Will Obama's Bank Bailout-Investment Plan Solve the Housing Crisis?

Albert Einstein said, "The definition of insanity is doing the same thing over and over again and expecting different results."

That is exactly what our top U.S. financial advisors and executives are proposing to resolve the housing crisis.

In a recently released statement the Obama Administration recommends collaborating with fund manager execs at Blackrock, Pimco, Legg Mason and BNY Mellon, to use (more) of the average American's funds--pension and retirement funds, that is--to purchase overvalued properties from the Banks. (1)

The 'revolutionary' concept here is to purportedly give ordinary Americans the unlikely opportunity to 'profit' from the bailouts that are already being financed by US taxpayers. Meanwhile the fund mangers backing this plan will make big broker fees on these transactions.

Let's remember the housing and credit crisis came about when the banks loosened lending guidelines and introduced teaser rates. This artificially increased home values and spurred a home buying frenzy. What did they care so long as they made huge profits and continue to?

The banks did this knowing average Americans make $50k a year and in historically stable markets Americans can afford a mortgage at maximum 3 times their annual income. Yet they lent upwards of 6 times that standard, doubling payments and falsely increasing home prices.

In a stable economy historical data proves home prices are directly driven by incomes, not how much lenders lent.

The banks lured buyers with teaser rates that were "affordable" for a limited time only. When these shortsighted teaser rates become converted to the real deal the homeowner naturally falls short of making mortgage payments.

These recession time bombs were set at 2,3,5,7,and 10-year intervals. With the clock ticking we have yet to feel the full economic impact for a decade or more to come.

Americans trying to cut the fuse and refinance before the rate bomb goes off are being rejected by banks because the property value is now half as much as that of the original note the bank lent.

Or worse yet the homeowner can't qualify for the refinance on the mortgage payment, now that banks are finally looking at proof of income years after the fact. The "lucky ones" who can qualify for the overvalued home payment owe twice as much as the house is worth.

While housing prices skyrocketed, incomes did not. Except for executive salaries at AIG, banks and other financial institutions!

Now, rather than rolling housing prices back to where they should have been at affordable levels relative to the true income of working Americans, or non-working Americans as the case may be per the unemployment rate, the Obama Administration expects US to fund and maintain the unaffordable mortgage notes the banks despicably approved.

The bottom line is the banks are unwilling to accept the reality of having to lower THEIR fake bottom line, despite the infusion of Federal bail out funds.

If the Obama Administration successfully implements this plan the banks will further profit but American families and society will continue to suffer the effects of foreclosures.

The justification for the Obama plan is to minimize our hostility against the banking industry and bail out funding program, by cutting average citizens into the equation.

On top of the false assumption that this slice of the American pie is not merely pie in the sky, our un-employment checks, and our dwindling 401k's will further bail out the banks with the lure that this will enable banks to frivolously lend again. Let's HOPE not!!!!

Audra Martin, founder of National Equity Solution contributed to this article.

1. Reference: New York Times, April 8, 2009, "U.S. May Enlist Small Investors in
Bank Bailout."