original owner died 12 years ago?) You seem to be assuming all houses being foreclosed are new. Few are. - Please be more clear on this.

Do you see how your suggestion can restore liquidity to the frozen financial system? I do not. If you do, please explain that also.

Again FIVE essential things that are necessary. Paulson is only even seeing (1) of them.

I am reminded of the old saying: “If you are a hammer, everything looks like a nail.”

Paulson, ex CEO of Goldman Sacks, has the same tunnel vision as that hammer. He does not understand the FUNDAMENTAL problem, and with his "hammer mentality" only see one of the symptoms.

PS to help achieve goal (5), I want to throw ALL of the "fat cats" who can be shown to know (or very reasonably should have known) they ran a Ponzi scheme to collect boig bonuses in Jail and, as with any common criminal, recover the loot they took for the rightful owners.

what are you talking about?
the cost that the goverment paid to absorb loan of course
but over MUCH better terms.

the cost that the goverment paid to absorb loan of course
but over MUCH better terms. I still do not understand you, so lets take a numerical example

House built in 1988, sold to origial owner, MR. "O O" for $50,000.
He retired moved to Florida with $30,000 profit by sale to Mr B1 for $800,000 who finshed the basment, added the pool and in 2000 sold to Mr B2 for $130,000 but Mr B2 only put down $40,000 and had mortgage for $90,000.

He had it sold in conditional contract to mr B3 in 2006 for $250,000 but Mr B2's bank exercised their option to up the interest rate on the loan so the sale fell thru.

This put big pressure on B2 as he had already bought another house $300,000 and could not afford to carry both mortgages so he agreed with mr B3 to take "back part of the paper" (It is called a "Purchase Money Mortgage,PMM - I am still colloect on two I granted)" for $100,000. Then Mr B3 had only had to finance $120,000 with the bank as he did put $30,000 cash into the deal when buying for $250,000 = M1 of $120,000 + PMM of $100,000 + $30,000 in cash.

Bank was smart as in 2007 Mr B3 lost his job and defaulted on both M1 nd the PMM. The bank had quickly sold M1 to Fanny May and B2 had sold the PPM to a firm that buys these second mortage for fraction of face. B2 got only $70,000 for it b ut needed the cash to buy his new $300,000 house with larger down to get lower rate.

By chance (jut to keep it simple, but still realistic) lets assume the both M1 and PMM are in the same package now that no one will buy but M1 has been marded down form the face $120,000 value to $90,000 and PPM which had face of &70,000 to only $45,000 as is a "third party mortgage)

What is "cost" you are speaking of for these two mortgage in the package, assuming they could be separted out and bought by the government? To actually do so would be very expensive in legal fees, title searches, recording etc.

If you can not answer numerically, you do not know what your are talking about. - Just stating meanless words ("original owner's cost" ) in the real world of complexity.

BTW, you were correct to ban me. - Just doing your duty /job well (as I was doing my duty as I saw it. See rest of my post partially reproduced at end of this one.) I have aleady publicly posted praise for your job well done in banning me in my reply to:
Billy, a warning.
If you keep on making intelligent considered points like this, you'll get yourself banned. ;)
Thanks, It is ironic, but I have just returned from a 3 day ban. I deserved it as I did spam quite a few (~20?) threads with the same brief post, directing readers attention to a longer post concerning my solution to the current economic crises and asking readers to contact their congress men/women if they thought my idea better than Paulson's. ...My post at:
http://www.sciforums.com/showpost.php?p=2025800&postcount=81

billy stop being silly, you know full well that im not talking about investment homes

Person has a 200,000 loan on there house which forcloses, goverment bails out bank by paying 100,000 for the house

The goverment then negotiates with the former home owner for a loan of 100,000 which the goverment paid the bank making sure they can aford it over however many years are nessary.

THATS what im talking about, the goverment gets its money back, the bank makes sure it doesnt have the "toxic" loan on its books and the home owner still has his house

Interesting article about Sweeden's similar situation in the 90's:

http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?_r=1&em&oref=slogin

billy stop being silly, you know full well that im not talking about investment homes I do not think you are reading well. Everyone of the buyers in my numerical example occupied the house, NONE was investing. Your comment makes no sense as I was not speaking about "investment homes."

Person has a 200,000 loan on their house, which forcloses, goverment bails out bank by paying 100,000 for the house That makes no sense either. The bank holding 200K mortgage is not made whole or to use your words "Bailed out"" by 100K payment. That is a "50% hair cut" or more accurately a "scalping." Your are saying that the government buys house (takes title) for $100K and making the bank eat $100K loss are you not? What sort to "bail out” is that? When government (or anyone) buys a house the old mortgage is trash - you can burn it. It obligated someone no longer with title to paid. Why should he? He has already been evicted.

The goverment then negotiates with the former home owner for a loan of 100,000 which the goverment paid the bank making sure they can aford it over however many years are nessary. Not very clearly stated, but I will assume you mean by "former owner" the guy just evicted at the foreclosure. Are you stating that the government will try to make him sign a loan obligating him to pay 100K to the government"? If yes, then why should he?

THATS what im talking about, the goverment gets its money back, the bank makes sure it doesnt have the "toxic" loan on its books and the home owner still has his houseYou seem to assuming that "Mr. Evicted," the former owner, will pay off (to the government) a $100K loan note that I cannot see why he would even sign, much less pay.

I am not trying to be difficult.; - I just cannot make any sense of what you are posting. Perhaps someone else can and will explain it to me?

Anyway, why not return to numerical example instead of calling me "silly" and answer the question it asked? You said the government should sell house "to the original owner at cost" and I asked: "What cost?" but you do not seem to want, or be able to, answer. Perhaps you mean sell to the last owner? Perhaps you mean sell to last owner at the price government paid at the foreclosure auction? If so - how does the bank get the mortgage money back? If the government paid the full face value of the mortgage at foreclosure, why buy the house and not the mortgage as in Paulson's plan? That would at least help with the frozen illiquid mortgages, but also like Paulson plan ignores the four other problems listed in the OP. I.e. does nothing about the fundamental problem or to prevent the whole current problem from reoccurring. How many times can the printing presses crank out 700 billion?

cost is the cost they bought it for, and ok maybe 50% is to low, possably its 75%, there is no way they are going to bail them out at 100%

and this might mean that the goverment does need to take a cut to what they paid out, either way why would you think that a person wouldnt agree to buy the house back at a discount over any number of years with no interest?

Possably this means that the goverment should stipulate that the person lives in that house for a set number of years before selling it and\or even that if the house is sold they get a percentage of any profit. thats only fair after all

cost is the cost they bought it for, and ok maybe 50% is to low, possably its 75%, there is no way they are going to bail them out at 100%You do not seem to understand that the paper with no market -no known value - that no one will buy is rarely, if ever, any one mortgage. Even in Brazil, I still* get several offers each year for the PMMs I took back on property I sold (because the interest rates were only slightly less than bank rate of >8% buyer would have paid). There are firms, at least in the USA, with employees who spend their work day looking thru county land records for these PPM and making offers to buy from mortgage holders, hoping these original sellers need cash instead of an income stream stretching years into the future.

That is the problem is with the "derivative" packages that have been constructed perhaps with a 1000 different mortgages in them, some worth more than face value as they are being paid by wealthy owners at well above current interest rates and other that have not been paid for many months but not yet foreclosed. No potential buyer has the slightest idea what the package is worth and now even the owner is unsure what it should be worth as there are no buyers for the package. That is problem (1) in the OP list of five problems. You are not even speaking about the real problem, perhaps because you do not understand it?

and this might mean that the goverment does need to take a cut to what they paid out, either way why would you think that a person wouldnt agree to buy the house back at a discount over any number of years with no interest? Not sure, but here you seem to be getting close to what third footnote of the OP stated. I.e.:

...
*** Joe American remaining in “his house” after US (FHA?) holds the entire title via "rent to buy" instead of sale is best option, if Joe can afford it. Many who cannot pay their old mortgage will be able to, especially if they still have any equity in the house. Effectively, the US (FHA?) grants Joe a new mortgage with principle equal only to the old unpaid balance. ...

But note in my plan, the government is not taking any “cut.” Government got the 100% title to house for just the unpaid balance of the original loan which Joe could not pay any longer (lost job perhaps). Joe’s has no “new mortgage” with the FHA. Joe is renting to buy at market rent rates. If he cannot afford that, then Joe has up to one year to find place he can afford to rent (or buy trailer to live in etc.) At auction, as no one else bid high enough to fully pay off amount still due to the bank, the government did and took title. (All bank mortgages are worth 100% of unpaid balance. Effectively, will be paid in full, but immediately at foreclosure by government credit. Everyone knows this – so bank can sell them at very slight discount or even premium if interest rate is now lower than when mortgage was written. – Liquidity crisis is over immediately as every mortgage in the package is at least forth the un paid balance. I.e. Just as the Republicans want –The mortgage debts are 100% insured, but in my plan by the government, not some insurance company, like AIG that can go belly up.



Possably this means that the goverment should stipulate that the person lives in that house for a set number of years before selling it and\or even that if the house is sold they get a percentage of any profit. thats only fair after allHere you are assuming that the government took some loss, but it did not. Government is almost sure to profit with my plan, but may be in the rental business, holding house off the market until the shortage of houses and return of confidence allows them to be sold back to market with gain. - I suggested same gain as if the government had bought the 10 year treasury bonds.)

It may seem strange, but government should not try for greater gain. I.e. government should dump the houses back on the market to halt any excessive price rise. We do not want to repeat the housing bubble.

You need to think this whole thing thru a little better, before posting. It is quite complex.

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* Ten years ago, when my PMMs had longer to run, these offers to buy my PMMs came every month.

Must quit again this time for bed, not dinner.

why charge "commertial rent" at all?

thats my point, the goverment isnt there to help companies yet they are when they should be focusing on helping people.

A better way to do this would be to make sure that people dont forclose on there loans but i doubt any to the right would surport handing the money to the morgage holders rather than the banks.

as a second option im suggesting that the goverment take over the house and charge as "rent" and amount which would pay it off over say 50 years and thats it. The rent goes against the value of the house (ie buying the house from the goverment).

If the goverment has to take a loss on this then so what?

Better that the goverment take a loss and the people remain in there house, after all. The fat cats are still going to get there multimillion $ bonus and golden handshakes. why should the goverment be taking the hit for companies and executives rather than for the working class?

any loss the goverment incures should come out of executive saleries. put the blame where it belongs

oh and a new income tax bracket should be introduced to cover this, from 1,000,000 up you they should be charged 90% tax. They caused the problem they will pay to have it fixed

...A better way to do this would be to make sure that people dont forclose on there loans but i doubt any to the right would surport handing the money to the morgage holders rather than the banks. Have not read all - on way to bed. but I am socially well left of center and yet would not support this idea. The moral hazad is just too great. For example, if that plan were in effect the smart thing to do is buy million dollar home (getting full 100% loan from the bank even if unemployed and no assets) default on it and collect the government hand out to pay bank back with. Even street bumbs can live for a few months in million dollar homes with your plan! I will read rest tomorrow.

you do realise there are ways to insure this doesnt happen, asset tests for example. The goverment does that here all the time, for instance the first home owners grant is only for houses below 300,000 (from memory)

The limit for buy-back, in my opinion, should be the max for standard FHA single family home loan - I believe it is $419,000 (I could be wrong).

Interesting article about Sweeden's similar situation in the 90's:

http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?_r=1&em&oref=slogin

Better link:
http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?em

Here is the anti-dote:

The government buys partial ownership of EVERY foreclosed house, if it would otherwise sell for less than the mortgage. That overlooks a major part of the tproblem: the houses are bubble priced. They are not worth, and will not be worth for many years if ever, the mortgage price.

Having the US government prop up a bubble in housing prices won't do anyone any good.

That overlooks a major part of the tproblem: the houses are bubble priced. They are not worth, and will not be worth for many years if ever, the mortgage price.

Having the US government prop up a bubble in housing prices won't do anyone any good.You missed one point. Government only props up the un paid balance of the mortgages in default at forclosure, NOT the inflated bubble prices. Yes, house prices must be lower -probably need to fall more still. Please read OP again.

Better link:
http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?emYes. that swedish plan is better than the Paulson plan - more fair to the tax payers, but I think my plan is better still as it is more econcomical. Instead of buying all the toxic packages of mortgage backed securities with no market now my plan, presented in the OP, only cost the DIFFERENCE between highest bid at forecloser auctions and the remainly balance of the mortgage.* AND only on a tiny fraction of all mortgages - those that go to forclosures, but it does insure that ALL mortgage balances will be paid in full, so these packages have government insurance agains loss. Thus, the liquidity crisis is solved. - the packages are worth at least the total of the still outstanding mortgage balances.

The plan of the OP also solves the fundamental problem (goal 2, of the five listed). In OP plan, all five problems, not just the one symptom that Paulson's plan addresses. Majour problem with Paulson's plan is it will all just happen again and there is a limimited number of times the US money presses can print 700 bilion dollars.

