NYT editorial: Bring on the Bailout!
May 19, 2008 – 9:47 amToday’s top NYT editorial is full of socialism and sophistry. House prices are falling but buyers aren’t yet returning to the market. This means prices may continue to fall. That could compound recessionary pressures that the housing sector is putting on the economy as a whole.
There’s only one solution: “foreclosure prevention.” And there is “no excuse for delay.”
Personally, I would argue there is a case for outright neglect. Let’s call “foreclosure prevention” what it really is: a bailout by taxpayers for homeowners and lenders that made bad decisions over the last few years. I don’t even know where to begin to pick this editorial apart. Perhaps I’ll leave it to my critical thinking readers to find all the holes in this argument.
At the end of the day, the NYT is calling for a mild form of price controls, for the government to throw money at the housing market to keep prices from falling “too far.” Remember when Nixon experimented with price controls in the 70s? How well did that work out? (Ironic that Volcker went on record this week arguing that we must avoid repeating the mistakes of the 70s, lest we dig ourselves into a far deeper economic hole…)
Sometimes I wonder: is there a single problem facing American society that Democrats (hell, even Republicans these days) don’t believe can be solved with billions of taxpayer dollars thrown at it?
Has it occurred to anyone that freely available credit has enabled Americans (and certainly the Federal Government) to live beyond their means for some time now? Why is recession bad if it could mean we break this cycle of credit-fueled over-consumption?
Sometimes you have to let fire consume dead wood for the long-term health of the forest.
Editorial: Teeing up the Next Mortgage Bust
In responding to the subprime mortgage crisis, most Congressional Republicans and many Bush administration officials apparently believe they have time on their side. They are wrong.
The housing bust is feeding on itself: price declines provoke foreclosures, which provoke more price declines. And the problem is not limited to subprime mortgages. There is an entirely different category of risky loans whose impact has yet to be felt — loans made to creditworthy borrowers but with tricky terms and interest rates that will start climbing next year.
Yet the Senate Banking Committee goes on talking. It has failed as yet to produce a bill to aid borrowers at risk of foreclosure, with the panel’s ranking Republican, Richard Shelby of Alabama, raising objections. In the House, a foreclosure aid measure passed recently, but with the support of only 39 Republicans. The White House has yet to articulate a coherent way forward, sowing confusion and delay.
The fits and starts are harmful. The housing bust is in the downward spiral of price declines and foreclosures. Single-family-home prices dropped 7.6 percent from the first quarter of 2007 through the first quarter of 2008, the largest year-over-year decline since the National Association of Realtors began reporting prices in 1982. Conservatively estimated, 2.2 million homes will enter foreclosure this year. An additional nine million homeowners — those with zero or negative equity — are considered at high risk of default because they have no cushion if recession or inflation, or both, make it impossible for them to keep current on their mortgages.
Theoretically, when prices fall, consumer demand should rise, sending prices back up again. Unquestioning belief in that self-correcting mechanism is the reason many Republicans don’t want to do anything to prevent foreclosures.
But in many cities today, house-price declines are so severe that potential buyers are staying on the sidelines, fearful of further collapse. The result is declines that are deeper than need be to restore affordability. That’s everyone’s problem, because as long as house prices continue to fall, the financial system will remain unsettled and the economy will not revive.
And if house prices fall more than expected — a peak-to-trough decline of 20 percent to 25 percent is the rough consensus, with the low point in mid-2009 — financial losses and economic pain could extend well into 2011.
That is because a category of risky adjustable-rate loans — dubbed Alt-A, for alternative to grade-A prime loans — is scheduled to reset to higher payments starting in 2009, with losses mounting into 2010 and 2011. Distinct from subprime loans, Alt-A loans were made to generally creditworthy borrowers, but often without verification of income or assets and on tricky terms, including the option to pay only the interest due each month. Some loans allow borrowers to pay even less than the interest due monthly, and add the unpaid portion to the loan balance. Every payment increases the amount owed.
In coming years, if price declines are in line with expectations, Alt-A losses are projected to total about $150 billion, an amount the financial system could probably absorb. But until investors are sure that price declines will hew to the consensus, the financial system will not regain a sure footing. And if declines are worse than expected, losses will also be worse and the turmoil in the financial system will resume.
There’s a way to avert that calamity. It’s called foreclosure prevention. There is no excuse for delay.
Alt A resets? That’s the threat we need to save ourselves from with billions of taxpayer dollars? I imagine it hasn’t occurred to the economists on the NYT editorial staff that the Fed’s rate cuts have already significantly reduced the level to which interest rates will increase on reset.
Posted in Interest Rates, housing, media |
13 Responses to “NYT editorial: Bring on the Bailout!”
Another corporate conglomerate “news” oped aimed at misleading the American public (again). Haven’t we had enough of this shit yet?
