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Mitt Romney On Foreclosurers: ‘Any Owners Who Lose Their Homes Are Getting What They Deserve’

Since the housing bubble began to burst six years ago, prices nationwide have fallen by a third. Nearly $7 trillion of home equity has been wiped out. Currently, some 14.7 million homeowners owe $700 billion more on their mortgages than their homes are worth. Going forward, prices are likely to fall further as banks put a backlog of foreclosed properties on the market. As home prices fall and more homeowners sink underwater, there will be more foreclosures and more price declines.

So what is Mitt Romney’s response? Bring it on.

In interviews and in the Republican presidential debates, Mr. Romney has said that the cure for foreclosures is for the government to get out of the way and let the process run its course. Once prices hit bottom, investors and want-to-be homeowners would presumably swoop in and prices would stabilize.

The argument might have some red-meat appeal, playing off the notion that any owners who lose their homes are getting what they deserve. It is wrong on several counts:

Efficiency.

Mass foreclosures are a rotten way to stabilize the market. They impose huge costs on neighbors, communities and local governments, and on the broader economy, as falling prices erode equity, depress consumer spending and mire the housing market in a deep hole.

Logic.

Who does Mr. Romney think will buy up millions of foreclosed properties? Borrowers who lose their homes to foreclosure or who sell their homes for less than the balance on their mortgages can be denied credit for years; many will never be homeowners again.

Many college graduates, unable to find jobs, are moving in with their parents, not starting careers, not starting families and not becoming first-time home buyers. High school graduates are despairing of any economic toehold. Investors are inclined to buy distressed properties only if they believe home values will rise, a confidence that is hard to come by in a market that is threatened by more foreclosures and renewed price declines.

Danger.

With the economy still weak and vulnerable to shocks, more foreclosures and the resulting price declines would only weaken the economy further.

Fairness.

The let-it-crash argument conveniently ignores that the housing bubble was the result not only of overborrowing but of reckless lending too. When the bubble burst, the banks were bailed out, while speculators and uncreditworthy borrowers — whom lenders had aggressively pursued during the boom — quickly began to lose their properties. But the economic damage went far beyond the “bad” borrowers, as evidenced by deep recession, ensuing slow growth, high unemployment and crashing home values — all of which has now harmed millions of homeowners who never went near a subprime mortgage. They are the collateral damage of the banks’ binge and bailout. They deserve help, not scorn.

That is not to say that every troubled borrower can be saved. Of the estimated 14.7 million underwater borrowers, 1.6 million are lost causes, according to Moody’s Analytics. Many have already abandoned their homes, leaving them vacant, or are hopelessly behind on their payments, often because of long-term unemployment. This group needs policies to help convert homes to rentals.

Another 1.6 million underwater borrowers have missed payments because of a setback, like job loss, that may prove temporary. They could be helped with forbearance, allowed to make no or reduced payments for a time, and make up the difference later, or with loan modifications that result in meaningfully smaller payments.

The remaining 11.5 million underwater homeowners are current in their payments, but are at high risk of default, since they have no equity to cushion a financial setback and no incentive to keep paying, especially if prices go down again.

Loan modifications that reduce principal balances are the best solution, because they restore equity and reduce monthly payments. The banks would take a hit on principal write-downs. So be it. Refinancings, which the Obama administration is in the process of expanding, also help, because a new loan with a lower rate makes staying in the home more affordable. Mr. Romney has said refinancing is “worth further consideration.” Investors in mortgage-backed securities will take a hit on refinancings. So be it.

At a recent debate, Mr. Romney was asked why he was willing to risk further huge losses in home equity by pushing foreclosures. “What would you do instead?” he replied. “Have the federal government go out and buy all the homes in America?”

No one is suggesting that. What is needed is a set of policies — rentals, forbearance, principal write-downs and refinancings — on a scale that tackles the problem.