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*True the government does pay the entire balance due, but it gets the entire title to the properity, which just demonstarted at the forclosure to have a value equal to the highest bid. Government is assuming potentail loss of only the difference and only on the failed mortgages, not all. (Most mortgages will be paid by the owner. - No need for government to buy them.) Note that bid was with the absence of my plan and the insurance it provides. Property values will not fall as much when government is taking some off the market. I.e. the slide into the abis is at least slowed, if not stopped.

the thing seems to be misrepresented as bailout of Wall street. It is more likely a bailout of Federal Reserve.

:D

Billy,
Has anything like what you're proposing ever been done before? Would I be correct in saying you are proposing that the US government act as a Mortgage insurer? One that banks don' t have to sign up for or pay any premiums for? Would this be for all mortages, or just for those made over some specified time period? How would it be administered?

Billy,
{1}Has anything like what you're proposing ever been done before? {2}Would I be correct in saying you are proposing that the US government act as a Mortgage insurer? {3}One that banks don't have to sign up for or pay any premiums for? {4}Would this be for all mortages, or just for those made over some specified time period? {5}How would it be administered?

{1} I do not know of it, if it has.
{2 & 3} Yes. That is actually a nearly correct summary of my plan. But as you observe there is no insurance contract or fee.
{4} Not all. For example, I hold still two purchase money mortgages, I granted to the buyer of some property I sold. They should not be covered. In Maryland the new owner's title is a conditional one in that if the mortgage is not paid the property returns to me, but I am sure there would be some court actions required to confirm it was not paid. New owner can only sell it after my mortgage balance has been paid; to get the required "clear title" the new owner needs to get a signed mortgage release from me. (I have wondered what happens if I die on them, but sure there is some procedure already for this.)

I have not thought much about how to distinguish which mortgages are insured vs which are not. My first stab at that would be to say only those issued by some government regulated grantor (banks certainly are) would be or use whatever criteria Fanny and Freddy used (I do them the honor of assuming they had one :shrug:) to accept mortgages. Perhaps it could even be "at the discretion" of the FHA.

{5} I have already suggested that it is semi-automatic with bank (or current holder of the mortgage) taking* the overdue borrower to foreclosure auction and seeing if any buyer's bid will cover the unpaid balance (and cost of auction). If there is than government does not buy. I for example, the highest bid falls $13,000 less than needed, the bank send claim for that amount to FHA, with suitable statement from the auction officials confirming what was the highest bid and the title signed over to FHA etc. The only new administrative expense to the government is some spot checking of these semi-automatic procedures by the regular inspectors enforcing the existing regulations. There will be expenses associated with renting and keeping the home repaired etc, but presumably these are covered by the rent. Note that I recommend that the almost evicted person be given one year to find housing he can afford.

As already stated, he gets to defer rent with interest, for repayment later up to five years. Here are some new details on this: If he acts quickly and finds new place to live in first month 90% of the rent is cancelled /forgiven. If in the second month, 80% is, etc. If stays in his old home for part of the 11th month the rent for all eleven months is 1.1 times fair market rate, but still fully deferred. This encourages him not to stay the full 12 months, but quickly get into housing he can afford. - That he was persuaded to buy more than he could by greedy irresponsible mortgage writers wanting to collect big bonuses is the CAUSE of the problem. Joe American needs to move to housing he can afford.

At least 3/4 of these subprime mortgage writers KNEW he could not afford the house. They and Joe may have honestly believed that a greater fool would come along and Joe would sell at a profit. None the less, more than half should have known this was doomed to fail and was just an illegal Ponzi scheme designed to collect big commissions. I want them prosecuted and sent to jail like the criminals they are, but in the process we confiscate their bonuses and golden parachutes. - Criminals are never allowed to keep the loot they took, even if it was taken non-violently and from a willing but misinformed victim. CEO now stands for Con Every One. That is what these criminals were - very polished con-men.

BTW my idea is not far from what the Republicans want - Insure mortgages to make them all be fully paid but I only do it for those that are otherwise failing and by the existing government agencies, not a firm taking profits out of the pot. I would not object to hiring with competitive bids private firms to manage the rentals, of housing that becomes owned by the government -that is cheaper and better. Say these firms get to keep 5% of the rent plus up to 3% over well documented and required maintenance costs for administration of them (fix furnace etc) but unusual maintenance expenses almost guarantee a detailed inspection by IRS agents.

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* There was some clever Ponzi scheme in some Eastern European country shortly after they started switching to a capitalistic system but I forget the details. Many lost their entire savings. The distinguishing characteristic of all Ponzi schemes is that every larger amounts of money come into the system and give profits to those getting out before the collapse comes. There are two basic variants, the "chain letter" type has each participant pay the same fixed amount and needs for the number of participant to constantly increase. The other type, which this housing bubble was, has the cost to each participant increase until the relatively fixed number of participants cannot pay the higher prices. The unethical greedy criminal writers of theses PONZI mortgages delayed the collapse and made it much more damaging. They should go to jail and their profits be taken from them.

Government only props up the un paid balance of the mortgages in default at forclosure, NOT the inflated bubble prices. That's the same thing, essentially.

Yes. that swedish plan is better than the Paulson plan - more fair to the tax payers, but I think my plan is better still as it is more econcomical. Instead of buying all the toxic packages of mortgage backed securities with no market now my plan, presented in the OP, only cost the DIFFERENCE between highest bid at forecloser auctions and the remainly balance of the mortgage. It is less economical, in that the government takes a dead loss and the "investors" in the bubble debt are repaid, and in that the expenses of legal foreclosure are still incurred by everyone.

In the Swedish plan the government bought equity at negotiated market price, not bubble price, and took an equity gain from the resulting stability of the market while sticking the bubble enablers with loss.

At least 3/4 of these subprime mortgage writers KNEW he could not afford the house. They and Joe may have honestly believed that a greater fool would come along and Joe would sell at a profit. Last number I recall, 60% of the trouble debt was refinancing.

Regardless of the obvious ethical deficit, after deregulation much of this stuff was legal - that was an underreported aspect of the S&L crisis as well: the problem was not the illegal stuff, but the deregulated setup that permitted abuses. There is no legal recourse for that, and your plan would provide price support for the bubble priced houses, thereby guaranteeing big payoffs to the unethical.

We disagree on everything here, basically because you are of the opinion that government stepping in to take FULL title to a home, when owner can no longer pay its mortgage, for ONLY the investment cost of the DIFFERENCE between un-paid balance and the highest bid price (which is a CURRENTLY DEPRESSED MARKET PRICE) is support of the higher "bubble price." - That is not true, NOT what I have suggested. (1)That's the same thing, essentially.
(2)It is less economical, in that the government takes a dead loss and the "investors" in the bubble debt are repaid, and in that the expenses of legal foreclosure are still incurred by everyone.
(3)In the Swedish plan the government bought equity at negotiated market price, not bubble price, and took an equity gain from the resulting stability of the market while sticking the bubble enablers with loss.
Last number I recall, 60% of the trouble debt was refinancing.
(4)Regardless of the obvious ethical deficit, after deregulation much of this stuff was legal - that was an underreported aspect of the S&L crisis as well: the problem was not the illegal stuff, but the deregulated setup that permitted abuses. There is no legal recourse for that, and your plan would provide price support for the bubble priced houses, thereby guaranteeing big payoffs to the unethical.

Specifically on:

(1) Not the same at all. - read comments above your post- I am NOT supporting the “bubble price” In fact I think prices need to drop even more, before the bubble is fully “un-wound;” However, it is important that the slid down stop when it is fully un-wound, not continue to excess. With government taking many homes off the market via economical process I suggested, avoiding this “over shoot” excess can be achieved. Government makes a shortage of houses for sale, by terminating sales of home it owns, even if they could be sold at a profit, or even active buying more as an investment, if need be to stop over correction.

(2) It is certainly more economical than buying ALL the mortgages in the various derivative packages with no current market, because the government does not buy ALL - probably less than 5% only, certainly less than 10% of them. Furthermore, it is not buying any mortgages -it is buying real houses, not paper "assets." Furthermore it is not paying "out of Treasure pocket" even the full amount of the un-paid balance, which of course is less than the original mortgage amount. Treasury expense on say 7% on the mortgages in the toxic trash packages, is only the DIFFERENCE stated above as the FHA takes over the mortgage. (Yes, the entire amount of the unpaid balance will need financing by sovern wealth funds etc. They will be more willing to do so as Uncle Sam is buying REAL assets, not paper trash. GWB's government has come to them so often with hat in hand, that they may demand a piece of the potential profits. That is more like the Islamic bond idea. I.e. not charge Uncle Sam any interest.)

For example, suppose the highest foreclosure auction bid was $80,000 and the un-paid part of mortgage is now $100,000 of an original $120,000 face-value mortgage on home that was purchased for $150,000 some years ago but with bubble, the price had climbed to $250,000. Then the net debt increase of Uncle Sam's debt is only $20,000. Uncle Sam is not supporting the $250,000 dollar "bubble price" as you misunderstand my plan. Surely you will agree that if any investor, Uncle Sam included, buys an asset with a just demonstrated value of "v" for price of "V" (V > v), his net worth's negative step is only V-v, not V. "Net worth negative step" is just another way to say "debt increase." As this government action only is applied to ~7% of the mortgages in the toxic packages, and only causes a net debt increase of about 10% (was less than 10% in my realistic example), 0.07x0.01 < 1% of the cost of buying ALL at the "bubble price" Also note Uncle Sam is buying houses, not paper promises, called mortgages!

(3) See immediately above, but I have question: How did the Swedish plan "stick the bubble enablers with loss."? I definitely want to do that. IMHO they were CRIMINALS running the world's largest ever Ponzi scheme. (I will soon separately post more on this POV, by copying my comments now at available on line in replies section of the second lead article at The Economist and posting them here.) In brief summary: Some jail time would be a good deterrent against this mess being repeated. Paulson's Plan does not even recognize the CAUSE of the current mess; much less do anything to prevent its reoccurrence. -In fact, Paulson’s bail out almost assures these criminals will do it all again.

(4) No, Ponzi schemes are ILLEGAL. See my next post here (a copy of my post in the The Economist adjacent in blue letters). As observed there, these "Ponzi men" were also some of the slickest "con-men” the world has ever seen. For both reasons some need to do Jail time, and all of their bonuses and golden parachutes benefits must be returned to their firms. - That is how to make their firms financially whole again, not send a bill to Joe American. ( GWB has already screwed Joe. Don't let the ex CEO of Goldman Sacks do it too.)

As promised in prior post, below in blue, is my post in current issue of The Economist See article "Question of Equity" which has subtitle: "Salary caps are a rotten idea; but the crisis also carries lessons for regulators and workers." Both this and the cover article concern Paulson's plan. Surprisingly (to me and 90+% of the others making comments) The Economist fully supports the Paulson nonsense. (As many of you know, I know nonsense when I read it. ;) )


September 28, 2008 22:04GMT Billy T wrote:

From article: “…hundreds of thousands of finance professionals want work.”
I suggest a job in the prison laundry for some because Ponzi schemes are illegal.

Promoters of innovative new loans types said:
“You do not need any money down. We will not check your stated income. Just sign on the dotted line. In a year or two, you can sell
(“to a greater fool,” was not said) and make a profit.”
So Joe American signed.

The writers of these new mortgage types knew, or should have, that it would all collapse some day, but only after they collected their big bonuses. When the end approached, they could get out, with golden parachutes. They ran the biggest ever Ponzi scheme – Just like a chain letter, it was destine to collapse.

Yes, they are talented. - Talented criminals. I don’t want to “cap their salaries.” I want them prosecuted as Ponzi felons and, if convicted, ALL their bonuses returned to their firms, with interest. If they cannot do that, then cease their ill gotten assets and sell them. It is well accepted principle of law that criminals are not allowed to keep the loot they took, even if it was obtained with the miss-informed consent of the victim. That just makes them con-men as well a Ponzi crooks.

Paulson’s plan will fail because it treats only a symptom and not the cause of America’s financial illness, which is: Too many were persuaded to buy more house than they could afford by irresponsible, greedy writers of innovative new mortgage types. Everyone was operating on the “greater fool” theory and assuming the un-payable mortgage would clear later when the house was resold.

A real cure must:
(1) Restore liquidity to financial system. (By insuring all mortgages are fully paid.)
(2) Get Joe American into housing he can afford.
(3) Transfer real assets, not toxic trash, to Uncle Sam.
(4) Not significantly increase US’s already excessive debt.
(5) Prevent repetition of the problem.

All five are simultaneously possible with less cost to the government than Paulson’s Plan.

I then said "See details of how." and gave link to earlier post in The Economist's comments sections which was nearly identical to the OP here.

