it sounds much too sensible and it saves the day without harming the homeowners. Not a chance.

So, next thing, we'll bail out all folks who have a 20K bill on their credit cards? Why should people who paid attention and managed their finances have to subsidize those who didn't? That's an incentive for people to be stupid. People DON'T have to buy a house. They can rent until they have the funds to buy a house. Perhaps by giving up cable TV and Starbucks coffe to achieve the goal.

The issue is not that they got screwed, the issue is they never ought to have bought a mortgage way over their heads in the first place. So now you want to enable them to buy more house that they ever could have afforded or paid. Not unless you give everybody including me that deal. Why would you want a bottom to a market that has effectively priced most buyers out of the market. If the only way to afford the house is a negative amortization or interest only mortgage, they are better off renting. The only result of your solution is to make the banks richer.

Look at the logic of the article. How does it follow that weak home prices have made it difficult to keep up with the payments? What they mean is they can't borrow more in order to pay a payment they couldn't afford in the first place. Again, only banks win. Its sick!

...we pass laws banning "teaser rates" and regulating ARMs a little tighter? That would also be sensible, and guarantee your political opponent's coffers get a little more full.

Beyond that, home buyers should learn what asterisks are there for.

You can, of course, argue for no bailout.

What I'm saying is if you do bailout do it in a way that bails out homeowners.

In general they are the least culpable because they are lowest on the information threshold. When Saint Greenspan was telling people that variable rate mortgages were great; when all the bobbing heads were saying the market wasn't a bubble; when so many mortgages were sold with what amounted to false promises about them (showing graphs that didn't show the jumps in payments), yeah, while I don't hold homebuyers guiltless I do hold them more guiltless than the mortgage companies and investors.

And since the new bankruptcy act keeps it still easy for companies to go bankrupt, and makes it hard for normal people to do so, I think they deserve more help than companies also.

But I'm good with just letting everyone go under. I can live with that - as long as the banks, mortgage companies and investors also don't get bailed out. Hmmmmm.

The banks are as much at fault as the individual homeowner. Their predatory business practices have contributed to the problem at hand.

Ian is proposing a win/win scenario. Look into the S&L scandals of the 80's if you want to see a similar bailout on the other side of the class divide.

but at, say, a 50-75 year term?

As a CPA I think it is an excellent idea.

If! The failings that allowed the problem are fixed, and fixed permanently. For example, the S&L bailout: the core problem, still not fixed, is that deposits (up to $100k) are fully backed by the feds. I read somewhere (have no cite) that Britain's bank backstop system will refund 85% or 90% of your money lent to a bank that goes bust, but not the whole 100%. This cap puts the moral hazard back in the consumer's court; savers have a reason to examine a bank's quality if they might get shaved for $1000 out of a $10k CD.

Another example would be bailing out companies that are "too big to fail". It's only ok to bail them out if in turn they are broken up into entities "not too big to fail".

But we all know that this bailout would play out with no corrective action to the structural problems that created it.

if you've not bought a car (or similar large purchase) lately, perhaps you're not aware of the deceptive practices common to the finance business. i have little doubt that these home mortgages were marketed in the same way.

when buying a car these days, even if marching into the dealership with your own financing, the first question out of the salesperson's mouth is "what do you want your payment to be."

the marketing techniques discourage disclosure of interest rates, length of financing, actual price of a vehicle, price of a trade-in. having just gone through this with the elderly mother of a friend, i can see how easily folks can be swept up into the thrill of having something new for $X. it's not made clear that $X is for seven years, that the interest rate is 24%, that the trade-in was valued at $500 though booking at $2500. and yes, people should find out these things, but it is truly not easily done. i repeated "how much is the car how much is the car HOW MUCH IS THE CAR???" half a dozen times before the salesperson was willing to tell me the price of the car.

people entering into mortgages know, of course, the price of the house, but i am not confident that the realities of these ridiculous mortgages were made clear. and of course everyone should be educated, should do their homework, should be aware of the potential dangers in buying a home from these predators. sales pitches are standardized because they work. they are designed to play on the emotions of the buyers, to lure them in with promises and the joys to be had in home ownership.

the buyers are not blameless but i blame the mortgage companies more. they knew exactly what they were doing and i have no confidence that they would not entirely obscure the fact of rising payments, increasing interest rates, etc. in the interest of making the sale.

