They also seem fixated on the idea that some people believe that foreclosing homeowners are irresponsible or "undeserving", and thus buying into a "welfare queen" myth. What if you just think that they made an investment that didn't work out, and that we shouldn't necessarily bail out everyone whose investments don't work out?

First, Dean, did you notice who funded the Harvard study? I don't think those folks would likely fund a study that said 2003 was a really bad time for people to buy with 2/28 ARMs. Just a slightly snarky thought.

I wish it were opposition to the banks. It isn't. I think there's a fundamental meanness abroad in the land--and it attaches first to the borrowers because they're the most visible (and defenseless). But it seems that people are willing to lay the same criticism on the most innocent of bystanders. For instance, in one of our local papers, there was a story of a family about to be evicted because their landlord had defaulted on her mortgage. The commenters spent their bytes criticizing this family for (a) having too many children (b) not having enough money to move again easily. One commenter noted that the tenants were, in fact, responsible, as they weren't paying enough for the landlord to pay her mortgage.

All this is likely to give us a bailout that saves the banks and investors, while leaving homeowners with ruined credit and the rest of us with a big bill.

Peon,

yes i have noticed who funds the Harvard Center. It's along list of builders, banks, and mortgage companies. For some reason the media never seems to think that their funding stream is relevant when discussing their work. By contrast, when I was at the Economic Policy Institute, which gets 20 percent of its funding from labor unions, our funding stream was always relevant. Go figure.

Here are some nice quotes from Retsinas and company (2003):

"Although fears about housing market bubbles persist, they seem overblown."

"More importantly, it takes concentrated job losses - the
likes of which have not been seen during this business
cycle - to drive down home prices."

"Moreover, when house prices deflate, they do so slowly."

But Professor Retsinas is part of the class that is wealthy and "productive." And being a member of that class means you never have to be accountable. Unlike the poor and working class who are the designated scapegoats for what will be known as the sub-prime crisis.

Peon,

Your observations are right on. The first thing that any talking head says about the mortgage crisis is a variant on "We can't afford to bail out all the homeowners who bought more than they could afford." They never seem to say "We can't afford to bail out every financial institution that helped to create this monumental crisis."

I think there's a fundamental meanness abroad in the land...For instance, in one of our local papers, there was a story of a family about to be evicted because their landlord had defaulted on her mortgage. The commenters spent their bytes criticizing this family..."

The commenters you describe wanted to blame the renters for their landlord's problems. This is pretty much the opposite of the criticism of homeowners that the Times is talking about, which puts the responsibility with the homeowners. All of it, of course, misses the point that there are legitimate criticisms of these bailout proposals that do not involve attacking homeowners as greedy or stupid.

Sorry, my open quote at the beginning somehow disappeared.

Dean , Whose bailing out the banks ?

Isn't it time to fire the Federal Reserve and institute a public central bank that would print money without interest.

How much more crony capitalism will it take for you , American Prospect and the rest of the progressive economists to call for the only reform that will get us out of this mess ?

That is : Fire the privately owned and operated Federal Reserve ....

Actually, ann arbor, my point was that if the mean among us can come up with some justification for blaming tenants for the mess, however implausible or, to be less kind, positively silly the reasoning might be, blaming homeowners should be far easier.

But the bankers seem to be getting off lightly--and will probably get bailed out. One example: in California the mortgage bankers made the argument that the Notice of Default (the first step in the foreclosure process) should not be mailed to "resident" at the property address (thus giving tenants living there an early warning of trouble) because it was a violation of the landlord's right to privacy. The bankers prevailed even though the Notice of Default is a public record. (Foreclosures.com collects that information.)

The Great Bank Bailout ... automatic earth.blogspot.com

"US banks have no reserves; they are for all intents and purposes, broke. In fact they are beyond broke and as I suggested last year banks are now sub-prime. 150% of the reserves at depository institutions are borrowed. That can only mean one thing, the banks have "lost" 1.5 times their original non borrowed reserves. Not only have they lost what they had, they went on and lost half as much again. If you or I did that, we would be bankrupted and probably arrested for attempting to defraud the lender.

Notice the amount of total reserves (yellow line) is roughly equal and appears cyclical to the Federal Reserve TAF lending programme. The Fed is no longer the "lender of last resort" it has become the de-facto Bank of the USA."

http://bp0.blogger.com/_9ZzZquaXrR8/R8Q5xB4aAiI/AAAAAAAAANk/t7HVukFSZNM/s1600-h/reserves.jpg

Any comments Dean ?

Dean,

I have been a fan of yours for quite a while. And I think your skepticism of any congressional proposal for an HOLC-like entity to purchase mortgages is well advised. However, I do think the externalities here and vicious cyle effects have gotten very potent here. Foreclosures pump lots of net housing supply (i.e., take homeowners out of the market) into those neighborhoods and cities that have been particularly affected (any many of these are disproportionately minority), hurting local markets, tax bases, and creating vacancy problems.

If a plan is well designed (and that is admittedly a big if), with steep discounts so that lenders/investors do NOT come out "whole," I think a MODIFIED HOLC-type effort may make sense, and since foreclosures piling up will certainly put more downward pressure on prices(etc.), doing nothing does not seem a good alternative.

Discounts must be steep to incorporate falling values and to limit excess undue enrichment (though some of that may have to happen in reality). With the appraisal technologies available I believe it is technically possible to develop a mortage acquisition program with sufficient discounts that could provide a backstop in heavily impacted communities. I come at this from one who cares about neighborhoods and places that have been hit hard by foreclosures (and a decent background in mortgage finance and regulation and related policy). It also needs to be accompanied by a reinvigorated FHA and strong lending regulation. (While innovative, I do not think your "own-to-rent" scheme is practical to implement nationally given state foreclosure regimes.)

I also agree that, unfortunately, the bulk of the resistance in the media to such plans is not a resistance to helping financial institutions, but a mean-spirited "they deserve it" current.

Sorry for the length...

I agree that we want to try to prevent foreclosures. I think that my own to rent plan is the best way to do that. If we did want to ensure that we didn't pay too much for buying up mortgages, we just cap the price at 14 times appraised annual rent -- that would do it.

While the article you cite places the burden on the homeowners, today's NYT editorial swings back the other way.
http://www.nytimes.com/2008/02/27/opinion/27wed1.html?hp