In about 35 days the government will start doing much of what I recommened more than a month ago. Even Paulson seems to now recognize his original plan is stupid. Unfortunately slightly more than 1 trillion has been transferred to the banking/ financial system already (with essentially no success in easing credit - just as predicted in this thread before Congress even passed that stupid "buy toxic trash to give money to banks with no strings" Paulson plan)

Here is the modified version (now getting close to my plan posted in this thread):

"...The new approach, which goes into effect Dec. 15., will become a model for loan servicing companies, which collect mortgage companies and distribute them to investors. These companies have been roundly criticized for being slow to respond to a surge in defaults.
To qualify, borrowers would have to be at least three months behind on their home loans, and would need to owe 90% or more than the home is currently worth. Investors who do not occupy their homes would be excluded, as would borrowers who have filed for bankruptcy.
Borrowers would get help in several ways: The interest rate would be reduced so that borrowers would not pay more than 38% of their income on housing expenses. Another option is for loans to be extended from 30 years to 40 years, and for some of the principal amount to be deferred interest-free.
While lenders have beefed up their efforts to aid borrowers over the past year, their earlier efforts have not kept up with the worst housing recession in decades.
More than 4 million American homeowners, or 9% of borrowers with a mortgage were either behind on their payments or in foreclosure at the end of June, according to the most recent data from the Mortgage Bankers Association ...

After more than a year of slow and weak initiatives, there appears to be a serious effort to get at the heart of the credit crisis: falling U.S. home prices and record foreclosures ..."

Blue text FROM:
http://www.thestreet.com/story/10447292/1/feds-streamlining-homeowner-aid.html?puc=_htmlbooyah

As I repeatedly said: Paulson's plan treated a symptom, not the cause. Finally the US government seems to understand this.
However, it is doubtful that Paulson and his team were so stupid as to not realize this.

So why was that trillion given to the banks?
I can only speculate; but as Paulson and most of his team came from Goldman Sacks and all of GWB's choices / appointments tend to follow the Republican "trickle down" ideology, helping the banks instead of the home owners in over their heads came very naturally to them.

So that leads to the question, why are they changing plans NOW?
The answer to that seems clear also: Obama will be the next POTUS and has been advocating aid to these home owners for several months.
Paulson and his team want to strike before he can so it will look like they, rather than Obama, took steps to reduce the rate of foreclosures, instead of Obama.

If McCain had won, the same failing policy of helping the banks could have continued.

Paulson finally has adopted my suggestion (OP this thread): I.e. automatically buy ALL homes that at foreclosure, which do not bring bids equal to the mortgage debt for that debt. He still does not have it quite right for max efficiency, but he is getting close now:

“Secretary Henry Paulson said his department… may use funds from the $700 billion bank rescue plan to help homeowners. “We are actively engaged in developing additional programs to strengthen our financial system so that lending flows into our economy,” {Essentially none of the funds given to banks have done so! They have been used to buy smaller banks, strengthen the books, and invest in foreign lands. – Where higher returns are available.} The Treasury has committed all except $20 billion {I.e. 330 billion wasted on his stupid plans.} of the first half of the TARP funds in injecting capital into banks, AIG and Fannie and Freddie. ..."

Non-blue text from: http://www.bloomberg.com/apps/news?pid=20601087&sid=a51haSEfx_ms&refer=home

Here is the latest “trickle down” of tax rebates and relief (to Spain this time)*:

“Henry Paulson gives the U.S. bank $45 billion in taxpayer money to keep it afloat and get it to pump some money into the emaciated U.S. lending system and what does Citi do? Buy a Spanish highway operator.
Yes, you heard right. A Citigroup infrastructure fund agreed to take over Spain's Itinere from Sacyr Vallehermoso in a deal valued at about $10 billion, which includes about $6.3 billion in debt that Citi will take on. Just what Citi needs: more debt. …”

From: http://www.thestreet.com/story/10450542/1/todays-outrage-citi-takes-cash-to-spain.html?puc=_htmlbooyah
-----------------
*It is obvious that giving money to banks and rich investors (all forms of tax rebates/ reductions included) will cause them to invest it where they think the returns are greatest. GWB's 8 years of "trickle down" stupidity did not help Joe American - it hurt him, as it helped build the modern factories in China and fancy housing developments in Dubai, etc.

After wasting 330 billion of US tax dollars, with at best zero results,** even Paulson seem to now understand this and is again modifying his plans (too bad only 20 billion is left for him to spend) to buy real assets form poor people (not rich ones) I.e. the homes being foreclosed, as I sid he should in the OP, weeks before Congress gave him any funds.

**I think still mainly negative b enefit to Joe American as these fund either have been used to reduce the competition between banks (the big ones are buying the small ones) OR to make foreign economies more efficient and productive. (like Citi purchase and refurbishing of Spanish highway)

Interesting article about Sweeden's similar situation in the 90's:

http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?_r=1&em&oref=slogin

"That strategy held banks responsible and turned the government into an owner. "

Precisely!

"That {Swedish} strategy held banks responsible and turned the government into an owner. "USA has "free-enterprise / anti-socialist" POV so is only supplïng money to the banks, which they of course (as any good capitalist would) invest in building factorys in China, luxury homes in Dubai, even roads in Spain, etc. as the returns are greater there than in the US.

In the US, the big banks, which got US tax payer funds, do buy up smaller banks to lessen the competition.

What did Paulson think they would do? Lend to Joe American, who can not pay his current bills? or lend to some small American business man, who is having trouble even getting buyers into his store (offering deep discount "loss leaders" and 50% off second item, etc.)?

For example, suppose the highest foreclosure auction bid was $80,000 and the un-paid part of mortgage is now $100,000 of an original $120,000 face-value mortgage on home that was purchased for $150,000 some years ago but with bubble, the price had climbed to $250,000. Then the net debt increase of Uncle Sam's debt is only $20,000. Uncle Sam is not supporting the $250,000 dollar "bubble price" as you misunderstand my plan. The 120k in your example would be the bubble price I referred to - the mortgages for more than the houses are (or were, minus bubble) worth.

As I understand things, and would recommend anyway, the Swedish government bought the example house for 80k, or some "market" value figured by detrending the price graph to eliminate the bubble. They did that to avoid foreclosure, among other large costs eliminated. That was key.
(3) See immediately above, but I have question: How did the Swedish plan "stick the bubble enablers with loss."? I definitely want to do that. See above, as I understand things. (Knowing the Swedes, I would not be surprised by some slack in the actual operations).
) No, Ponzi schemes are ILLEGAL. The operations of the financiers in the credit default swap market and similar derivative markets were specifically made legal by legislation and executive order. The only laws broken in this mess were broken locally, in deceptive evaluations of real estate or improper steering of naive borrowers for kickbacks, things like that.

USA has "free-enterprise / anti-socialist" POV so is only supplïng money to the banks, which they of course (as any good capitalist would) invest in building factorys in China, luxury homes in Dubai, even roads in Spain, etc. as the returns are greater there than in the US.

In the US, the big banks, which got US tax payer funds, do buy up smaller banks to lessen the competition.

What did Paulson think they would do? Lend to Joe American, who can not pay his current bills? or lend to some small American business man, who is having trouble even getting buyers into his store (offering deep discount "loss leaders" and 50% off second item, etc.)?
Exactly! And look at what Lula is doing in Brasil! It's brilliant! Did you check out that thread already? :)

Originally Posted by billy
For example, suppose the highest foreclosure auction bid was $80,000 and the un-paid part of mortgage is now $100,000 of an original $120,000 face-value mortgage on home that was purchased for $150,000 some years ago but with bubble, the price had climbed to $250,000. Then the net debt increase of Uncle Sam's debt is only $20,000.
The 120k in your example would be the bubble price I referred to - the mortgages for more than the houses are (or were, minus bubble) worth.Why? That was the mortgage on home sold for $150,000.

I gave more details as I do not think there is any one "bubble price." It is a function of the time. In my example, when the current owner (now going into foreclosure) paid $150,000, he paid a "bubble price" later when the house value climbed to $250,000 that was also a "bubble price." Clearly, when no one would pay more than $80,000 for it the "bubble had burst."

My plan was designed to avoid several things that made Paulson's plan unworkable:
(1) There was no way to know the value of the "toxic trash" Paulson planned to buy from the banks. - They were "toxic trash" precisely because there was no market for them. - No one had any idea what their fair value was.

(2) Most of the mortgages in the "tranches" were being paid on time and thus there was no need to spend Joe American's taxes on them. I.e. my plan only buys the mortgages at or going to auction. And then only buys the ones which can not be sold for at least the still outstanding mortgage.

(3) Thus, by government buying ALL, but only the mortages that can not be sold for at least the remaining mortgage balance, the bank's "toxic trash" is made free of any defaults, without need to set any prices or even to send a gov. rep. to the auctions. (The properties that fail to recieve bids equal to the remaining due mortage are AUTOMAICALLY BOUGHT BY THE GOVERNMENT. - Bank or other owner just deeds the property over to the FHA. Ususally the owner will do this even before there is an auctions and his bank/ mortgage granter gets the check from FHA paying off the mortgage. So the foreclosed owner is debt free and avoids the losses associated with the auction. Often the FHA will let him live in "his" house and only pay rent to the FHA. - See more options in footnotes to OP.)

(4) Paulson's plan did not even address the foundation of the problem: Too many "Joe Americans" were living in houses they could not afford. They bought expecting the bubble to continue inflating forever. (or at least until they sold to a "greater fool" at a profit)

(5) Paulson's plan gives funds to banks etc. with "no strings" so of course they used it to buy smaller banks, invest in fancy property developments in Dubai, finance new modern factories in Asia, even to buy a toll road company in Spain. (Just two days ago, after getting 20Billion more, Citi bought that Spanish firm for 10Billion and assumed 6+billion of it debt!) The net effect has NOT been to make the banks lend to US small business or home buyers - Noneone should have ever expected lending in the US to occur under the "no-strings" Paulson plan when much higher returns are available in other countries with growing GDPs.

(6) There are other flaws also - hard to understand how such a dumb plan could be expected to work!

As I understand things, and would recommend anyway, the Swedish government bought the example house for 80k, or some "market" value figured by detrending the price graph to eliminate the bubble. They did that to avoid foreclosure, among other large costs eliminated. That was key. ...I do not like ANY plan that requires some human scheme (evaluators) to set the purchase price - that is recipy for bribes and fraud on Joe American. The object was to convert the "toxic trash" into zero loss assets. My plan does that much more cheaply and gives the government ownership of real assets (the homes) and much more. For example, it solves the basic problem of getting the foolish buyers into homes they can afford. -See OP again for more of why it is the best plan - Paulson is slowing approaching it with this recent revision,(No 4?) but still not nearly as good or effective as my plan and has only 20Billion left. (He has squandered 330Billion on his stupid plans, with no useful effect!)

I do not like ANY plan that requires some human scheme (evaluators) to set the purchase price - that is recipy for bribes and fraud on Joe American Then you are supporting the bubble price - the last market established price before the foreclosure sale - and putting the industry through the massive foreclosure wringer, simultaneously.

Plus you are dumping tens of thousands of houses on the government - which is not capable of managing such a huge property.

And the opportunities for fraud are just as evident: the foreclosure market would be a no-lose proposition, for the mortgage lender.

Then you are supporting the bubble price - the last market established price before the foreclosure sale - and putting the industry through the massive foreclosure wringer, simultaneously.

Plus you are dumping tens of thousands of houses on the government - which is not capable of managing such a huge property.

And the opportunities for fraud are just as evident: the foreclosure market would be a no-lose proposition, for the mortgage lender.Wrong on all three.

(1) No, I am only paying off the REMAINING PART of the prior mortgage when no bid at auction will. Most of these mortgages are for 80% or less of the full value of the house some years ago. (And part of the mortgage has already been paid.)
For example in my prior example (blue of my prior post) the peak of the bubble price was $250,000 and the government is buying full ownership of the home for only $80,000. THAT IS HARDLY "SUPPORTING THE BUBBLE PRICE"!

Your comment: "and putting the industry through the massive foreclosure wringer"- is silly, without foundation and exactly wrong. Nothing I propose will increse the number of foreclosures.
In fact most now occuring with "under water" homes will be avoided as the owner will want to avoid the cost (which come out of his pocket) that is associated with auctions (ads in the newspaper, the fees of lawyers, the auctioneer's fee, etc.) By mailing the mortgage and deed to the FHA his only cost is postage and he has the hope of getting some money back when the FHA later sells his house. Only the very stupid with an "under water" home will not avoid foreclosure this way.

Furthermore keeping these homes off the real-estate market and in government ownership for a few years, will REDUCE the number of houses being forced into foreclosure as the current acceleration of the supply of un-sold homes on the real-estate market is doing. My plan is about the only way I can think of to slow the current depression of home prices (by keeping some homes off the reale-estate market.)

(2) I do not know how many homes that go to auction do not sell for at least the still outstanding mortgage. True, a very small fraction of homes are “under water” and most of those are unoccupied as the owner just “walked away.” Most with mortgage paid down for a few years will sell for at least the remaining balance, but most with mortgage equal to 100% of the recent "bubble price" and mortgage only paid for a year will be bought by the government.

