The new HARP 2.0 rules that go into effect soon are certainly helpful for many homeowners who wan to stay in their homes, but who would like to refinance at current low mortgage rates; however, they do little to actually stimulate the housing market. The big bullet that is yet to be bitten is getting the banks to swallow the lost housing equity in this market and free up more homes for sale.
I’ve seen a number of proposals that hinge on getting the government more involved in the process. Most of them have the government ending up owning the homes temporarily and then eating the losses. To my way of thinking this is just a way to disguise yet another bailout of the big banks. They got themselves into this mess with their loose (some might even say reckless) mortgage lending practices and their greedy practices of monetizing the loans in pools of investment bonds. They need to feel the pain of those mistakes, perhaps by cutting out the outrageous bonuses that they hand out to the very clowns that got them into the mess in the first place.
I read yesterday in this week’s Bloomberg Businessweek that Citigroup has recently been handed yet another sweetheart settlement deal by the SEC regulators. Citigroup agreed to a settlement of $285 Million in an SEC complaint that they knowingly created and sold to investors a complex financial instrument based loosely upon earlier Citigroup mortgage pool bonds. Basically it was a bet on a bet. The thing that the SEC alleged is that the Citigroup people not only knew that this was a sucker bet (it was designed to fail), but they also put their money on the failure – they bet against their own investment. Of course it did fail; however, from the fees and winning bet on its failure Citigroup made as much as $700 Million.
If true (which Citigroup did not have to admit in the sweetheart deal with the SEC) I’d certainly like to know where this betting window is. It’s like being able to enter a nag in the Kentucky Derby, talking up its chances to drive up the betting line, betting against it and winning big when the nag loses. So what if you get fined $285 Million, if you made $700 Million? That is, after all, capitalism at its finest.
How are these things related? Well they both have home mortgages at their core. Both illustrate the government casting about for answers or direction, yet unwilling to take on the corporate corruption that is at the center of much of the mess that we are in. Government at its most basic level is supposed to represent the governed – the people. Our system has devolved to the point where it represents those who can afford to buy the attention of the politicians – special interest groups (who most often bully rather than buy that attention) and wealthy corporations. They are too big to fail or too loud to ignore. In either case their voices and demands most often drown out the voices of regular people.
Given the place where we are at right now, there is little hope that real solutions to the current housing crisis are forthcoming from Washington. Instead, we will likely see the slow process of correction play out in the form of continued high foreclosure rates and short sales. The only group that apparently is not too big to allow to fail in the eyes of our politicians is that group mentioned in the front of the U.S. Constitution, “We the people…”