SYNDICATED COLUMN: Stop the Bleeding

A Plan to Bail Out Scared Homeowners

  • Evictions must stop
  • Feds should bail out troubled homeowners
  • Government would take equity stake in home mortgages
  • Cost less than Iraq War

  • Unemployed and desperately worried about losing his home in a California gated community, Karthik Rajaram shot his wife, kids and mother-in-law before turning his new handgun upon himself. “We believe this individual had become despondent recently over his financial dealings and the financial situation of his household,” Los Angeles police said. One of his sons, age 19, was a Fulbright scholar.

    The previous week, a 90-year-old Ohio woman tried to commit suicide when cops tried to evict her from her foreclosed house. Fortunately, the gunshot wound wasn’t fatal.

    The financial crisis has claimed a number of lives, but few as poetically as that of Ian Beach of Halifax, Nova Scotia. Like a character in a Kate Chopin novella, the 47-year-old father of two “apparently took painkillers, drank a bottle of whisky and walked into the sea,” reported The Daily Mail in 2006, when the current epidemic of home foreclosures began to ramp up. “My trade in electronics gradually faded away and profit margins collapsed,” Beach explained in his suicide note. “I was not able to get another trade going to support us in time, and meanwhile debt built up. Bankruptcy was an option but the house problem was the last straw.”

    He figured his wife could use his life insurance to keep their family home. Guess again. Death by suicide is usually exempt.

    It’s time to stop the bleeding. It’s time to stop the evictions.

    We don’t want to repeat the Great Depression, when at least 23,000 Americans killed themselves. Moreover, foreclosure-related evictions destroy neighborhoods and further erode the economy. As newly homeless families wander the streets or couch surf with relatives, their empty residences become irresistible temptations for drug users, looters and vandals. Studies show that the average foreclosed home reduces the value of 48 neighboring houses by at least $5,000–in many cases, as much as $15,000. That’s a net total of nearly $250,000 in lost value for each foreclosed home.

    The median value of an American mortgage for 2005 (the most recent year data was available) was $93,000. Let’s look at how foreclosures are bad for everybody. If the guy next door is facing foreclosure, making your payments on time isn’t enough. It’s cheaper to team up with your neighbors and pay off your neighbor’s mortgage than to let his empty house lower your equity.

    Some people took out subprime mortgages they couldn’t afford. Do they deserve foreclosure? I don’t know. What I do know is that evicting homeowners hurts society so badly–in terms of increased homelessness, higher crime and healthcare costs, unemployment benefits paid to evicted people forced to move away from their homes, and reduced real estate values–that it ends up costing more than the amount of money owed.

    In Chicago, the Cook County sheriff has ordered his deputies to stop foreclosure-related evictions. “It’s one of most gut-wrenching things we do, seeing little children put out on the street with their possessions,” said Sheriff Thomas Dart. He said there has been an increasing number of renters–who have done nothing wrong and paid their rent on time–being thrown out of their homes as banks seize buildings from landlords who are in default. But his edict protects owners as well.

    Sheriff Dart is an American hero. Now we need a President Dart for the rest of America.

    It isn’t going to be John McCain. McCain’s proposed solution is the same tired litany of help-the-rich reductions of capital gains and dividend taxes Republicans have been pushing forever. Trust me on this, John: people getting evicted for defaulting on their mortgages don’t have capital gains or dividends to tax.

    There’s more hope with Barack Obama. The Democratic candidate has been apparently been cribbing from my 2004 book “Wake Up! You’re Liberal: How We Can Take America Back From the Right,” and I like it. He’s promoting my then-derided ideas for a tax break for companies that hire American workers rather than ship jobs overseas, and to abolish the despicable tax on unemployment benefits imposed by Ronald Reagan.

    On foreclosures, however, Obama is weak. He wants a 90-day moratorium on evictions. A nice start, but what happens after that? It’s not like the economy is going to recover any time soon.

    The right answer, the long-term solution, is to replicate the Wall Street bailout for individuals. It took a few weeks to get it right, but securities markets seem to like the coordinated effort by the European nations and the U.S. to pump cash into troubled banks in exchange for equity stakes–in effect, partial nationalization.

    And they said socialism was dead.

    The federal government should offer people (homeowners–not flippers, speculators, or owners of second vacation houses) the same deal as the banks.

    Let’s say you fall behind on your mortgage payments. A new government homeowner bailout agency–can we call it Teddie Mac?–offers you a choice. Option one: deal with the tender mercies of your lender’s Mumbai-based customer service reps. Option two: Teddie Mac pays your mortgage. Your lender gets paid. You stay in your home. The same offer applies to property taxes–we don’t want any “House of Sand and Fog”-type evictions either.

