Banks want "an epic rescue plan"

Weekend reading, worth checking out, though I am sure it will not sit well with many of you:

--The New York Times notes the banks are now pushing "an epic rescue plan": "A confidential proposal that Bank of America circulated to members of Congress this month provides a stunning glimpse of how quickly the industry has reversed its laissez-faire disdain for second-guessing by the government — now that it is in trouble."

More: "Bank of America suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates. "We believe that any intervention by the federal government will be acceptable only if it is not perceived as a bailout of the bond market,'' the financial institution noted. In practice, taxpayers would almost certainly view such a move as a bailout.

The NYTimes reports that the Bush administration -- yes the same crowd that said "absolutely not" to a bailout earlier in the week -- "has expressed interest" in hearing about bailout plans.

Meantime the ever-alert Westside Bubble links to reports of another bailout in the making: This one for the homebuilders, in the form of a $10,000 tax credit for buyers of brand-new homes.  You may recall the homebuilders' lobby has been sulking, and withholding political donations, because it didn't get what it wanted in the first stimulus package.

"A substantial tax credit for home buyers is likely to be part of any second economic stimulus package enacted by Congress," Marketwatch reports. Who knew there is already a second stimulus package being discussed?

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.

Comments

[Steve]

Just goes to show you, save you are a chump, if you buy RE and stay in debt you win.

[shireen]

Ugh, that $10,000 tax credit for buying a new home just makes me want to throw up!

that is about all the analysis I can muster before I finish my cup of coffee.

blech!

[sunsetbeachguy]

Ahh, it burns...

The stupidity is burning my eyes.

Run every bum out of Congress that supports this deceptively marketed bailout that is in direct contravention of the peoples will.

They admit that!

[sunsetbeachguy]

Having said the angry part of my comments.

I would support an epic bailout IF, the Officers, Board Members and every Sr. Exec from a firm that utilized the bailout returned all of their salaries, options and bonuses since 2001 and paid 10 years of restitution to the government under Chptr 13 judge supervision.

In addition, give Hilary free reign to design their new regulatory climate.

Restore Glass-Steagall, adopt Lansner's suggested reform of reporting stated income directly to the IRS and letting Wal-Mart and anyone else into the banking business.

There is a price to be paid for the bailout and that is the price.

[silverfern]

I think it is time for tax payers to write their Congressperson. One letter is seen as representing 100 voters. You could email, but a paper letter mailed via the US Post Office is better. But do what you have time for, just please write your Congressperson if you do not want a bailout. A letter mailed to your local office will get there faster than to the Washington address (because of security processing, etc.).

U.S. Senators, Contact Info:
http://www.senate.gov/general/contact_information/
senators_cfm.cfm

House of Representatives, Contact Info:
https://forms.house.gov/wyr/welcome.shtml

[anon]

"Federal Homeowner Preservation Corporation"?

A "Resolutiion Trust Corporation" for the 21st century?

If that's the case, count on this becoming a reality.

[Joseph... the Real Estate Guy]

Investors, wall street, banks should be the only ones responsible for the meltdown!

Not the taxpayer!

[Sara]

I don't believe what I am reading! Bank of America floated this proposal? As a B of A customer that pays numerous fees on my accounts and holds a mortgage with the same institution, I am stunned and angered by this proposal. I am a financially responsible individual- the bank should be a financially responsible institution! In the end, taxpayers such as my self, paying what is grossly more than my "fair share" will shoulder the financial costs of the negligent financial institutions that gave credit to borrowers that did not qualify for it. I am livid! There is no better time to leave this bank, perhaps for my local credit union!

[CD]

Our Friend Ocrenter of bubbletracking.blogspot.com is now threatened with a law suit by a disgruntled home owner that wasOcrenter mentionned on his site. Title was -1/2 million discount and still no sale-. That is where we are folks. People telling the truth are slapped by the disgruntled fat cats with law suits. The guy does a fabulous job keeping track of sales in CA and inform us all on a daily basis. Please visit his site and bring him support. He has also a great story about the little Tokio lofts downtown LA.

[Dr. JwB]

I already wrote Boxer and Feinstein, and it made me feel better for about 5 minutes.

The 5 minutes are over.

[CD]

Thank you Peter for keeping the ' Bank bailout" on your post every day. Our local papers could care less. You are our " LOCAL HERO"

[NoWayinLA]

I'm as anti-bailout as anyone, but the bailout package being pushed by BofA is something I actually don't hate all that much.

