Former Goldman Sachs Chief and current Treasury secretary Hank Paulson has called for the mortgage industry to observe a 90-day moratorium on foreclosures, and a 5-year freeze in mortgage rates on subprime adjustable rate mortgages.... Talk about election politics! How could a republican and former CEO of one of the most respected firms on the street propose what are essentially price controls!!!! Shouldn't we be encouraging free market capitalism?
In my opinion this is throwing kindle into an already roaring blaze!! What this proposal will essentially doing is telling banks "hey, its alright if your lending standards are poor, we'll save you". How do you expect banks to learn from their poor lending habits when interest rates were low? Banks were lending to people who they knew could not pay their mortgages when interest rates rose!
This is not the solution to the problem. Banks are facing huge writedowns? Take it! Its your fault! Firings in the mortgage departments? Sorry, you didn't properly evaluate the risks involved. What needs to be done to prevent another one of these housing debacles is encourage capitalism! Banks know that if they lend to people with sub par credit they will face writedowns, and if you want to please shareholders and make your bank more profitable tighten these lending standards! Thats it!
What's the heck is this government intervention mumbo jumbo all about!!??? Please make it stop!
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6 comments:
i was shocked when i saw this... very uncharacteristic (so i thought) for this administration to come up with that kind of an idea
but im not sure if it sends the message to banks that they will be bailed out... it seems the banks are going to take the hit as even people who could plausibly meet payment will get to keep their teaser rate. i think its a bailout for borrowers, but it will turn out that there isnt so much lending available.
Kudlow: Arthur Laffer, [Treasury Secretary] Henry Paulson came out with a lot of possible things to help the subprime mortgage market and mortgage markets in general. One of the things that really troubled me Art, is he’s talking about a 5-year freeze, a 5-year freeze on mortgage interest rates that might be in foreclosure. Now I think that is wage and price controls. I think that’s interest rate controls. I think that’s a disaster for the international market. And, it sounds like Hillary Clinton. Now where does a tough guy like Paulson -- usually a very sound thinker, from Goldman Sachs -- where does he come out freezing interest rates for five years?
Art Laffer: I have no idea where he comes out, how he gets something like that. But it’s really a silly idea, Larry. You know you shouldn’t freeze these things. These contracts should be honored as they are. And frankly, people who go and get those mortgage rates and buy those homes, it’s their problem. I mean it honestly is their problem. And if Paulson steps in and tries to bail them out, frankly, it will just encourage people to do it more in the future. It will make the supply of funds for mortgages dry up. Who wants to be the lender?
Who is to blame for the mortgage crisis we're in? Is it predatory lending practices by the bank, or is it over optimisic borrowers? In my opinion it is a combination of both with the banks bearing the lion-share of it. Mortgages are not the easiest thing to understand in the world especially when the majority of so called subprime lenders are not well educated in personal finance. This makes them very vulnerable to predatory lending techniques. But shouldn't these borrowers be responsible since they signed the contract? In a perfect world, I would hope that every person would do their homework and read over something as important as a mortgage, but believe it or not, these people actually trust the bankers selling them the products. It is the banker's responsibility to objectively sell their product giving the buyer all the information that is available so they can make the best decision. Failure to disclose and explain any information is against free market capitalism (asymmetric information). This policy may bail out both the banks and the borrowers, but you cannot help the people without bailing out the banks. Letting the banks "take their medicine" would be far worse on the borrowers. They cannot afford to pay higher rates in times or economic uncertainty. It is time for the banks to step up to the plate and reform their lending standards or Congress might have to do it for them.
Kyle,your absolutely right that the homeowners are the ones that will suffer the most if this bill is stopped.
Washington does not think.
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