Today it's reported that Chrysler has convinced its creditors to agree to modify its debt obligations. Chrysler was able to do this in part because of the leverage it had by threatening to file for bankruptcy. It's instructive to contrast the Chrysler situation to the situation of homeowners. The voluntary home mortgage loan modifications are still not happening on the scale necessary to address the foreclosure crisis. How different would the world look if homeowners had the leverage of bankruptcy to induce voluntary modifications?
Tag: homeowners
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Underwater Homeowners
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1 out of every 6 US homeowners is underwater. There’s probably no better indicator than being underwater of a mortgagor who is likely to end up in foreclosure. That’s very worrisome. And it means that foreclosure prevention plans that don’t address the problem of underwater homeowners aren’t going to help a lot.
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Senate Bailout Bill: Just a 451-Page Version of Paulson’s Two-and-a-Half Pages
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For all the ink spilled about the bailout bill over the past week or so, there has been strikingly little media coverage paid to the actual terms of the bailout bill. A tremendous amount of attention has been paid to the politics of the bill, but it just doesn’t make a lot of sense to talk about the politics of the bill without looking at the substance of the bill. Legislation can be technical and it can be hard for reporters to know the significance of legislative provisions, but I’ve just read too many articles that regurgitate the blandishments about the revised (and rerevised) bill imposing oversight, limits on executive pay, help for homeowners, and now the FDIC deposit cap drivel. Any consideration of the substantive provisions shows that there’s a lot of verbiage and very, very little in substance. Once one realizes this, the politics of the bill are even more bizarre and more fascinating.
The bill has been bloated up to 451 pages in the Senate version. The additional 341 pages in the Senate version have nothing to do with the bailout per se, but instead are an energy bill and a tax bill. In short, the Senate version is the same as the failed House version, but with the addition of (1) the irrelevant FDIC provision, and (2) other unrelated legislation. And the House version was just a 110-page expansion of the Paulson’s original two-and-a-half page proposal that had lots of extra window-dressing, but little in the way of new substantive provisions that are actually mandatory, enforceable, and monitorable. This means that the Senate version of the bailout bill has the same flaws as the original Paulson bill. (Gotta hand it to Hank–he’s concise.)