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russell lester

Orchardist, Grange

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To apply bailout money to morgages

What would the effect be if the us government instead of giving a bailout directly to the banks were to give the banks a payment of some percentage of the mortgages held by the banks? Wouldn't that give the banks the same money while at the same time reducing the burden of debt on individual us mortgage holders? If this idea has any merit, could it be applied now by insisting that any bailout money not repaid to the Us Government be applied to all the mortgages held by the bank equally? Granted this might end up being a small percentage, but any percentage would improve the situation for individual debtors. If this idea has no merit please explain why, and if it is meritorious what can be done to advance the idea?

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    Jan 15 2013: So the latest development I hear is that there is a lawsuit, where the banks are trying to sue the US government because the terms of the deal are unfair. Has anyone heard about this?
    • Jan 15 2013: Yes, it was on the Daily Show. The saddest thing is that you can be sure these people who are sueing that they didn't get enough free billions from the state are the same people who nodded in agreement when Mitt Romney said the non-rich have an entitlement mentality...
  • Jan 13 2013: Banks could do this now without the government providing the funds. But they choose not to.

    However, they are ignoring people who are not making payments for their mortgages. They are free to change the mortgage rates if the people come in and apply for them. But they often choose not too.

    The greatest problem with this issue is that so many people were given loans that did not qualify and the housing market was so inflated. More money was loaned out than was reasonable or realistic. Now, the banks are suffering, and people, for their poor decision making process in this.

    I do not wish to be mean, but let them learn from it. The banks are surviving and so are people. It is not pretty, but they will not make the same mistake twice.
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      Jan 13 2013: What if the banks were to pay back the money by appling it toi the credit card debts or student loans that people carry? MANY students labor forever under those loans
  • Jan 6 2013: It certainly would not seem as unfair. The people deserve some benefit from the bailout.

    Since the bailout already happened maybe U.S. could accept mortgage relief to pay back U.S. I'd like to hear more about whether your idea is feasible. I'd also like to hear moreabout what might result economically.
  • Jan 6 2013: "What would the effect be if the us government instead of giving a bailout directly to the banks were to give the banks a payment of some percentage of the mortgages held by the banks? Wouldn't that give the banks the same money while at the same time reducing the burden of debt on individual us mortgage holders?"

    This has been done to some extend: a small portion of the stimulus was meant for this purpose. There are two major problems with the concept: 1) it's hard to figure out who really is in trouble and who is just living above their means or hiding money and for each individual case there would have to be a renegotiation of the mortgage, 2) it's more expensive because the banks just needed funds to keep running, not funds to pay off multi-year debts.
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      Jan 7 2013: The funds that they needed to keep running are they supposed to pay that back ? or was it just a gift? I think its better if they were to reduce say by .01 % the debt owed them by everyone credit cards loans for homes student loans ect. than to take out a loan from the Fed to print money for the banks and get nothing back. I mean we still owe the interest on the loan from the fed right? Even if it was .001 % or less it would at least be better PR than this gift to banks while foreclosures are so high.
      • Jan 7 2013: They are obliged to pay back the stimulus money with interest (another reason it's cheaper to pay the banks). They also got interest-free money from the FED and it would be good PR to not do that, but the system was about to collapse and good PR was a luxury they couldn't afford back then because their predecessors had allowed the financial system to grow into the monstrosity it now is (an excuse that was valid at the time), what's worse is that since then not much has been done to structurally reform the financial system.
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      Jan 7 2013: And as regards complication : 1,000,000,000 $ in benifit say going to bank X, bank X has 1,000,000 loans out. Even if all you did was pay 1000 dollars to each loan the money goes to the bank and the debtors benefit right? Who cares about deciding this person or that person and why does a payment require renegotiation of loans?
      • Jan 7 2013: "And as regards complication : 1,000,000,000 $ in benifit say going to bank X, bank X has 1,000,000 loans out. [...]"

