Principal Reductions are Needed!

It was neo-liberal policies that created this mess and it will take progressive policies to fix it. There are several reasons why we have not seen progressive policies from Democrats: 1) They are owned by Wall Street and 2) Such policies require a shared sacrifice (which has been absent for quite some time) or the financial oligarchy to experience some pain. We have seen nothing but policies that support the financial sector. That will have to change if we are to move forward.

The mortgage crisis that triggered our economic crisis or Great Recession was created by a lack of regulation and increased financialization. But we have failed to address the underlying problems of the mortgage crisis. In fact, most programs intended to address the mortgage crisis have failed miserably.

The biggest problem with the housing market is "negative equity". This where people owe more on their mortgage than what the value of their home is worth. Negative equity is the major reason for people to default on a mortgage and for people to simply "walk away" from a mortgage and home.

We need to address this issue directly instead of the current programs which only address the size of the mortgage payment by manipulating mortgage rates and term of mortgages. Addressing the issue 'negative equity' more directly will require that the financial conglomerates and financial sector to share in the pain of a problem that it largely created. The following are proposals to address the mortgage crisis:

1) For those we have remained current on mortgage payments - mortgage principal reduction to eliminate 'negative equity.' Not every part of the country is experiencing negative equity. The amount of principal reduction would be based on average price levels and mortgages according to census tracts or other geographic characteristic.

2) Own to Rent as proposed by Dean Baker. For those in process of foreclosure or at risk of foreclosure, the former homeowner should be given the option of staying in the home and pay a fair market rent.

3) Create a much less complex home mortgage finance system similar to one in Denmark.

It is way past time to start providing support to foundation of our economy - people and families. The current policies only support the financial sector and financial conglomerates. Our government, instead of helping the rest of the country and our economy, chooses to support the financial sector/conglomerates who choose to horde their welfare payments and welfare subsidies.

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Comments

What is a "Progressive"?

Seriously. I have seen so many special interest and corporate agenda labeled as Progressive, it's the main reason I grabbed Populist as a title.

What does that mean? I know what you think it means but I also think this is the reason DeFazio started the Populist caucus in Congress.....because the term Progressive has been co-opted.

Here's what I would like to see, some plain good ole fashioned common sense policy, based on real statistics, real theory and is in the national interest.

I think every political flavor can agree we sure as hell don't have that!

Take just trade as an example, does it make sense to put together policies and agreements that have created the largest trade deficit in U.S. history? I think not.

Does it make sense in any way, shape or form to say financial institutions have gotten so large, they pose systemic risk and are too big to fail....therefore.....we should make them bigger?

Anyone with even a 2nd grade education knows that's fundamentally nutso.

Does it make sense to use taxpayer dollars to offshore outsource jobs? Uh, not by any calculation or formula I've seen....unless one is seriously interested in destroying the U.S. middle class and enable global labor arbitrage that is.

Seriously, it does not add up in terms of recycling public expenditures as stimulus back into the domestic economy from where that money originated. It's just pouring government expenditures out of the nation. Then, even if one looks at wages, either the cost savings are not there or often, the costs actually increase....

so this is just stuck on stupid and you won't hear a peep out of State and Federal government on it.

And your point of this post, does it make sense to make it more profitable to foreclose on residential properties than simply giving a principle reduction and let people keep their homes in a bankruptcy? (the law was changed in 2004 to force this situation). Obviously not. The foreclosure projections for 2010 are...
(drum roll please)....about 4 million, which is a steady increase from this year.

Does it make sense to have it make more sense to walk away from a mortgage than pay it? No.

Political labels are just more noise in the machine....regardless of flavor, we simply get legislation, policy written by corporate lobbyists and not based on sound, fundamental economics and statistical realities....

We need the national interest and common sense party!

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I am a Progressive.

and here is a nice article that defines Progressive values for me.

These proposals address three issues: 1) negative equity via principal reductions; 2) negative effects of foreclosures on families and communities by giving people options to rent; and 3) a less complex, less securitized home mortgage system.

RebelCapitalist.com - Financial Information for the Rest of Us.

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???