By: The New York Times, Editorial, November 26, 2011

November 28, 2011 Posted by | Banks | , , , , , , | Leave a comment

Republican House Bills: A Glimpse Into The Tea Party’s Vision For America

If the House ran America, what would America look like?

It would no longer have a far-reaching health-care law. The House voted to repeal that legislation in January.

It would no longer have federal limits on greenhouse gases. The House voted to ax them in April.

And it would not have three government programs for homeowners who are in trouble on their mortgages. The House voted to end them all.

These and many other changes are included in an ambitious slate of more than 80 bills that have passed since Republicans took control of the chamber this year.

Most of these measures will die in the Democrat-controlled Senate. Still, they are a revealing kind of vision statement — the first evidence of how a tea-party-influenced GOP would like to reshape the country.

That vision is aimed at dismantling some Democratic priorities. The GOP’s philosophy holds that paring back an expensive and heavy-handed government bureaucracy would help restore the country’s financial footing and give private businesses the freedom to grow and create jobs.

After seven months, it is still only half a vision.

On major issues such as health care, climate change and bad mortgages, the House has affirmed that fixes are needed — if it can ever manage to repeal the old ones.

It hasn’t said exactly what those changes should be.

“The Republican Party is sort of united in terms of what they’re against. But there’s not a great deal of consensus right now in terms of what they’re for,” said Michael D. Tanner, a senior fellow at the libertarian Cato Institute and an expert on health-care reform and recent GOP history.

This month, a divided Congress finally staggered into its summer recess. Its business has been split between the terrifyingly urgent — including standoffs that threatened a government shutdown and a national debt default — and the purely theoretical.

The theoretical part has come because neither the House nor the Senate is likely to approve big ideas dreamed up by the other. The Democrat-held Senate has reacted to this by withdrawing into legislative hibernation.

House Republicans have instead been passing bills that tell a story — about the country they want but can’t quite get.

“The new House Republican majority was voted into office to change the way Washington does business and make the government accountable to the American people once again. Our agenda has reflected these goals,” said Laena Fallon, a spokeswoman for House Majority Leader Eric Cantor (Va.).

But even within the Republican ranks, there is a desire for more details about the party’s vision for replacing Democratic policies.

Rep. Trey Gowdy (S.C.) said the GOP must put forward its own solutions on issues such as health care, job creation and mortgage assistance. He said he is not convinced that there is a need to take on climate change in the same way.

“Being the party of ‘no’ . . . is an appropriate response” in some cases, Gowdy said. “It’s not appropriate when you’ve been extensively critical of someone else’s ideas” and have none to replace them, he said.

“For substance reasons, and for credibility reasons, we also need to have a comprehensive . . . alternative that goes beyond saying, ‘Your plan is bad,’ ” Gowdy said.

The best-known part of the House’s vision has to do with spending. The chamber passed a budget that calls for a Medicare overhaul that would force new recipients to buy private insurance after 2022. It also passed, with five Democratic backers, a bill that demanded a balanced budget amendment: essentially, a spending limit written into the Constitution.

But the House’s measures have gone far beyond the budget.

It has passed legislation to forbid new energy-efficiency standards for light bulbs and to punish shining a laser pointer at an airplane in flight. It voted to take away federal funding for National Public Radio and for public financing of presidential campaigns.

The House also took a stand against President Obama on the military campaign in Libya, rejecting a motion to approve U.S. involvement. And it voted to rein in Environmental Protection Agency efforts against “mountaintop-removal coal mines” by requiring the EPA to defer to decisions by state regulators.

On three major issues, the House seemed to acknowledge that simply repealing a Democratic idea might not be enough — and that it did not have its own solutions.

On Jan. 19, for instance, 242 Republicans and three Democrats voted to repeal the landmark health-care law.

In place of the legislation, Republicans had said they would craft their own solutions for problems involving high costs and the denial of coverage for preexisting conditions. Their slogan, outlined in last fall’s Pledge to America, was “Repeal and Replace.”

No replacement has occurred.