    What does Teddie Mac get? Equity in your home equal to the value of the payments you miss. If and when you sell your property, you settle up with Teddie at the closing. If the economy recovers and real estate prices resume their long-term climb, Teddie and the taxpayers make a profit. If prices stagnate or fall, it’s still worth it because society saves all those foreclosure-related expenses we talked about earlier.

    As of 2005 there were about 50 million home mortgages worth roughly $4.6 trillion. According to the experts, only about $1.4 trillion of that is at risk of foreclosure–and that’s the total, not the amount it would cost to stop evictions. If the feds were to take over payments in exchange for equity stakes in people’s homes–the same “partial nationalization” approach being applied to the big banks, remember–the net downside risk would be significantly less, probably a couple hundred of billion or so.

    In the worst-case scenario, bailing out homeowners would cost less–a lot less–than the cost of the war against Iraq. It’s less–a lot less–than the $700 billion-plus Wall Street bailout. It’s a hell of a lot less than the $5 trillion George W. Bush has added to the federal deficit.

    Otherwise, prepare yourself for more grisly tales of desperate homeowners with easy access to handguns.



    • it won't happen because it's socialism, Ted.

      Socialism is when the government spreads the wealth out to everyone.

      When they only spread the wealth out to the upper classes, it's prudent governance.

      It doesn't matter how much it makes sense, it won't happen in America.

    • Ted, in response to those who fear socialism, let me be the first to coin the question/phrase, "How much do you greed?" Dorme bene…

    • 90 days to stop being poor
      October 14, 2008 5:31 PM

      lollin' pretty hard at the idea of recovery in Chicago, which has basically become one brown streak of papered-over windows and vacant storefronts. It looks like it's back to the good old days, when our chief exports were house music and violence. I hope the rest of the Midwest, with its ample territory for gang expansion, likes house music

    • oh that is great….you made greed a verb……outstanding. Add it to the list of newly converted verbs: impact, summer, misunderestimate. Excellent!

    • I doubt if we've seen the end of this and I doubt that any "solution" or proposal we are seeing now is more than a way to buy time until January 2009 when the new administration and Congress takes office.

      I agree with Ted that Sheriff Dart deserves high praise for finding the brake pedal and using it.

      I will not be surprised if they set up something to sort through the mortgages and keep people in their homes although I think it is likely that some will lose ownership rights and just be allowed to rent. Some of the borrowers, like the lenders, had quite a party. Society has already paid for it.

      They are now arguing over bookkeeping entries, i.e., who's going to book the losses now that this round of Ponzi financing is over. How that happens will simply depend on what narrative the public will accept. Americans like their plutocracy. Why? Who knows. They've been getting their pockets picked for three decades now and keep coming back for more.

    • I think we should just "Re-Distribute" the property. Declare the debts VOID. An illegal or immoral agreement is not enforceable. It could be argued both being in debt is immoral and the debt itself made illegal.

      "Pigs that devour usury must be beheaded" quoth one prophet in one form after another. Both Isa (Jesus) and Mohammed were against usury. And the former was a tradesman, the latter a merchant. They lived in the "Real World" before they got on with the prophet thing and they both were against Usury. They knew that usury, money used to 'grow' itself magically by the enslavement by debt of others was bad for people, for society, for man's soul.

      And I think, IMHO, that is a good part of the NWO pursuing a course of cultural genocide against followers of Islam. Jews are stereotyped as moneylenders, Christians allowed it in the reformation. Followers of Zoroaster are against it, but that faith is diminished. Only Islam stands against Usury for Mohammed in his last speech condemned it.

    • Socialism is dead. Twitching and leaving a bad stench too. Both the crisis cause and its "solution" are, to a degree, socialistic in nature.

      Anon, I don't fear socialism, I loathe it. Not because I am greedy, but because I believe people should be free to pursue their interests, politically, spiritually, sexually and damn it, economically.

      Why so many so-called American liberals, who profess to love the separation of Church and State, and to want to keep the State out of people's bedrooms, make an exception for keeping the State out of people's pockets is a puzzle to me.

    • Sean C. Ledig
      October 15, 2008 8:58 AM

      Hey aggie dude and Ted,

      It's neither socialism nor prudent governance when the government bails out wealthy corporations and speculators at the expense of homeowners.

      It's fascism. The Rethuglicans have been playing the "socialist" and "communist" card against Democrats and liberals for decades. Why don't liberals start hitting the Rethugs hard with the fascist card?