By Chrysta on May 20, 2008
Let’s see: irresponsible lenders and investors lose money they recklessly gambled on real estate, people who irresponsibly bought homes they couldn’t afford lose those homes and their credit scores are lowered to reflect their inability to make responsible financial decisions, and housing prices drop to levels that would allow responsible people buy them without putting themselves in financial jeopardy. Sounds like economic sanity to me. Why would we want to prevent that?
By Anonymous on May 20, 2008
The most shameful thing, is that the Times cut off its feedback interface when the sentiment of the feedback was so dramaticly against the editorialist.
http://thelastgoodidea.blogspot.com
By Dead End on May 20, 2008
What about those that have been saving to buy a home? Their own tax money is used against their interests by propping up over-priced homes. Gosh, there is so much wrong with a bailout its hard to know where to start. Do we help the banks and greedy mortgage holders in the process? Is there a “Moral Hazard” to consider here? When is this generation of Americans going to be responsible for their own actions?
By Anonymous on May 20, 2008
I was one of those greedy investors who bought several properties with creative hybrids of every imagination. now 200k in plastic and walking from those properties….
BAILOUT??
hahaha we were greedy and deserve the 375 fico and the massive judgements, we all knew what we were doing DIDN’T WE?
we certainly did
By greed on May 20, 2008
Foreclosure prevention is the dumbest thing I’ve ever heard. As prices decline to become attractive at the current salary level, people will buy again. But until this happens, people will stay away from artificially inflated house prices. That is smart.
These forclosure prevention programs only prolong the housing bust, not cure it. Also keeps home prices high, where now consious buyers are very weary to risk high debt.
Does the Nat’l Assoc. of realtors sponcer this kind of propaganda?
By Victor on May 20, 2008
Foreclosure prevention is the dumbest thing I’ve ever heard. As prices decline to become attractive at the current salary level, people will buy again. But until this happens, people will stay away from artificially inflated house prices. That is smart.
These forclosure prevention programs only prolong the housing bust, not cure it. Also keeps home prices high, where now consious buyers are very weary to risk high debt.
Does teh Nat’l Assoc. of realtors sponcer this kind of propaganda?
By Victor on May 20, 2008
I propose we tell the times and the government to stick this foreclosure prevention measure where the sun doesn’t shine. Though I’m sure they’d stop accepting comments like the times did.
By Anonymous on May 20, 2008
Look at comments to the editorial though. Overwhelming negative sentiment toward the NYT position.
(Dead End, They always have a short window to leave feedback on their editorials. They were gracious enough to make my negative comment an ‘editor’s selection though
By Mark in SF on May 20, 2008
Hey, if this catches on (sticking the taxpayers with the bill) I’d like to propose the same thing for stocks - only not just for the Rich Guys at Bear Stearns - but for all of us Joes that take risks and when the tide moves against us, shovel the loss to the taxpayers.
We deserve a risk free society where things always work to our advantage. One of the cornerstones’ of the educational system that our government has fostered with the “no child left behind” is that we have lost the ability to think critically and we really shouldn’t have to be penalized for our short term thinking. I can buy a car that I can’t afford by showing a paystub. I don’t have to think. I figure if the bank is loaning me the money, I must be able to pay it back before I die, right?
By Anonymous on May 20, 2008
What prevents people from buying? Is it falling prices? No, its high prices.
When I buy a house, it will be a place to live, not an investment. If the price is right, I won’t care if prices are still falling.
If I have to move, and the market has plummeted since I bought, no big deal. I’ll lose money on the house I sell, but I’ll also get a lower price on the new place I buy in my new location. That’s the beauty of a large down-payment, it gives you flexibility in a delining market. But a large down-payment is only feasible with lower prices.
If I can’t withdraw equity, no big deal. If I don’t pay too much for a house, I’ll have a savings account and disposable income, and I won’t need to withdraw equity.
High prices, enabled by reckless credit, are the root CAUSE of the foreclosure crisis - not the SOLUTUION.
By Refuse to buy overpriced on May 20, 2008
No bailout. The funds to pay for this bill are going to be diverted from a fund to establish affordable housing. Doesn’t Congress see the stupidity of this scheme? Why not let the market work and bring prices down. This will help to lessen the affordable housing problem and reduce the tax dollars needed for it. I guess this makes too much sense.
Stealing from the responsible and prudent to bailout the reckless and foolish is wrong. No bailout.
By Anonymous on May 20, 2008
Hmmm…take money from an affordable housing program to prop up inflated, unaffordable housing prices. It’s just like the brain trust in DC to come up with such a stupid, self-contradictory idea. Ugh!
Government’s ham-handed intervention at this stage of the game will only make matters worse and prolong the recovery. Let the housing market correct itself. Everyone with an ounce of common sense knew that there was a housing bubble. Those who gambled, defied common sense, and got caught should pay the price. Those who patiently and responsibly waited for sanity to return to the market deserve an affordable home. That is fair.
By Anonymous on May 21, 2008