While talking to another poster by phone today, we were musing about what was really going on. Here are some of my thoughts:
After physically seeing a very real deterioration in the economy last fall and winter — once exceedingly busy restaurants and shops were suddenly almost empty, and many people “on the street” telling me about how slow their business suddenly got — there appeared to be a rather significant turnaround around the beginning of the year (around February, and accelerating through March). Stores, restaurants and other businesses are now suddenly busy again, and proprietors are telling me about the pick-up which they can’t explain, but are very grateful for. Addditionally, the housing market has definitely picked up since last fall/winter, when things were finally looking like they might be coming back to sanity.
Concurrent with this pick up in activity are more and more stories about people who have chosen to stop paying their mortgages, while others have renegotiated with their lenders, sometimes getting a principal reduction, and getting much lower rates — often temporary rate reductions (3-5 years), which is a bit mind-boggling. Hasn’t anyone learned anything?
Lenders are telling people to stop paying their mortgages so they can re-work them, and someone posted somewhere (here) about HUD telling a borrower to short-sell their house and buy it back through a third party! Basically, that’s letting these over-encumbered scammers to just name the price they want to pay, because agents are not obligateted to send all offers to the lenders (that REALLY has to change, BTW). The FBs can just put in an offer for 30% of their original loan and submit only that offer, getting a 70% discount from the price the originally wanted to pay!
Anyway, how much of today’s economic activity is due to the “hidden stimulus” of people who are no longer making a housing payment…month after month after month? A big deal was made of Bush’s one-time, $600 checks last year. Imagine what $2,000-$3,000 per month, every month, will do.
In the meantime, the new mark-to-market rules will hide all these losses, and the government (that’s us, again!) will buy up all the “toxic paper which cannot be valued” at full price, or even 70 cents on the dollar. Paper that is technically worthless or maybe worth 20-30 cents on the dollar will be bought up by the govt and the bankers/lenders will be made relatively whole at our expense.
Technically, it might work. From a moral hazard perspective, it stinks!
