My good friend, Paul Chandler wrote this editorial in his Mortgage Matters newsletter. I wrote a similar article but since Paul is a little more diplomatic than I am, I decided to post his instead. I called for Hank Paulson to be tarred and feathered like a British Tax Man in colonial Boston. -Steve
Nothing Up His Sleeve…
Back in late September, Treasury Secretary Hank Paulson, was beseeching Congress to pass a bailout bill and to pass it right away. Nicknamed the TARP [for Troubled Asset Repurchase Program], this legislation would save us from impending financial doom. It would allow the Federal Government to purchase bad mortgage loans at a discount and hopefully sell them at an increased value when things started to recover. But, a funny thing happened. The House of Representatives, listening to their constituents, said ”No.”
The Secretary wanted to be entrusted with $700,000,000,000 with the latitude he thought he needed to use it however he saw fit. After all of the arm twisting, groveling and earmarking was done, the House agreed with the Senate provided there was oversight and that the whole amount did not get released at once. Relief for homeowners facing foreclosure was to be part of the package as well. At least there would be some control.
You may recall watching episodes of the Rocky & Bullwinkle Show. One of the staples of the show would show Bullwinkle as a magician on stage with a small table and a top hat. Bullwinkle would ask Rocky, “Hey! Do you wanna see me pull a rabbit out of my hat?” “Sure!” Rocky would reply. And on with the show, Bullwinkle exclaimed, “Nothing up my sleeve! [while yanking off the sleeve of his tux and shirt] PRESTO!” Only instead of pulling out a rabbit, our hero had a hold on the head of a roaring lion. Never at a loss for words, Bullwinkle would say, “No doubt about it, I gotta get another hat!”
The TARP money has NOT been used for the purpose intended. Banks have used funds to acquire other banks, AIG—a large insurance firm—has received two chunks of cash, and has spent lavishly on a corporate function since then, and now the car companies are standing in line with municipalities and others with their hands out. Meanwhile, Mr. Paulson has stated that the problem was greater than imagined and that the intended purpose was not the best use for the money even though that was the pressure point applied in order to get the legislation passed. And now he wanted the rest of the money.
In so many words, Dennis Kucinich, a sub-committee chairman from Ohio, an area hard hit by foreclosures, presided over a hearing on Friday last which essentially said that maybe the balance of the funds should NOT be entrusted to Treasury. If the problem was too difficult to manage, then maybe the problem was the manager. [Obviously, I believe there are better ways to solve the problem than the ones selected by Mr. Paulson and his colleague, Ben Bernanke, Chairman of the Federal Reserve. I just hope Congress sticks to its guns on this one.] Perhaps, Rep. Kucinich suggested, it would be better to have HUD administer the funds for the purpose intended.
The whole point of the Bullwinkle story, is that Secretary Paulson promised a rabbit, delivered a lion, and now wants another hat. There were a lot of poor investing decisions, lending decisions, purchasing decisions and other decisions to go around. It almost seems that applying a sum of the earmarked $350,000,000,000 that remains to mortgage debtors’ loan balances would be a wiser use of the funds. It might get people into situations where the loan to values would be in line and would surely help the remaining assets perform well for the lenders and investors. But that might be too simple.
Paul Chandler, Certified Mortgage Professional, is the Newport Branch Manager for Universal Mortgage Corporation. He graduated from the University of Maine’s business school in 1979 and has been in the financial services industry ever since. Since 1991, he has exclusively been involved in mortgage lending, moving to the Newport area in 1993. He also authors a blog at http://www.misterva.typepad.com. He also has been a contributor to Mortgage Originator Magazine. If you have a mortgage related question, please call 802-334-1999.