Of course, the government/ FHA will not manage these homes directly. It will do exactly the same as any real estate firm does – hire professional managers. My son in-law is sort of a “slum land lord” with 8 (or less, I think he is now selling all to invest in the Brazilian stock market now.) properties rented in Sao Paulo. Even he has a management firm to keep them in repair, collect the rent etc. All he does is decide when to sell or to buy more. – FHA would do the same with much lower cost per home managed.

The alternative is to have the owner evicted, and "dumping tens of thousands of houses" on the real estate market, which already has more than year of unsold homes dropping ever lower the prices. Adding these homes also the unsold market supply will further drive the home prices down and that will make even more homes be "under water" - worth less than their mortgage. That will make ever more owners simply "walk away" (default). Someone must take these homes off the market for a few years. - Only the government can do that. (And must do that to prevent a self-accelerating downward spiral in home prices, depression, surging welfare costs with the evicted, etc..)

(3) No, "opportunities for fraud" are ABSENT.
If there is a bid at the auction higher than the remaining mortgage, then both the current owner and the bank will accept it rather than sell for the lower price of the mortgage the FDA will automatically pay (after inspecting the documents, of course). (Even the auctioneer, will want that higher price as usually his fee is based on the price of the sale to some extent.)
If there is no bid at the auction higher than the remaining mortgage, the bank (or mortgage holder) sends the mortgage and the Deed to the FHA. After examining these documents, the FHA send the check back to the holder of the mortgage, with perhaps a slight "processing fee" deducted.

Everything is a matter of public records. - For example, both the mortgage and the Deed are open to inspection in the county land records. (I have bought and sold several properties. I always went to the land records office and did my own title searches. One on 16 acres I was buying in Howard Count MD I ran the deed back into the early 1800s - It was very interesting. One sale of it was when it was part of a much larger tobacco farm. The owner had died, and every seven days two more of the heirs came to town to sign off on the sale. I used a universal calendar to learn it was always a Saturday. - I think they had a two person buggy and combined it with their Saturday trip to town to do the week's shopping.

For example in my prior example (blue of my prior post) the peak of the bubble price was $250,000 and the government is buying full ownership of the home for only $80,000. THAT IS HARDLY "SUPPORTING THE BUBBLE PRICE"! In your description, it appeared to me that you were having the government guarantee the 120k nominal current value of the mortgage, for a house that would fetch 80k on the market.

Not obtaining the house for 80k.

If the government is not liable for the mortgage value, but obtaining the house for the current market value, under your plan, than I have misunderstood completely and withdraw my complaint about supporting the bubble prices. I then wonder at your asking how the mortgage holders were being stuck with a loss.

I also can't figure out how you are going to run these foreclosure auctions without opportunity for bribery and collusion - when everyone knows the house will not be sold to them for less than its current mortgage value, if I am following this.

And finally, I seriously doubt whether the government is capable of managing property of this kind at this volume on this short notice. This would be a brand new thing, and aside from somebody like Halliburton with all that implies, who's going to do it?

...I have misunderstood completely and withdraw my complaint about supporting the bubble prices. I then wonder at your asking how the mortgage holders were being stuck with a loss. If I asked that then it was a "retorical question" - trying to make it clear then the mortgage holders (and every mortgage in the toxic trash tranches) will be paid in full -Hence the toxic trash is no longer "toxic" and at much lower cost to the government than trying to buy up all the toxic trash. (Why buy the still being paid mortgage in the tranches also to do this? Even Paulson admits his original idea failed.)
AGAIN:With my plan the government pays only the REMAINING MORTGAGE BALANCES, NEVER WHAT SOMEONE THINKS THE HOME SHOULD SELL FOR. ETC.
I also can't figure out how you are going to run these foreclosure auctions without opportunity for bribery and collusion - when everyone knows the house will not be sold to them for less than its current mortgage value, if I am following this. I have already explained why corruption is impossible. If you disagreed, explain how it could occur.
Also most (>95%) of underwater homes now going to foreclosure will instead go directly to the FHA. No one not willing to at least pay off the mortgage balance would go to the auction. Effectively I end all auctions which now occur and leave the occupant of the home still owing money to the bank. (Only way he can avoid that nows is to file banrupcy. For example, if the now un-paid mortagage balance is $80,000, but the best bid is only $70,000, either the mortgage holder refuses to sell or sells and keep the occupant on the hook for $10,000 plus all the expenses of the auction. If he later gets a good job, you can be sure the bank will be taking part of his monthly pay check until this debt is paid off.

He is much better off to be immediately debt free and can be by sending mortgage and deed to FHA, and then trying to negotiate a rent he can afford to pay. (My plan even had a one year quasi-grace* period on this rent to let him look for housing he could afford if he can not afford even to rent back "his" house from the FHA - He may need to move to lower cost unit, even just a trailer. Please read the OP as you do not understand my plan. People in homes they can not afford is the real heart of the problem - unlike Paulsosn still, I address that, not supply funds to banks for investing in Dubai etc. or buying up smaller banks.

...And finally, I seriously doubt whether the government is capable of managing property of this kind at this volume on this short notice. This would be a brand new thing, and aside from somebody like Halliburton with all that implies, who's going to do it?I will not bother to look up names of real-seate managment firms, but almost all apartment complex in the US use one of them There are 10s of thousands of them. The number of properties already that these firm manage for the owner is huge compared to the number of properties the FHA would be getting in the next few years. Again you need to read the foot notes of the OP - There I note that renting back to the prior owner has many advantages, not the least of which is that he will not trash the house like a renter planing to move may.

Please try to understand my proposal before attacking it.
------------
"Quasi-grace" as he gets five years to pay the months (up to 12) of rent while he remains in the house while looking for housing he can afford. Again read the OP.

Here is the latest example of what is wrong with Paulson's plan still (Recall two days ago Citi used the extra 20 billion it recieved the day before to buy a toll road company in Spain as another example):

" Dec. 3 (Bloomberg) -- The Port Authority of New York and New Jersey attracted no bids from investment banks interested in underwriting a $300 million taxable note offering in another sign that the seizure in credit markets persists. ...{These bonds} carried the highest short-term ratings from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings and would have been the largest of its kind in eight months.

“It’s astonishing,” said Fred Yosca, managing director and head of trading at BNY Mellon Capital Markets in New York. “A household name, like the Port Authority, not being able to get a bid is truly a sign of a market that is in distress.”

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=aJ1hKONFMNYU&refer=home

Billy T comment:
Trickle down works for someone, just not Joe American or US small businessmen. It will ALWAYS send the AVAILABLE investment funds to where the returns are best - that is not the USA now.

GWB and Republican Trickle Down helped build the modern factories in China, killing Joe's jobs, and the luxury resorts/ residental units in Dubai etc.
Ironically, GWB and the Republicans do not understand how capitalism works in the modern global economy! - They thought making more funds availabe to the already rich would trickle down to help Joe American and small business in the USA. It did exactly the opposite, and left Joe (and even his great grandchildren) with huge debt, which they can not pay, so dollar will collapse and depression worse than 1929 is on it way - just a question of when, not if now. IMHO, even Obama's ability to inspire etc. and his excellent team, can not undo the damage GWB, and Republican neocons* have done.
----------
*They were more interested in making wars to fuel the profits of the oil and war industry they mainly came from.

AGAIN:With my plan the government pays only the REMAINING MORTGAGE BALANCES, NEVER WHAT SOMEONE THINKS THE HOME SHOULD SELL FOR. ETC. The remaining mortgage balance is the bubble price I am claiming your plan supports.
trying to make it clear then the mortgage holders (and every mortgage in the toxic trash tranches) will be paid in full - Again.
Also most (>95%) of underwater homes now going to foreclosure will instead go directly to the FHA. No one not willing to at least pay off the mortgage balance would go to the auction. So you are not using the auction - or any market mechanism - to set the market price for those mortgages ?

In fact, the auction part seems to be extraneous in general, an unnecessary detour through the foreclosure labyrinth with attendant runups in overhead.
Please read the OP as you do not understand my plan. I admit that I do not understand your plan, as you describe its operations and deny my questioning of apparent problems. Reading your OP does not help. It was from your OP that I got my questions.
People in homes they can not afford is the real heart of the problem - unlike Paulsosn still, I address that, not supply funds to banks for investing in Dubai etc. or buying up smaller banks. This is the part of your plan that makes sense to me. Guaranteeing the bubble price to the banks seems to work against it. Hiring expensive property managers on short notice to handle tens of thousands of private homes converted to rental property and owned by the Federal government works against it. Launching play auctions in which the bidders and bankers know in advance the high bidder will be the Fed works against it. Or what am I missing?

Look, I think your approach is at core much better than the current nonsense. It's details that I question.

...
So you are not using the auction - or any market mechanism - to set the market price for those mortgages ? You must never have had a mortgage. If you did you would know that the "remaining unpaid balance" is always a definite number. - It is not set by any "market mechanism." Each payment you make, usually monthly, reduces that "remaining unpaid balance." (Slowing in the initial years as then your monthly payment is mainly applied as interest on the loan, but as the "remaining unpaid balance" is reduced the reduction is greater with each new payment.) While it might be possible in principle to sell the mortgage at a slight discount, do so would not give the banking system a 100% guanantee that none of their current "toxic trash" could remain toxic. Effectively in my plan, rather than buy all the toxic trash (most of the under lying mortgages are being paid on time) the government only guarantees that now owner of the toxic trash will take any losses. I.e. immediately converts all toxic trash in guaranteed asssets, but without buying any of this complex paper. Government buys real assets and helps stop the slide down spiral and gets the foolish buyer of a home, which he could not afford to buy, into housing he can afford (Often perhaps he just remains in "his" house and rents from the FHA.)

... I admit that I do not understand your plan, as you describe its operations and deny my questioning of apparent problems. Reading your OP does not help. It was from your OP that I got my questions.I am sorry if it is not clear, but ask any specific question; you want and I will try to answer it. First however, stop speaking about A "bubble price." As I have explained already that price is constantly increasing during the bubble and then more rapidly dropping when the bubble collapses.
...Guaranteeing the bubble price to the banks seems to work against it. Again I am not doing that and there is no single "bubble price" on even only one home I could guarantee even if I wanted to! I am guaranteeing a precisely defined (at any particular time) "floor price" equal to the then outstanding mortgage balance.

For example, two identical, side-by-side houses could easily have different "government will pay" or "floor prices" as one may be still owned by the original buyer who has nearly paid off the mortage and one owned by a owner who purchased less than a year ago. It is highly improbable that the first will not attract bidders very willing to pay much more than the mortgage debt of the first, but certainly possible, if not highly probable, that the government will end up buying the second. (Thus, helping stop the downward spiral of home prices by not selling it for years. I.e. not adding it to the already excessive supply of "unsold homes.")
If the second owner did get a 100% loan for the price a year ago, then you could say in this quite unusuall case that the government is supporting the "bubble price" of a year ago which is higher than the current market price. This is only a relative rare case, but in it the government is acting as the "greater fool"that buyer hoped to sell to later; however he is not getting any profit as he expected (that is what made the bubble) -only getting out without a large loss*. Many now in trouble bought many houses, expecting to sell at a profit in a few years. This "foolish demand" inflated the the prices of homes. They are now lucky to get out with only small loses (they did pay interest on their loans) and hopefully learned their lesson. (They would have had a profit if they had simply put the money into a saving acount, instead.)

The nature of this guarantee is that if no one else will buy the house for that amount, or more, then the government will automatically (not even any expense of sending someone to the auction) buy full ownership for that price - I.e. the government pays off the mortgage and takes ownership of the house.

...Hiring expensive property managers on short notice to handle tens of thousands of private homes converted to rental property and owned by the Federal government works against it. Launching play auctions in which the bidders and bankers know in advance the high bidder will be the Fed works against it. Or what am I missing? I think you are. First there are thousand of firms anxious to manage rental proberty in the USA and they would typically do so for the FDA (a no risk payer of their fee) for a single digit percent of the monthly rent. Collecting the rent is no more problem than collecting the monthly mortgage payments is. (You may not realize it, but even if your mortgage was granted by bank ZYZ, that bank is not collecting your monthly payments, in more than 95% of all cases. They hired some one to do that or sold the mortgage to Fanny or Freddy who may do that collection (I do not know if they do or also hired some firm to collect the monthly payments) There ZERO additional work to do with collecting rents, instead of mortgage payments, each month. (Exactly the same number of checks are collected as rent checks replace mortgage checks.)