      After call, Bush and McCain have a lot more in common with Mussolini than Obama has in common with any Soviet, Cuban or Chinese leaders.

      Otherwise, great column! I like how you mention that McCain's only solution for the situation is more tax cuts.

      That's all we've ever heard from the Rethugs for 30 years! If you take a parrot and teach it to say "Tax cuts" over and over, you have a Republican candidate.

      Lastly, when you mention more gun violence due to the economy, I say we haven't seen the beginning of it.

      Wait until some deputies get shot for trying to evict someone. Or maybe someone going "postal" at their bank because the bank isn't willing to cut them any slack.

      Or maybe we'll have hordes of armed homeless gathering in tent cities, to be nicknamed "GWB Public Housing." It could be the beginning of a revolution in this country.

      Personally, I almost look forward to that possibility.

    • Tying down homeonwers to odious mortages isn't bailing them out. And renogiating interest rates won't change the fact that so many people are upside down in their homes.

      Ask troubled homeonwers what they want (I haven't seen anyone do this yet). My guess is that they'd like to walk away from the deal, give the house to the bank, but not have their credit ruined.

      A "homeowner" bailout, besides being unfair to people who sat out the bubble, doesn't address the underlying problem. Too many people in this country are insolvent. They just don't make enough money to cover their expenses. If that's the case, then the only solution is a strong labor movement which increases wages.

      And it doesn't have to be a government program like the CCC or WPA, although that'd work. The US based Fortune 150 is sitting on more than $500bn in cash. How about investing in McCain's "fundamentals" of the US economy (i.e., workers)?

    • Dear Caligula's horse, what is it that you want that you don't already have? If adopting a socialist system that allows America to maintian our current lifestyles, what's the complaint? If our tax money went to health care instead of war mongering, what's wrong with that? If someone goes to Med school I hope they're in it for humanitarian reasons, not financial. Compassion is lacking in capitalism. Republicans wan't to abolish abortion, yet the unborn have no say in where they're born and to who their parents will be or where they're going to find a job. The Ayn Rand inspired unfettered capitalism with it's "you're on your own" policy sucks. And it just cost us 700 billion. Greed on. Dorme bene…

    • Socialism is dead. Twitching and leaving a bad stench too. Both the crisis cause and its "solution" are, to a degree, socialistic in nature.

      Communism is dead. Democratic socialism is alive and well. Go visit Scandinavia.

    • Americans have an ill-conceived notion of the consequences of revolutions, because they fundamentally misunderstand the so-called American Revolution. It was at most a conservative revolution (one designed to keep things the same, rather than change them) and at least a war of secession.

      Revolutions NEVER make things better. They are always followed by anarchy in which the ruthless take power and abuse and exploit the population as a whole. They are almost always followed by terror, and then dictatorship. I think it is unwise to wish for or hope for a revolution.

      Things are never actually so bad that making things worse is an acceptable alternative.

      As for Incitatus' position on socialism and its impact on individual liberties. Individual liberties are a product of a strong, stable, and equitable society. Therefore, socialist policies (collective action to address public goods) are worth the coercive force necessary. All public goods in the end are derived through coercion of individuals. These public goods should be: Health care, national defense, emergency response, civil defense/police, equal protections under the law, protection of private property negotiated fairly with the public good, access to food, a clean environment, and representation in governance.

      Socialized institutions represent an effective and efficient means by which to provide much of this. AFTER those things are provided as public goods, one finds enormous personal freedom and liberty to pursue their personal interests, which in term and if properly regulated, will contribute to the ultimate public good -SO LONG as those basic qualities of life are met.

      It's really quite simple once we stop having convulsions over ideological terminology and recognize the essential role that collective action plays in a stable and just society.

    • Incitatus, you said, "Why so many so-called American liberals, who profess to love the separation of Church and State, and to want to keep the State out of people's bedrooms, make an exception for keeping the State out of people's pockets is a puzzle to me."

      Jesus fucking Christ, how ignorant are you? The investment bankers, the mortgage brokers, the CEO's, et al were all "freely" pursuing their economic interests, and these interests were fraud and theft — to the great harm of many individuals and society as a whole. The same way people "free" to pursue their sexual interests can be rapists and pedophiles, the same way people "free" to pursue their spiritual interests promote death and jihad, the same way people "free" to pursue their political interests set up authoritarian states which torture and murder with impunity.

      Every time people clump together in a society, there is an agreed-upon loss of freedom: the freedom to kill your neighbour because he is of a different religion, the freedom to rape his wife or children, the freedom to muzzle his or her political speech, and limits on the freedom to accumulate far more wealth and power than your neighbours, to the point where you harm them.