http://www.boomantribune.com/?op=displaystory;sid=2007/8/7/14446/18343

full post at link, monies received from corporate lobyist

Insurance Industry:
Christopher J. Dodd: $592,950
Hillary Clinton: $341,240
Barack Obama: $258,172
Bill Richardson: $91,183
John Edwards: $83,737
Joseph R. Biden: $61,325
Dennis J. Kucinich: $500

Pharmaceuticals/Health Products:
Hillary Clinton: $172,150
Barack Obama: $160,572
Christopher J. Dodd: $56,700
Joseph R. Biden Jr.: $10,500
Bill Richardson: $7,150
John Edwards: $6,758
Dennis J. Kucinich: $800

Health Professionals:
Hillary Clinton: $998,851
Barack Obama: $701,993
John Edwards: $254,297
Bill Richardson: $131,225
Joseph R. Biden: $74,050
Christopher J. Dodd: $66,250
Dennis J. Kucinich: $7,900
Mike Gravel: $1,000

Want a candidate who'll fight for workers and middle class folks instead of for the banks and Wall Street? Check out these campaign donation figures:

Hedge Funds:
Christopher J. Dodd: $726,950
Hillary Clinton: $703,600
Barack Obama: $652,105
John Edwards: $218,290
Bill Richardson: $85,900
Joseph R. Biden: $28,300

Securities & Investment:
Hillary Clinton: $3,330,325
Barack Obama: $3,156,174
Christopher J. Dodd: $2,200,916
John Edwards: $668,590
Bill Richardson: $351,000
Joseph R. Biden: $250,900
Dennis J. Kucinich: $750
Mike Gravel: $250

Commercial Banks:
Barack Obama: $607,259
Hillary Clinton: $492,725
Christopher J. Dodd: $352,500
John Edwards: $131,876
Joseph R. Biden: $102,250
Bill Richardson: $83,000
Dennis J. Kucinich: $225

Real Estate:
Hillary Clinton: $2,746,039
Barack Obama: $1,337,529
Christopher J. Dodd: $582,783
John Edwards: $500,870
Bill Richardson: $418,775
Joseph R. Biden: $328,784
Dennis J. Kucinich: $6,800
Mike Gravel: $300

Or so we now appear to believe. Each of us should work hard, upgrading our skills or otherwise we have only ourselves to blame for suffering displacement in the global economy. Meanwhile, we must be savvy consumers of medical services -- examine and select the right insurance policy, learn to self-diagnose so you can determine when you need to go to the doctor as opposed to when you're just overconsuming services, which is why medical care costs so much now. Read all the contracts that you ever enter into, because they almost certainly contain clauses stripping you of basic contractual rights, which in the case of disagreement will be settled by an arbitration firm selected by the company -- this probably isn't much of an issue with your phone company (though in the case of giving away personal information, it could become one), but could wipe you out if it's a construction contract for building a house or for that matter the insurance on your house. Because if you lose the arbitration, you voluntarily agreed to the procedure and you were just stupid. How you get a phone without agreeing to it is something I haven't figured out yet. Make wise investments for your retirement -- you have to be much much wiser than financial consultants, because the advice that you follow at 25 will turn out to have been misguided 30 years later, and you know, it's all your fault that you don't have a decent retirement. Why should you get something that the smarter people should get but maybe didn't. And if you're going to put $10,000 in a CD in the bank, you should investigate the bank's quality, after you've learned how to do research on bank quality. Oh, and by the way, make sure you don't neglect your children and be sure to follow politics or otherwise their problems are your fault, and politically, you're just a sheeple. Have I got all this right?

People who rely on professionals to change the oil in their cars, to dispense prescription drugs, to write wills, to do all the things in a complex society that no individual could do all of for yourself, will also rely on professionals to assist with home-buying. Neoliberal economists say that individuals take actions to maximize their own profit. It seems to me that those who followed the advice of the professionals as to how to do that are not morally culpable, unless losing is the only sin, and for neoliberals, it probably is.

I'd rather live in a complex society that benefits from specialization than on a subsistence farm where I need to know how to do everything that needs doing. For that we need more regulatory control than we have now, and some sense of what is reasonable to expect an individual to do. I get as individually chuffed as the next person in a competitive society when some nitwit is rewarded for nitwitery while I suffer from intelligence, but I don't see high moralism that punishes lots of people as contributing to the better society that I'd rather we have.

As a fix for now, Ian's proposal makes sense. I wish we would look at housing and lending policies to figure out what we want the society to look like and how to set up so that individuals can get there.