[serious] Bailout

[Fake Boris]

If the US government had, instead of refueling the financial institutions, spent an equal amount of money on covering the mortgages themselves (we'll pay X percentage of your mortgage, up to Y, for 18 months), wouldn't it have helped more?

If your answer is going to be "No, I'm smarter than you", **** OFF.

[DaShi]

Well then, I have nothing to say here.

[DanS]

I think the gov't would have been better off streamlining the foreclosure process, so that it would be easier for banks to foreclose. That would have addressed the root problem: People in houses that they couldn't afford.

[Dinner]

It would have cost more and it would have been harder to administer plus you'd hear endless whining from renters (or folks who have paid off their mortgage) about how unfair it was they didn't get any... But I do think it would have helped the economy more and here is why. One of the biggest problems is more then half of the people in the country owe more on their house then it is worth so lots of people are simply walking away and giving the keys back to the bank. This results in still further price declines and even more incentive for people to walk away. Once good neighborhoods become empty, the empty houses become neglected or vandalized, and generally blighted. Keeping people in their homes would have directly stopped that part of the cycle, people would have seen (at least on paper) that their net worth was better off after home owners got bailed out, and even more critically after mortgages got reset to the new lower balance with the proposed lower fixed rate APR folks would have had more money in their pockets which would have actually helped the real economy. In short, instead of just helping the banking sector it would have helped a wider section of the economy as well as the banks so it would have been a better policy.

The down side is it would have had to have been a real one time payment from the government to individual mortgage holders so it would have been money directly out of the budget which the government would never see again. The upside to TARP is you're buying assets which spooked investors no longer want so by waiting until the market recovers and then reselling those assets the government can remake some or all of it's initial capital investment. You can't do that if you basically just gave the money away to home owners.

[DaShi]

I think the gov't would have been better off streamlining the foreclosure process, so that it would be easier for banks to foreclose. That would have addressed the root problem: People in houses that they couldn't afford.

How do you define what house a person can and cannot afford?

[dannubis]

By the net amount of money that is left at the end of the month.

Now, what DanS is saying holds true if the house price doesn't drop too much. Otherwise I fail to see how the situation would have been any different for the banks.

[DaShi]

The problem is that most people who bought houses through those "mortgage" deals had no idea what the net amount of money was at the end of the month. Thanks to a convoluted system driven, ironically, by the lack of regulation mortgages became so complex that it was reasonable to conclude that the homebuyers couldn't possibly know the true outcome of their debt, but the banks could.

[KrazyHorse]

If the US government had, instead of refueling the financial institutions, spent an equal amount of money on covering the mortgages themselves (we'll pay X percentage of your mortgage, up to Y, for 18 months), wouldn't it have helped more?

If your answer is going to be "No, I'm smarter than you", **** OFF.

The government didn't spend any money on the bank bailouts, you ******.

[Dinner]

Well, it didn't on TARP but there have been a number of other programs which have cost money (directly or indirectly) whose goal was to assist banks in becoming recapitalized. Most of that was through the Federal Reserve though.

[KrazyHorse]

Do you mind explaining that claim, oerdin?

[Dinner]

My preferred solution would have been to amend bankruptcy laws so that the value of mortgages can't exceed the current fair market rate so home owners could get a fresh start but stay in their homes (so neighborhoods don't empty out and thus become blighted). That would help individuals and thus the real economy but it would also make the bank's problems that much worse so offer them a TARP like program but only after they agree to help pass the changes to the bankruptcy laws. In essence, get a pound of flesh from the banks while their backs are against the wall and they have no other choice then help them but only after I get what I want. Never let an emergency go to waste.

[DanS]

Well, it didn't on TARP but there have been a number of other programs which have cost money

Of course, the most notable programs that cost the taxpayers money were the auto bailouts.

[Dinner]

Do you mind explaining that claim, oerdin?

Google Shadow bailout or back door bailout. Basically multiple trillions in zero percent loans in the trillions at the Fed's discount window, the sweat heart terms of the forced mergers for failing financial companies which left the government on the hook for future loses (which I admit may or may not materialize), and then there is how GSEs were essentially used to help move the worst stuff off of the balance sheets of private financial institutions. Yes, there were sound economic reasons to do all of these things but let's not pretend doing them didn't have a financial cost to the government.

[Dinner]

Of course, the most notable programs that cost the taxpayers money were the auto bailouts.

That remains to be seen and will depend on exactly what the share price is when the government sells and how they sell it (I.E. do they dump it all at once thus depressing the price or do they follow the more sound track which France used with privatizing Renault, selling off a bit then waiting for prices to recover before selling off another bit).

[Zoetstofzoetje]

the gvt considered buying those mortgages, but didn't. the reason was, markets were in turmoil, and practically executing this operation would have taken months. so they went for the 'bailout' option instead. quick fix.