austindefender

Criminal defense in Austin Texas.

Bailouts

Posted By on November 25, 2008

Citibank’s getting another $40 billion or so, along with guarantees on another $300 billion worth of debt.

It’s so frustrating watching this process unfold. Citibank was only worth about $20 billion when they announced the plan. We could have bought the bank twice over with just the cash we’re giving them.

Meanwhile… mortgage modifications seem to have become all the rage. Tom Lindmark has a piece in Seeking Alpha called Ten Reasons to Hat Mortgage Modifications. All ten are good reasons, but two of them particularly stick out.

The Next Generation of Homebuyers Gets Disenfranchised: A decline in the price of housing is viewed as something akin to the plague while declines in other goods, say crude oil or its derivative, gasoline, is applauded. In fact, the decline in the price of housing is opening up opportunities for the next generation of buyers. Arresting the decline punishes them unjustly.

Mortgage Rates Soar: Abrogating contracts either through the use of the bankruptcy courts to cram down principle or jawboning servicers will destroy investor confidence in mortgages as an investment vehicle. The attendant risk premium that will be attached to home loans will drive interest rates to credit card levels.

In other words, there’s no free lunch. Bailing out the people who caused the mess will mean less affordable housing at higher interest rates for the next generation of buyers, along with higher taxes and more government debt.


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