Banks pressuring Washington for big bailout

The banks are making their case, and the government is listening. From The New York Times tonight:  "Prodded in part by some of the nation’s biggest banks, the Bush administration and Congress are considering costly new proposals for the government to rescue hundreds of thousands of homeowners whose mortgages are higher than the value of their houses.

Which banks? "Bank of America, which is in the process of acquiring Countrywide Financial and has potentially huge exposure, has circulated a proposal to create a new federal agency that would buy vast quantities of delinquent mortgages at a deep discount and replace them with fixed-rate federally guaranteed loans. The bank warned that tightening credit conditions were leading to 'escalating levels of delinquency and default among borrowers' and 'an unprecedented number' of homes that would enter foreclosure.' "

Thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Hat tips: BG @ The God Blog, via email, and John, via comments.
Photo credit: Treasury Secretary Henry M. Paulson Jr. by AP

Comments

[amir]

Seething with anger...

Arggghhhghhhh!!!!

Somebody please vote a Republican into the white house. Oh wait... that is a Republican. D'oh!

[AL]

sure I am all for a bailout. but first, the bankers have to give back all of their salaries for the last 8 years. that includes bonuses. for all with the title of VP or higher.

oh, wait, at a bank, they are all VPs, unless you are a teller or a janitor.

still, no bailouts until you give back all your bonuses.

sounds fair to me.

otherwise, **** off.

[arroyogrande]

From the NYTimes article:

"Mr. Breakstone, a 42-year-old lawyer, and his wife, Lori, chief of customs agents at Memphis International Airport — who together earn more than $250,000 a year...Now the Breakstones are saddled with $4,000 a month in house payments, and $14,000 more in fixed outlays, including child support, car leases, taxes, consumer debt and utilities, using up the bulk of their income."

They are making $250,000 a year. Why are consumer debt and high car payments considered "fixed outlays"? I don't see why my heartstrings should be pulled for anyone making $250,000 a year just because they are used to spending more than they earn.

However, I do think that the government should find a way to use my tax dollars to bail them out, as it's "the nice thing to do".

“I used to think,” Mr. Breakstone said, “that I would pay the piper later and enjoy life now. I’ve totally reversed that view.”

However, soon he and others will know that they should have been planning to "enjoy life now, and have my taxpaying neighbors pay the piper later".
- arroyogrande

[M. and E. Steadmann]

How about an executive order to round up these banking executives and stick them in jail. This sub-prime "disaster" is looking more and more like one of the biggest, pre-planned rip-offs in history.

[david hass]

America has NO ONE TO BLAME BUT ITSELF for its coming misery.

Sad indeed, everyone needs to go and learn Chinese NOW.

[Willie]

Oh my gosh!!! I want a bailout too! What is there for those of us that make the right decisions, did not overstend ourselves, but are otherwise struggling to make ends meet. Prices for gas and necessities keep rising up, salaries cannot keep up and don't anywhere else to go to, but to feed our children Maruchan (cup-o-noodles) a couple of times a day and boiled beans in the morning to strech our meager budgets. I want and deserve a bailout too! Wuaaaaa, wuaaaaaa, wuaaaaa! I want a bailout, I want, I want, I want! Buah!!! I want a bailout, pleeeeeeeeeease! Cherry on top?

[JK]

My head is going to explode!

[Ann]

"Mr. Breakstone, a 42-year-old lawyer, and his wife, Lori, chief of customs agents at Memphis International Airport — who together earn more than $250,000 a year...Now the Breakstones are saddled with $4,000 a month in house payments, and $14,000 more in fixed outlays, including child support, car leases, taxes, consumer debt and utilities, using up the bulk of their income."

They are making $250,000 a year.
________

$250,000 is in the top 1 1/2% of ALL households in the US.

They shouldn't whine in public when in that bracket- it is exceptionally bad bad manners.

A J,D. degree is not a degreee in economics or finance.

If that couple divorces they would be screwed on making the payments - neither income could handle that house on their own. Stupid to buy more than you an pay for on one income if you could possible do otherwise.

Bet they voted for G.W.Bush and his daddy.

___________

RE: Why are consumer debt and high car payments considered "fixed outlays"? and the $14,000 more in fixed outlays, including child support, car leases, taxes, consumer debt and utilities

These are considered "fixed" because the bill will come every month for a set amount for a time certain (ie the debt is paid or ends.)

Child support - yes
Car leases -yes (and car loans too)
Taxes - yes
Credit card - yes

Utilities - NO. Shouldn't be called "fixed." They can reduce the electric usage ad dump the cable.

