Unlike most of the whiners I hear on TV, this is my favorite part of the campaign. I just love mouth smashing, groin kicking politics….it’s the American way!

TugboatPhil on October 6, 2008 at 8:29 AM

I don’t disagree. But nows the time for McCain to be kicking Barney Frank, Chris Dodd, and the laundry list of Fannie and Freddie enablers in the groin.

You can look at the problem with the credit mess either from the top down or from the bottom up. Last night, CBS ran a segment that explained the situation almost entirely from a top-down perspective. In other words, they blamed it almost entirely on the lack of regulation of the high-finance aspect of the crise–the credit-default swap perspective. That perspective blames only Wall Street and it blames lax regulation.

If you watched it, CBS noted two key points that gave the bias away. First, CBS’s “high-finance perspective” is concerned only with “the side bets” that are involved in the crisis–all the extra unregulated nonsense that Wall Street stacked onto the toxic house of cards. Second, at one point, the CBS narrator conceded that the toxicity of the underlying house of cards is the 6% of mortagages that are in trouble of foreclosure. But CBS never offered any analysis of the reasons for those foreclosures.

I’d submit that current forclosures fall into three general categories of borrowers.

First, the flippers–financially healthy borrowers who decided to get in the real estate market by buying a residential property as an investment just to flip it in short order. Tough luck, we should not be bailing these people out. Their risk, their problem.

Second, the pie-in-the-sky folks–financially healthy borrowers who got the second (and third) mortgages to draw on the sudden increase in the value of their residences as they would an ATM. Tough luck, we should not be bailing these people out. Their risk, their problem.

Third, the Fannie and Freddie enabled NINJA borrowers. These are the borrowers who never would have qualified for loans if reasonable standards of credit-worthiness had been applied to them. These are the borrowers on behalf of whom ACORN has extorted loans from small banks across the country under the Community Reinvestment Act of 1977–thanks Obama.

It seems to me that the first two groups are borrowers driven by greed and poor financial planning. Maybe they were manipulated into loans by fly-by-night mortgage brokers (Countrywide–Senator Dodd’s lender) and cooperative appraisers or both. But how do you regulate for this kind of stupidity? Even Palin pointed out Thursday night that we need to take our parents’ advice to not live beyond our means.

It also seems to me that the problems created by the third group resulted from misguided policy (Dems and GOP, I suppose) that shredded traditional lending standards and also from the subsequent expansion of NINJA lending in the face of ACORN threats.

CBS painted a picture that the problem lies only at the top of this house of cards. However, like any house of cards, I’d submit that real problem lies at the foundation. I realize that the discussion above may oversimplify things, but before jumping in to cast blame on, and to impose regulation on, the top of the pyramid, Congress must look at the foundation and determine what needs to be done legislatively to address the problems faced by the three groups of borrowers I described.

To be sure, there’s a group of borrowers that cut across all three groups–catastrophic hardship borrowers. These are people who would have been fine but for a significant medical hardship or some other hardship that legislators identify. Their situations may be warrant a legislative solution. Again, however, the first two categories probably don’t warrant legislation and, in the case of the third category, lenders must be allowed to turn these the NINJA borrowers away, free of any repercussions from the CRA of 1977, ACORN, and the Fannie-Freddie enablers.

BuckeyeSam on October 6, 2008 at 9:38 AM