(The) C0MM0N PE0PLES S0URCE for News

April 27, 2008

The Facts

House Financial Services Committee Chairman Barney Frank has introduced a bill that is intended to help certain homeowners who qualify to stay in their homes. The loans would be funneled through the FHA, but would not be a give-away program. The following is a quote published by CNN. “Only homeowners who have a mortgage-debt-to-income ratio of 35 percent or higher and who entered into a mortgage before January would qualify for the program. For a homeowner to get a new FHA-backed loan, the holder of the current mortgage would have to accept a loss and take a payment totaling no more than 85 percent of the home’s value” (bold added). The first sentence means that a borrower could not get a loan if their total monthly payment exceeded their reasonable ability to make payments. Unlike the Bear Stearns agreement, the government would get a share of the profits when the homeowner sold the home. But the Bush administration is against this, calling it a bailout, which is a word they refuse to use relative to the Bear Stearns agreement.

My View

Obviously George Bush and his supporters have two different definitions for the word “bailout”; one for when the government uses taxpayer money to “help” a major business and a different meaning when the government uses taxpayer money to “help” we the people. The Republican machine has done a good job, as usual, of redefining common words and phrases when necessary to support their agenda. In this case, they have outlasted the public outrage over the Bear Stearns bailout, handing them yet another underhanded victory.

I have already said in two separate posts that I do no believe that taxpayer money should be used to bailout people who knowingly and willingly made a business decision they can not live up to. Those who knowingly allowed themselves to sign an agreement that was falsified and knew they would not be able to make payments when the mortgage was adjusted up are just out of luck as far as I am concerned. However, there are millions of borrowers that were not made aware of what they were really signing, and it is those that I believe should be helped. In most cases, the borrower would have needed a battery of lawyers to explain to them what was in the contract. But you can be sure the mortgage company had their battery of lawyers.

Republican Representative Jeb Hensarling of Texas says that this is a bailout of the large banks that made the ill-advised loans in the first place. Well, he’s right. But I don’t recall him saying anything like this with the Bear Stearns bailout. At least in Barney Frank’s bill some of we the people would be helped along with the banks, the latter which will eventually be saved by the taxpayer’s money anyway, if not already.

The bailout of Bear Stearns left no protection for the taxpayer when that loan defaults. In addition, the bailout made a lot of people wealthier than they already were. Bear Stearns Chairman James E. Cayne made over $61 million by selling his stock at $11 per share after the bailout. You may remember this was at the time JPMorgan was offering $2 per share to buy out Bear Stearns, an offer that would not have been made without the $30 billion government bailout loan. Therefore, without the bailout, Cayne would have gotten zilch, which is what he should have got for leading the company to bankruptcy in the first place. Cayne already had a record of poor leadership. But we’ve already established there is no “punishment and reward” program for the likes of Cayne, only a “reward and reward” program. Bush and his boys have seen to that.