Tuesday, August 28, 2007

Mortgage Bailout Unlikely as Media Outlets Unable to Find Sympathetic Victim

As the mortgage meltdown continues to get worse, Wall Street and politicians have started testing the waters to gauge just how much public support there is for some sort of bailout. Many bailout plans have been proposed which include hysterical calls for the Federals Reserve to drastically cut interest rates, the lifting of restrictions on GSE lending and legislation to fund some type of emergency fund with taxpayer dollars.

Here is one such amalgamation of interests calling for some sort of bailout:

Since the Congress and the President are at, or near, historic lows in the polls, neither Democrats nor Republicans can be seen to be bailing out Wall Street billionaires without risking another American revolution. So, strategies to create support for a bailout plan are focusing on the prospect of unfortunate families or children who may be subjected to the indignity of renting after a foreclosure. None of these bailout plans are likely to come to fruition, and here is why: There is not yet, and will not be, a "poster child" victim who elicits any public sympathy whatsoever.

Potential victims generally fall into one of the three following groups:

1. The unemployed are pretty much off the list of "poster children" right away, because they would be unable to make any payment and so, would be subject to foreclosure in any case.

2. Any employed family, able to make some "teaser" payment on an ARM, but facing a much larger reset payment, is also quickly crossed off the list for at least one of the following reasons:

  • The house they are living in is HUGE! Did you see the size of that house? Why should they get help to live in a house bigger than mine? And they have granite countertops and two brand new SUVs in the driveway!
  • Oh, look the teaser rate they can afford is more than I pay in rent. They should have no problem renting.
  • They weren't very good neighbors anyhow, I will be happy to see them go.
3. The elderly victim on a fixed income who somehow accumulated an unpayable $50,000.00 HELOC against an otherwise unmortgaged property: This victim isn't going to elicit much sympathy, aren't we already paying their Social Security and medicare? And if they got flummoxed by tricky mortgage lenders and finances, maybe they are too confused to be maintaining a house. A rental would be entirely appropriate, and they may be able to salvage some equity from a quick sale.

So with 99.999% of the population likely to be judged by the public as unworthy of a taxpayer bailout, the only remaining strategy for those supporting a bailout is to whip up economic fears in the general population. This is also unlikely to work because on Wall Street, fear and greed are often in a stalemate. Members of the financial community on the winning side of a bail out are likely to be stalemated by other members of the financial community holding the opposite position.

For every dollar of political contributions supporting a bailout, there will be another dollar supporting doing nothing. Gridlock at its finest.


4shzl said...

Excellent analysis. FBs will join the New Orleans underclass -- much written about, much photographed, much sympathized with -- but, at the end of the day (and decade), left mostly to their own devices.


EricInDC said...

Check out this Hillary Clinton mortgage bailout proposal at: http://www.hillaryclinton.com/news/release/view/?id=2730

My favorite part is the example she uses.

"New Hampshire resident Kristi Schofield joined Senator Clinton in Derry today. On July 31st, Kristi and her husband Paul lost their home of eight years in East Hamstead, NH because it had been purchased by the bank at a foreclosure auction. Yesterday, their mortgage company asked them to be out of the house in 17 days. They had planned to raise their three children and spend the rest of their lives in their home, but their adjustable rate mortgage payments continued to climb from $2,400 to its current level of $6,000 a month.

"We tried to do the right thing and continued to make the payments as long as we could with our savings and what earnings we had from unemployment, temporary and part time work. My husband had a good job, we had a great home. We were living our dream. Hillary Clinton is standing up today because she wants to help protect the American dream," said Schofield."

OK. Let's look at this closer. They owned the house for 8 years and their mortgage is jumping from $2,400 to $6,000 a month. In my book they don't deserve a penny. They must have used that house as their personal ATM for the last 8 years. Hillary certainly didn't get my vote by bringing them up on stage.

Anonymous said...

You need to update this - the bailout is proceding with the GSEs expanding their coverage. As a country, we're addicted to the government bailout for all perceived problems


ProblemWithCaring said...

I love this post.

But did we underestimate how NeoCons turn right wrong and wrong right?

Like I said, I still don’t think a bailout stands a chance in hell of going anywhere, but *IF* it does, the first thing I am doing in the New Year is calling a Countryfried Broker to buy that pre-War shack in El Sereno.