The thing that could make it work is that "deep discount" the government buys the mortgage for. If the mortgage is $500k, and the house is realistically worth only $200k, then the bank could sell the mortgage at $200k, and they're still taking the loss they rightly deserve. The government finances that as a sensible loan that has very low risk, and collects a fee for insuring it. The idiot homeowner stays in the house, preventing urban blight and rising crime.

So why do I hate it? Because of the timing, and a total lack of faith in anyone involved in appraisals. The banks will no doubt sell the mortgages based on today's prices, which are still too high. That $500k house might be "valued" at $350k by today's useless appraisal methods. This means the bank basically does a short sale to the government, and the government finances another loan that's doomed to failure.

Tell the banks to tie sale prices to median incomes, and I'm on board.

[mbob]

Sliverfern is quite right.

A hand written letter is roughly equal to its weight in gold.

Congressional staffers regard such letters as the boiling point that a voter has reached. The theory goes that if a constituent will take the time and effort to write a page or so longhand, then they're already broadcasting their opinions to any who will listen.

My experience with writing to politicians strongly supports this idea.

[mark g]

ugh... what is the cutoff point to determine the home value and forgiving the dollar amount beyond that? Is that open to periodic re-adjustments or is this a one time transaction, still exposing those 'saved' to more devaluation in a declining market? Me thinks this is like putting padding on a bull in a china shop...

[Nonan]

"Just goes to show you, save you are a chump, if you buy RE and stay in debt you win."

Truer words have never been said. If it benefits the economy and GDP overall, then it will happen--regardless of how "fair" it is.

Looks like the very few people who hoarded their cash are not going to see the crash they are hoping for in order to buy a house at a deep discount. As the great sage Spock once said, "The needs of the many outweigh the needs of the few."

[Raul]

The Banks, the Real State people, deserve our respect, and they deserve better. They sold us a dream and they did a good job. We were all happy driving our nice cars, taking vacations all over the world, We were Rich, all we had to do was Refinance our house. Now guys that was real, You could feel it, You could taste it, was delicious, some of us sold our properties and retired young.... Those lucky guys are still living the dream. That was perfect, Every one was making money, We were all happy. And now I am asking You, what is wrong with bailing out our Banks?, We all need to cooperate and save our economy, nothing wrong with a little bit of inflation, we all get back to normal.... And you wait to see what kind of "Trip" they are preparing just for Us next.

[BottomFisher]

This is how Washington really works. Lobbyists paid by 'you name it industry' are at the door and phone of every elected person in DC. Thats who they listen to, and not us. The lobbyists have one goal in mind.....get this big money losing problem off their business and onto us...the taxpayers... who have absolutely NO control over Washington....and they will NOT STOP until they win and we lose, so we will be hearing bad plan after bad plan for the taxpayers until Washington finally caves in

[Anthrodiva]

Ok,

I wrote my letters this morning, to Feinstein, Boxer, Pelosi, Reid, Clinton, Obama, Calvert, and Bernanke.

Pony up, people

[Michael Snyder]

When I read this I had to finish my coffee and do a workout before I could comment without profanity. We're talkin' tar & feather time here.
It either takes a lot of chutzpa to purpose such an outrageous plan or these "moguls" are simply stepping forward to collect on a debt. After all, they've been paying for "representation" through "contributions" for years. Now they're simply seeking a "return" on their investment.

I periodically bombard our "representatives" in the Senate & Congress with my opinion and an admonition to follow blogs like this one in order to discover an informed grass roots position on the topics covered here. From the results I may as well be talking to a wall.
The political machine in California is deeply entrenched and quite comfortable with the perks provided by the special interest that run them like so many stringed puppets. Boxer & Feinstein are particularly egregious with a consistent record of espousing one ideal and voting another. I recall recent incident where Sen. Boxer made a big brouhaha (covered in this blog) over a bill relating to what's erroneously called a subprime debacle and she didn't bother to show up to cast her vote. But she did garner some "ink" & a little more name recognition. What's more if you call & ask I'm sure the voice on the phone will assure you Ms. Boxer is at the "leading edge" in finding a "solution to this crisis." What a crock! Ms. Boxer is likely being entertained by some lobbyist pushing for a bailout on our backs as we speak.
Sadly I don't see Congress being sensible without a level of public outrage that rivals our reaction to the Viet Nam War. Let's face it; any private enterprise staffed with such a gaggle of incompetents, liars & thieves would quickly fail in an open marketplace. An embarrassing percentage of our country's top leaders are either under indictment, in jail or former convicts. It seems more like a college educated street gang than the face of government for the world's first great experiment in democracy.

