Happy long-weekend Friday to you, dear reader. I hope that this
email finds you happily heading in to a three-day weekend of rest,
relaxation and time away from the chaos of the housing and mortgage
markets.
Its been quite a week, and today is the icing on the cake as George
W. and Ben Bernanke both spent time in front of the press to
outline their views on the role of the government in the current
meltdown.
http://tinyurl.com/2tvort
To Bail or Not to Bail?
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There has been healthy, vociferous debate in blog-land lately (and
in the mainstream media) about the pros and cons associated with
the prospects of a government bail out. The people deriding any
potential government bail out say that it: penalizes responsible
citizens who didn't gamble, rewards the Casey Serins of the world,
increases the likelihood of the problem occurring again, and keeps
the market in its current unsustainable state. I can't disagree
there at all.
The proponents of a government bail out argue that: borrowers were
duped by unscrupulous lenders, exotic loan terms were confusing to
people, 2 million (or more) homes are at stake, and people will be
out on the street through no fault of their own. While I disagree
that borrowers weren't at fault (some clearly went after the
cheap money) I must sympathize with the families who fall in the
"duped" category. Regardless of your opinion on the bailout issue,
I hope we can all agree that seeing American families kicked to the
curb is never a good thing.
The Opinion
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While the hardest of hardliners cry foul over W's suggestion that
FHA be expanded; it seems to be a measured response to the problem.
I agree that the market is currently in an unsustainable bubble
that needs to deflate; however, there is a difference between letting
air out of a balloon and popping it over your brother's head. I
believe it is in the best interest of the general economy to see
an orderly wind down of home prices rather than a precipitous drop.
Opponents will argue that an FHA expansion requires tax dollars
from their "responsible" pockets to pay for the misdeeds of lenders
and culpable borrowers who fed in to the mania; a fair, but
over-stated opinion. FHA insurance is funded through the
collection of upfront and monthly insurance premiums paid by the
participants in the program. Only widespread default issues could
force the government to bail out FHA. By maintaining soundness of
underwriting in FHA this could be mitigated if not avoided.
Further, the expense associated with expanded FHA approval from a
tax payer standpoint is minimal when compared with the bail outs
and current subsidies provided to farmers, the airlines, and
foreign countries. If we are going to intervene on the behalf of
farmers, airlines, S&L's, the automotive industry and corrupt
dictators around the globe I hope that beleaguered US citizens get
spots in that hand-out line too.
While the argument against a bail out is clearly the correct one from
an economic/capitalist point of view; it is often argued in a vacuum
with out the considerations of past (and expected future) government
intervention in other arenas. To stand on the side lines here
would mandate a hands-off approach to all future crises, which
seems unlikely.
I'm Not Right
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I don't purport to have the answer, and I'd love to hear your
opinions on the subject too. Join the conversation here in the
below thread:
http://tinyurl.com/2tvort
More Great Reading
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Nouriel Roubini, an amazing economist, has some excellent articles
on the hazards of a bail out and what options are available to the
different government entities involved. I highly recommend his
blog, the RGE Monitor:
http://www.rgemonitor.com/blog/roubini
Thanks
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Thanks again for reading and being a member of the Blown Mortgage
familia. Please share this email with anyone you think could
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See you next week - enjoy the day off.
Morgan
blownmortgage.com
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