The Mortgage Mess: Whose Fault is it Anyway?

As a fundamental believer in history and in examining, with respect to political matters, where we have been in order to more accurately assess where we now find ourselves, nowhere is that more relevant than with respect to the current mortgage and foreclosure fiasco. Let's take a walk down memory lane, shall we, in order to come to some very different conclusions and solutions than those that Washington and the Federal Reserve is now putting forth.

Flashback to the '80's. Remember the Charles Keating Savings & Loan fiasco throughout our nation which resulted in almost every savings and loan institution in this country going belly up from that disastrous federal/private enterprise partnership. The Federal Reserve and U.S. citizens bailed out that travesty, with Mr. Keating taking a walk to the Big House. The construction industry was at a standstill, and banks were hesitant to loan sums for new construction due to the precariousness and skitishness of the homebuying public. Interest rates for mortgage loans were in the double digits after highs hovering around 20% in the early 80's throughout the nation even prior to the fallout. In '86, in order to stimulate the economy, the federal government encourages, though an Act of Congress, ARMs and the creation of alternative financing other than the tried and true fixed rate loans of the past due to higher interest rates and a sluggish homebuying public. In order to protect these subprime offerings, Congress also 'allows' the banking institutions to resell these mortgages on the secondary market (most to foreign investors) as 'at risk' investments. After a slow start, then with the economy rallying again at the American homebuying public's expense, real estate values increase and these bundled mortgages begin selling like hotcakes and Wall Street then also recovers.

Large developers snap up agricultural land, and instead of remaining in their secure, fixed rate mortgaged properties, the homebuying public due to the steadily increasing value of real estate, begin refinancing or trading up into these creatively packaged loans in order to get in on the boom, keep up with the Joneses, and have their own piece of the American dream.

Flashforward now to the present. Due to the housing boom, property taxes in most areas have risen off the charts. In addition to property taxes, due to state/developer partnerships, in most newer areas not only have property taxes risen but a 'secondary' tax in the form of homeowner's association or condominium dues have also risen, of course, along with the readjustments of those creative loans. Loan documents as opposed to those of the past in 'fixed' rate or assumable mortgages, are now 50 plus pages long, and provide that mortgages can be resold and renegotiated with a new lender without your prior knowledge or consent.

Who's fault is this anyway? Some say the buyers, as they should not have purchased homes they could ill afford (although the loan terms, and with the economy now at it is, their income levels may have changed significantly in less than the five years most of their owners have 'owned' these homes). Some say the banking industry, since it fraudulently extended credit to those for whom could not realistically afford the home they were purchasing.

I say the federal government.

Should there be a bailout?

My question is - bailout whom? These subprime loans were bundled and resold on the open market at 'at risk' investments to foreign investors. As such, there is no underlying debt to most of these loans to begin with - the banks have already been paid for these mortgages on the open market. The American taxpayers do not need to 'bail out' these lenders or homeowners. There is no underlying debt at all. The banks and mainstream media are presenting an inaccurate picture that defies logic. The banks are attempting to 'double collect' on these loans to begin with, in order to satisfy their investors - investors who purchased a risky investment as any investment is on the exchange. If anything, rates should be frozen until the economy stablizes and fixed rate terms offered to these homeowners in line with their ability to pay, or the loan terms extended beyond the original 30 years if needed, not threatened with bogus foreclosure notices without proof of any underlying debt. And the 'bad' banks which disproportionately made too many of these loans, since they have been paid for them, should fold due to their greed and excesses in the name of 'profit,' and not sound business practices.

'Bailing out' the banks at this point and those executives, such as Mr. Keating, who robbed Peter to pay Paul or their own bonuses even at the cost of their shareholders with those profits should also be on the long march to the Big House.

And the federal government should not be 'stimulating' the economy every again at the public's expense (since the public again is paying for this great 'stimulus package' which is no more than returning some of the ill gotten gained tax revenue back to the people to whom it belongs in the first place, while painting themselves the 'heros' in this fiasco).

"Bailing out the lenders" in order to afford them 'double' profits at the public's expense? I say NOT.