It's a shame the best our vaunted Fourth Estate can do is dig into the candidate's sex lives. We've all seen proof that marital fidelity has nothing to do with competence, integrity or honor in our current President. It makes salable copy, but it does nothing to fulfill the obligations inherent in the privileges granted by the Fourth Amendment. But I digress... Again...

The timing of this "revelation" indicates the financial "brain trust" is taking their cues from across the Atlantic. There is a huge difference between what England's done and what these bankers purpose. The nationalization of Northern Rock places the bank, its' assets and management entirely under government control with the profits going to indemnify the taxpayers against the short term losses incurred by this move. BofA's proposal is to dump the losses they expect to absorb in their purchase of Countrywide onto the backs of the American taxpayer while retaining control of the institution's remaining assets and management. Talk about monkey see, monkey do! Bankers figure if England can nationalize a bank, and Warren Buffet can tender an exclusive offer for the profitable portions of a failing business, then they can foist their losses on we poor dumb working stiffs and catch the back nine at Boca Dunes before dinner.
I'd also expect the Fed to quietly lift their restriction on the total percentage of deposits held by one institution in order to allow the CW/BofA deal to close. This will open the floodgates for another round of bank "consolidation" leading to tighter credit and more egregious abuses of consumers locked in revolving debt.

You'all enjoy a beautiful day, I'm going to hop on my bike and pedal off my frustration.

[CaptHowdy]

I agree with sunsetbeachguy.

Boatloads of money were made by the parasites on Wall Street during the bubble.

Let government hunt down and retrieve as much of that loot as possible before even considering bailouts. Why haven't we heard about upper ups getting personally ruined by this scam gone awry? I want to see the Skillings and Lays of this thing GO DOWN.

Then maybe, just maybe, we can think about something sort of resembling a bailout.

[nope]

NO

If this goes through, I'll be rioting in the streets. OMFG

[Gene J]

From the original article...
"Mr. Taylor estimated the government might end up buying $80 billion to $100 billion in mortgages. But he said the government could recoup its money if it was able to buy the mortgages at a proper discount, repackage them and sell them on the open market."

So the banks and investors will give away the loans to the governmant, then the government will repackage the dud loans that nobody wants and then sell them on the open market.And they will make money!

If these were such good loans why don't the banks sell them themselves on the open market???

As I see it the taxpayers will buy these loans at an inflated value and get stuck with them. This should be a non starter of an idea.

[ash molari]

Silverfern's email inspired me to make a handwritten note to senator boxer - it only took me a total of five minutes including sealing it in the envelope and putting a 41 cent stamp on it.

I urge you to do the same - even if there are 200 people reading this blog who take those five mins and 41 cents to write to their senators, this would result in 200 envelopes stuffing their los angeles office mailbox and her aides will DEFINITELY bring it to her attention - I have spoken to people who work as volunteers in political campaigns and they agree that this is how your voice gets heard. for all the publicity blogs have generated, the old fashioned hand written note still reigns supreme when it come to influencing policy

Bottomline - politicians are almost all very RICH (that includes boxer and feinsteinn) and they give two hoots about AMT or illegal immigration or housing prices since they dont have to buy the starter home, they are already living in their mansion. They dont care about AMT since most of their income is from capital gains/investments.

The ONLY thing they are scared of is losing voter support.

This is precisely why the anti-illegal immigration grassroots campaign was so successful in thwarting that bill last year.

Trust me, you will feel much happier and atleast get that temporary peace of mind from having done something about a topic so near and dear to your hearts.

[allen gillespie]

The builder sponsored $10,000 tax credit is even more outrageous than the bank bail out, since the only party benefitted would be the builder. This would lower the value of other homes in the area by $10,000 immediately and encourage builders to add supply to an over built inventory. For every home built under this arrangement, an existing home would be unsellable and ultimately foreclosed. Exactly what we don't need (unless we are a builder).

[silverfern]

Dr. JwB:

You are right; writing a letter to a Congress Representative makes you feel better for about 5 minutes. This morning, I wrote my _second_ set of letters to my representatives. It might not change anything, but then again, it might. At least I felt good for 10 minutes!

It might only be a drop in the bucket, but it is better than doing nothing. If enough Americans write letters about this, it just *might* change something about the bail out plan. One letter can be readdressed and rewritten to 3 representatives.