Helicopter Ben Bernanke: Foreclosure woes require action

Helo Ben says that preventing people who bought insanely overpriced homes at the peak of the speculative bubble from being foreclosed, and trying to prop up still-wildly inflated home prices is in "everybody's interest". But is it in the interest of savers, prospective first-time home buyers who were priced out of buying by the speculative frenzy of the 2000s? Is it really in the underwater foolish buyers' interest to stay chained to depreciating homes that were never worth anywhere near their purchase prices? Or is it that Bernanke is a banker, and is aware that keeping millions chained to mortgages on depreciating assets is primarily in the LENDERS' interest?

And how much of this is all about trying to extend the false feeling of wealth the so-called middle class rode as they tapped their illusory "equity" to finance the massive consumer spending spree that kept the economy afloat even as wages fell and more jobs were offfshored?

Isn't the effort to prop up housing prices all about keeping Joe Six-Pack quiet about the fact that US wages are quickly approaching parity with global wages, so that the robber barons can continue looting for a few more years until what was our vibrant and productive economy is nothing but a dried-up husk? The fact that homes in the US are going to continue to fall in value until they are in line with incomes is a fait accompli, it's just a matter of how fast, and how long. So why prolong the inevitable if not to keep Mr. & Mrs. Plasma-Screen quiet about the wage deflation and credit binge that has left them awash in debt, and will make their children the low-wage labor pool for future Chinese robber barons to exploit?

Worst of all he is advocating that lenders forgive principal for underwater buyers. If the government goes through with this, I would like to mount a class-action lawsuit against the government to insist that they forgive an equal percentage of the principal on my student loans. Aren't we all due equal protection under the law? Why the hell should foolish buyers be entitled to a giveaway that none of the rest of us get? All so that the banks can keep their ill-gotten gains? Seriously. Why on earth should the government (taxpayers) away billions of dollars to middle-class foolish buyers when 40% of Americans still can't afford to buy homes? WTF?

Anyway, here are Helo's comments...


http://tinyurl.com/5hmrfq


Bernanke: Foreclosure woes require action
Price declines have become one of the biggest contributors to high default rates, Fed chief says. Stopping foreclosures is in 'everybody's interest.'

By Les Christie CNNMoney.com staff writer
Last Updated: May 6, 2008: 6:40 AM EDT

NEW YORK (CNNMoney.com) -- The wave of foreclosures sweeping the nation are driven in part by a nearly unprecedented decline in home prices and require a concerted government and private-sector response, Ben Bernanke, chairman of the Federal Reserve, said Monday. "Realistic public- and private-sector policies must take into account the fact that traditional foreclosure avoidance strategies may not always work well in the current environment," Bernanke said in a speech before the Columbia School of Business.

....

Foreclosure filings of all kinds - delinquency notices, auctions sale notices and bank repossessions - were up 112% during the first three months of 2008 compared with the same period a year ago. Community advocates and policy makers are worried that the problem will worsen as the interest rates on as many as 1.8 million mortgages reset this year. "High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy," concluded Bernanke. "Doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It's in everybody's interest."

In explaining the forces behind the problem, Bernanke cited the "increasing role" of declines in home values. He unveiled a series of "heat maps" that showed delinquency rates, job losses and home price changes. Unemployment statistics, according to Bernanke, do not explain the increased delinquencies of many areas, including California, Florida and parts of Colorado, where foreclosure filings have increased even when unemployment generally have fallen. More revealing was the close correlation between declining home prices and high delinquency rates. On the home price decline map, states like California and Florida were drenched in red, indicating the worst losses. On the map revealing the highest foreclosure rates, the same states were also covered in red.

....

Because of price drops, many of the borrowers are now "upside-down," meaning they owe more than their homes are worth. Many of the owners had counted on the idea that their home values would continue to soar, increasing their home equity, which they could then tap to pay their bills. Now, they can't afford to pay off their mortgages and they have no assets to rely on. In the past, said Bernanke, lenders and companies that service loans were "used to dealing with mortgage delinquencies related to life events such as unemployment or illness. . . . A widespread decline in home prices, by contrast, is a relatively novel phenomenon, and lenders and servicers will have to develop new and flexible strategies to deal with this issue."

This is an outright lie. As a student of the depression, Bernanke knows that home prices dropped precipitously then, and were flat for decades for much of the last century. He is undoubtedly also familiar with the Florida land boom and bust of the 1920s, which also closely mirrored what happened nationwide in the 2000s. This was anything but unprecedented.

In some cases, such as when the value of a home has fallen below the mortgage balance, a writedown of principal may be the best solution, according to Bernanke, although, he added, to be effective they must be targeted to cases facing the highest risks of foreclosure.

WALL STREET MUST PAY UP.

