Marie Antoinette is said to have replied, when told that her poverty-stricken subjects could not afford bread, "Let them eat cake." Although the story is likely apocryphal, it certainly captures the apparent attitude of our leaders today. While many of us struggle to make ends meet, and many are having particular difficulty making house payments, Congress is stuck in political bickering and maneuvering. The politicians that are supposed to be looking out for us seem much more concerned with their reelection campaigns or their party loyalties than what is in the best interests of the country or its citizens.

Let's review: for many years, Wall Street investors have been making buckets of money by investing in (and marketing, and packaging, and brokering, and rating) mortgage-backed securities. The system is complicated, but essentially it works like this: a home owner takes a loan to buy a house. That loan is pooled with other loans and sold to Fannie Mae, Freddie Mac, or into a trust, and it is then "securitized." Investors purchase securities, which represent the right to receive payments from the mortgages in the pool. The amount of money in these transactions is staggering, and the fees, salaries, and bonuses generated made many people very wealthy -- private jets, yachts, New York penthouses kind of wealthy.

Now they tell us that we are going to pay for that. And we are not getting much in return. Not even cake. The fundamental flaw with the bailout plan, from what I can tell, is that it buys those very securities that were created for the benefit of the Wall Street investment companies, and does almost nothing to help the homeowners who are footing the bill.

The first version of the bailout plan, presented a few weeks ago, was only three pages long, and it was ridiculously overreaching. Under that original plan, the Secretary of the Treasury would have absolute authority to spend $700 Billion of our money however he saw fit, with no oversight by a court or Congress. The House version, voted down two days ago, was somewhat better, and included various provisions to limit executive compensation and restore any profits made to the taxpayers. Now the Senate has added even more provisions, but the basic underlying flaw is still there -- the money is going to pay for the securities, and not to buy the actual home loans. So long as the government does not actually own the loans, there is no reason to think anything will change between lenders and borrowers seeking loan modification or relief.

I have been urging my friends and co-workers to contact their elected officials and ask them to oppose this bailout plan. In recent days, I think that we have all been somewhat worn down. In the absence of any true leadership, we resign ourselves to the belief that this is the best we can do. But I do not believe that -- I think we can expect more out of our government, and I think we can continue to insist that we want them to work harder to find a better solution.

Of course, my friends then ask me the logical question: "What should we do then?" For several days, I have been saying I don't know, and I still believe that it is the responsibility of all those politicians to figure it out. But I think that at a minimum, any bailout should allocate funds to purchase the actual loans, and should set up housing counseling agencies that can arrange new terms for homeowners to be able to pay their loans. A recent New York Times opinion column really stated it best -- you can read it here:

http://www.nytimes.com/2008/09/27/opinion/27partnoy.html?scp=9&sq=september+27+2008&st=nyt

Even with all the amendments, and even though the economy is certainly in crisis and action is needed, I do not support the proposed legislation and I will continue to raise my voice against it. We can do better. In American, in the twenty-first century, we should not be required to pay taxes to refill the coffers of the rich.

Yes, individual homeowners need to be responsible for their own excessive spending too. But the system does not work at all unless homeowners are making their mortgage payments. The only real source of money coming into the securitized mortgage pools is the payments we make. And in my experience, working with people in distress every day, people WANT to be able to pay their mortgages! Any legislation to bail out the lenders must also help people pay their loans by instituting a program with teeth in it for making reasonable modification to those loans.

Labels: mortgages, politics