Potemkin Plan from Occupied White House

Today we will get that credit crunch "Plan" the occupied white house has been trumpeting about, that will give relief to only those home buyers who can meet and have been meeting scheduled payments on their sub-prime loans, and has been bought into by mortgage financers.

The administration is finally forced to act because it is threatened with actual solutions to the overall problems being offered in Congress. This patch on a bursting industry is being pressured out of an industry that knows it has taken the whole country into highly dangerous territory by its greed and mammoth malfunctions. The small number of loans affected will help to boost that new Gold Standard, 'consumer confidence'. That may save the country from disaster, but as I reported in my post earlier this week, most industry insiders are dubious.

Shareholder suits are the threat the mortgage industry chooses to cite, but precedent is perhaps more important to them. This acquiescent administration has let them get by with misfeasance to the peril of our entire economy. Being successful in acting now, might the cretin in chief get the idea that he might gain more legacy points? Oh, horrors, act against the corporate world in order to preserve the public from further harm? I wouldn't worry much if I were they. This corporate servant has no taste for public interest, in fact disdain seems to be its motivation in that realm.

Proposed congressional remedies would include a provision that would give irresponsible lenders no say over workouts - meaning their beloved authority over whether to allow time to homeowners threatened with foreclosure would be lost. Of course, foreclosure gives them other fees, off which they make their beloved profits, so they much prefer foreclosure. Insurance required of subprime borrowers won't pay the mortgage firms in the case of a workout, but only in the case of foreclosure.

The possibilities of a particular bill have been pointed out by responsible financial analysts. Senator Durbin has proposed that bill, and hearings on it were held yesterday that provided real Oversight of the executive branch. His proposal would remove the optional/voluntary nature of financiers' working with the abused loan recipients. It would provide curative solutions to the credit crunch, rather than try to ensure financiers' survival, the emphasis of the executive branch's efforts.

Of all the economists offering their opinions on the mortgage meltdown, few have offered a more bleak picture over the last week than Mark Zandi of Moody's Economy.com, although today, in testimony in the Senate, Zandi said passing one particular piece of legislation would help ease the coming economic pain.

In testimony before the Senate Judiciary Committee, Zandi offered praise for a bill introduced by Illinois Senator Richard Durbin. Among other things, that bill would allow judges to modify mortgages in bankruptcy proceedings in order to help homeowners stretch out their payments and keep their homes.

Zandi said today that this change would 'significantly reduce the number of foreclosures,' and said about 570,000 homeowners would likely benefit from this change in the coming years.

Without the change, Zandi argued today, the US runs a greater risk of a recession caused by escalating foreclosures.

'The odds of a full-blown recession are very high,' he said. 'There is no more efficacious way to short-circuit this developing cycle and forestall a recession than passing this legislation.'

Some bankruptcy judges and university professors argued today that Congress should move cautiously, and that a bill allowing bankruptcy judges to modify mortgages could have a host of unintended consequences, including higher credit costs and more uncertainty in the financial markets.

Pepperdine University (Ken Starr haven) representative Mark Scarberry argued vehemently at hearings yesterday about the "cram down" aspect that would give the mortgage financiers no power over negotiations about loan payments. The threat of interest rate increases were thrown out, but were countered by the facts that auto and farm loans - that had had the same proviso thrown at them - had not had such interest rate advances, and that the homeowners concerned do not comprise a very large proportion of the loanholders in toto. A further remark about the bankruptcy courts' being overwhelmed was roundly reputed by bankruptcy court representatives at the hearing.

The counter arguments appeared to be mainly the usual corporate tactic of fighting against any remedy that allows the public's money to escape its grasp. In this case, even the corporate world itself is greatly threatened, but it will still fight to the death - even if it is its own.

(Thank you, Supreme Commander Thor, for referring to the Potemkin Village of the Great Leader, which gave me the Potemkin part of my title.)