[jL]

I think in addition to commenting on this blog, everyone should email their senators and reps daily to vent our frustration and tell them "our story"

[MyLessThanPrimeBeef]

So, our banks are asking us for help.

In turn, we are asking our bankers - the real money people. And this is what they say -

From Russia: Niet!

From India: Naheen!

From China: Bu xu!

From Germany: Nein!

From Dubai: La!!!!!!!!!!!!!!!!!!!!!!!

From Mexico: Give me my California back!

[Michael Snyder]

Ann,
Dump the cable? How about getting out from under the BMW and the Hummer, learning how to cook, cutting back the maid and actually saving a few bucks since most folks are raising families on a quarter of what these two narcissistic bozos earn. The Breakstone's don't need a bail-out, they need bail.

As for the banks; we all know GWB will do whatever it takes to bail out his Wall St. buddies before he leaves office. The only questions are; when, how much and under what pretense. This administration still thinks they can "fix" this by throwing dollars at it. To quote Dick Cheney, "We're not running for anything."

There is no amount of "capitol infusion" from any source that can prevent the impending "corrections" not only in real estate, but commodities and stock pricing as well. All have been artificially inflated by a merry game of "hot potato" as traders bet on the future prices but add nothing to the value of the product. Stock values have been inflated by gutting companies to show "efficiency" and revenues once allocated to R & D or expansion are now diverted to dividends. As prices climb, wages are falling and something's gotta give.

I'm just tired of giving to "charity cases" that squander four times my annual income then have the chutzpa to ask me for a hand out. Perhaps they should cash out some of their Chevron shares...

[areles]

And so you all continue to miss the point.

You aren't bailing out homeowners, and you aren't bailing out wealthy bank presidents. You're bailing out the economy.

Does anyone know what happens when banks fail? Anyone?

[areles]

Further, does anyone know what happens to local economy when foreclosures rise? It is decimated.

While all of you suck on sour grapes and cheerlead the imminent depression (DEP, not REC), your roads are going to go unrepaired, your children's schools are going to shut down (anyone bothered to read this? http://www.latimes.com/news/local/
la-me-schools21feb21,0,3850513.story) , your jobs are going to be lost, and your savings accounts are going to dwindle.

An economic flush needs to happen, and WILL happen, no matter what the government tries to do. But to watch you all cheer it on out of jealousy and spite is, honestly, disgusting.

[Dish76]

At first glance, the negative-amortization refinancing / lien plan being floated looks like a fair idea because it doesn't involve taxpayer dollars. But if I were a homeowner underwater in a falling market, I would sell immediately after securing such financing. No dent to my credit and I get out of a bad investment for free. What bank in its right mind would agree to this?

[Michael Snyder]

areles,
I'm not missing a thing. We are the economy and we're tapped out! Where do you think the funds for this bank rescue are going to come from. The Wall St execs & traders who've gutted the economy or workin' stiffs making under $100,000 a year? Like it or not we're in for a bumpy ride and if B of A, Goldman & UBS tank in the process that would be the cookie crumbling. To continue enabling the financial practices of the past decade will only exacerbate their effects. If you're that worried about a run on a bank, buy some of the overpriced gold in the market and put it in a mattress.
BTW, gold knocking on $950 should scare the begeebers out of you.

[MattJ]

The question is, which mortgages and at what discount? First mortgages at a 50% discount would probably not end up costing the government anything over time; 2nd mortgages in CA at 5% discount would be a total bailout.

I'm in the 2nd depression, ITEOTWAWKI camp if the government does nothing, so I'm open to at least hearing the details.

[Bailmeout]

I would wager that B of A is looking beyond avoiding losses with its bailout plan; its looking to make a profit.

[MyLessThanPrimeBeef]

The choice is not between banks failing and government bailout.

The choice could be, among others, a choice between banks failing and bankers giving back their loot...or whoever is responsible.

Some also might say, looking at different things, it's between 3 years of sharp pain or 15 years of lingering disability.

In that respect, I think we owe it to the next generation, future generations...the children, think of the children. We must clean up this mess and not push one more problem into the future, like we are doing with Social Security, with the fiscal deficit, with the current account deficit, and with our national debt and our praviate debt...

Once upon a time, people in this great country worked hard and saved. When are we going to say, yes, we will sacrifice ourselves now, let the chip fall where they may and bite the bulelt so to speak, so our children don't have to become multi-lingual beggars?

[bailmeout]

Beware of Banks bearing Thrifts. (Sorry)

[MyLessThanPrimeBeef]

W I I, CYE?

Sorry, in English, What is ITEOTWAKKI, can you explain?

WAIANS. (Well, actually I am not sorry)

[peteviles]

MattJ wrote, "I'm in the 2nd depression, ITEOTWAWKI camp."