A bill that would limit liability in malpractice lawsuits has passed in committee. Other ideas are being developed, aides said.

On climate change, the EPA is requiring larger power plants and industrial facilities to reduce greenhouse gas emissions to obtain new permits.

But many in Congress worried that the effort would drive up energy prices and kill jobs. So in April, 236 House Republicans and 19 Democrats voted to make the EPA stop in its tracks.

In place of regulations, they approved only a vaguely worded “sense of the Congress” about climate change.

“There is established scientific concern over warming of the climate system,” the bill says. It adds that Congress should attack the problem “by developing policies that do not adversely affect the American economy, energy supplies, and employment.”

But how? When? The measure doesn’t say.

And it doesn’t need to, said Tim Phillips, president of the conservative group Americans for Prosperity. He said his group thinks that simply repealing this legislation — and the health-care law — is enough for now.

“The big-government assault [has been] so damaging to the economy and the government. They’re doing the right thing by just trying to stop and reverse,” Phillips said.

Environmental groups have said that the House’s bill would leave the nation powerless to fight an escalating global problem.

“They clearly aren’t going to pass any legislation themselves that would address that pollution,” said Dan Lashof of the Natural Resources Defense Council.

The House also has voted to eliminate three federal programs meant to aid homeowners in danger of foreclosure. Two help modify loans to create lower payments. The third gives no-interest loans to borrowers who are in trouble. All have been criticized for moving too slowly and helping too few.

In March, the House decided to do away with them. The Congressional Budget Office said that doing so could save taxpayers $2.4 billion.

“None of the programs . . . have been successful,” Michael Steel, a spokesman for House Speaker John A. Boehner (R-Ohio), wrote in a statement.

By: David Fahrenthold, The Washington Post, August 17, 2011

August 18, 2011 Posted by | Affordable Care Act, Budget, Climate Change, Congress, Conservatives, Constitution, Debt Ceiling, Deficits, Democrats, Economic Recovery, Economy, Elections, Energy, Environment, Foreclosures, Global Warming, GOP, Government, Greenhouse Gases, Health Reform, Ideologues, Ideology, Jobs, Lawmakers, Medicare, Politics, Regulations, Republicans, Right Wing, Taxes, Teaparty, Unemployed, Voters | , , , , , , , , , , , , , | Leave a comment

Up Is Down: Michele Bachmann Distances Herself From Reality

Talk about cognitive dissonance. I went to a breakfast this morning with Alice Rivlin and lunch with Michele Bachmann. How to put this politely? If men are from Mars and women from Venus, Rivlin is from Earth, Bachmann is from Saturn. Someplace way out in the solar system and removed from reality.

Rivlin, a Democrat, is a former director of the Congressional Budget Office, former director of the Office of Management and Budget, and former vice chairman of the Federal Reserve. She is, in short, a Very Serious Person and, like every serious person around, finds herself somewhere between disbelieving and aghast at the current crisis over raising the debt ceiling.

“Putting a limit on the debt and saying, ‘Hey, we made these decisions but we didn’t really mean it, we’re not going to pay our bills,’ is just an unthinkable thing to do,” Rivlin said at an event sponsored by Atlantic Media.

“This is outrageous, folks,” she told interviewer Linda Douglass. “The greatest democracy, oldest democracy in the world should not be behaving this way.…It’s embarrassing for us to have a government that is so dysfunctional and that has created this artificial crisis.”

And the consequences could be catastrophic. “Suppose the world has decided that [debt ceiling crisis] might happen again and this democracy isn’t quite as solid or thoughtful as we thought it was, so we not going to stop lending to the United  States but we’re going to charge more interest. As the interest bill goes up, two things happen. One is it’s must more expensive for the government to carry this large debt….But more seriously it means that everybody’s interest payment goes up….So we would be paying more on our mortgage, more on our car loans, more on our credit cards, more for business loans and that’s not good for the economy.

It takes nothing away from Rivlin’s considerable intelligence and insight to say that she is expressing the conventional wisdom.

