Mass re-financing is in the news lately, a program where the federal government will guarantee the loans of homeowners who have established credit worthiness but have homes so far underwater no mortgage company will touch them. This is a radical concept for some, as it could put the government at risk for billions of dollars if people start defaulting. That alone will probably kill the bill, as the government is currently afraid to buy three-ply toilet paper if it will increase the debt.
The real problem is the whole idea is too late. This idea should have been crammed down the banks’ throats as a condition of TARP, with the banks accepting most of the risk. It’s not like the banks haven’t extended themselves in a similar manner before.
Remember when Donald Trump was bankrupt? The Donald certainly doesn’t. Trump has claimed various levels of bankruptcy four times and come out ahead each time. Why is that? It’s not because he’s smarter than everyone else; one look at his hair tells you that. No, The Donald got so far into the banks they couldn’t afford for him to go tits up, so he pretty much got to dictate terms. (Sound familiar?)
What the banks and government fail to recognize—or just don’t care about—is that we’ve been in the same situation for the past four years, with one exception: it’s not one guy who owes a massive amount of money, it’s a lot of people who owe a little. True, loans in the $100,000 to $300,000 range seem like a lot of money to us, but to these guys $100,000 is an office decorating expense. They’d rather throw thousands of people into the street than say, “Let’s find a win-win here. We won’t make quite as much, but we won’t have to sell a $250,000 home for $100,000, either.”
But they won’t. And no one will bring it up to them now, because government has no place telling banks how to run themselves. All government does is make sure they stay afloat when their Ponzi schemes fall apart on them.