I call the Bernanke – Paulson twosome the Dynamic Duo because what they devise to solve our financial crisis is no more ridiculous than the far-fetched ways Batman and Robin used to escape sure death in the campy TV show. Unlike the TV show, I’ve stopped rooting for this financially bungling Dynamic Duo to succeed.
They don’t deserve to succeed…and I’ll prove it.
Dynamic Duo At It Again
Their latest “brainstorm” was to float a story about “putting a floor under home prices by driving conventional mortgage rates to 4.5%”. This would ostensibly be accomplished in the FNMA/FHLMC MBS market place where Hank and Ben could use their freshly printed $$ Billions to buy up the MBSs like no tomorrow. As we all know, increasing demand drives up the prices and down the yield (read rate) so mortgage rates drop from say 5.5% where they were before the story leaked to around 4.5%.
It is believed by the Dynamic Duo this lowering of prime mortgage money would increase demand for housing and home prices would stabilize.
Housing Crisis Solved…Right?
First, it won’t work. Ben and Hank forget the prime credit folks were not the problem…and by definition then cannot be the solution.
That’s what makes the “subprime mortgage” crisis a crisis of the new species called “subprime”. Once you introduce a “new species” into the eco-system…if things go wrong, tweaking the old players in the system won’t help. You have to eradicate the new addition and hope the old players can recover once the threat is gone.
This is the same thing. The subprime players increased demand for housing and drove prices sky-high. Those players need expunging for real estate price to stabilize. Foreclosure gets rid of most of them and sadly, the sooner the better.
Secondly, this plan could actually backfire. As I’ve written before, we are in not so much a financial crisis as a CONFIDENCE crisis. If these two technocrat idiots try this and nobody steps up to buy a house….say “bye, bye” to what remaining confidence Americans have in their financial markets and those running them.
Don’t laugh…this could happen. After all Hank said once he gave the nine mega-banks $250 Billion a few weeks back, they’d start lending to each other unfreezing the credit markets. Those banks got the money and either sat on it or used to pay executive bonus packages.
Oh, Hank…you’re such a sucker!
Anyway Possible To NOT Help Homeowners
Lastly, this is just another in a long string of end-arounds so as to NOT directly give any money or relief to struggling home owners. There is a small percentage of “savable” foreclosure victims who can afford their home if they get a temporary restructuring of their loan. Paulson and Bernanke won’t consider for a second any proposal which gives them any help.
Every time Barney Frank or another member of Congress yelps there should be some relief for home owners, these two guys head for the door.
Now, I know I just said the “subprime threat to the eco-system needs eradicating” or whatever, and this sounds like a contradiction. It’s not. I’m not talking about those subprime folks…subprime borrowers are all but gone.
What is left is that small percentage of borrowers who were not “turned into a home buyer” due to lax credit standards, but simply got roped into the wrong loan. This group needs and deserves our help, but thanks to the Dynamic Duo will never get our help.
Saving this small worthy group would do a lot to jump-start the recovery of the eco-system. It would also go a long way toward restoring confidence. Confidence that even if those in charge of the system don’t always know exactly how to fix things…they, at least, care.
These two over-privileged mega-jerks…don’t care…and we all know it. Their fate is not ours. We will all come out of this, but they don’t deserve to succeed because of this fact alone.
I’ll see you all on the other side of this…
…but I’m afraid this is “curtains” in my eyes for this Dynamic Duo.