— A couple of professors in an NYT op-ed make a convincing case that the Obama/Geithner housing bailout is doomed to fail. They propose writing down the principal for underwater borrowers. It’s very interesting, but seems suspiciously simple—and cheap. It couldn’t be that easy, could it?
— Felix Salmon at Portfolio says it makes sense and isn’t immoral for a homeowner to walk away from a deeply underwater mortgage, especially when he’s already lost his $300,000 down payment. He calls out CNBC for getting outraged that a caller is thinking of doing it.
— Daniel Gross at Slate says the idea that Obama is declaring war on the rich is laughable, and pokes ABC for a particularly bad tax article (which it had to rewrite).
— Barry Ritholtz blows up those blaming Obama for the stock market decline, noting stocks went down more in George W. Bush’s first six weeks, and it was just as ridiculous to blame Bush (which nobody did).
— I like this David Ignatius column in the Washington Post making the case that Obama needs to be a little more TR, and a little less FDR. Break up the “too big to fail” companies.
— Nearly one in eight Americans is in foreclosure or late on their home payments.
The Obama Nation Today:
Jan.20,2009-Mar.05,2009 = -1643.53(-19.85%) Obama Presidency
Jan.26, 2009-Jan.21,2009= -2359.49(-22.29%) Bush Presidency
Barry Ritholz is manufacturing myth. The first two months of the Bush Presidency were a raise in the Stock Market. There was a rise of 119.24 from January 21, 2001 to March 9, 2001 or 1.13% increase.
This deification of Obama and historical revisionism needs to stop.
#1 Posted by John Lloyd Scharf, CJR on Fri 6 Mar 2009 at 12:34 AM
You're talking about the Dow, John. Ritholtz is talking about the Nasdaq.
#2 Posted by Ryan Chittum, CJR on Fri 6 Mar 2009 at 08:25 AM
S&P is a better index. It covers more of the market and is market-cap-weighted. But who cares? You can't pick out a president's actions from other things effecting the market over 60 days.
On the NYT op-ed: This is a gold mine!
1. So we're OK with giving home owners a free option? They get the gains when house prices go up and we cover the losses when they go down?
2. This is evidence that the subprime crisis is not one of writing loans to people who can't afford them, but of an asset price bubble. If people truly couldn't afford them, then even people whose homes had gained value would be defaulting.
2.a. A caveat is that there may be regional differences. For example maybe there are more "bad" loans written in Cali, which contributed to a greater rise in prices, and now a greater decline in prices. In other words, there is correlation between irresponsible lending and people being underwater.
3. "If writing down principal is such a good idea, why aren’t banks and servicers doing it now? Many banks are not marking their mortgages down to the foreclosure values the market foresees, hoping instead that we taxpayers will buy out mortgages at near their original inflated value". But earlier he writes "taxpayers... now effectively guarantee the securities linked to these mortgages because of the various deals we’ve made to support the banks." So which is it? Have we already backstopped the loans or are banks waiting for us to do so?
4. "making sound modification decisions is costly; servicers don’t want to spend the money and lack the personnel to do the job." Sound modifications are the gov't's specialty.
5. This plan is appropriation of lender's property. They are owed X, but the gov't dictates that they are now owed X/2. We should tread carefully.
#3 Posted by Chris Corliss, CJR on Fri 6 Mar 2009 at 01:12 PM