MONDAY 22 SEPTEMBER 2008Roll Back the Interest Rates
by: Marc Ash, t r u t h o u t Perspective
"The point is, ladies and gentleman, is that greed - for lack of a better word - is good. Greed is right. Greed works."- Michael Douglas (Gordon Gecko) in Oliver Stone's 1987 film, "Wall Street."
Due to the "subprime" mortgages going bad the nation's biggest investment banks are going out of business and the American taxpayer will be required to rescue them to the tune of a Trillion, (that's trillion with a "T"), dollars.
However the reason the Mortgages are defaulting en masse is not primarily because the homebuyers took on too much debt, although that is a contributing factor. The real problem was the Adjustable Rate Mortgages, (ARMs). The homebuyer gets an attractive rate at the time they sign up and hopes the price of the property appreciates before the rate adjusts, upwards of course. In a market that would bear some resemblance to the market in which they signed up they could then refinance and make a go of it.
That is of course risky for both borrower and lender. What happened next is that the market got ahead of itself, a lot of loans were written very quickly. That left the lenders short of cash. In an attempt to replenish cash supplies the lenders raised the rates on the adjusting ARMs as much as they possibly could. They did so on a wide scale, nationally, and with absolute disregard for the consequences.
Homeowners were saddled overnight with payments dramatically higher that they signed up for and the seeds of a financial crisis were planted. Homeowners began to default in big numbers. As the number of defaults increased so did the pressure on the lenders and they pushed harder to recoup their losses raising interest rates, refusing to negotiate with strapped homeowners and using foreclosure recklessly. In that climate any chance of a homeowner refinancing was, regardless of borrower's track record for performance, difficult or flat-out impossible. Now it's not only a mortgage crisis it's a also hostage crisis.
But what would have happened if the federal government hadn't bought into Gordon Gecko's philosophy of greed as good? What if the fed had interceded early and rolled back the interest rates? How many homeowners/taxpayers would still be in their homes - making payments? Sure there was a bubble and everyone knew the market was going to adjust but it was a combination of greed and panic on the part of the lenders that set the stage for this crisis, their crisis.
The big bailout option doesn't fix the problem, it only converts the problem to national debt. The problem then lives on. Greed is not good...greed is not right...greed does not work. Roll back the interest rates, keep people in their homes, restore broad economic stability.'
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