The main problem is with repairs. If the brother of the management firm owner happens to be a plumber, then the houses that firm manages will likely have all their plumbing in good working order (if the owner of these rental properties has only a few houses he is renting). This abuse occurs now but would be greatly reduced if 120,000 houses are managed for the FHA by a dozen different management firms, each managing 10,000 properties. - With the comparison of the repair bills each of the dozen firms sends claims for each month the abusive firm is more easily noticed with the larger data base, compared to, for example, my son-in-law who has only 8 rental proberities. He trust his manager, but that manager could pad the repair expenses. Doing that significantly to the FHA would quickly be detected, then abusive firm would be fired, fined and procescuted for punative damages etc.
...Look, I think your approach is at core much better than the current nonsense. It's details that I question.Again ask me to explain any detail that is confusing you and/or pose in some concrete terms (not in generalities like "very subject to fraud") any problems you are concerned about.
-------------------
*Why should the banks be protected from large loses, if the home owners are not? Giving funds to banks, as Paulson did does not address the basic problem. - It does not even make credit more available as has "no strings" on how the funds supplied can be used. Mainly They have been was used to buy up smaller banks (reduce competition) and make loans for projects in other lands where the GDP growth is much higher than in the USA. Small US businesss men cannot get loans from the banks they have used for decades! Paulson has wasted** 330 billion dollars! (finally he seems to understand this but now has only 20 billion left to do better with.)

** Worse than "wasted" - he has supported economies the US must compete with, just as Republican "Trickle Down" economics under GWB did for 8 years - helping China build the most modern car and other factories in the world. It is hard to know which contributed more to failing US auto makers:
GWB and this "trickle down" foolishness
Or
The stupidity and lack of foresight of Ford, GM and Chrysler's highly paid CEOs. I suggest they use their corporate jets once more. Jump out of them with their "golden parachutes" (UNAWARE that the cords of those parachutes have all been cut.)

"... Federal Reserve Chairman Ben S. Bernanke urged using more taxpayer funds for new efforts to prevent home foreclosures, saying the private sector is incapable of coping with the crisis on its own. The Fed chief outlined four possible options, including buying delinquent mortgages ..."
From: http://www.bloomberg.com/apps/news?pid=20601087&sid=abINDLzbaE54&refer=home

Finally you are getting close to the plan of the OP of this thread, but still do not quite have your evolving plans perfected:

I.e. do not buy the mortgages from the banks or even think about trying to disect them out of the complex tranches most are now tied together in. That is a lawyer's aid program!

INSTEAD: Pay off the mortgage (when no one else will) and take ownership of the house. When ever any house is sold, at auction or otherwise, during the settlement, the old mortgage is always paid off first. - So this FDA buying and paying off mortgage is nothing new. Always the new buyer pays off the old mortgages and takes title to the house; if however, as is the usually case, there is a new mortgage, then the bank or other granter of that new mortgage has a claim on the house, if that new mortgage falls into default. FHA will be the new buyer (of last resort) and does not need a new mortgage, at least not one specific to any particular house. Instead, it gets the funds to pay off the old mortgage from the FED, via Congressional approvial. Same way Paulson got 350 billion (first half of 700 b illion).

ALSO do not ignore the foolish owner who bought more house than he could afford with the common assumption that the bubble would continue to grow forever. If the FHA is the new owner, in many cases, the current foolish occupant can afford to pay some reasonable rent and remain in "his" house. If he can not even pay rent, near the market value, then give him "deferred rent" (for max of 12 months) in which to find housing he can afford (even if that is only a rented small trailer or camp ground tent.)

Point is that the basic problem MUST be solved. That problem is too many fools in homes that they can not afford. It does no good to ignore the cause and treat various symptoms of the problem. Paulson has already wasted 330 billion doing this, with only more damage produced in the USA. (See my earlier posts, especially both footnotes of post 38 adjoining this post, to understand how that 330Billion has caused a net damage to the USA.)

See the OP for many other features of a more desirable plan, but Ben & Paul, keep modifying your plans, and you will eventually come to the one I proposed a couple of months ago - you are getting closer now.

If the second owner did get a 100% loan for the price a year ago, then you could say in this quite unusuall case that the government is supporting the "bubble price" of a year ago which is higher than the current market price. This is only a relative rare case, - - - OK, this difference in perception is the only real difference we have over this particular issue.

I think it is very common that the current outstanding balances on the the defaulting mortgages (especially of the the speculators and refinancers that are the large majority of the problem) are bubble prices, with little equity buydown since (say) '04 or '05, and that buying the houses for that balance would support bubble pricing in that area.

Nor would any "auctions" prevent that.

You must never have had a mortgage. If you did you would know that the "remaining unpaid balance" is always a definite number. - It is not set by any "market mechanism." We both know that. Why are you talking about setting market prices for these houses at some kind of auction, an "auction" in which everyone knows going in that the house will not be sold for less than the mortgage balance?
The main problem is with repairs. If the brother of the management firm owner happens to be a plumber, then the houses that firm manages will likely have all their plumbing in good working order (if the owner of these rental properties has only a few houses he is renting). This abuse occurs now but would be greatly reduced if 120,000 houses are managed for the FHA by a dozen different management firms, each managing 10,000 properties. You also have serious problems with ongoing maintenance, utilities and taxes, insurance, assessments and easements, evictions, and so forth. I suspect that property managers that handle large numbers of separate, single family dwellings are not nearly as numerous or as capable of expanding their inventory as you assume, that they won't be cheap, and that the opportunities for fraud etc are much larger and more varied than your plan allows.

But again, this is a matter of perception, a judgment of the situation. I would prefer the government buy houses at market,or otherwise negotiated real value, price.

edit in: come to think of it, your plan of having the US government owning rental property in blighted neighborhoods officially assessed at bubble value, would be a great boon to local government - property taxes on rental property are much higher than those on owner-occupied dwellings in my state, for example, and the boosted value of the assessment contributes still more. Interesting.

Well look at history, the way we got ourselves out of the Depression was through the war, made money at the cost of lives, and put a halfassed smile on people's faces.

I believe society can handle a different type of war, of production of unity, and that is human advancement, that is alot of work in itself, it is a massive undertaking in which people have to explore our galaxy the universe we live in. This will create a one world union for a common cause. This cause will need accountants, scientists, weapons manufacturers can apply their technologies im sure, in the making of fast projectiles that wont tear through flesh but space. Population problems will be solved with the occupation of new planets.

When people realize that we are all different and must compete with ourselves, we will be infinite. There is too much lost time of warmongering, that time could have been spent on something worth while. I know that these mongeres at their deathbed, are miserable and full of regrets, think of that.

I'm rooting for us humans, I really am.

You are not alone. I, also, don't see the artificial boundaries that we have created to separe ourselves and preserve our autonomy. Those boundaries were erected for several reasons, including to facilitate government. But as time progresses, we need them less and less, and they become more of a problem then a solution.


It's time for a change in paradigm. It's time for species-thinking.

Many are now recognizing how stupid Paulson's plans were (as I indicated in the OP before Congress even appropriated the $700 billion). See:

http://news.yahoo.com/s/ap/20081222/ap_on_bi_ge/meltdown_secrets

Which starts:
"... It's something any bank would demand to know before handing out a loan: Where's the money going? But after receiving billions in aid from U.S. taxpayers, the nation's largest banks say they can't track exactly how they're spending the money or they simply refuse to discuss it.

"We've lent some of it. {Billy T insert: Not telling to whom} We've not lent some of it. We've NOT given any accounting of, 'Here's how we're doing it,' " said Thomas Kelly, a spokesman for JPMorgan Chase, which received $25 billion in emergency bailout money. "We have not disclosed that to the public. We're declining to."

Billy T comment /opinion: They are "declining to tell" because they:
(1) Just kept the funds on the books (at least thru end of 2008) to make balance sheets look better in annual reports.
OR
(2) Invested in non-US regions, like China and Dubai, where the potential yields are several times greater.
OR
(3) Paid a relative small part to executives in multi-million dollar bonuses. For example, Golden Sacks CEO got 54 million dollars and the top four under him got an average of 47 million dollars each in salary plus bonus. That is 242 million paid to just five incompent guys, who are refusing to tell the AP what they did with billions of the public's money! (This despite turning in the ONLY losing quarter in the history of Goldman!)
http://www.schaeffersresearch.com/images/members/services/sdb/2008/081222GS.gif
I would like to get 54 million dollars for that performance, wouldn't you?

The link above then continues:

"... The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings, and what's the plan for the rest?

NONE of the banks provided specific answers. "We're not providing dollar-in, dollar-out tracking," said Barry Koling, a spokesman for Atlanta, Ga.-based SunTrust Banks Inc., which got $3.5 billion in taxpayer dollars. Some banks said they simply didn't know where the money was going. ..."

Billy T comment /opinion:
The net effect of spending 350 billion as Paulson has has probably aidded China and hurt the USA, at least in the job creation area. Obama's plan is a great improvement - somewhat* like in concept I suggested in the OP, in that it at least attacks the causes of the crisis, instead of only treating a symptom of it as all verision of Paulson's constantly changing plan have.
--------
*Actually Obama's plan is better than mine - I only aidded the homeonwners going to foreclosure and did nothing to create jobs (many of which were in factories and paid well, but the "Trickle Down" FDI to China built more modern ones there.)

More confirmation that the banks used the TARP funds as I said they would. (For their benefit, not that of the US economy) Paulson’s plan was not only stupid (as I stated in OP of this thread) but not even well executed as ALL CONTROLS on what the banks did with the tax-payer funds were ABSENT!
Quote below from:
http://www.moneymorning.com/2009/01/12/700-billion-bank-bailout-funds/

"The U.S. Treasury Department has done nothing to make sure $700 billion in taxpayer-provided bailout money is used to buttress the weak U.S. mortgage market, which was the catalyst for the growing global financial crisis, congressional watchdog Elizabeth Warren said Friday.

Warren, who heads a congressionally appointed oversight panel, told ABC News there was no evidence the Treasury had used money from the Troubled Assets Relief Program (TARP) to put a floor under the falling U.S. housing market by avoiding preventable foreclosures. "The TARP funds themselves have not been used in this way despite congressional statutes requiring them to do so." ...
The congressional investigation is just the latest in a series of revelations demonstrating the misallocation of the taxpayer-provided bailout money. An ongoing investigation by Money Morning has detailed how banks have used the first $350 billion: They’ve used the capital to finance investments in other banks – including an investment in China – and to pay bonuses to executives. Then they audaciously refused to say where the money went, or how it was used,..
The Congressional Oversight Panel has now added to that list of criticisms. In a draft of a report released Friday, the panel said the Treasury Department has failed to reveal its strategy for stabilizing the financial system and had done little to track how the money was used. ... The report also questioned whether Treasury fulfilled the promises made to Congress when it pushed for lawmakers to approve the rescue funds. ..."
---------------------
Billy T comment: This was just more of the SOP (std.op.procedures) under GWB. I.e. regulations, and accountability were impediments to capitalists who made the economy grow. - The “best government is the least government idea”, very common among the neocons and current Republicans, who IMHO are renegades not true to the original Republican principles.

I am only glad that the magnitude of the economic disaster (a global depression for most western countries, especially US and EU where the debt is greatest) is becoming clear to all while GWB is still president. As leader in the civil rights movement of the 1960s, I feared that the cause of the coming Republican / neocon/ GWB’s depression would not be obvious until after Obama was POTUS and he would be blamed for it.

Billy T,
---------------------
Billy T comment: This was just more of the SOP (std.op.procedures) under GWB. I.e. regulations, and accountability were impediments to capitalists who made the economy grow. - The “best government is the least government idea”, very common among the neocons and current Republicans, who IMHO are renegades not true to the original Republican principles.
Billy, either intentionally or unintentionally, you are misrepresenting political idiologies. Neoconservatives are not traditional paleoconservatives. They formed from disillusioned intellectual liberals. Some people think that the name 'neocon' is synonymous with ultra-conservative. Nothing could be further from the truth.

Traditionally, Democrats favor Big Government, with lots of social spending and programs. The usual method to pay for this spending is through increased taxation to balance the budget. Traditional conservative Republicans believe in small government and less taxation, with fewer social programs paid for by the government, and a balanced budget. Neocons do not object to social programs as long as they do not have to pay for the programs through higher taxes. Their preferred method of paying for the social programs was through growing the economy, in other words, they believed that by growing the total wealth of the country, the social spending could be paid for by increased tax collections without increasing the rate of taxation. Of course, that is what led to the dot.com bubble, the housing bubble, the stock market bubble, etc.

Alan Greenspan, who served under both Clinton and Bush, was more responsible for these bubbles than anyone else. Back during his iron-fisted rule, most everyone thought he was doing a great job, the 'economy' was growing by leaps and bounds. They did not recognize the bubble they were in, just as many countries did not recognize the recent oil and commodities bubble, they thought everything would just keep increasing in price, that their national economies would just keep getting wealthier. And, Billy, your 'BRICK' countries will suffer too, they are not immune to the collapse of the global economic bubble.

Why I am going through this is because of your inference that it was only because of 'GWB', neocons and conservative Republicans that the US economy is in the shape it is in. Bush did surround himself with neocons in his adminstration instead of conservative Republicans, including keeping the very-popular-at-the-time Greenspan on as Federal Reserve chairman. Conservative Republicans did not support the TARP bailout, in fact they fought against it. Remember, their ideology is for small government and non-intereference by government. I am not arguing that doing nothing to prop up the financial sector, the automotive industry, etc. would have been the correct thing to do, but you can't attribute the bailouts and all those problems to the conservatives in congress. TARP was passed through an alliance between the neocons in the Bush adminstration and the Democrats in congress.

