09-27-08, 06:37 PM #1
"Paulson's plan - do it or not?"
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:
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 the tax payers.
*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.
*** 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.
Last edited by Billy T; 03-10-11 at 05:54 PM.
09-27-08, 07:15 PM #2
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
09-27-08, 07:29 PM #3
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.
Last edited by Billy T; 09-27-08 at 07:36 PM.
09-27-08, 07:32 PM #4
what are you talking about?
the cost that the goverment paid to absorb loan of course
but over MUCH better terms.
09-27-08, 08:09 PM #5
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:
Last edited by Billy T; 09-27-08 at 09:29 PM.
09-27-08, 08:13 PM #6
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
09-27-08, 08:26 PM #7
09-27-08, 09:25 PM #8
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?
Last edited by Billy T; 09-27-08 at 10:06 PM.
09-27-08, 09:35 PM #9
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
09-27-08, 11:07 PM #10
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?
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.
* 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.
Last edited by Billy T; 09-27-08 at 11:25 PM.
09-27-08, 11:21 PM #11
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
09-27-08, 11:37 PM #12
09-27-08, 11:39 PM #13
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)
09-27-08, 11:50 PM #14
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).
09-28-08, 02:14 AM #15
09-28-08, 04:45 AM #16
Originally Posted by billy
Having the US government prop up a bubble in housing prices won't do anyone any good.
09-28-08, 10:55 AM #17
09-28-08, 12:15 PM #18
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.
*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.
Last edited by Billy T; 09-28-08 at 12:27 PM.
09-28-08, 05:49 PM #19
the thing seems to be misrepresented as bailout of Wall street. It is more likely a bailout of Federal Reserve.
09-28-08, 06:08 PM #20
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?
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