Paulson: No bailouts for the "reckless"

A quick, important news item tonight from The Wall Street Journal: "The Bush administration is hardening its opposition to the chorus of Democrats, bankers, economists and consumer advocates calling for a big-money government rescue program for struggling homeowners."

This would be the "epic rescue plan" cooked up by Bank of America that The New York Times reported on last Friday.

More: "In an interview yesterday, Treasury Secretary Henry Paulson (pictured) branded many of the aid proposals circulating in Washington as 'bailouts' for reckless lenders, investors and speculators, rather than measures that would provide meaningful relief to deserving, but cash-strapped, mortgage borrowers."

Thoughts? Comments? Email story tips to peter.viles@latimes.com.
Photo Credit: AP

Comments

[Matt]

Wow. I am a huge Bush-hater but I think this is right on the money. The markets will work when housing prices return to historical norms. Until then any of these bailout plans will only delay the day of reckoning.

I support bailouts for people who were genuinely duped AND who are very old, severely disabled, etc. But otherwise a bailout is just a give-away to the banks and is an insult to the people who waited because they thought prices were too high.

[Rational expectations]

Gee, uh...:

Banks (to investors): "we have hit bottom, things will be rosy in 6 months"
Builders (to investors): "we have hit bottom, things will be chipper next year"
Lawrence Yun of NAR (to everyone who will listen): "we have hit bottom, things will be better in the spring"
All (to Congress): "help us!! we are in serious trouble"

Remember, these are the same guys who sold us, er ... bubble houses, bubble bonds.

[bottom line]

Uh, this is the same Paulson that knocked down $37 MILLION DOLLARS in 2005 running a share of Goldman Sachs before replacing the inept Snow in mid '06?

Net worth of $700 million?

Interestingly, at least for me, ol' Henry was an assistant to John Erlichman in the '71-'72 era. Faschism lives.

[sunsetbeachguy]

Well at least Buchco might get one thing right in 8 years.

[Jim Waggoner]

Paulson is right, it probably is correct that this bailout program would favor a lot of people other than just the beleagured homeowner. So what! It depends totally on what government is trying to accomplish. If the only goal is saving the 3-5% of families that are facing foreclosure, then it is bad policy. However, if you have a broader perspective and you want to save the econmy as a whole, then it makes much more sense. My vote is for saving the economy.

[Michael Snyder]

Matt
When are you going to learn. All government programs have their "title page" where the politicians "state their purpose & goals"and the rest of the document they don't talk about. It's the real money being spent back on page twenty that we need to worry about.
As a matter of fact it seems every time one of these bozos steps up to a microphone the manage to do damage to our economy. Just look at what Bernanke managed to do to the dollar yesterday. He holds out the prospect for more "Wall St crack" and the dollar reaches new lows against the euro. But the DJIA bounced for a few hours.
Talk about the jawbone of an ass. His ancestors would be proud if he didn't keep turning it on his own people. I can here the voices in his head now, "Not your people! Smite the Philistines! The Philistines you putz!"

[arroyogrande]

"My vote is for saving the economy."

Get this through your head. The economy has only been doing as well as it has (remember the term "Goldilocks Economy"?) because people have been spending more than they make for the past three years. We've had a negative savings rate since 2005, for gosh sake! People of all walks of life were using home equity loans to buy furniture, cars, boats, jet skis, flat screen TVs, vacations, nights on the town, cosmetic surgery, home improvements, etc. They were rolling over car loans over and over, owing more and more each time the bought a new car. They were maxing out credit cards, and still getting offers for new ones. All of this perceived "wealth" was based on phantom increases in "home equity", not on wage increases!

That was not sustainable! It was all a pyramid scheme to begin with, and now that that phantom wealth is evaporating, people want to "save the economy". Well, I have news for you. The only way to "save the economy" is to keep Americans spending more than they make by giving them even easier credit...the same policy that got us in this mess in the first place.

Does that sound like a sound policy?

It's time for Americans to stop being labeled Consumers and start being labeled Citizens. Stop buying more than you can afford. Start saving for big purchases and rainy days instead of using credit. Stop being mesmerized by Madison Avenue ad executives. And start taking responsibility for your purchases...including houses.

