Massive $25 Billion PriceTag Put On Planned Bailout of Big Banks
Are gullible home buyers, mega-banksters worthy of our tax money?
AS CONGRESS STRUGGLED with the housing crisis, it voted to reward crooked banksters and greedy consumers who deliberately bought homes they could not afford. True, some Americans were simply misinformed or uneducated about buying a home and easily manipulated by the loan industry. Perhaps they should be more pitied than censored.
But, amazingly, it develops that most home buyers were well-informed, if not by banksters, by their own lawyer, real estate agent or financial advisor about buying a home where the initially low interest rates would surge in a year or so, adding hundreds of dollars to their monthly mortgage payment and driving them into foreclosure.
This was addressed by Michael J. Derevlany, a lawyer in Wynantskill, N.Y. in a letter to the August, 2008 Readers Digest: “As an attorney, I saw far too many clients with unusual financing. I always brought it to their attention, but people want what they want. A colleague and I called these crazy deals, half in jest, the ‘foreclosures of the future.’ Sadly, that’s what some have become.”
About 1.5 million mortgages entered foreclosure in 2007 and that will increase to up to 2.5 million in 2008, Treasury Secretary Henry Paulson said during congressional hearings.
The frivolous attitudes Americans have about spending money they don’t have is demonstrated in their use of credit cards. In recent years, Americans, on average, have run up credit card bills of $10,000, paying only the interest. A few years ago, these credit-card bills were run up to buy shiny things, not essentials. Now, many Americans are jerking around different credit cards to buy food.
Nationwide, home prices have fallen about 17 percent from their peaks in 2006, according to the closely watched S&P/Case-Schiller Home Price Index.
Analysts predict that house prices will continue
to fall for at least another year and futures market indicate prices could drop another 20 percent. Evil leaders offered these “subprime” loans without regard to a homeowner’s ability to pay them back. Those who expressed concern about paying the mortgage when the rates would automatically leap were assured they could easily refinance before the increase because home prices would increase. But falling prices meant those homeowners were unable to refinance and obtain affordable interest rates.
Certainly, bankers who thus deceived and victimized ignorant Americans should be dealt with harshly. Fannie Mae and Freddie Mac? These government-chartered institutions deserve harsh punishment instead of the blank-check credit Congress authorized. But together, they are buying off Congress. According to the Center for Responsive Politics, Fannie and Freddie have contributed nearly $20 million to congressional campaigns since 1990. They have spent $170 million lobbying in the past 10 years. They have donated $1.68 million to the current congressional campaigns.
A federal rescue of Fannie and Freddie could cost taxpayers $25 billion, according to the non-partisan Congressional Budget Office.
But Congress is throwing them a lifeline. It’s part of a plan to let hundreds of thousands of homeowners facing foreclosure refinance into more affordable, government backed loans at fixed rates.
The bill also sent $4 billion to neighborhoods hit hardest by the housing crisis—mostly black, inner-city ghettos. President Bush threatened to veto the bill unless this item is dropped. But he reversed himself and said he would sign the measure.
There’s much wrong with this legislation and Sen. Jim Bunning (R-Ky.), writing in USA Today, says it best. Bunning has been in Congress many years but may be best known as one of the greatest pitchers in the history of the Cincinnati Reds. The Senate has passed a similar housing bill.
(Issue # 31, August 4, 2008)