Will Homeowners Benefit From The Bank Bailout?

Will the US Federal Reserve and Treasury Department do something to stem foreclosures?
Congress wants them to.
But what can be done?
Why should people who bought more house than they could afford get subsidized?
Why subsidize bad decisions? You’ll only get more of them.
There’s $350 billion left to spend. FDIC chair Sheila Bare’s plans remain popular with Congress. It would have the US government guarantee mortgages in exchange for loan modifications. Sheila reckons her plan could stop 1.5 million foreclosures through 2009, costing the US economy about $25 billion.
The Federal Housing Administration launched a “Hope For Homeowners” program. It passed Congress in July. It will insure up to $300 billion worth of loans, helping up to 400,000 homeowners.
Economist Martin Feldstein offers a plan: Have the US government offer a new loan with lower interest rates in the place of a bad loan.
Barney Frank keeps pushing for more mortgage relief. He loves government intervention.
What good have all these bailouts done? The economy seems to be in worse shape than ever. Are you serious that the economy would be in worse shape without the bailouts? The $700 billion bank bailout was supposed to open up the credit market. It has not happened. How has the money been spent? We don’t even know. It’s outrageous.
There will be a fight over the second part of the TARP. The first part has done nothing for the economy nor the credit market.
The second round of the TARP will only become available, if ever, under President Obama.
The first round was used up the $17 billion auto company bailout. Ford company did not want any funds.
The US Treasury must now submit its plans to the US Congress for approval to spend the next $350 billion.
Dec. 20 (Bloomberg) — Congress will use the remaining $350 billion in a U.S. bank-rescue package to force the Bush administration and President-elect Barack Obama into providing foreclosure aid as the pace of people losing their homes soars.

Lawmakers will agree to release the funds in exchange for Treasury Secretary Henry Paulson and Obama agreeing to programs that cut interest rates and forgive a portion of a mortgage’s principal, House Financial Services Committee Chairman Barney Frank said in a telephone interview yesterday.

Frank said legislation is being drafted that will set the conditions on spending the cash after Paulson used almost half the $700 billion Troubled Asset Relief Program to boost bank capital. Paulson resisted calls to support foreclosure relief.

“The Democrats are finally getting it, that this administration is not going to do anything to help homeowners, and they are getting more proactive,” John Taylor, president of the National Community Reinvestment Coalition, said in a telephone interview. “Paulson has had the chance to do something like this all along, but has chosen not to. I think he’ll do it if a quid pro quo is held over him.”

Frank, a Massachusetts Democrat, said in the interview he’s drafting legislation with Senate Banking Committee Chairman Christopher Dodd that would release the remaining $350 billion in exchange for foreclosure help, aid for General Motors Corp. and Chrysler LLC and provisions to hold banks accountable for stepped up lending to consumers.

HERE’S AN EDITORIAL FROM THE SAN JOSE MERCURY NEWS:

The Treasury Department has acknowledged that about $100 billion went to American International Group (AIG) and Citigroup to help keep them in business. The rest, in theory, went to bolster various U.S. banks. There is widespread speculation that the banks are hoarding the money, using it to buy up healthy banks and taking full advantage of a Bush administration loophole that is letting CEOs use the money for compensation.

Congress has to get the facts and make sure any further allocations are used to help Main Street rather than Wall Street. Institutions that receive federal help have to pass it on in the form of credit to help small and large businesses stay viable and keep people employed.

On its own, the loan package the administration announced Friday to tide over the auto industry is a good plan, perhaps even better than the more elaborate bailout congressional leaders tried to push through. It will buy General Motors and Chrysler time to reorganize and show that they can return to profitability, essentially postponing a decision on further help until the Obama administration takes over. That’s fair.

There’s not much left in the toolbox to combat this economic crisis. Interest rates can’t go much lower, yet the unemployment rate continues to climb. There is still too little confidence in the American economy. Making sure that the Wall Street bailout money is used wisely in the months ahead will help to restore that confidence. Congress failed to get proper assurances the first time around, and it can’t make the same mistake again.

THE NEW YORK TIMES REPORTS:

House and Senate Democrats said they did not expect the administration to ask for additional money until early January, and administration officials reinforced that impression by saying they were not in any rush.

“We have no time frame,” said Michele A. Davis, a spokeswoman for the Treasury secretary, Henry M. Paulson Jr. “Because some of the allocated funds from the first $350 billion won’t go out the door for a few weeks, we feel that right now we have the resources we need.”

For at least the last month, Mr. Paulson has been dancing around the issue of asking Congress for the rest of the money for the bailout program, which is officially known as the Troubled Asset Relief Program, or TARP. Among other ideas that he has been studying is a plan to buy up billions of dollars in federally guaranteed mortgages to bring mortgage rates down to 4.5 percent.

Under the rococo requirements of the bailout legislation that Congress passed on Oct. 2, the Treasury automatically receives the second $350 billion if it asks for it — unless both houses of Congress vote to disapprove the request within 15 days.

But Mr. Paulson has resisted being saddled with new requirements by Democrats, and has repeatedly refused to spend money on proposals to help struggling homeowners modify their loans or get entirely new mortgages.

Mr. Paulson is also under heavy attack from both hard-line conservative Republicans and liberal Democrats, and he faced a substantial risk that Congress would reject his request for more money — an event that could set off another free fall in the financial markets, as when the House originally rejected the bailout proposal in September.

Conservatives are still furious that Mr. Paulson is rewarding banks and other financial institutions that made reckless arrangements for mortgages over the last five years. Liberal Democrats are angry that Mr. Paulson has used all of the money for financial institutions and none to help reduce the avalanche of home foreclosures.

“Congress will need to release the remainder of the TARP to support financial market stability,” Mr. Paulson said on Friday.

HERE’S MORE:

WASHINGTON, Dec 19 (Reuters) – The White House on Friday opted against appointing a “car czar” to oversee the $17.4 billion bailout of U.S. automakers, handing oversight responsibility to Treasury Secretary Henry Paulson instead.

Paulson’s office oversees the source of the rescue money — the $700 billion Troubled Asset Relief (TARP) program passed by Congress in October and originally designed to help the banking industry.

Joel Kaplan, deputy White House chief of staff, said that with a month to go before Barack Obama becomes president, the administration’s priority was to set loan terms and get the bailout for General Motors Corp and Chrysler LLC [CBS.UL] out the door.

He said the Bush White House would be open to identifying someone to work with the companies and span the two administrations if the Obama team believes it would be helpful.

“We don’t think that’s something that we should impose … just for 31 days when the next administration may or may not have a different view about how they want to handle it,” Kaplan said.

The “car czar” proposal was a cornerstone of failed bailout efforts in Congress last week.

An Obama transition official said the White House kept the president-elect informed of its auto plan deliberations but that Obama was not part of the decision.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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