My house was foreclosed on Monday. I lost my 20% down payment (40k). Just like that whoosh. I'd been up for sale for about 18 months. Was I foolish? Yeah, I was. I was lied to by 2 different mortgage brokers and I should have known better. The bottom line for me wasn't so much about the rise in interest rates (that hadn't hit yet) but rather a huge decline in income. I tried to do the responsible thing and sell but nobody was buying. Now on top of losing my home, my investment (which was the entirety of my 401K) and my credit rating, I face the possibility that the bank is going to come after me to pay them the shortage from the the sheriff sale. I didn't have a mcmansion, I had a humble 3 bedroom 1 1/2 bath house in a quiet neighborhood. I lived there 7 1/2 years, I not only invested my entire net worth into it, I also remodeled and made updates. Yet more money spent with no return on the investment. I'll concede to a little bit of foolishness or lack of financial savvy but I think it's happening to too many of us to just brush it off as something that we deserved. I'm not sure what the solution to this mess is, I know I don't think it would be right to save the banks and fuck the borrowers. I also know that an investment company bought my house at auction and they're not going to sell at a loss, they're going to hold on until the market swings up again and once again the rich get richer and the poor get poorer and the middle class still gets screwed. The one thing you're not factoring in here (and I don't begrudge you the right to feel like you're getting the short end of the stick) is that all of these houses sitting on the market will adversely affect ALL homeowners at least in the short term. Some will be able to ride the storm out and just hang on but anyone who needs to sell for a job transfer, or to be closer to family, or for whatever reason, is going to suffer. The entire middle class is at risk here, not just those of us foolish enough to get foreclosed on. Maybe we should let it collapse but then what?

I'm sorry you were not able to swing it financially, but hadly anyone was seeing this as a bubble in 200-2001. To me, a foolish buyer is someone who bought a $400K stucco job in some Inland Empire burb in 2005 or 2006. The info was out there by that point that we were in a speculative frenzy - anyone who bought should have known they were taking a huge gamble.

Again, I don't know your particulars and don't care to sit in judgment of the financial decisions you made after buying. There certainly was a whole industry out there trying to convince people to borrow against their "equity" so they could by marble counters and flip their homes for a tidy profit. A lot of people fell for it. Some people actually did make a tidy sum from it, if their timing was right.

There are a lot of innocent victims out there among the flippers and scammers - I know. But the fact is that aiding them while millions of people scrape by on food stamps in crappy apartments simply seems wrong. Maybe the real-estate agents and lenders that conned people should have to reimburse buyers in the case of outright deception. Unfortunately, many of these lenders are going under as we speak, so I don't see that happening.

And yes, the wave of foreclosures and vacancies is going to leave a lot of exurbs looking even uglier than they already are, but even forgiving principal on underwater houses will still only have limited effect, since the homes are STILL overvalued relative to incomes. Without all the easy credit based on foreign capital and millions of people willing to overleverage themselves just to get into a POS house, the prices will only stop falling when home prices are in line with our stagnant incomes. There is no way to get around that.

You want to make the housing market turn around? Put pressure on the government to enact policies that will create WAGE INFLATION. That's the OINLY thing that will fix our economi woes.



PS- I'm a pinko because I'm a leftist. My concern is for the underclass, first and foremost, and it will always be so.

my industry has taken a hit and my wages haven't just stagnated, they've actually gone down and if you factor in cost of living increases the loss in income is huge. This is one of the many reasons I favored John Edwards, because I felt that he was the only one who was willing to address the collapse of the middle class and the increasing number of people (single women with children particularly) who are living below the poverty level. I'm not just a pinko, I'm fully a red communist on my beliefs about the distribution of wealth in this country.

I liked him for that. I wish we lived under a proportional representation system or some mixed system. I'd rather vote for the Socialist Party or the Social Democrats or Labor than what we have now. The two-party system is a cruel joke.

I'm still hoping that Obama will ask Edwards to be his running mate. We NEED that right now, I would even go so far as to say the future of the middle and working classes depends on it.

The thing that mystifies me most is the assertion by the media that he's "the most liberal member of the senate". How do they figure? By what standard?

And how is it that whoever the democratic nominee is, they always declare him "the most liberal whatever"?

or that they're using "most liberal" as a put down. I don't think our government will ever be as far left as I'd like to see it but I still hope that under a Democratic president we can make some gains to returning to the vision of America where we all share in America's wealth and are equally represented. Your original statement about economic collapse may hold true here. Perhaps we will need to go through a total economic collapse before enough people wake up and smell the corporatism and demand change. I hope it doesn't have to come to that or a revolution before we see dramatic change.

Take the state of Mississippi and the state of California. In the US Senate, both of them get two seats, yet California is many times larger in terms of population than Mississippi. Essentially, there is a built-in bias in favor of small states. Incidentally, that means the Senate chamber is biased in favor of Republicans. In an election between a center-rightist and a far-rightist, a center-leftist would be considered "far left."

The Senate was envisioned as a compromise between small states and large states at the last constitutional convention; however, at the time political parties in the US had not yet come into formal existence. If political parties were a regular fixture of politics in those days, I'm fairly sure the Senate would not exist or exist in a different form because few of the larger states would agree to such a handicap. Likely, the system would've more resembled a parliamentary system built on something like proportional representation as opposed to our presidential system. In such a system, it's extremely difficult for one party to gain a majority of the seats, and people like Washington would've rather that be the case because they distrusted political parties.

As it stands, our system can enable one party to gain domination over all branches of government. That way lies tyranny, and if we had to build a new country from scratch, I would be extremely opposed to re-instituting the presidential system.

Our system won't change unless major stress is applied. Unfortunately, I believe the only reason FDR won was because of the Great Depression. Without it, people like him could not have gained power. I don't honestly see any evidence that America will elect another person with views in common to the Social Democrat or even Socialists unless there was no option left, and that's the real tragedy. Like a bunch of people in a cave who refuse to see the light at the entrance of the cave to escape.