Tuesday, September 04, 2007

GWB, Our BIG BIG BIG Gummint Guy

He's at it again.

This time, he'll have the FHA "fix" the subprime problem. What he's REALLY doing is "fixing" a problem that Lehmann Bros. and Bear Stearns have (among others...)--and passing the cost on to the taxpayer.

Surprise, surprise!

...the Federal Housing Administration is going to guarantee loans for delinquent US borrowers. Set up during the Great Depression, the agency already acts to insure mortgages for low- and middle-income borrowers. Now anyone more than 90 days behind with their payments will get government-supported finance at lower, more favorable lending rates.

In other words, Washington is going to stall foreclosures by lending money to distressed debtors.

Bush is going to ask Congress to suspend – but only for "a limited period" according to the Wall Street Journal – a US tax provision that penalizes borrowers who lose their homes to repossession or who try to reduce the size of their loan by refinancing.
Meaning that the government's going to cut its own tax receipts.

...the US government – through an initiative led by the Treasury and the Housing & Urban Development department (HUD) – will identify home-buyers at risk of defaulting between now and 2009. For them, it will create "more favourable" loans, working with private lenders and insurers to reduce rates in the market and reverse the move away from higher-risk borrowers.
Put another way, Washington is going to underwrite the next two years of subprime re-financing, actively seeking out defaults before they happen .

Unstated is that the first and third provisions will take the 'nuclear waste' OUT of the CDOs sold by the above-named broker/dealers and held by their customers (or in their own name.) So the banks which made these loans as well as the 'bundlers' of those loans, will have a lot less damage-control (and balance-sheet damage) thanks to, guess who?

YOU, my friend, if you pay taxes.

SOURCE: The Rude Awakening Newsletter 9/4/07


Anonymous said...

And just think, if we'd maintained a level of government oversight on the banking industry we could have avoided this.

Who could have foreseen trouble, especially after that Savings and Loan thingie went so well?

The Asian Badger said...

This really sucks.

Anon..I've got news for you. No amount of regulation could have prevented clever lenders from inventing products to sell to stupid consumers.