How to pop a bubble
Another bailout scheme:
Do the people pushing these bailouts realize that most of them will only drive house prices down even more? The article mentions rate increases (to cover the increased risk of a borrower declaring bankruptcy and thus making the return on the loan much lower or even negative), but I doubt it would only affect rates. I imagine if something like this were to become law we'd instantly see (aside from rate increases):
Woohoo! We saved 600,000 households from foreclosure. But now anybody that has to sell for other reasons will have to accept 10% of peak prices because very few people can get home loans.
Given that many other bailout schemes would have the same effect I don't see how people can consider Eleua nutty for predicting 80-90% declines in prices.
Reuters wrote:The proposal, backed by consumer groups but opposed by the lending industry, would give bankruptcy judges new authority to modify mortgage terms for homeowners deemed to be insolvent. It would let bankruptcy judges extend the life of a home loan, change the interest rate or simply mark down the loan amount.
Do the people pushing these bailouts realize that most of them will only drive house prices down even more? The article mentions rate increases (to cover the increased risk of a borrower declaring bankruptcy and thus making the return on the loan much lower or even negative), but I doubt it would only affect rates. I imagine if something like this were to become law we'd instantly see (aside from rate increases):
- Mandatory 20-30% down payments
- Disappearance of all adjustable rate loans
- Loans qualified at 25% of the lowest gross monthly income in the past 5 years
- Proof of 2 years of payments in a savings account
- Zero interest-accruing credit card debt
Woohoo! We saved 600,000 households from foreclosure. But now anybody that has to sell for other reasons will have to accept 10% of peak prices because very few people can get home loans.
Given that many other bailout schemes would have the same effect I don't see how people can consider Eleua nutty for predicting 80-90% declines in prices.