MyLessThan asked, "in English, what is ITEOTWAKKI??"

My humble guess (google) It's The End Of The World As We Know It.

MattJ is a real doom and gloomer, an ARDAG

[baruza]

Did you guys actually read the article? Breakstone paid for the cost of his short-sale. He's not asking for anything, just admitting he got in over his head and had to take a loss. No reason to get upset at him.

"For Stuart B. Breakstone, the problem hit home when he was forced to come to the closing on the sale of his eight-year-old custom-built house with a check for $65,000. The money, out of his own pocket, was to pay the difference between what he still owed on the mortgage for his home and the lower selling price."

As for the banks, there are definitely other options than just having the taxpayers absord this risk. The UK nationalized Northern Rock, and they expect to get their money back, through profits and returning the company public. If US banks want funds *now* to save the economy I say fine. Just give the federal government all your profits plus interest until the money's paid back.

[ray]

Instead of a passing a "bail out" legislation, pressure Congress to pass a "cram-down" legislation. The best of both worlds, take foreclosed borrowers, and lenders/investors through bankruptcy and make them eat the losses.

http://www.washingtonpost.com/
wp-dyn/content/article/2008/02/21/
AR2008022102687.html

Please see article.

[MyLessThanPrimeBeef]

TYP.

[Hugh]

When will the federal government bail me out of my credit car bills and car payments!?????????????

[arroyogrande]

"Did you guys actually read the article? Breakstone paid for the cost of his short-sale. He's not asking for anything"

It's not so much what Mr. Breakstone is asking for, it's they sympathetic "victim" tone that the reporters (Edmund L. Andrews and Louis Uchitelle) seem to be giving to the story:

"But millions of others are trapped in their homes." versus "have trapped themselves".

"restoring their freedom to sell or refinance" versus "restoring thier ability to sell without bringing money to the table".

"troubled mortgages" vs. "defaulting mortgages".

"Collie Tuttle...is caught in this bind...She put nothing down" vs. "Collie Tuttle, having put nothing down, was taking a risk that she might be caught 'underwater' on her house".

"They needed a bigger house than the one Mr. Breakstone had built." versus "they may have bought too expensive a house for what they could afford, especially considering that they their first house was financially 'under water'".

"Now the Breakstones are saddled with $4,000 a month in house payments" versus "Through their financial decisions, the Breakstones have saddled themselves with $4,000 a month in house payments".

- arroyogrande

[clapclappointpoint]

Did you guys actually read the article? Breakstone paid for the cost of his short-sale. He's not asking for anything, just admitting he got in over his head and had to take a loss. No reason to get upset at him.

Posted by: baruza |

Who's upset? These folks gambled and lost. Nothing to see. But excuse us if we aren't as shocked and appalled as they seem to be.
They say they spend $14000 in fixed outlays...uh huh....Are they fixed? Depends on what your definition of are is. The real question is, are they really burdensome outlays ?

Child support = nah - The family court judge bases those payments on earnings, not what your Christmas shopping budget was or was not. Also: Use a condom.

Car leases = c'mon. They are leasing, MORE THAN ONE, expensive (probably 6 cylinder +) car. They could buy smaller, used, outright and/or downsize to one vehicle. Myriad of options there.

Consumer debt = lol

Utilities = they can wear sweaters.

That, or the United States of America could halt all foreclosures nationwide for 3 months and then until further notice.

[Tombstone Realty]

Has Bank of America just considered not buying countrywide to begin with?

There goes your exposure.

Just say "We had No IDEA of the depth of Countrywide's negative loan balance when we agreed to this"

Yeah, total lie, but I don't see why *I* should have my government subsidize Bank of America's repeated dumb mistakes.

[ValleyResident]

So... people who made prudent decisions and did not overextend themselves now have to bail out the suicide risk-takers with their tax dollars? Something is wrong with this picture and we should not let it happen.... at all cost!!!!!

[TrojanDLA]

COMPLETE STUPIDITY.

Adding liquidity to the market DOES NOT help an underwater homeowner pay his mortgage and DOES NOT save his home. The home will still be foreclosed, except now the bank can make the government buy these loser over priced loans.

[Mike]

Sigh.

[liz]

ANGRY-so ******* angry about this!

The gov. needs to stay out of this.

I don't care if these people end up on the streets (which they will not, you can always rent) there should be no bailout.

These idiots (Banks, Buyers, middlemen) raised real estate prices artificially to the detriment of "real buyers"!

Real Estate is still an asset and why should these people be rewarded for their lies and overspending.