I think it is necessary, but what Obama has proposed is more akin to the current neocon agenda than either the non-interference conservative Republican philosophy or the tax and spend Democratic philosophy. Obama proposes to decrease taxation and increase spending, a neocon philosophy that ignores a balanced budget. Normally both Democrats and conservative Republicans strive for balanced budgets, but a balanced budget is a secondary consideration in the current neocon-Democratic alliance. Libertarians and conservatives are both galled by the budget deficits in both the Bush/congressional plans and Obama's plan.

Billy T,
---------------------

Billy, either intentionally or unintentionally, you are misrepresenting political idiologies. Neoconservatives are not traditional paleoconservatives. They formed from disillusioned intellectual liberals. Some people think that the name 'neocon' is synonymous with ultra-conservative. Nothing could be further from the truth.

Traditionally, Democrats favor Big Government, with lots of social spending and programs. The usual method to pay for this spending is through increased taxation to balance the budget. Traditional conservative Republicans believe in small government and less taxation, with fewer social programs paid for by the government, and a balanced budget. Neocons do not object to social programs as long as they do not have to pay for the programs through higher taxes. Their preferred method of paying for the social programs was through growing the economy, in other words, they believed that by growing the total wealth of the country, the social spending could be paid for by increased tax collections without increasing the rate of taxation. Of course, that is what led to the dot.com bubble, the housing bubble, the stock market bubble, etc.

Alan Greenspan, who served under both Clinton and Bush, was more responsible for these bubbles than anyone else. Back during his iron-fisted rule, most everyone thought he was doing a great job, the 'economy' was growing by leaps and bounds. They did not recognize the bubble they were in, just as many countries did not recognize the recent oil and commodities bubble, they thought everything would just keep increasing in price, that their national economies would just keep getting wealthier. And, Billy, your 'BRICK' countries will suffer too, they are not immune to the collapse of the global economic bubble.

Why I am going through this is because of your inference that it was only because of 'GWB', neocons and conservative Republicans that the US economy is in the shape it is in. Bush did surround himself with neocons in his adminstration instead of conservative Republicans, including keeping the very-popular-at-the-time Greenspan on as Federal Reserve chairman. Conservative Republicans did not support the TARP bailout, in fact they fought against it. Remember, their ideology is for small government and non-intereference by government. I am not arguing that doing nothing to prop up the financial sector, the automotive industry, etc. would have been the correct thing to do, but you can't attribute the bailouts and all those problems to the conservatives in congress. TARP was passed through an alliance between the neocons in the Bush adminstration and the Democrats in congress.

I think it is necessary, but what Obama has proposed is more akin to the current neocon agenda than either the non-interference conservative Republican philosophy or the tax and spend Democratic philosophy. Obama proposes to decrease taxation and increase spending, a neocon philosophy that ignores a balanced budget. Normally both Democrats and conservative Republicans strive for balanced budgets, but a balanced budget is a secondary consideration in the current neocon-Democratic alliance. Libertarians and conservatives are both galled by the budget deficits in both the Bush/congressional plans and Obama's plan.I agree with all of this. If you look at the thread Ï started about two years ago ("the 6L cycle" -or some such name) you will see that I too palce the blame on Greenspan's continuation of the low interest ratres. - I forget just now exactly, but the first "L" was Low cost Loans, and the second was Leverage, I think.

My complaints about GWB and neocons centers on two main points:
(1) reducing taxes on the already rich
(2) making needless wars (to get the lucrative oil contracts that the French and Russians had for Haliburton, etc.)

Both (1) & (2) (plus some other closely related factors - see next two paragraphs for one) rapidly converted Clinton's surpluses into huge deficits.

(1) also worsen the trade inbalance. The justification for (1) is the "trickle down" theory, and it is true that if you give money to people and firms that are doing well they will invest it -WHERE THEY THINK THE RETURNS WILL BE GREATEST. - That was mainly in China during GWB's terms. I.e. the growth of china's industrial capacity was mainly built by FDI, much of it as "trickle down." Instead of giving tax relief to corporations and the already rich and increaseing the debt that money would have been much better used if simply tossed out of Ben's helicopter over poor neighborhoods. At least then it would not have made the modern factories in China that via competion closed many older ones in the USA.

With closing US factories, and displace workers taking lower paying jobs, the IRS's revenues were adversly affected. -Just at the time when they needed to be increaasing to cover the growing Social Security cost of the starting to retire "baby boomers." GWB is not resposible for the fact that these Baby boomers ceased to be in their peak earning years and became "negative savers" as well as net collectors of funds from Uncle Sam, instead of one of the bigger tax payers; However, this was 100% foreseeable and should have discouraged the reckless wars and tax reduction GWB made.
-------
I agree that in "normal times" the government should try to balance the budget, but these are far from "normal times," thanks mainly to Greenspan and GWB, IMHO. These are "Keysian times." Obama has no choice but to spend more money the US does not have. I like many others fear that if the depression is avoided, it will surely be at the expense of hyper (by US standards) inflation. I have done two things based on this belief. One to protect myself and the other to try to help the US.

(1) For me, as told slightly more than a year ago, I put 100% of my main retirement plan into TIAA/CREF's Inflation protected fund (mainly TIPs) - this not only will help when the inflation hits, but mainly by luck, got me out of stock investments before the big slide down started. (I still own about 30 early stage drug developers. Again, as told before, because they have very high risk already factored in and also because following them (via presentations they make to finacial community - JP Morgan now) I learn a lot of facinating biological details I never knew. So far I have had net income for last three years, as larger drug firms ave taken over one of more of my holdings, but I will be happy to reguard even some net losses as the fee for tis education I am recieving.

(2) to help the US I thought about the problem of urgent need to spend more (print dollars) and the resulting inflation printing press money always causes. The result was my "red dollar" plan, posted not only here but sent to many including Obama several times, made as comment in the Economist, to Forbes, etc. for at least a dozen more (most were to authors of Bloomberg articles as they always give their Email address at end of their articles.) See it at:

http://www.sciforums.com/showpost.php?p=2095292&postcount=11

Note also there is a thread on the red dollar plan, in which I respond to some concerns and misunderstandings about it.

I am busy now so will leave my typos and mis-spellings etc. uncorrected. Try to get back later.

"“A lot of work has been done on an aggregator bank” and other ways of using the $700 billion financial-rescue fund “to let it go further when it comes to dealing with illiquid assets,” Treasury Secretary Henry Paulson told reporters today in Washington. FDIC Chairman Sheila Bair praised the idea in an interview on CNBC, saying it might have “some merit.”

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=aCcNKVDnUKMA&refer=home

If they keep working at it, eventually they will come to the simple, easy to implement plan of the OP.

I.e. only guarantee that all mortgages in the complex tranches that were constructed will be paid. - Then the "toxic trash" is no longer toxic. Yet none of it is purchased by the government. - Government only buys the homes that are under water AND being foreclosed (for the unpaid mortgage balance, IFF no bidder bids that high.) and takes them off the "for sale" market for a few years by renting them. - This breaks the downward price spiral the growing surplus of unsold homes is making.

It is all automatic - no government rep needs to go to even one foreclosure auction. - Very low administrative cost and does not have the impossible problem of trying to set a "fair" value on the toxic trash. See OP for more details.

Does GWB know ANYTHING about Macroeconomics and making economic and monetary management decisions?


Oh wait, that's correct. His dad was president at a time, therefore GWB has "experience".... :rolleyes:

More than a million in bonuses to each of 400 at AIG (your tax dollars at work, under Paulson).
Fire* this bunch who help make this mess - don't give them more than a million dollars EXTRA each!

Note the plan of the OP this thread does not even require these derivatives to have any price set on them!

"... Jan. 27 (Bloomberg) -- American International Group Inc., the insurer saved from collapse by government money after losses on credit-default swaps, offered about $450 million in retention pay to employees of the unit that sold the derivatives, according to two people familiar with the situation.

About 400 workers at the financial products unit may get the money in two installments, said the people, who declined to be named because details of the payments were confidential. The business was responsible for about $34 billion in writedowns since 2007 as the market value of swaps AIG sold to banks plunged amid the subprime mortgage market collapse.

The payments bring to more than $1 billion the amount AIG has committed to keep its employees from leaving. ..."

Read more at: http://www.bloomberg.com/apps/news?pid=20601087&sid=avGnUgGMu1q4&refer=home

---------------
*Actually, if a legal way can be found, I would like to get them all new jobs in the prison laundry. Paulson's plan only makes sure it will all happen again if and when the US recovers - Rewards instead of punishment for evil greed tends to do that.

Read this:
http://www.fool.com/investing/general/2009/01/29/hundreds-should-go-to-jail.aspx
title is: "Hundreds should go to jail."

Note that is exactly what I said was needed in the OP - prevention of repeat, not huge rewards to make sure it all happens again.

Read this:
http://www.fool.com/investing/general/2009/01/29/hundreds-should-go-to-jail.aspx
title is: "Hundreds should go to jail."

Note that is exactly what I said was needed in the OP - prevention of repeat, not huge rewards to make sure it all happens again.
Obama spoke out on this today...and said hes going to inform the bankers that theyve been very naughty boys.

Problem solved. :bugeye:

I HAVE NOT READ IT, but the title is reward enough: HERE COMES THE BARF

BARF = Bad Asset Repository Fund (for Wall Street's toxic assets) what some less creative are calling "bad banks"

See it at: http://www.forbes.com/2009/01/29/tarp-treasury-department-business-wall-street-0129_barf.html?partner=daily_newsletter

One day after President Obama ripped Wall Street executives for their "shameful" decision to hand out $18 billion in bonuses in 2008, Congress may finally have had enough.

An angry U.S. senator introduced legislation Friday to cap compensation for employees of any company that accepts federal bailout money.

Under the terms of a bill introduced by Sen. Claire McCaskill, D-Missouri, no employee would be allowed to make more than the president of the United States.

Obama's current annual salary is $400,000.

"We have a bunch of idiots on Wall Street that are kicking sand in the face of the American taxpayer," an enraged McCaskill said on the floor of the Senate. "They don't get it. These people are idiots. You can't use taxpayer money to pay out $18 billion in bonuses."
http://www.cnn.com/2009/POLITICS/01/30/executive.pay/index.html

Anyone surprised about the bonuses?

...Anyone surprised about the bonuses?No, I am not surprized. Someone, who hands out money with no strings or obligations attached, calling those who take it "idiots" does surprize me - Congress must be looking into a mirror. What did they expect? CEOs, with rare exceptions, have a long history of "feathering their own nest."

It is very frustrating to me to read things like the following quote in blue when the OP of this thread has simple plan that keeps many unsold homes off the market and is cheaper than buying toxic assets for a "bad bank" as it only buy the non-performing mortgages, not ALL THE MORTGAGES included in the toxic trash "tranches" and goes directly to the heart of the crisis problem: The bad mortgages, before they were put into tranches with typically 30 fold leverage that has greatly increased to cost of the "toxic trash." None-the-less this simple plan solves the "liquidity problem" of banks as when FHA buy all homes with mortgages that do default, then the toxic trash becomes non-toxic. (Not even the expected default rate occurs in the tranches.)

Also plan in the OP is much easier to implement as there is no need to place any value on the complex tranches that are in the toxic trash. - FHA just buys the defaulting mortgage houses for the still unpaid balance of the mortgage. Does not even need to go to the auctions - if bank forced auction does not draw bid equal to the unpaid balance due, bank takes back ownership (just as it now does) and send deed plus bill for the mortgage balance to the FHA. US gets homes, not toxic trash, which it rents, often to the current occupant who could not buy, as he had hoped, but can afford to rent.

"... A record 19 million U.S. houses stood empty at the end of 2008, including properties for sale and for rent, as banks seized homes faster than they could sell them and prices continued to fall. ...

The worst U.S. housing slump since the Great Depression is deepening as foreclosures drain value from neighboring homes and make it more likely owners will walk away from properties worth less than their mortgages. ...

“When you’re underwater and prices continue to fall, you tend to walk,” Miller said in an interview. “It’s a downward spiral that’s tough to stop because it feeds on itself. Foreclosures encourage other foreclosures and falling prices discourage buying.” ..."

Billy T: DAM IT; DO MY PLAN as in the OP.

Quote in blue above is from: http://www.bloomberg.com/apps/news?pid=20601087&sid=a8SoNNq.FFoM&refer=home

Year ago I made new thread "How dumb can US voters be?" Perhaps it is now time to ask: "How dumb can the US government be?"

US is slowly approaching my plan of the OP. It is about half way there now that they have finally realized it is too expensive and stupid to buy ALL the toxic assets when only a small fraction of their contained mortgages will default. It is also essentially impossible as there is no way to set a "fair" price."(Too low and the banks still go belly up. Too high and taxpayers never recover from the over payment. No one knows what is "Just right," or even if such a price exists.)