Fast forward a few hours to Bachmann, a congresswoman from Minnesota and Republican presidential candidate, addressing the National Press Club. Bachmann’s position is two-fold:

First, the debt ceiling should not be raised, under any circumstances. No deal could be good enough, Bachmann said, to induce her to do so. “I won’t raise taxes. I will reduce spending and I won’t vote to raise the debt ceiling,” she said. “And I have the titanium spine to see it through.”

Second, the United States will not default. “I want to state unequivocally I think for the world as well as the markets as well as for the American people, I have no doubt that we will not lose the full faith and credit of the United States,” Bachmann said.

Huh? Bachmann accused President Obama of employing “scare tactics” in warning of “catastrophic results for our economy.” But what do she and others in the titanium spine caucus think is going to happen when the United States can’t pay its bills?

Sure, Treasury Secretary Tim Geithner could manage to pay off bondholders. But as Rivlin and others explained, it won’t be too long before the checks due exceed the amount in the coffers.

An analysis by former George W. Bush administration Treasury official Jay Powell by the Bipartisan Policy Center shows that if the administration prioritizes payments to bondholders, Social Security recipients, Medicare and Medicaid providers, defense contractors and unemployment benefits (total $172.7 billion for the month) then it wouldn’t be able to pay another $134 billion worth of bills, including military active duty pay, veterans affairs programs, federal salaries and benefits, food stamps and Pell grants. You can shift around the numbers all you want but the bottom line is that refusing to increase the debt ceiling is not a sustainable option.

Bachman said that “saying no” to an increase in the debt ceiling would be “saying yes to job creation and to the next generation.” Up is down in Bachmann-world. The credit rating agencies are already threatening a downgrade. The grave implications of that are clear, for jobs now and stretching into the next generation with the hangover of higher interest rates.

Bachmann spent a lot of time invoking Ronald Reagan, so here’s one from the Gipper back at her. “The full consequences of a default—or even the serious prospect of default—by the Untied States are impossible to predict and awesome to contemplate,” he wrote to then-Senate Majority Leader Howard Baker in November 1983. “Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and the value of the dollar in exchange markets. The nation can ill afford to allow such a result.”

By: Ruth Marcus, The Washington Post, July 28, 2011

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July 29, 2011 Posted by | Budget, Conservatives, Consumer Credit, Consumers, Debt Ceiling, Debt Crisis, Deficits, Democracy, Economic Recovery, Economy, GOP, Government, Government Shut Down, Ideologues, Ideology, Jobs, Medicaid, Medicare, Politics, Public, Republicans, Right Wing, Social Security, Taxes, Teaparty | , , , , , , , , , , , , , | Leave a comment

Domestic Budget Extremists: Republicans, Zealots and The Threat To Our Security

If China or Iran threatened our national credit rating and tried to drive up our interest rates, or if they sought to damage our education system, we would erupt in outrage.

Well, wake up to the national security threat. Only it’s not coming from abroad, but from our own domestic extremists.

We tend to think of national security narrowly as the risk of a military or terrorist attack. But national security is about protecting our people and our national strength — and the blunt truth is that the biggest threat to America’s national security this summer doesn’t come from China, Iran or any other foreign power. It comes from budget machinations, and budget maniacs, at home.

House Republicans start from a legitimate concern about rising long-term debt. Politicians are usually focused only on short-term issues, so it would be commendable to see the Tea Party wing of the Republican Party seriously focused on containing long-term debt. But on this issue, many House Republicans aren’t serious, they’re just obsessive in a destructive way. The upshot is that in their effort to protect the American economy from debt, some of them are willing to drag it over the cliff of default.

It is not exactly true that this would be our first default. We defaulted in 1790. By some definitions, we defaulted on certain gold obligations in 1933. And in 1979, the United States had trouble managing payouts to some individual investors on time (partly because of a failure of word processing equipment) and thus was in technical default.