I wish I would have known this I would have bought a house for 2 million, told the bank I can only pay so much and live in it, enjoy it and wait till it goes back up in 5-10years. That's a great deal!!!

[liz]

One more thing---

I too don't understand BofA's logic here:

Oh we're buying a company that is about declare bankruptcy and it's a really bad business decision, but we are doing it anyway, and by the way federal gov. please bail us out.

That is completely irrational to me. At least the sub-prime mess makes sense to me. Bank of America doesn't make any sense.

And I bank with them---

[JESS]

I think we are biggest hypocrite nation on this planet!
Spent years fighting socialism and communism and yet we are tikering those very ideas. Does anyone else see the problem here! I can care less about a bail out anymore! I think we have bigger problems to worry abt now! Cuz no bail out is going to fix these problems. they may actually compound them in wierd ways. Where the hell are we goin with this. This is going to crumble our economy! Prepare for some dark years comin ahead. Housing is goin down no matter what. what are they gonna do once the very people getting helped out of an upside down position now will be upside down again next year. it will definitely increase the borrowing costs for future home buyers. that would definitely lower the prices. I think we are moving towards a japanese style economy. Inflation will devalue dollar and result in a stagant economy for a long ass time.

[liz]

areles,

How exactly is this going to help the economy by bailing out banks and keeping real estate prices artificially up??

WHO is paying PROPERTY TAXES on these houses???

It is much better to get new buyers into the market who will properly maintain these properties...

If the gov. takes a hit, then our taxes will be raised hurting the economy.

It is much better for the invisible hand to do it's thing. Either way the economy suffers, but one way is healthy while the other is a sham!

[EconE]

Painting a family that makes a quarter million dollars a year is disgusting.

$14,000 per month in "fixed outlays" is something that they got themselves into.

These people are debt whores.

The only bail out they should get is a discount on burlap for clothing

[sheila]

but wait, the plot thickens!

i have asked (and asked) a few times on this blog why on earth lenders are showing such catastrophic losses when they all required MORTGAGE INSURANCE for more than 80% loans. Cal valiantly tried to answer, and we discussed how "second mortgage" lenders were stuck, etc. but it never answered why on earth the
Countrywides and B of As were sucking so much air on these loans, almost all of which were insured for at least the top 20%, and almost none of the properties were dropping catastrophically lower than 20%...

the answer finally came out today - LENDERS WERE CO-INSURING THE MORTGAGES and scooping up 40% of the premiums, those greedy dumbasses!

here's an excerpt from the story (in the RE section):

A captive reinsurance arrangement allows a lender to receive significant pieces of the premiums paid by borrowers who cannot afford to make a down payment of 20% or more. The percentage of the premium shared varies but often is in the range of 40%. The funds flow into a trust structure but are treated by lenders as income.

The arrangement puts the lender into the position of a backup guarantor, should delinquencies and foreclosures on low-down-payment loans trigger claims beyond specified limits.

So, now we know why they need the bailout - they undercut their own damned safety net by front-loading yet another aspect of these deals. unbelievable!

[yinyang]

I wonder who would be more supportive of a bail out in the next administration? The Democrats with their "we need to make sure no one gets foreclosed" or the Republicans "we sleep with the bankers". Looks like a bail out is inevitable unless we vote for Ron Raul (oh wait, he's a Republican!! I hate this two party system)

[ShameandScandal]

So, let's see if I understand. Banks, mortgage banks,investment banks, big banks, and small banks, capture the gains on the upside. The costs of the downside are socialized to everyone. Privatize the upside, socialize the downside. Is this a great country, or what ? The United Socialist States of America, right back in the USSA.

Change the bargain the middle of the dance ? Sure. All the banks gotta do is accept the new Department of Financial Freedom and Goodness (DFFG), the agency that will regulate what businesses they can enter and exit, the rates of return they can earn, their capital structures, salaries (forget bonuses and stock options) earned, and the generic brand of toilet paper they can use to wipe their greedy....I can see the need for at least an initial staffing of 10,000, ramping up to 50,000 in ten years. Put 'em under the Department of Homeland Security, where we can be sure the bureaucrats can totally screw the banks beyond all possible repair with regulations that would make the world's central planners and bureaucrats proud. After this historic scandal, what's the downside ? A financial meltdown accompanied by mild hyperinflation ?

The first problem DFFG can tackle is the process for figuring out who actually holds the mortgage paper, since no one seems to know at this point. Let's set an ambitious goal for the bureaucrats for this one, straighten it out by, say, 2025. Free coffee for a year if they can nail it by 2024.

