Bair and Dodd, the Village Buffoons
Dodd and Bair (the FDIC) still can't get it through their thick skulls that there's nothing they can do that can stop the drop in housing prices. Foreclosures are only a symptom, really, of the problem, which was simple: People borrowed more than they could afford to pay because they assumed they would not HAVE to pay. They assumed they would refinance, cash out at an inflated price, or they didn't bother to do the math at all.
This Washington Post article explains just how demented Bair and Dodd are. They're currently touting a mortgage bailout for deadbeats that bases its costs to taxpayers on a fantasy. Bair's current bailouts at Indymac are not doing well, because reducing payments doesn't cover the disappearance of the massive fantasies that underwrote these mortgages and home prices.
Of course, this hasn't stopped her from contining to try and push this bleeding-heart plan through any government channel that will give her a listen. Since her own bosses have stopped listening to her, she's teaming up with Chris "I got a sweetheart deal from Angelo Mozilo and looked the other way while the entire housing Ponzi scheme was making him rich" Dodd.
Borrowers who have missed at least two monthly payments would be eligible for a reduction in their payment. The new payment would require that they spend no more than 31 percent of their monthly income, a relatively conservative standard. By comparison, lenders historically calculated that borrowers could afford to spend up to 28 percent of monthly income before taxes on housing.
In exchange, mortgage companies would receive a basic guarantee: If the borrower falls behind on the new monthly payments and the company ends up losing money on the loan, the federal government will cover half the loss in most cases.
The estimated cost of the plan is based on the assumption that only one in three borrowers who get a modification will be unable to make the lower payments. That would require a higher success rate than existing modification programs have achieved. About 45 percent of borrowers who received loan modifications from mortgage companies last fall already have slipped back into default, according to a Credit Suisse research note.
Bair and Dodd are either stupid, liars, or both, if they claim this plan can exceed by 22 full percentage points the success rate of the prior deadbeat workouts.
I vote for some from both columns. Worst of all, they can't do simple odds in their head, because their rationale for the plan (that this would save the economy) requires an entire string of unlikely draws to come through in succession. Their fixup requires...
Greatly slowing the tide of foreclosures with such a plan (1 in 20 chance, I'd say, at best) and that this will put a floor under home prices (not a snowball's chance in Hell, let's call it 1 in 100 to be kind). And then it requires that somehow, people get so excited about living in their still-but-less-underwater homes that they head out and start buying Cozies for their Hummer spares and iPods for their dogs again. (1 in 2 chance, we know how American consumers are.) Still, I make the odds that this plan actually helps the economy to be 1 in 4,000.)
Oh, this would also require that people who feeling cash strapped not game the system, stop making payments in order to qualify for the deadbeat rewards program, and toss housing down an even deeper hole. That would require that people be too stupid to figure out how to save themselves thousands of dollars at their neighbors' expense, and I have more faith in Americans buck-sniffing ability than that.
What really needs to happen is that Dodd and Bair go back to high school and take economics 101, and pay attention to the stuff they teach in chapter one about supply, demand, and prices.
Home prices will "stabilize" when they reach a stable relationship with incomes and equivalent rental prices, and in many areas of the country, that means another 30% drop in house prices at least.
This dangerous waste of taxpayer money shouldn't get a second's hearing, and Bair should be shown the door for continuing to stump for this plan. Her job is to make sure bank deposits are safe by regulating the capital in banks' coffers, not plotting a failed social policy simply because she's been handed the keys to failed lenders.
What will save this economy is allowing the greedy, the idiotic, the naive and yes, the simply unlucky, to actually fail, so that the responsible can drive by, pick up the bargains, and get the wheels rolling again.