Comments on: Cramdown: Why Were the Misleading Arguments of the Mortgage Bankers Association Successful?

By: PPDCUS

PPDCUS — Sun, 10 May 2009 12:45:04 +0000

Thanks, Masaccio.

Wild West Capitalism and the Law of Fully Intended Consequences

I’ve long since retired the old hacksaw of invoking the law of unintended consequences to justify diagnoses and remediations that have emerged since the Great Unraveling of mid-2007 became too systemically life threatening to cover up any longer.

At every turn, the interests that made this catastrophe inevitable have pressed for expansive government restitution to themselves for their crimes against others.

These incentives only look perverse from a public policy and societal good perspective. They make perfect sense when the goal is to preserve and enhance private power and financial control in a system that, for the real economy, is collapsing under the weight of financial manipulation, wealth disparity & governmental complicity unknown since the Gilded Age. The much vaunted sanctity of contract has nothing to do with keeping interest rates lower or expanding credit for borrowers. It’s about expanding and redirecting campaign contribution flows for the greatest effect.

Watching Geithner, Kardashian etal. pushing the stress test meme on Charlie Rose confirms one thing: the electorate may have thought last November represented a generational choice between substantive change and a continuation the failed policies of the past eight years. A new Obama adminstration with healthy majorities in both houses of congress was trifecta key to realigning our priorities and resources.

So far, the financial markets waxing and real economy waning indicate otherwise.

By: Xenos

Xenos — Sun, 10 May 2009 11:25:12 +0000

In any case, increasing the cost of mortgages is a good thing, because it will limit future bubbles in real estate financing.

And if you do not allow cramdown, you crate a perverse incentive for vindictive homeowners to let the house go to hell, have the house sell for even less at foreclosure, and then have the ex-homeowner seek bankruptcy protection after the foreclosure in order to discharge the deficiency judgment.

By: albertchampion

albertchampion — Sun, 10 May 2009 06:50:49 +0000

come on, let’s recognize the reality that the congress is for sale. as if they are used cars. purchased for much less than you might imagine. and of course, they have given the purchasers all the funds to acquire them. it is a carousel of “grease”.

By: ImperialFlow

ImperialFlow — Sun, 10 May 2009 04:28:47 +0000

I agree with the general vector of this assessment, but I think it extends further. The foreclosed home is easily rolled as a troubled or toxic asset, and the bank can unload it on the government at an inflated price. Still avoiding legitimate price discovery, either through resale of the foreclosed property, or through a cramdown.

By: Hugh

Hugh — Sun, 10 May 2009 03:05:43 +0000

In the absence of cramdowns, it will make more sense for homeowners to walk away from their mortgages and foreclosures will increase. It is hard to see how this is in the country’s or economy’s interests. Cramdowns are a common sense reaction to the bursting of the housing bubble and its unrealistic prices.

The real reason that banks don’t want cramdowns is because they would establish defensible prices for banks’ crap assets, and such a valuation would show what most of us already know: the banks are bankrupt.

By: raven333

raven333 — Sun, 10 May 2009 01:29:18 +0000

I don’t think that’s where it’s at. Honestly, I think the industry’s arguments are transparently self-serving, and the Senators own staffs probably tell them so, if the explanation is needed. I think you could make the best argument in the world, and it’s not going to go with the Senate until the reality comes home to them.

By: masaccio

masaccio — Sun, 10 May 2009 00:41:31 +0000

I’m just stunned that we lost cramdown, and even more stunned that we lost so many Democrats.

I think we learn more from our losses than from our victories, which is my justification for writing about this so much.