Tuesday, September 23, 2008

Foreclosures and the Mortgage Mess - REALITY

The whole basis of the $700 billion bailout is that there is a problem with too many bad loans going to unqualified lenders and this is leading to too many foreclosed homes. This is hogwash!

The real problem is that Wall Street geniuses created overly complex and completely inane derivative securities products that bundled up home mortages and sold them to investors. These derivative products were basically mutual funds that promised good returns. As home values have sunk, Wall Street investors and investment houses realized that they had oversold these products and started losing money.

While foreclosures are going up and people are struggling with their home payments, the fact is that the overwhelming majority of homeowners are making their payments. Only 1 in 416 homes is actually going into foreclosure right now (0.2 percent). This means that 99.8 percent of homes are still solvent. If we assume that there is a good group of folks who are in danger of falling behind and losing their homes, but who have not yet gone into foreclosure, we can still assume that 95-97 percent of homeowners are fine.

This whole bailout scheme is a ruse to protect wealthy Wall Street folks. Treasury Secretary Hank Paulson is the former CEO of Goldman Sachs - what do you want to bet that if the bailout is approved Goldman get a huge infustion of free cash?

The other secondary reason for the bailout is that foreign investors who took equity positions (i.e., bought stock) in these troubled financial firms that sold these derivatives want their money. So the federal government is going to ensure that foreign investors don't lose their shirts. We need foreign investors to continue to pour money into this country and fund the astronomical budget deficits and to finance our sickeningly high national debt.

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