Banks need to recapitalize ? Easy. Russia wants to buy in, its got a few hundred billion sitting idle, all the USSA needs to do is back off when Russia reacquires Ukraine. Oil exporting Arabs have a few extra trillion at this point, but who's counting, the USSA only has to lighten up on that ridiculous support for the fiction country of Israel. The Chinese now own almost a trillion in Treasury paper, they can trade 'em in and lend to the banks, all USSA needs to do is stop bugging them about human rights abuses and environmental catastrophes. Even the nation's nicest loan shark, Warren Buffett, can cough up a few billion, at a compelling price of course.

But, what happens to those little interest rates when the Chinese do the trade in ? How much junk paper can the Arabs be fooled into buying ? Will they go for the special shiny paper you think ? Who will buy this newly packaged junk ? At what price ? Fannie and Freddie are already fading. Even the Arabs are starting to figure that they're throwing money down rat holes. Oopsie.

Nope. I've got the ultimate fix. Simple. Let's just use the Social Security Trust Fund !!! Why hasn't anyone thought of this yet ? The nation's special rainy day fund !!! The USSA's sovereign wealth fund !!! Think of it --- imaginary assets buying property with no value at a massively subsidized interest rate. Perfect. Only a country as strong as the USSA can afford it.

But remember, this path comes at a price --- your personal economic future will depend mightily on your ability to accept designer cat food as a primary food source, if you believe that Social Security will ever be able to pay out, anything.

Vote out the old bums, all of 'em, the R bums, the D bums. Keep voting them out, just keep voting them out, they're just too outrageously stupid to understand anything else. Don't discriminate, they certainly don't when it comes to screwing the public, while shamelessly professing their pursuit of fairness.

Vote out the old bums.

[areles]

Liz, I believe your view is overly simplistic. If it were as easy as home prices dipping to affordability, your logic would make a certain sort of sense.

But the problem is that even if home prices dip all the way down to 1999 levels, when you have banks in crisis, with tighter lending standards and increasing longterm interest rates (due to the fact that banks have less capital with which to lend money at all), who is going to buy them?

Did you read the "other point of view" by msprompt? It's not enough to earn six figures, have a solid credit score, and 20% in the bank. People are not qualifying. I personally know two couples in this position.

Meanwhile, inflation is at least 9% - no matter what the feds are saying - and 14% by some calculations, savings are disappearing, commercial real estate is plummeting, jobs are being lost (expect at least 7% unemployment), bond insurers are going belly up, and local governments are losing fortunes due to foreclosures and falling property taxes.

My suggestion was never that the government *should* bail the banks out - frankly, I think the only solution is to hunker down and let the flush happen. Rip the bandaid off, so to speak.

But to suggest that it's as easy as letting home prices fall and banks fail is to vastly understate what is happening here.

[pist off]

"An economic flush needs to happen, and WILL happen, no matter what the government tries to do. But to watch you all cheer it on out of jealousy and spite is, honestly, disgusting."

Areles, who's cheering it on out of jealousy and spite? Not me. I'm cheering it on because I want things to return to normal based on fairness. What isn't fair you might ask? Middle class America being bilked out of hundreds of billions of dollars at the hands of the corrupt, greedy folks who created this mess.

And I'll tell you what's disgusting- seeing Mozilo jump out of this airplane heading toward a mountain with his golden parachute, while the middle class on the plane paid for it. How many other CEOs on Wall Street have bailed with golden parachutes? Plenty.

That's what is disgusting. That's what infuriates us bitter folks on this blog. How about all those Wall Street bankers give back their hundreds of millions in bonuses back to help out? Nope, all the help is going be on the backs of the middle class.

[sunsetbeachguy]

The angry Cassandra's are at least partly pissed because we warned all the rest of you people.

You scoffed at us.

Now that our predictions have come true you are scoffing again and we are even angrier.

Maybe it is better to be a debt serf.

I would support the bailout if every corporate office and sr. exec of the mortgage firms that the Feds are bailing out digorged all of their ill-gotten gains since 2001 and paid 10 years of restitution.

I could get behind a bailout in a big way.

Oh yeah and give Hilary free rein to design their new regulatory climate.

[Michael Snyder]

sunsetbeachguy,
You were doin' alright until you got to Billary. You REALLY need to scratch the paint on that one. Ron Paul scares the beegeebers out of the establishment. Probably because he's actually read the Constitution. You might also note his conspicuous absents from newscasts although he's raised funds to rival the "chosen few" over the internet. Rupert & the boys are at least as scared of him as they were of Ross Perot. Hillary's bought & paid for by Rupert Murdoch & Co. and her real-time experience is limited to a term and a half in the Senate and two terms in the Presidential bedroom. In either case, her attendance has been dismal.