Posted on 11/30/2007 5:07:18 PM PST by givemELL
If the mortgage crisis and housing bubble have taught us one thing, it should be to watch out for the unintended consequences of greed. Unfortunately, our nation's legislators and political appointees haven't learned that lesson. Recent plans for housing and mortgage bailouts generally run from dumb to dumber. Today, The Wall Street Journal reported on yet another scheme, reportedly being spearheaded by Treasury Secretary Hank Paulson. It's an idea so naively populist and antimarket that you would think it came from Hugo Chavez, Evo Morales, or Mahmoud Ahmadinejad, if not for its cringe-inducing, Beltway-wonk moniker: the Hope Now Alliance.
The stock market seems to like it. And what’s with the hyperbole in the article?
Stock markets which rally with Fed Fuel via rate cuts, and with potential bailout suggestions...are overreactive and not healthy in and of themselves. The hyperbole in the article was not necessary. Socialism bails out the accountable, allowing no failure, at great expense, and misery is evenly spread (almost evenly, someone at the top has to survive). Capitalism is all about failure, accountability, and focused loss or gain. The personalities quoted in the article were not necessary...and, the article holds much more than that for discussion and consideration. Paulson has lasted longer than Cruz at Morgan Stanley (Socialism vs Capitalism?)and, Bernanke and Greenspan will be viewed differently than they are viewed today. All derivative instruments associated with the current world-wide banking debacle will be gone within five years. Some legacy.
The stock market ALWAYS “reacts well” to rumors tending toward interest rate cuts.
Worth a read...excerpt from http://wallstreetexaminer.com/blogs/cutting/?p=97 ...”If the credit market stress is revealing a clue, it’s that Hank Paulson and Sheila Bair have no clue.
If you force investors and lenders to accept less, are you not in fact forcing them to devalue their debt asset? In doing so, are you not in fact devaluing a good chunk of their assets immediately? Apparently, this might be enough to upset some mortgage note investors:
Mortgage-industry lobbyists have argued an across-the-board solution is difficult to apply. Rewriting contracts also risks moral hazard — encouraging borrowers to take on more debt in the expectation of being bailed out if needed later.
“It is really an indiscriminate procedure that would violate the terms of the contract that provide for loan-by-loan decision making,” George Miller, executive director of the American Securitization Forum, said in an interview this month. A broad approach would “significantly disrupt the reasonable expectation of investors” in the $7.1 trillion market for bonds backed by mortgages.”
All true. The ramifications haven’t sunk in to the knee-jerk crowd.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.