Tuesday, December 4, 2007

Let me see if I got this straight..., today I read that Treasury Secretary Henry Paulsen wants to temporarily expand the tax-exempt bond programs of state and local governments, so that they can refinance mortgages. Let me think about that for a minute.

We got into this mess because banks were lending to people that they shouldn't have, or lending more than borrowers could pay. It caused a high enough foreclosure rate that nobody could sell mortgage-backed securities because the buyers didn't know what they were worth.

Now, it will be tax-free municipal bonds backed by the same loan principal, lent to the same borrowers.

If it's done under the same (or similar) terms as the original loan, haven't we just done to the municipal bond market what we did to the secondary mortgage market?

If the new loan terms are substantially better than the old terms, aren't we penalizing people who were responsible, and have paid thousands more for a conservative, conventional 30-year fixed?

People like me?

I just bought a house. Big one. Nice one. I love it. But you know what? If I had taken what I currently pay on my 30-year fixed mortgage, and used that for an 80/20 interest only loan with a teaser rate, I could have afforded a much bigger, much nicer home. But I didn't do that. Wanna know why?

Because I knew I couldn't predict the future, and I might find myself in a situation where I was being forced to refinance, and I either didn't want to (high rates), or I couldn't (no job).

Now, it sounds like people who weren't as cautious as me are getting a do-over.

Can I have a do-over please? I'd like to be qualified for a loan the way people were over the last few years (no income verification, liberal repayment schedule), and I'll buy a much bigger house. 80/20 interest-only with a teaser, please. Where I'm at, the housing market is still very strong, but in the event I can't sell my old house, I want to be bailed out by the government. If my circumstances change, and my payment goes up, and I can't afford the loan that I agreed to, I want to be bailed out by the government.

And why stop at homes? Can we do this with my mutual funds, too? If I invest all of my money in a precious-metals fund, and gold stops its historic run, can the government make up the difference for me? And what about bonds? What if GMAC goes bankrupt, and my GMAC bonds are near-worthless? Can the government cover my cost? Even better, can the government cover my expected gain?

I think you can see where I'm going with this. Taken to the extreme, these government bailouts of risk-gone-wrong are simply unsustainable.

While I am sympathetic to those who agreed to terms that they could not understand, and to those who were manipulated by unscrupulous lenders or brokers, I simply cannot ignore reality and conclude that the government should wave its magic wand and make the problem go away.

Here's a Reality Check: turning a private-sector problem into a government problem DOES NOT solve the problem.

Monday, December 3, 2007

A Historic Day in Totalitarianism

Wow. Big news in the dictatorships of the world over the last couple of days. First of all, Russian President Vladimir Putin won a sweeping victory in his election, amid charges of rigged votes, coercion and intimidation. You know, like you're SUPPOSED to vote in a totalitarian state.

Now, we move on to Venezuela, where President Hugo Chavez, whom even Nancy Pelosi has publicly referred to as a thug, lost.

Yep. He LOST. He had proposed a never-look-back socialist paradise, with him at the helm for all eternity, and his people said NO THANKS. Well, about 51% of them said no. And he accepted the decision of the people. For now, anyway.

When Putin first came on the global stage, I will admit that I was suckered. I genuinely believed that he understood that free markets were the best thing for his people, and that KGB-era stifling of creativity was a big part of the demise of the U.S.S.R. Sadly, he seems to want to have his cake and eat it too - economic entrepreneurship right up to the point of profit, at which point the government snatches your business and crushes your dreams. Let the people vote, but only if you can know, and control, the outcome.

He's probably laughing at Chavez right now. After all, in Russia, losing by 2% is just a paperwork problem. But you know what? As hard as it is for me to admit this, this week, Chavez was the better man.