That's pretty damn vague frankly. One can claim some policy is "opportunity" when in reality it's a disaster. Take joining the WTO as an example...that was sold on a host of so called "progressive" values and look at the results.

This is a primary point of EP....I should add it to the FAQ...no vague adjectives allowed. ;) Seriously, how many times have the American people be sold some corporate lobbyists' wet dream on some nice sounding claims?

The point of EP is to get to the real statistics and details and this is why....trojan horses. Unless one digs in deep, you do not realize what's really going on.

I know I'm giving you a hard time, but this is seriously important. I cannot tell how many times I've seen something labeled as "fill in the blank" political flavor to look at the details and realize it was policy which would significantly hurt the U.S. national economic interest, middle class, American workers and so on.

Even some of my favorite blow hards have their weaknesses on some policy areas.

Speaking of this, I noticed HuffPo has Pat Choate on the business blog columnists, which is good. I believe Choate is either an ind. or even possibly a conservative...
but on economics, he's got some of the best statistics I have seen to date, which is probably how he got a column.

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Words are open to interpretation.

What matters are the policies and actions.

In regards to trade, the problem we have is HOW we engaged globalization not whether to engage or not. Isolation would be crazy but unfettered "free trade" is also crazy.

RebelCapitalist.com - Financial Information for the Rest of Us.

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BTW, how do you define 'populist'?

Some would argue that tea-bagger movement is a populist movement.

RebelCapitalist.com - Financial Information for the Rest of Us.

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heh heh

Basically we are "the people", therefore Populist is whatever we say it is! ;)

Officially it's a "catch all" which is another reason to grab it.

Populism usually means the majority of the people want something and also yes, there are a few trying to co-opt the term but it's really from way back in the early part of this century, last part about 1896 and this was kind of a similar movement to the Progressive moments of that time, i.e. TR, etc.

But you're right and "Populism" has been used for about every movement that was an upstart or not the establishment, including some pretty scary ones.

But officially it's a "by the people" sort of deal and since EP is a non-partisan, anyone can write as long as they have their facts on straight and are cited, credible....kind of fit.

Also picked it so people would feel free to buck whatever the party line was if it didn't make a lot of economic sense.

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Just taking the first steps

Just taking the first steps to refinance a 400K 2nd home that has declined in value by half -- still angry that I paid too much because the banksters and real estate "industry" pumped up prices (I bought about a year before the peak and paid 20% down), and now massively under water. I still have good income, and more than enough money, butI have visions of defaulting and letting the banks worry about it. Yes, I know the arguments -- my 775 FICO goes south, plus they will sue me, but I would like to see ALL who have mortgages just stop paying at once. I'm willing to buy my mortgage at a discount -- oh, that's right, securitization and the Fed have made the mortgage disappear and it is considered priced at par. But I still have these visions of telling the people who dealt this mess to eat it. A mass default may be the only way the American people can wake up these clueless bankers and Uncle Ben's gang.

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The climate is right for a Debtor's Revolt.

I strongly advocate that we create a new less complicated less sliced and diced system like the one Denmark has.

BTW, don't forget that in some states banks have a right to pursue deficiency judgments against mortgage borrower.

RebelCapitalist.com - Financial Information for the Rest of Us.

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Rebel, you were ahead of the curve on this post

HuffPo lists a new study that just came out.

State Foreclosure Prevention Working Group, a collection of 12 state attorneys general and three state banking supervisors, have a new study (don't see the link)

but concludes it's a failure to write down principle.

You might want to do a "follow up" if it has a lot of stats, graphs and such?

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A lot of people have been saying this for a long time.

The above proposals were based on my experience with this fu*ked up mortgage system we have.

Lenders don't want to fix this problem - they want to "ride out the storm" - thinking that real estate prices will come back. What they are doing is freezing the housing market.

Negative equity is what is wreaking havoc on the housing market but no one wants to directly address this issue.

RebelCapitalist.com - Financial Information for the Rest of Us.

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profits squeeze

just like credit cards, they don't give shit on how this affects the overall economy, the long term, the middle class...it's all about short term profits.

But research, studies have a tendency to prove it de facto.

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