Debating the Mortgage Bailout

Posted by: Chris Palmeri on September 22, 2008

President Bush has proposed a massive rescue plan for homeowners, banks and mortgage investors. The government will buy troubled home loans from troubled banks. The plan is audacious in size—at an estimated cost $700 billion. But it is short on specifics. Who’ll get the government’s money and under what terms? Politicians and citizens are debating whether this, the largest bailout in history makes sense.

One group of naysayers runs www.stopthehousingbailout.com. The group says Washington is sending the wrong message, bailing out people who made poor choices or who may have even engaged in fraud. The argument is that by foisting this kind of debt on all taxpayers, the bailout is rewarding those who shouldn’t be rewarded and forcing citizens who made wise decisions about their money to pay the price.


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The President says the gravity of the situation makes the bailout necessary. “Failure to act would have broad consequences far beyond Wall Street,” the President said in a statement today. “It would threaten small business owners and homeowners on Main Street.”

Stopthehousingbailout.com also makes the argument that this rescue plan hurts minorities because a larger percentage of whites own homes and will get bailed out. I’m not sure I agree with this argument. I’ve been studying lists of bank-owned properties. Foreclosures seem to be occurring in far larger numbers in black and Latino neighborhoods.

There’s a form letter on the stopthehousingbailout.com site that you can use to send to your local politician.

What do you think of the President’s proposed bailout?

Reader Comments

Maria Ogneva

September 23, 2008 12:02 PM

I have actually written a blogpost about this today: http://meetmojo.com/blog/?p=60

Andy Sessa

September 23, 2008 2:37 PM

This bailout is extortion on the taxpayers.It smells of marxism,and i mean Groucho not Karl...Are we ok with letting the criminals that broke it,fix it...AMERICA lets take back our government..on election day hand write in NONE OF THE ABOVE instead of the garbage they give us to choose from.Our founding fathers are turning over in their graves......IT'S TEA TIME IN BOSTON HARBOR...LET'S USE OUR POWER OF REFERANDUM..TAKE BACK OUR COUNTRY

Jim D

September 23, 2008 7:12 PM

I think it's a poorly concealed giveaway to the richest Americans, with money borrowed from the Chinese.

This is a "float pool" of money - so the Treasury will buy mortgage bonds at face value, sell them for half (or less) of that, and use the proceeds to buy more.

Until the money's gone.

And all this without any oversight - even in the Dodd bill, the oversight committee has no veto power - so a small group of people can watch, and do nothing to stop it.

Oh, yay.


The worst part? It won't even work - there's over $2 Trillion in bad paper out there, and a measly $700 Billion won't do the job.

So, we'll be totally hosed - we'll still sink into deep recession (if we're lucky), but now we'll be $1.8 Trillion in the hole (total cost of bailout so far). That should do wonders for Treasury rates and the exchange rate, as well as import prices and gas prices.

This is a really, really bad idea, which will only protect the very richest at the expense of everyone else.

If you haven't already called your Sentor, what are you waiting for?

Blame assessment

October 2, 2008 12:44 PM

The Mortgage Forgiveness Debt Relief Act of 2007 removed the last incentive for borrowers to remain in “their” homes. This law must be rewritten and retitled the Patriotic Mortgage Repayment Act of 2008.

The Patriotic Mortgage Repayment Act of 2008 - If a borrower defaults on a mortgage and the market value of the collateral is insufficient to repay the money borrowed, the Treasury will recover 105% of the residual borrowed but unpaid amount using IRS collection methods and interest schedules. Such a law would prevent the general population from bailing out the speculators that purchased more house than they could reasonably afford. These wannabee flippers took grandma’s money out of the bank, now the bank has collapsed the the FDIC is having to pay off grandmas. The least these deadbeats should do is repay 100% of grandmas’ money to the treasury plus 5% as a handling fee.

It should be trivial for the borrower to meet his obligation. After the foreclosure sale recovers 60% of the original loan, the payments on the remaining 40% loss should be well within the budget of even the biggest speculative wannabe flipper real estate genius that bought at the top of the market using grandma’s money.

maria lugo

October 20, 2008 4:26 PM

I think its a good thing. I am 25 years old and own my own home. I signed for my home when I was 20 years old and married. When I was 20 years old I didnt make the best financial decisions and took the maximum amount of equity out on my home. Now I am no longer married, I have never been late on my mortgage, but I am also in an adjustable rate mortgage and on 1 income.

This will def. help me and plenty of people in my community in foreclosure.
The way I look at it is, so many people are well fare puppies and wont lift a finger to get a job and live off of my tax money! I have been working and paying taxes just like the rest of america who actually have a job, so I feel I am a bit entitled to the assistance.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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