Now all they need to understand is that the toxic trash they are thinking of guaranteeing is a symptom, not the root of the problem. Too many homes were sold to people who could not afford to buy them, but did as very "creative mortgages" were made and immediately sold away to avoid losses for the writer as they defaulted. There was no regulation by GWB's SEC, so they were resold and re-packaged again and again into ever more complex "tranches" until the leverage was > 33 fold! (Then a 3% default rate crashes the whole house of card to zero value.)

Instead of guaranteeing that no mortgage will default, simply buy those that do at foreclosure auctions and get ownership of the house, which FHA can rent - keeping it off the resale market for a few years. Even though the cost of buying the house for unpaid mortgage is the same as just paying the bank that amount under a guarantee when its mortgage defaults, the cost of my plan is slightly less as there is no new mortgage guarantee insurance organization to set up.

It is so simple: As I said in my last post: No FHA rep even needs to go to the foreclosure auctions. - If the bank’s foreclosure auction does not draw any bid equal to the unpaid balance due, The bank takes back ownership (just as it does now) and send deed plus bill for the mortgage balance to the FHA. The US gets homes, not toxic trash, which it rents, often to the current occupant who could not afford to buy, as he had hoped, but can afford to rent. (If he cannot even afford that rent, he moves into less house or even a trailer he can afford at least to rent, but renting to current occupant is best socially and also avoids the “eviction rage” that often leaves all the toilets smashed, the washing machines and refrigerator sold, profanity painted on the walls etc.)

Here is evidence that the US now understands half what it should do. (I.e. will guarantee no mortgage defaults and yet not buy toxic trash.):

"... The Obama administration, aiming to overhaul the $700 billion financial-rescue program, is refocusing on an effort to guarantee illiquid assets against losses without taking them off banks’ balance sheets.
Treasury Secretary Timothy Geithner is skeptical of setting up a so-called bad bank to hold the toxic securities, an option that still may form part of the final package, people familiar with the matter said. Senator Charles Schumer yesterday said debt guarantees are becoming “a favorite choice” of options because a bad bank would be too costly. ..."

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=arG13cCBPnHY&refer=home

I wonder how much longer it will take the US to realize that the government can buy the defaulting homes instead of just pay off the defaulting mortgages and have nothing to show for the same cost! (Or slightly lower cost as no new insurance corp. to set up)

Billy T: DAM IT; DO MY PLAN as in the OP.

"... {new limits on Bonuses, etc.} won’t be retroactive to companies that have already taken rescue money, although those companies must agree to strict monitoring and oversight, ..." - http://www.bloomberg.com/apps/news?pid=20601087&sid=a7RNlu85M_m4&refer=home

OK, but let’s have the IRS go over their CEO et. al. tax returns for the last 7 years with a fine tooth comb; IF their CEOs, etc. do not "voluntarily" return ALL "over the limit" bonuses, golden parachute, etc. funds to their companies.

I would like to send some go to jail, like Dillinger who was never convicted on any crime, except for IRS rules he violated.

I wonder how much longer it will take the US to realize that the government can buy the defaulting homes instead of just pay off the defaulting mortgages and have nothing to show for the same cost!

Billy, isnt that exactly what the government did in the 1930's...bought the defaulting mortgages ONLY and reset them for lower monthly payments?

Billy, isnt that exactly what the government did in the 1930's...bought the defaulting mortgages ONLY and reset them for lower monthly payments?I do not know my history well enough to answer but I am suggesting the FHA buy houses, not mortgages.

I.e. when house does not draw any bid at foreclosure auction as large as the unpaid mortgage, it is not sold for less, but taken back by the bank (or holder of the mortgage). This all exactly as it is often today. I.e. house ownership reverts back to the bank. Now the bank has the option of sending title (deed) of house to FHA and bill for the unpaid mortgage balance - knowing that bill will be paid and FHA become the owner of the house. Or the bank can keep ownership and hope that the housing market improves and they can sell for even more than the unpaid balance later, but few bamks will do this as banks are not managers of rental property and want to get money to lend or invest - that is their business.

FHA and current occupant try to agree on monthly rental (not much below the going market rate). If they can - good. If not, then current occupant has up to 12 months to find home he can afford to rent, and the rent he should have paid for the months in which he lived in the house while looking (12 months or less) is like a small 5-year mortgage for him to pay to the FHA.

I.e. the FHA (US tax payers) gets real rentable property, not toxic trash, AND the house does not go on the "for sale" market to continue depressing the price of all other houses. This helps the local government not lose so much in real estate taxes and is very desirable socially compared to immediate eviction.

I.e. This should almost eliminate "eviction rage" destruction of homes.

Also as explained in the OP, the current "over his head in debt" home owner can also just sign over the deed to the FHA, which pays off the mortgage holder (to clear the title) and walk away debt free.* His doing so saves all the expense of the auction. To encourage this, the FHA may send him a check years later when it does sell the house, if the FHA has fully recovered for the tax payers the mortgage paid and interest lose on that money if it had been put into 30 year T bonds. I.e. all above that is the value of the check later sent to owners who walked away after deeding house to FHA.
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*If he just walks away, without going thru formal bankruptcy (few walkers do), then the mortgage holder can come after him for the rest of his life! This alone is good reason to send FHA the deed to the house, even if there were no hope of getting a check years later from the FHA.

Billy T: DAM IT; DO MY PLAN as in the OP.

I do not know my history well enough to answer but I am suggesting the FHA buy houses, not mortgages.

The government doesnt want to own deeds anymore than the banks do...so why wouldnt it be simpler just to buy ONLY those mortgages that are in default and reset the rates?

The government doesnt want to own deeds anymore than the banks do...so why wouldnt it be simpler just to buy ONLY those mortgages that are in default and reset the rates?That would work just fine, but is essentially impossible to do now without 100 billion or more in legal fees.

The mortgages are not owned by one person or firm anymore. They have been sliced and diced a 100 times in different ways to be distributed over many separate complex tranches (even "squared tranches" or “tranches of tranches”).

I bet to buy back 100% of Foolish Fred's mortgage, it would cost more than FF’s mortgage because:

Goldman Sacks Tranche ca 125 owns 0.003% of FF's mortgage and Greedy George owns the highest risk level of ca125, etc.
Goldman Sacks Tranche ca 126 owns 0.003% of FF's mortgage and Timid Tom own the low risk (first to be paid) level of it etc.
...
Morgan Stanley’s MS 28 Secure Trust owns 0.001% of FF's mortgage.
etc . for a few hundred other tranches and tranches squared, etc.

That is why they speak of buying "toxic trash" contracts, not individual mortgages.

It all reminds me of the scheme sometimes used to block a road. A small critical parcel of say only one acre is sub-divided into 10,000 lots each of 0.0001 acres and sold to 10,000 different owners for a dollar each. - Then the cost of the eminent domain court cases is more than the cost of the road.

The Am Bar Assoc. thinks your idea is the best! :)

Lucky Lou was in over his head, just like FF was but then he won the state lottery and is paying his mortgage to the collection agancy, CA, every month. CA take his $1050 payment, deducts its $50 processing fee and than sends electronically $3 each to the accrual accounts of GS ca 125 and 126 .... and $1 to MS28 Secure Trust, etc.

I.e. it is simple with computers and electronic fund transfers to distribute money, but impossible to un-bundle the mortgages out of the many and complex tranches, especially if even one owner of a tiny part of one sub risk level of one tranche does not want to sell back his interest.

Billy T,
I do not know my history well enough to answer but I am suggesting the FHA buy houses, not mortgages.
Billy, you are still suggesting the government buy the mortgages from the banks, based on the amount owed on the mortgage rather than the market value of the house. The government, i.e. the taxpayer, is over paying for the piece of property, they assume the loss rather than the bank that held the mortgage.
FHA and current occupant try to agree on monthly rental (not much below the going market rate).
How much should the rent on a $200,000 mortgage investment be? What if the market value of the house is $150,000 instead of the $200,000 invested? If the current occupant defaulted on his loan payments, why would you think he would not also fail to make his rent payments?

You do realize the government (the taxpayer) would also be responsible for upkeep and repairs, local real estate taxes, insurance, etc. on a rented property?
If not, then current occupant has up to 12 months to find home he can afford to rent, and the rent he should have paid for the months in which he lived in the house while looking (12 months or less) is like a small 5-year mortgage for him to pay to the FHA.
That is just extending to another cycle what many freeloaders have already done. They bought homes with no money down, drew equity out of the house via inflated valuations by crooked appraisers, used some of the money from withdrawn 'equity' to make a couple of payments, lived in the house for months until they were four months behind in payments, and then lived in the house a few more months while the mortgage holder went through an expensive and slow foreclosure process through the courts. So you propose the government (the taxpayer) should let them live in the house another 12 months rent free?
This helps the local government not lose so much in real estate taxes and is very desirable socially compared to immediate eviction.

I.e. This should almost eliminate "eviction rage" destruction of homes.
Real estate taxes must be paid to local government on the house regardless of who owns the house. If the house is in the occupant's name, he is responsible for the taxes, insurance, and upkeep. If the house is in the FHA's name while rented, the government (the taxpayer) must pay those expenses. I don't know how you define "immediate eviction" as a foreclosure and eviction is a lengthy process, undertaken when the homeowner is months behind in his payments. It is no 'surprise'. The "eviction rage" would still presist when the government kicked the occupant out of the house, after 12 additional months or whenever.

I tend to believe the 'best' solution would be to give the homeowners a low interest rate refinancing, backed by the government (the poor taxpayer again). That way those homeowners that have income will have a much more affordable payment. Unfortunately, people without jobs and those that lied about their income to begin with may not be helped by cheaper mortgages. The government (the taxpayers) will provide unemployment benefits to those that lost their jobs and wellfare to those that do not work, but it is not our responsibility to provide new homes for them to live rent and payment free.

I.e. the FHA (US tax payers) gets real rentable property, not toxic trash, AND the house does not go on the "for sale" market to continue depressing the price of all other houses. The prices of houses are too high. There was a real estate bubble, a severe one. If the government attempts to prop up these bubble prices, it will do harm.

In your plan, the government is apt to end up owning a very large number of houses for many years, which it will be unable to rent for enough to cover its ownership costs (the bubble price of houses outpaced rents for the last few years of the bubble). This will be a serious mess. The Fed should sell the houses at market.

The part of your plan where the homeowner simply hands the deed to the feds, who then bail out the bank for its mortgage, seems possible - the taxpayer absorbs the bubble loss when the house is sold, but the taxpayer is getting shafted here regardless. But the whole negotiated rent, bank tries to sell at auction, etc, looks like a can of worms.

The prices of houses are too high. There was a real estate bubble, a severe one. If the government attempts to prop up these bubble prices, it will do harm. Agreed, but I am not trying to "prop up" bubble prices. Just trying to stop the slide down about at current prices - down ~25% now and dropping ever faster as it is now feeding on its self. I.e. some "strong hand" needs to buy and keep the homes with defaulting mortgages off the re-sale market for a few years.

In your plan, the government is apt to end up owning a very large number of houses for many years, which it will be unable to rent for enough to cover its ownership costs (the bubble price of houses outpaced rents for the last few years of the bubble). This will be a serious mess. The Fed should sell the houses at market.The number of defaulting homes is still relatively small fraction of all. In case you have not noticed: It already is a "serious mess." I am just trying to keep it from getting worse.*

The part of your plan where the homeowner simply hands the deed to the feds, who then bail out the bank for its mortgage, seems possible - the taxpayer absorbs the bubble loss when the house is sold, ...No, bold part is not quite correct. First because no one knows if the future sale will cover the price and loss of interest on purchase (opportunity cost) and expenses while renting. Secondly the FHA pays ONLY the un-paid mortgage balance, not the "bubble losses." The "bubble losses"are "paper losses" that could have been profits IFF the owner had sold at the peak. For example:

If the bubble loss are now say 30% down from peak of the bubble and owner bought a few years prior to the peak with 90% of price as the mortgage (Roughly a typical case as many thought 90% loan would be well cover by the rapid rise of home prices then occurring. "No money down" loans came later.) then he has lost approximately all of his "paper gain" during the bubble collapse. (ASSUME EXACTLY his paper gain is lost to keep it simple.)

Perhaps the mortgage still unpaid balance is now 85% of both what he paid and the current "market value." In this case the FHA would be lucky to get his house at 85% of current market value. Only reason FHA would not get the house is that private buyers fear that next year the "market value" may be more than 15% lower still, so they don't buy at current "market value." (As house did not sell at "market value" - I.e. there are no buyers but the FHA, you can rationally argue that the market value is lower, but the price at which the house will sell in a few days, or at auction, is called the "distress value." Some house have been sitting for sale for even a year as owner tries to get "market value.")
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* I expect my efforts to fail -i.e. a deep depression is coming, but I feel obligated to try as my grand children all live in the USA. Eviction, as below, is what I am trying to make less common.

http://media.economist.com/images/20090207/0609FN1.jpg

The US is now trying to lock the 18 billion dollar bonus barn door after the CEO bonus horse has escaped. It is bad idea to let the CEOs etc. keep their excesive self awarded gains. True they cannot be prosecuted under laws passed later, but the IRS does have a few "fine tooth combs."