- arroyogrande

[left of lefty]

a bailout will happen. the administration will make a lot of noises about no bailout to its party faithful, but they will eventually give in, just like the tax refund, rate freeze, and the foreclosure timeout. the administration is just waiting for the sept/oct timeframe, when more of the general population will be paying attention to political news.

this is an election year. politicians will rather do something wrong, then not do anything at all. when they face the voters in november, it's easier to say they voted to help the economy (5 secs) than to explain why a bailout is a bad idea (1 min). the pressure to do something will be especially high if the polls indicate a close election, as it appears to be so far. the last fews time an administration did nothing to help the economy (the first bush in 1992, and carter in 1980), they lost the election.

remember that we're not just electing a new president, but a lot of the congress as well. and thousands of non-elected administration jobs are at stake. if the democrats take the white house, all of those jobs will be replaced.

as soon as a bailout appears likely (investors don't wait for it to actually happen), credit will loosen and we'll be back to the good old days of free lending. and there won't be a conforming cap anymore. that's why i think it is risky to bet on prices continue to fall further, especially if you've been waiting on the sideline for years. buy when you can afford, not when you think we've hit bottom. most of us are very bad at timing the market.

[LA Real Estate Dude]

The president says he favors modernizing the Federal Housing Administration and government-sponsored enterprises. Exactly what and when he intends to implement these changes would appear to be the bigger question. Mr. Barnake has stated a need for a "contingency plan" but he also feels that the economy doesn't need one just yet. All this posturing makes It hard not feel that Bush administrations politicking on the subject has something to do with the fact that the Dems, as well as bankers and economists, are the ones coming up with the alternatives. With 2 million families expected to lose their homes within the next year, the GOP might have a sinking ship on their hands that no amount of bailing out will fix.

[MyLessThanPrimeBeef]

Oh, too bad, this would have been BofA's new motto:

A little debt is a dangerous thing
go in deep
or you will not taste the bailout spring!

Me? I'm an old-fashioned kind of guy. I am more along the line of:

You should be very afraid
To get yourself into debt
And not save instead
For soon you'll be financially dead!

[John Larsen]

Matt: I support bailouts for people who were genuinely duped AND who are very old, severely disabled, etc.

Eh, I'm surprised the banks aren't on their own doing these things really. These people will be kicked out, the banks aren't having any luck at reselling a lot of places, so they are left with a decision of collecting SOME money versus collecting NO money.
This happened during the great depression, banks letting people live in their houses as an empty uncared for house quickly gets destroyed.

[Laker]

left of lefty: "...credit will loosen and we'll be back to the good old days of free lending. and there won't be a conforming cap anymore..."

lefty, free lending...if you have a ponzi scheme, and it is now collapsing, you cannot climb on top again in no time...You will need to build the pyramid from the bottom up, starting with the foundation. Look at interest rates...they are rising...the worst is yet to come.

[MyLessThanPrimeBeef]

Left on lefty, you are right. Don't you ever try to time your jump onto a 80 MPH bus coming down the freeway. That's for stock market day traders.

On the other hand, you should definitely give hopping on that 3 MPH people mover at the LAX a try. A lot of people have done it. That's more like buy a house.

[IToldu2CashOut]

arroyogrande for President.

[Dr. JwB]

arrroyogrande, one could take your argument even further: Is it even a good idea to try to sustain a false economy?

If a reset is inevitable, perhaps now is better than years from now when we've been artificially inflated even further.

[C. Huddle]

A friend of mine closed on a house in December. Lucky for her she had a good friend who was in the mortgage business. He looked over all the papers and pointed out all the overcharges, double charges, and illegal maneuvers the mortgage company she was going through (and the company she was buying the new townhouse from) included in the paperwork - several times. At the actual closing she had to insist on a fixed rate loan, while they were trying to tell her she had to take the variable rate loan (which cost $20 less a month). She is a very assertive person and stood her ground. Not everyone has a good friend in the mortgage business and is that assertive. I know there are lots of people out there who were duped. I agree that there were a lot of people out there who simply could not afford a home (and the mortgage companies ignored their inability to pay the loan, knowing it was going to be passed off to another dupe).