Old twist on an old trick

This is damning news if ever anything was. Once again and with little difference over the past few months our “leaders” are coming up with “solutions” that are nothing but a transfer of wealth.

Ever since finance and the economy began to unravel, subsequent administrations have enacted programs with names that are supposed to give the public the impression that government is there to help. And so it is with the Make Home Affordable Program.

From the article:

Under the $75 billion program, called Making Home Affordable, lenders are eligible for taxpayer subsidies to lower the mortgage payments of distressed borrowers.

Do note that the program aims to “lower mortgage payments” as opposed to lowering the value of the mortgage to reflect the new lower value of real estate assets. Essentially, the borrower is still on the hook for the full value of the mortgage; what this program aims to do is to stretch out the agony of the borrower and compensating banks for keeping these suckers on their books longer than the original plan.

And note the following from the article:

Mortgage lenders and servicers have been reluctant to participate in foreclosure prevention programs despite their role in creating the subprime debacle. Intense pressure from Congress and the White House hasn’t worked, either,” the report said. “The stick has not been effective, so the Obama administration is offering a carrot — billions of dollars in incentive payments to lenders and loan servicers to encourage them to participate.”

The reason lenders have been reluctant to participate in the program is because real estate assets are impaired. They are impaired today and are impaired for the next decade possibly longer. So lenders have nothing to gain from keeping underwater borrowers on their books longer than the original contract knowing full well that most of them will default anyway. Once the asset you borrowed against is underwater, it makes little sense to stretch out the payment plan.

But, Emperor Obama has dictated that now we are going to give money to banks to induce them to stretch out payment plans.

As I remarked in previous months, all solutions are geared towards making whole select industrial and banking interests. There is very little in these programs for the borrower or society at large. Quite the contrary. All this government appropriation of funds will be taxed out of our incomes thus reducing our spending power for years to come.

http://www.washingtonpost.com/wp-dyn/content/article/2009/08/25/AR2009082502975.html

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