Simply announce that every CEO and company executive who collected more than now permitted amounts will either refund the excess to their company or come in for a detailed IRS review of his last seven years of tax returns.

Dillinger was never convicted for any crime except tax evasion and back then, in the pre computer age, the IRS combs were not nearly so fine. I am confident that 99% of the excess bonus collecting executives will not want the IRS to comb thru seven years of their tax returns with the modern tools.

Let's help companies get some money back from those who profited, not from their victims, the tax payers.

SUMMARY:
The IRS should "Dillinger" those that do not "voluntarily" refund the excess of the collected bonuses and golden parachutes to their companies.

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Collecting from hard pressed companies as suggested below is a bad idea without first collecting from the over paid executives as above would achieve.

"... Another adopted amendment would require financial institutions that take money from the TARP program to repay the cash portion of bonuses topping $100,000 that were paid to employees for work last year. “This amendment makes it clear that it’s not enough to say that the excessive bonuses are wrong -- it requires that companies pay those bonuses back to our taxpayers,” said Senator Ron Wyden, an Oregon Democrat. ..."

FROM: http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=a1RKDNnACm2Y

Tomorrow Geithner has promised (again) to give details on his plan, but like Paulson's, it too will fail as a real cure for mortgage based toxic assets must:

(1) Restore liquidity to financial system. (Make the toxic paper worth face value.)*
(2) Get Joe American into housing he can afford.
(3) Transfer real assets, not toxic trash, to Uncle Sam.
(4) Not significantly increase US’s already excessive debt.
(5) Prevent repetition of the problem.

Here is a summary of my plan, which relatively cheaply achieves all 5 objectives:

Have FHA buy (for price of unpaid mortgage balance) ALL homes going to foreclosure that do not sell for that amount (and then usually** rent back to occupant) instead of trying to sell these "toxic assets" to investors. This makes ALL mortgage based assets non-toxic as ALL mortgages in the tranches will be paid in full. These now valuable* assets can be sold by Banks etc. to raise funds for new loans, etc. – A perfect and cheaper antidote.

“Cheaper” as most mortgages in the tranches are being paid. – No need to buy or find buyers for ALL the mortgages in the tranches. It also avoids needing to set any value on the toxic assets. Also keeps these houses off the "for sale" market for a few years. (Stems the slide down of home prices.) Tax payers get real, rentable assets for their dollars with probable capital gains in a few years, not “toxic trash.”

Even the cost of foreclosures (typically more than $10,000) can and should be avoided: Underwater owner simply sends deed and mortgage to FHA, which pays off mortgage, month-by month, and takes title to house. If owner just walks away he remains in debt. Also a few years later, when FHA sells house back to private owner with capital gain, 50% of “excess profits” after recovery of ALL costs, including interest on the FHA’s investment plus (rent – repairs, etc.) are returned to the original owner to encourage him to avoid foreclosure losses. This route to becoming debt free plus the hope for some eventual gain will make most under underwater owners who cannot pay send title and mortgage directly to the FHA. This permits the FHA’s cost to be spread over all the remaining years of the mortgage instead of paying full mortgage balance at a foreclosure auction - another reason why this plan is superior way to met all five objectives above.
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*Actually slightly more valuable than owners of the tranches had hoped as the tranches had an assumed default rate in their structure, but the default rate is now zero with FHA making the monthly payments.

**If the current owner cannot even afford to rent the house he was trying to buy, he pays FHA what he can to live there for up to 12 months while looking for housing he can afford. (If need be, only a rented trailer.) The unpaid part of his fair market rent accumulates as an FHA extended line of credit, which he must pay back with market interest over next five years. Thus, it is in the former owner's interest to relocate as quickly as he can. This helps to avoid "eviction rage" which via smashed toilets, burn holes in rugs, etc. usually costs many thousands of dollars to fix. It also helps the former owner to keep his dignity – the neighbors need not know he sent deed and mortgage to the FHA and moved away.

See OP for more detailed discussion of how the five objectives are achieved at:
http://www.sciforums.com/showpost.php?p=2025940&postcount=1

Also see letter I sent to Obama at:
http://www.sciforums.com/showpost.php?p=2095292&postcount=11
That post gives a suggestion built on Gresham's law to avoid inflation while stimulating economy (and six other advantages, including great reduction in import of hard drugs) in a quick summary.

Also keeps these houses off the "for sale" market for a few years. (Stems the slide down of home prices.) House prices are bubbled - they have to slide. They should be lower, five years from now, than they are now.

Your plan attempts to prop them up.

Your plan also overlooks the variable rate mortgage setups behind many of the defaults - if the Fed doesn't pay them, the financials remain trash. If it does pay them, if pays a fortune for the house.

Fixed rate mortgages for which the holder owes no more than the current market price of the house are not defaulting at high rates.
Tax payers get real, rentable assets for their dollars with probable capital gains in a few years, not “toxic trash.” The taxpayer gets either the ongoing cost of landlord ownership of a money-pit followed by loss at sale, or a permanently bubble-priced housing and rental market impossible to break into with ordinary income and sound mortgage lending practices.

Your plan works if the loss to the taxpaying public is recognized and allowed for - the government should plan to lose tens of thousands of dollars on each of these houses it acquires, and needs to budget accordingly.

(1)House prices are bubbled - they have to slide. They should be lower, five years from now, than they are now.
(2)Your plan attempts to prop them up.
(3)Your plan also overlooks the variable rate mortgage setups behind many of the defaults - if the Fed doesn't pay them, the financials remain trash. If it does pay them, if pays a fortune for the house.
(4)Fixed rate mortgages for which the holder owes no more than the current market price of the house are not defaulting at high rates.
(5)The taxpayer gets either the ongoing cost of landlord ownership of a money-pit followed by loss at sale, or a permanently bubble-priced housing and rental market impossible to break into with ordinary income and sound mortgage lending practices.
(6)Your plan works if the loss to the taxpaying public is recognized and allowed for - the government should plan to lose tens of thousands of dollars on each of these houses it acquires, and needs to budget accordingly.
1) During GWB´s 8 years, house prices dramatically rose and, except for the wealthy, real incomes declined, so I tend to agree a major correction downward in home prices was (and is still?) needed; however it is hard to know where it should stop. My plan does not prevent further decline – if you think so, then you do not understand it. My plan will terminate the negative feed back that foreclosed homes (prior owner becoming a renter) being dumped on the market (excess supply) is making.
If that continues, then one can be sure there will be serious “undershoot” of the correct price level that supply and demand would otherwise determine. Demand for owner occupied homes should be mainly the net of new family being formed plus homes destroyed for various reasons (fire, in way of new road, excessive age, termites, etc). Supply should be mainly new construction, not foreclosures forcing owners to become renters. As few are building new houses, currently supply is mainly via foreclosure. (People moving, selling one, and buying another can make local shortage or excesses, but are not really making net new supply.)

2) No, that is false. It only terminates the negative feed back that causes the correct supply demand set price to be “undershot” as discussed in reply to (1) Again: My plan does not prevent further decline

3) The FHA will always pay off mortgages. (That is what makes mortgage based “toxic trash” worth slightly more than the owners had even hoped. - They were expecting some default rate.) If the interest reset is excessive, the FHA just pays off the balance (or uses its market power to renegotiate). One beauty of my plan is that in most cases, the cost to the government is spread over 20 + or – 10 years and not all in 2009.

As explained in post 66 (paragraph I just made blue for your), almost all “under water” owners will not let their house go to foreclosure auction, but will just send deed and mortgage to the FHA. Buying at foreclosure auction adds at least $10,000 of needless cost to society and forces the FHA to pay off the balance at foreclosure, not over many years. In many cases the FHA mortgage will not be fully paid when the FHA sells house back to private owner, at least at a nominal profit. (Assuming the rent covered the interest on capital and repairs. – Normally the rent does this AND provides a profit – why land lords exist.)

4) Agreed. Another reason why my plan costs tax payers much less than buying toxic assets at a price the financial industry can accept. No need to pay (indirectly) for the majority of mortgages in the toxic trash as they are being paid by the house owners.

5) No. The rent should at least break even while FHA is owner – most land lords make a profit. True, if the FHA were to sell back to private ownership in next few years, there is a good chance the price paid would not be recovered. Ideas is for FHA to hold until inflation and the pent up demand (builders are not building number of needed houses when economy has recovered now) allows FHA to at least get out even. When builders resume building, the FHA starts un loading, but not so quickly as to kill the builders – they make a essential part of a healthy economy as houses have a finite useful life and only if the population is decreasing are they not needed. - European builders do face this problem, but not in the f***ing USA. If there were fewer babies being made in US, then the demand for house would also drop – young couples could more easily “break into the home owner class” – again, the “correct” price is set by supply and demand.

We need to get rid of population growth (a positive feed back) just as much as we need to get ride of the negative feed back (foreclosures force owners to become renters). I.e. get to a more stable cost of housing in real terms and end the bubble / burst cycles.

6) GWB left Obama with a big economic mess. It will be expensive (and painful to many) to fix. My plan for housing and the associated mortgage backed toxic trash may even be a net cost to the taxpayer and not the eventual profit maker I expect it to be as an investment in America´s future. Certainly, it is a hell of a lot cheaper than what seems to be planned and importantly the cost is spread over more than a decade, not a crushing expansion of the debt in 2009.

US Treasury's illustration of Geither's plan (with two blue inserts by Billy T):

Step 1: If a bank has a pool of residential mortgages with $100 face value that it is seeking to divest, the bank would approach the FDIC.
Step 2: The FDIC ... would be willing to leverage the pool at a 6-to-1 debt-to-equity ratio. {lend buyer* 6$ for evey one of his}
Step 3: The pool would then be auctioned by the FDIC, with several private sector bidders submitting bids. The highest bid from the private sector – in this example, $84 – would be the winner and would form a Public-Private Investment Fund to purchase the pool of mortgages.
Step 4: Of this $84 purchase price, {if accepted by asset owner} the FDIC would provide guarantees for $72 of financing, leaving $12 of equity.
Step 5: The Treasury would then provide 50% of the equity funding required on a side-by-side basis with the investor. In this example, Treasury would invest approximately $6, with the private investor contributing $6. {In addition to lending 6 to 1, tax payers also match tha buyer's investment!}
Step 6: The private investor would then manage the servicing of the asset pool and the timing of its disposition on an ongoing basis – using asset managers approved and subject to oversight by the FDIC.

Billy T’s comment:
The bank or owner of the toxic assets has option to not sell if price is too low. If bid were to be 84% of face many would be happy to take the 16% hair cut, but some would not. (Would hope that housing recovers and can either (1) sell foreclosed properties at a profit or (2) there will be no foreclosure and then they get zero hair cut as the mortgages are being paid. Certainly will offer the worst "dogs" they have first and see what bids they draw.)
From the investor’s POV, buying asset at 16% discount from face and putting up only 6% of face as his own cash is not a bad deal. From taxpayer’s POV (assuming any profit is shared 50/50 with the investor and toxic trash is held until it recovers to face value) the risk of 72 + 6 = 78% of face for possible gain of 8% of face is not very attractive, especially if it will take a decade or more to get back to face value.
I expect that the winning bid will be closer to 42% of face than 84% of face. If this is the case, very few sellers will accept it. Then this will just be one more plan that failed. Unfortunately, it will be June before we know and economy may still be sinking into depression. Too bad my plan** has been ignored (or more likely never even noticed).

More details at: http://www.treasury.gov/press/releases/tg65.htm

The "white paper"on program is at: http://www.bloomberg.com/apps/news?pid=20601087&refer=top_news&sid=ahWhEldj8090

The key paragraph there is:
"...The Public-Private Investment Plan: A Comprehensive Solution A key principle of the chosen approach is to use private capital and private fund managers to help provide a market mechanism for valuing the troubled assets. By creating partnerships with private investors, this approach should serve to both protect the interests of taxpayers over the long-term and help restore liquidity and enable price discovery in the markets for troubled assets in the short-term. ..."
The hidden assumption here is that investors will pay high enough price for owners to accept.
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*Some private lender may provide buyer with cash and then Treasury guarantees the loan if with buyer only having 1 of 7 dollars as his.
This is scheme with levergage and borrowing to solve problem caused by leverage and borrowing. :bugeye: :eek: :shrug:
**This thread with latest summary at: http://www.sciforums.com/showpost.php?p=2197527&postcount=66

To clearly understand why letting bidders set the price of the toxic assets can (probably will) screw the taxpayers, even if it "succeeds" see:
http://www.sciforums.com/showpost.php?p=2204127&postcount=206

Once again note that my plan (see post 66 for recent summary) WHICH DOES NOT REQUIRE ANY PRICE TO BE SET ON THE TOXIC ASSETS, is so much better than this latest government plan. It is cheaper and spreads cost over more than a decade. It solves the fundamental problem, which all of the government's plans (Geithier's included) ignore. It makes the toxic assets instantly non-toxic and does not require any new administrative body to run etc as Geithner's plan does.