Yet even that brief lapse in 1979 raised interest payments in the United States. Terry L. Zivney, a finance professor at Ball State University and co-author of a scholarly paper about the episode, says the 1979 default increased American government borrowing costs by 0.6 of a percentage point indefinitely.

Any deliberate and sustained interruption this year could have a greater impact. We would see higher interest rates on mortgages, car loans, business loans and credit cards.

American government borrowing would also become more expensive. In February, the Congressional Budget Office noted that a 1 percentage point rise in interest rates could add more than $1 trillion to borrowing costs over a decade.

In other words, Republican zeal to lower debts could result in increased interest expenses and higher debts. Their mania to save taxpayers could cost taxpayers. That suggests not governance so much as fanaticism.

More broadly, a default would leave America a global laughingstock. Our “soft power,” our promotion of democracy around the world, and our influence would all take a hit. The spectacle of paralysis in the world’s largest economy is already bewildering to many countries. If there is awe for our military prowess and delight in our movies and music, there is scorn for our political/economic management.

While one danger to national security comes from the risk of default, another comes from overzealous budget cuts — especially in education, at the local, state and national levels. When we cut to the education bone, we’re not preserving our future but undermining it.

It should be a national disgrace that the United States government has eliminated spending for major literacy programs in the last few months, with scarcely a murmur of dissent.

Consider Reading Is Fundamental, a 45-year-old nonprofit program that has cost the federal government only $25 million annually. It’s a public-private partnership with 400,000 volunteers, and it puts books in the hands of low-income children. The program helped four million American children improve their reading skills last year. Now it has lost all federal support.

“They have made a real difference for millions of kids,” Kyle Zimmer, founder of First Book, another literacy program that I’ve admired, said of Reading Is Fundamental. “It is a tremendous loss that their federal support has been cut. We are going to pay for these cuts in education for generations.”

Education programs like these aren’t quick fixes, and the relation between spending and outcomes is uncertain and complex. Nurturing reading skills is a slog rather than a sprint — but without universal literacy we have no hope of spreading opportunity, fighting crime or chipping away at poverty.

“The attack on literacy programs reflects a broader assault on education programs,” said Rosa DeLauro, a Democratic member of Congress from Connecticut. She notes that Republicans want to cut everything from early childhood programs to Pell grants for college students. Republican proposals have singled out some 43 education programs for elimination, but it’s not seen as equally essential to end tax loopholes on hedge fund managers.

So let’s remember not only the national security risks posed by Iran and Al Qaeda. Let’s also focus on the risks, however unintentional, from domestic zealots.

By: Nicholas Kristoff, Op-Ed Columnist, The New York Times, July 23, 2011

July 24, 2011 Posted by | Congress, Conservatives, Consumer Credit, Consumers, Debt Ceiling, Debt Crisis, Deficits, Democracy, Democrats, Economic Recovery, Economy, Education, GOP, Government, Government Shut Down, Homeland Security, Ideologues, Ideology, National Security, Politics, Public, Republicans, Right Wing, States, Teaparty, Terrorism | , , , , , , , , , , , , , | Leave a comment

How Default Would Harm Homeowners, Cities, Businesses And Everyone Else

It’s easy to understand why the government will have more trouble borrowing if it fails to pay its debts, or even has a difficult time paying its debts. It’s a bit harder to see why ordinary Americans, the city of Pittsburgh, hospitals in Iowa, and medium-sized corporations will have more trouble borrowing. But they will. And their trouble borrowing is the main channels through which a default, or even something too close to it for the market’s comfort, could deal a body blow to the economy.

On Wednesday, Moody’s warned that it was putting the U.S. government credit rating on review for a downgrade. But they didn’t stop there. Another 7,000 debt products that are “directly linked to the U.S. government or are otherwise vulnerable to sovereign risk” were also put on review for a possible downgrade. That’s about $130 billion worth of debt. If America tumbles, so do they. But Moody’s still wasn’t done. An unknown amount of “indirectly linked” debt is also getting reviewed.

