A Comment on the Bailout Bill

By Carolyn Betts, Esq.

I agree with every point in Bernie Sanders’ proposal but have a suggestion.

I worked with lead counsel to the RTC (the government entity that served as receiver for defunct savings & loans) in designing and implementing the sealed bid auction program for non-performing commercial mortgage loans during the S&L crisis. I also worked for FHA’s lead financial advisor in carrying out the Congressional mandate that HUD enter into “negotiated” sales of its nonperforming multifamily loans to state housing finance agencies. Based on what I saw in these contexts and in carrying out sales of pools of VA, Farmers Home and HUD performing and nonperforming single-family loans, both in auctions and in mortgage backed securities form, my conclusion is this: the Wall Street players made out like bandits, ultimately at taxpayer expense and borrowers were not helped.

I suggest we try another tack, in addition to what Congressman Sanders proposes: support the BORROWERS of the troubled loans, not the OWNERS of the loans. I believe there is a good chance that there is collateral and other fraud in these mortgage loan portfolios. I.e., loans with no properties to support them, multiple loans secured by a single property, loans used to launder money through government guarantees. This conclusion is based in part on the numbers, which don’t make sense, and upon observation of the number of HUD-insured loans that have gone into default before a single payment was received. If the lenders are just paid for these loans what is the theoretical value in a good market for these loans, assuming they are performing (i.e., above current market value), the lenders will get a windfall and be rewarded for making fraudulent and/or predatory loans. And the bailout as proposed will be a perfect way to hide the evidence of wrongdoing.

Would it cost anywhere near $700 Billion to have the government stand behind the borrowers’ obligations, in concert with a program to address unemployment/ underemployment and health care issues that are the primary sources of financial problems that cause these loans to go into default? I think not. I would impose a condition that the existing “problem” home loans in portfolio, and maybe also related home equity loans, be marked to decent rates of interest and reamortized over 30 or 35 years, with write-off of penalty interest, late fees, etc., at lender expense. Then, to the extent the borrowers still cannot make their payments but want to stay in their homes, have the government funding program (with a local-level administrator NOT controlled by those who caused the current crisis) make up the difference. Perhaps the government gets a lien on the property for only the amount of the borrower’s shortfall after a period of time during which the health care fix and jobs programs can take effect (say, 18 months).

I agree that the bailout bill will be a disaster, in so many ways I can’t even list them all. Allowing the market to crash, with all its consequences, would be better than giving away $700 billion + to the perps that brought us to the brink of world economic collapse. The longer we keep putting fingers in the dikes to avoid the consequences of bad decisions, money laundering and theft by the corporadoes, the worse the eventual flood will be.

12 Comments

  1. You are kind.

    I sent it to my senators (Brown and Voinovich) and congresswoman (Schmidt). The only one I heard back from was Sherrod Brown, who serves on the Banking Committee. I got a form letter reply.

    I urge anyone who would like to to cut and paste this and send wherever you like.

    Carolyn

  2. This is a wonderfully written explanation of a better way. I sent to many friends.

    I think many people are now immunized to the shock of what we are seeing and even though they are outraged they will not be surprised to see the bailout happen in some form. At this hour 11PM Eastern time we see the ‘talks’ have broken down maybe there is a tremor of fear that this won’t be the end and then the 700B will just be the beginning.
    Can anyone tell me what is the interest on 700 Billion dollars?
    Is that that the amount that the US treasury will eventually pay the Fed banks for the loan?
    Is that why Bernanke sits there whining saying save them (subtext- make us richer)?
    Have I got that right or wrong?
    Susan

  3. Dear Carolyn Betts

    Please contact Alex Jones http://www.infowars.com/
    I’m sure he would like to hear your story.
    Once you are at his site go to the contact button on the top and submit your story. People need to hear this. He has talked about Catherine Austin Fitts on his radio show. Don’t forget to put your phone number so that he may contact you!

    God bless
    Stevo

  4. Either way it’s still artificially propping up home prices. The “homeowners” who took the no money down loans and arm loans were basically renting without a landlord. They had not much to lose from the deal and for all we know they’re sitting on a stash of cash invested elsewhere. Why couldn’t free markets work? Giving money to the people who paid high prices at high interest rates supports those people to the detriment of those who had more sense but were outbid and cut out of the market. Free markets, let the hand of God figure it out.

  5. Edward:

    Our markets are not free. In the name of “free markets” Chicago School Friedman-ites have decimated social programs, privatized valuable national assets and brought down economies all over the world to the benefit of multinational corporations — Latin America, Russia, Bulgaria….

    Have you heard the Parable of the Talents from the New Testament? In this case, begrudging charity to others is not only un-Christian, but also bad economic policy. This is because if the “bad” or “subprime” loans are sold in the market, the buyers will foreclose. When the loan is foreclosed, the property will be trashed with no one living in it, the local municipality won’t get property taxes and the house will sit on the mark for months, going down in value, until it is eventually sold at a value that pulls down the property values of all the houses in the neighborhood. The banks are tightening their credit standards, so, between that and the lower appraisals, everyone in the neighborhood will have a hard time getting home equity loans and second mortgages. And so the cycle goes. If the people on the edge are given a little boost, their house never goes on the market

    What people just can’t seem to understand is that unless the least of us are able to get jobs at a living wage and have health care, we won’t make it as a society. MOST bankruptcies happen for one of three reasons: (1) divorce, (2) job loss) and (3) uninsured health care expenses (often by people who have insurance that does not cover the medical bills). It isn’t because people are lazy or go out on a buying spree with their credit cards. The problems of the working poor are spreading to the middle class now, such that middle class households with one or two earners willing to work full-time cannot support a modest house or apartment, heat, food and health care. Sometimes it is from unemployment or underemployment and sometimes it is just inflation, health problems and just dumb luck. MOST people in this country are living on the edge, so anything other than perfect outcome can throw us into the abyss. Our GDP cannot keep expanding when there is no one to buy products produced. When we send jobs abroad and cut back jobs to make the remaining workers put in more hours for less money, we are contracting the assets that can go into expanding the economy. Over the last ten or fifteen years, we have been tolerating this state of affairs by borrowing. It’s not the fault of the borrowers — it’s the system whereby all the assets are being sucked up by the top 2%. The robber barons have been successful in getting the poor and middle class to turn on each other, thereby distracting us while they steal all the assets. Don’t let them do that. We have to localize and stick together.

    –Carolyn

  6. Why don’t we all just stop making credit card payments & cut them off. they need our money & are thriving on the outrage without any penalties. if everyone stopped making payments, the whole country would have credit problems. GAME OVER. We have alot more power than we think. let’s use it.
    they planned to destroy us, so why not just stop the cash? and withhold automatic tax payments too. oh, and stop spending money as much as possible.

  7. I like Mr Henkels idea and Carolyn, you are a genious. However I believe it would have to be on such a mass scale to matter. Thats always our problem. We never see them coming. We are dumbed down by constant lies (media) Just like the gas problem. We could with enough critical mass stop that big time.
    Anyway Carolyn, you are a real sweetheart but im afraid its past the kill them with kindness stage.
    It makes sense to try to be a humanitarian but it has and is going to far. People are about to snap
    and are really going to revolt. The Crusaders were also cristian but not very merciful as an example.

    With all the genious’s in our country like Carolyn and Ms Fitts, look at our choices for
    for leadership.

    Its a World Banking cartel and the choices are really two sides of the same Federal Reserve International banking cartel coin and they want to remove all of us but that top 2%.
    may God save us.

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