That's just it, Chris, it doesn't matter if people are in variable interest loans or not. The problem is house values have imploded. In Phoenix, they are down over 40%. So people are in the predicament of having a $400,000 loan on a house now worth $240,000, and they've paid in $40,000 on the mortgage. There just isn't any point in worrying about the interest rate. Even if it were 0%, they can't sell for enough to pay back the mortgage. This is what happened back in the great depression. Then they had to change the law so all the bank could take was the house. That is why people are just mailing their keys to the bank, now. The stigma of defaulting on a loan is up against bankrupting your future to stay in the house. It is very easy to claim the problem is people buying things they couldn't afford, but that just isn't the case. The problem is anyone who bought a house in 2006 or 2007 is under water on their mortgage and sinking fast. One by one, they are concluding they can't throw that sum of money at a house which may not sell for that much possibly for decades.
The only cheap loans that would fix it would be ones adjusted for the decrease in value of the property. And that is the one thing the banks don't want to do, and are lobbying against because it will make them completely insolvent on paper. If the government does nothing, the banks will have to declare the value of their collateral at some point and be revealed to be insolvent, which literally would cause the US financial system to cease to exist. At that point we would be facing the realization the great depression wasn't a benchmark for as bad as things can get. So they are trying. I don't know if it will seem to do much of anything besides buy time. But time is useful, too.
As for the proposal to make new loans available at low rates. Having people buy houses which would go under water even before the loan was approved is one of the few things one could do to make this situation worse because it puts the banks in a bigger hole and the tax payers right along with them.
We are in bad shape. Yeah, a lot of people made mistakes to get us here. A lot of them have views I disagree with. But we are at the point now where we can decide to try to fix the blame or fix the problem. I choose to try to fix the problem. Yeah, a lot of people will have a lot to be angry about. I am one of them. But we don't even know how bad it is, yet. Look on www.zillow.com at your local housing values. Look at the slope on the devaluation. It is accelerating. I don't see how any government action can fix that. But maybe they can slow it down.
-Rich
Chris Provost said:
We are screwed no matter what side of the aisle you agree with. Spending is not the way to fix this problem though. If we are going to go even further into debt, why not give working, tax paying Americans large low interest loans? Talk about economic stimulus! If you own a home, have children, and have a REAL work history that meets some sort of minimum then you should qualify for some help. Can't pay your mortgage and you were not one of the idiots that took a variable rate loan...then let the the liberals buy your mortgage, and offer you a very, very low fixed rate. Can't feed your kids, or put them through college then let the left wingers pay for that too, and keep their grubby little paws out of medicine. The government doesn't work, for you or me just for themselves. I'm in a crunch now and I expect things to get much, much worse but I don't want the government "fixing" my problems. Investing in education and regulating corrupt banks will fix everything sooner than pouring a trillion dollars down the crapper.
Chris
