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Elphaba, I agree that the "free market" doesn't exist, just like I would suggest that "socialism" doesn't exist. Both are ideal states in direct opposition to one another.
All I have ever suggested here is that there is a continuum between the two and that what Bush is doing inches towards the socialism end of that continuum. I have not made any effort to quantify by how much or little that shift is, nor have I indicated where on that continuum these actions have left anyone.
Honestly, I don't really care. The fact is, if there is such a thing as a "free market" then the actions the government are taking are not supportive of that sort of system.
Beyond that part of the discussion, I then went on to point out that roughly 1.2 million homeowners are about to get some help. They are going to get out of a bad situation where they are likely to lose their homes. Yes, some are still going to end up pay higher rate or losing their homes because they do not qualify for this assistance.
On the other side of the issue, the lenders that have written a lot of bad debt will still lose a lot of money through defaulted loans but will now, instead of having to deal with defaulted loans (which represent a loss to their bottom lines) they will be able to keep receiving payments (though it appears that those payments will be subject to an interest rate cap for five-years).
As I said above, I don't know how this all happened. From where I am sitting it looks like this:
Banks marketed a number of variable rate mortgages to people with "shaky credit"
People who could afford these variable rate mortgages because the sub-prime interest rates made their monthly payments affordable signed up.
The variable rate mortgage is subject to whatever the prime interest rate is. If it goes up so to do the variable rates (this is the type of mortgage I had and when I saw that rates were going up I called my bank and locked into a fixed rate).
Enter the US economy. The US economy, in the throes of a massive shift. The dollar is dropping. Interest rates are climbing. The variable rate mortages going up.
Add to this, a massive real estate bubble. I have been hearing for years now that the US real estate market is over inflated and due for an adjustment. To much supply, not enough demand, etc. Housing prices start to drop.
Suddenly, the collateral on those mortgages, the actual value of the houses, is worth less than the mortgage used to purchase it in the first place.
What is a homeowner to do? They either default on their loan, refinance, or continue to put money into a property that is worth less than what they are paying into it in the hopes that one day the market will rebound.
Ordinarily, this sort of thing happens all the time but in small pockets. This time, it is a nation-wide 1.2 million house crisis.
The amount of money about to be lost to the lending institutions due to defaulted loans is going to be huge.
The number of homeowners about to lose their one (formerly) great asset is massive.
I am sure much can be said about the role of government in getting the economy to the state where it is. I am sure a lot can be said about the lending parties inability to forecast risk. I am sure there is a lot to be said about people who spend beyond their means and that don't understand the implications of what they are signing.
The fact is, it's a mess. I don't believe that there is one person you can point to for this (and I can appreciate that others do feel this way but I just see it as more complicated than that).
Assuming I have this right, and I don't know that I do. What would you suggest that the government should do to alleviate a situation that will not only impact people losing their homes but also effect businesses that employ many people, investors around the world, etc. etc.
How would you suggest we try to fix this problem?
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"My hands are on fire. Hands are on fire. Ain't got no more time for all you charlatans and liars."
- Old Man Luedecke
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