THERE IS A POLITICAL FIGHT TO BE HAD, UNDER THE TARP - IT'S NOT "TECHNICAL"
As Paulson's go-to guy, Cash-n-Carry (Kashkari) gears up to make the first purchases, even by this month's end, I've put together some thoughts on why everyone is completely unprepared for the fact that the price they pay is political, ... just as political as the terms one might offer if the government made loan modification terms for those who got into these ridiculous mortgages.
As I say, there:
If they think they are going to pay a lot more to get ownership of mortgages, and then write-them down to some set of modified terms at taxpayer expense, then someone is going to see through that, fast, and raise a stink.
MISSED OPPORTUNITIES AND ON-GOING LACK OF URGENCY
The TARP is late (obviously) and we have no idea of how well the "Hope Now Alliance" is doing relative to what could have been done. For instance, Chairman Dodd just yesterday said that 65% of sub-prime mortgages, on some figures, could have been done at conventional mortgage rates.
Well, can we ask if those have all been refinanced, already? Are the lenders holding that up? The odor of inaction still emanating from Washington as the stories of people pushed out of their homes of 25 years 'make news' is ... notable.
PROGRESSIVISM - STILL WEAK IN AMERICA?
From one perspective, the big blow to "liberal values" occured when Senate and House progressives failed to get loan modification authority into the hands of bankruptcy judges (even the local conservative ones...). Not for every loan, but certainly for targeted classes of loans that have / had ridiculous provisions that just cry-out to be abrogated.
Barney Frank has ticked off the list of these misery creating provisions on more than one occasion, before the cameras. It's compelling, not just as good television. The question is then why the 'sanctity' of these contracts continues, even after at least two must-do Bills have been legislated in the past nine months.
LIMITED LOAN MODIFICATIONS WOULD NOT HAVE BEEN A DISTRUPTION
Clearly, targeting provisions in this way, providing judicial leeway of this type, would not through the whole market for conventional loans or even for ARMs to the dogs, from an investor perspective or otherwise.
From an economic perspective, it can only clear the markets for real-assets (homes) in the best possible way, with the least human misery.
Anyway, there may be good answers to all this, but talking about what is coming from TARP can only be a good thing. God knows, we should have learned our lesson about the Bush Administration a long time ago, and how well thought-through their plans are and how much dissent is tolerated, in order to achieve the best possible decision making under uncertainty.
Sadly, in the time we have taken to have the full discussion, we've had a full blown financial crisis and the next round of people with ridiculous interest rate hike-ups are ... well, let's just say that we're all paying, via the stock market, etc., for our lack of attention to their plight, not obviously wholly of their own making. And all our "injections" haven't purchased an exit from the private market solution, which keeps potentially illiquid assets (foreclosed homes) on someone's balance sheet.