        The idea is that you don't pay $1,000,000,000. That amount is the amount the bank will collect over a number of years, to survive this year and nurse itself back to health the bank just needs maybe $100,000,000, so one tenth of the outstanding loans. The bank can survive writing off some of the loans for which they have to renegotiate, if you give the money to the bank instead of the homeowners the bank can decide with who they want to renegoatite and how, if you give the money to the homeowners you force the bank into some settlement that may be the same on average, but there is no freedom for the bank to negotiate the way it wants to. Also, I did not add this reason before but it's certainly important: giving bailout money to homeowners is a massive subsidy for homeowners that people who rent (the real poor) wouldn't have access to.

        It may sound like I'm defending the banks, but that's not true: a bailout would never have been necessary if the financial sector had not been deregulated for the past three decades.

        "what reforms are most needed?"

        Splitting up banks into retail and investment banks (reinstating Glass-Steagall), a transaction tax (that piles up when some commodity gets repeatedly traded back and forth) and outlaw certain shady commodities such as credit default swaps.
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          Jan 8 2013: Credit default swaps are shady for sure. Okay how about a more detailed wish list for reforming the economy/fiscal community?
      • Jan 8 2013: Alright, more details:

        - higher capital buffers (perhaps increasing as a percentage as the bank gets bigger)
        - legally giving shareholders the right to object to executive decisions (for example to reduce executive pay and not give them golden handshakes)
        - governments coming to their senses and seeing the financial sector as a self-interested services sector, not a sector that creates actual value on its own
        - fighting tax havens and banking secrecy globally
        - prosecuting executives so they have to pay fines and go to jail, instead of the shareholders and customers paying the fine
        - raising taxes on dividends and capital gains to the rates of ordinary income
        - businesses and investors have to wise up (fortunately this is already happening) and not trust investment banks blindly
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    Jan 6 2013: You do not understand how the US fiscal model works.

    $ is given to banks because banks invent money and then insert it into the system (after CEOs extract much of it). Too many Americans think that the government is responsible for the printing of money. This is wrong. That power has been given to the banks. Rather than simply print $1.00 and issue it, it borrows the dollar from the bank (at interest). so then when you are given the $1.00, which is actually a promissory note, it comes with unseen interest attached. There is never enough money to pay off the debt and the interest, so government keeps borrowing and CEOs keep taking.

    Giving the $ directly to homeowners would bring the economy down because little people don't value banksters and CEOs as much as politicians do.
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      Jan 6 2013: Of course I understand that the governments borrow money that does not exist from central banks who charge interest on this non existent entity. The suggestion I have is that rather than using the promissory notes as you call them as a gift to banks in financial trouble, use those same notes to pay down a set percentage of all mortgages held by that institute. I did not suggest giving the money planned to be used to bail out companies to individuals, rather I suggested that the money could do 2 things at once.
  • Jan 5 2013: IF the objective was to make the banks financially sound, and help the general economy, then this idea would work much better than the direct bailout. The actual objective is to make bankers more wealthy. The actions of the government and the Federal Reserve are achieving their purpose very effectively.
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      Jan 5 2013: That's what I was afraid of. Thank you.
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    Jan 5 2013: My wife and I were talking and can't see why the money used to bail out banks could not have simultaneously been used to reduce the principle of mortgages held by those banks bailed out? It seems the banks would still get the needed funds but that the us citizens with mortgages would have benefited as well? Whats the down side to this?
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      Jan 5 2013: Because then some of the money would be diverted and the poor Billionaire CEO's wouldn't be able to put a few never-to-be-spent extra dollars into their off-shore accounts. Poor souls, have a heart, damnit!..
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        Jan 5 2013: I get your point but seriously why would it not be just as financially sound to do it my way?
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          Jan 5 2013: Financially its sound to do a lot of things.
          Invest in Education, reduce the military budget, adjust foreign policy, raise taxes, invest in small business and technology and infastructure.. Most things are far more financially sound conclusions than the current scenarios we have today.

          The question of why we're not doing anything right is the ultimate question the American people have to face.