If America’s credit rating falls, it’s taking a lot more than just Treasury securities with it. It’s going to take the whole credit market with it. Which, as you’ll remember, is exactly how the subprime housing sector took the economy down in 2008.

The first to fall will be “directly linked” debt. These are bonds that rely on payments from the federal government. Naomi Richman, a managing director in Moody’s Public Finance division, puts it bluntly: “There are certain kinds of municipal bonds that are directly reliant on Treasury paying or some other direct payment,” she says. “If those bonds don’t receive their payment, they have no other source of revenue.” So down they go.

Then there’s the “indirectly linked” debt. That’s debt from state government, local governments, hospitals, universities and other institutions that rely, in some way or another, on payments from the federal government. If Medicaid stops paying its bills, all the hospitals that rely on Medicaid’s payments become less creditworthy. If we stop funding Pell grants, then all the universities that enroll students who pay using financial aid become less creditworthy. And since the federal government passes one-fifth of its revenues through to the states, and the states pass those revenues through to cities, if the federal government stops paying its bills, all states and all cities are suddenly in worse financial shape, which will make it harder for them to get loans.

And then there’s everything else. Mortgages. Credit cards. Loans that businesses take out to expand. Much of the debt in the American economy, and in fact globally, is “benchmarked” to Treasury debt. When your bank quotes you a mortgage rate, the calculation begins with the rate on 10-year treasuries and then adds premiums for various types of risk specific to you and your area on top of that. “There’s a whole credit structure,” says Pete Davis, president of Davis Capital Investment Ideas. “Think of it as roads and bridges, but it’s finance, it’s all connected, and it’s all on top of treasuries. Your CD at a bank, your credit card interest rates, your car loans, your mortgages — that’s all built on Treasury rates. So when you shake the basis of it, everything on top of it shakes, too.”

The 2008 economic crisis wasn’t started by a nuclear bomb detonating in New York, or a campaign to sabotage the country’s factories, or a plague that struck our able-bodied young males. Rather, investors bought a lot of debt based on subprime mortgages. They performed some tricky financial wizardry that they thought made the debt low-risk. They found out they were wrong. And then, because the players in the financial system no longer knew how much money anyone had, the credit markets froze and the economy crashed.

Now imagine that happening, not with the housing market, but with the government of the United States of America. The cornerstone of the global financial economy is the idea that Treasuries are risk-free. If they’re not, then like in the financial crisis, no one knows how much money anyone who holds treasuries has. But they also don’t know how much money anyone who depends on the federal government — be they businesses or individuals — holds.

This is how a default gets into the rest of the economy: It takes everything the financial markets thought they could know and rely on and upends it. It then shuts off credit, or makes it prohibitively expensive, for nearly every participant in the economy, from states and cities to hospitals and universities to homebuyers and credit-card applicants. That, in turn, freezes all of their activity, which destabilizes everyone who relies on them, which then destabilizes financial markets further, and so on.

It was one thing to have forgotten that this sort of thing could happen in 2006, when America hadn’t seen it for 70 years. But we just went through it. And if we go through it again, the Federal Reserve, which has pushed interest rates as low as they can go, and Congress, which has vastly expanded the deficit, have a lot less ammunition left for a response.

Are we likely to get to that point? No, of course not. But between here and there are worlds where the economy doesn’t crash, but because the federal government panics the market, interest rates rise and the economy slows. In a recovery this weak, that would be a disaster. And it would be entirely of our own making.

By: Ezra Klein, The Washington Post, July 15, 2011

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July 17, 2011 Posted by | Banks, Budget, Businesses, Congress, Conservatives, Consumer Credit, Consumers, Debt Ceiling, Deficits, Democrats, Economic Recovery, Economy, Financial Institutions, GOP, Government, Government Shut Down, Ideologues, Ideology, Lawmakers, Medicaid, Middle Class, Politics, Public, Republicans, Right Wing, States | , , , , , , , , , , , , , , , , | Leave a comment

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