      That's how society works. And the denser the population and the more technologically and socially and ethnically complex, the more limits on the freedom to harm others that society imposes.

    • Wisely, I bought my first house at the EXACT peak of our local market July 2005. A small cape, 1400 sq feet for $355,000. Today I would be VERY lucky to sell it for an $80,000 loss or $275,000. I'm going to be "underwater" for a decade and can't move, even if I had to.

      I'm certainly not asking "Where's MY bailout?" because I understood the risks of buying a house and knew prices wouldn't rise forever. But it ENRAGES me to see the corporations and financial institutions get MY tax money and the executives at those places not suffer like I, and many, many Americans have to suffer.

      I'm in no danger of being foreclosed upon, but I certainly agree with Ted and sympathize much more with the HOMEOWNER who should be getting protected from losing their homes if we're going to be spending trillions of dollars to "shore up" the billionaires on Wall Street.

      I'm an upper middle class American (registered Independent) who's taxes WILL be raised by Obama and not only am I voting for him, I send him $100/month donation.

      Todays greedy corrupt Republicans, including McCain and Mayor Palin, can all burn in Hell as far as I'm concerned.

    • here-here Hairhead. Excellent points. It's common sense that all human rights and civil liberties are predicated on the responsibility of others to respect those rights and liberties.

      A statutory law against sex with a minor constitutes a loss of freedom, in favor of the rights of children to be protected from predators. The libertarian argument makes a reckless assumption that everyone just naturally agrees on these things. They take for granted the rights they've surrendered already and make freedom a black and white issue.

      I gladly forfeit my right to murder my neighbor for the knowledge that he has no right to murder me.

      So, with this free-wheeling libertarianism, Republicans invaded Iraq and ASSUMED that a free and just society would simply sprout from the ground, despite all evidence to the contrary.

      That they claim they just didn't know is not an excuse. I knew, and I'm not all that smart.

    • Sean C. Ledig
      October 15, 2008 8:16 PM

      Hey Aggie Dude,

      I think we need to differentiate between libertarianism as a philosophy and the fascism that the Rethuglicans have packaged as libertarianism.

      I'm not a libertarian, though I do share a lot of their views. I think it's a shame that the Libertarian Party has been hijacked by ex-Rethugs.

      I think a lot of their economic views are too laissez-faire for my tastes, but I agree 100 percent with their views on personal liberty. I think most of our fellow liberals do, too.

      For example, a true libertarian opposes the war on drugs. They believe adults should be able to make the decision about what they put into their bodies.

      True libertarians also oppose: military conscription; laws which regulate sexual behavior among consenting adults, like anti-sodomy laws or laws against gay marriage; restrictions on a woman's right to choose; stationing U.S. troops overseas, except in war; and my personal favorite item to oppose, gun control. (I part company with many of my fellow liberals on this issue).

      When talking about the Rethugs and Neocons, let's call it like it is – Fascism.

      And on the subject of revolution, sorry, but I don't subscribe to pacifism as a philosophy, either. I think as a rational man that you should take steps to avoid violence.

      But I also think there are some things worth fighting for. I hope it never comes to it, but if a revolution becomes necessary to restore democracy, then so be it.

    • Sheriff Dart is a hero.

      And those renters and owners of foreclosed homes should get Squatters' Rights. Including the sub-prime people.

    • One wonders how many homes there are in the USA…or how many vacant homes there are. I'd love it if something were done about those…

    • I like the idea of helping out homeowners, but several problems remain:
      (1) The cause of falling house prices is not the loss in value associated with foreclosure of neighboring properties; it's that house prices were too damn high. Values will continue to fall until they make sense with economic fundamentals, like wages and the cost of renting.
      (2) Because of (1), if the gov't pays your mortgage, you will gain no equity – it is going to take a long time for prices in the bubble markets to recover to 2005 levels. Financially, you're better off getting foreclosed on, renting for a few years, and then buying when prices bottom, so that you can participate in the upside.
      (3) In many of the bubble areas, housing was being constructed much faster than population was growing. Many "regular" people were engaged in speculation and lied on their loan applications and said the property would be owner occupied. In places like SoCal, Vegas, and FL, a LOT of foreclosure is on properties no one ever lived in.
      That said, we need to provide help for homeowners in trouble, especially those who were scammed. Renters should not be evicted from foreclosed properties. And the gov't should be an aggressive, active shareholder in the financial firms it bails out.

    • communism is dead? not in nepal, not in india.

    • People forget so much!

      Hitler was voted in, does that make Germany under Hitler a democracy?

      Mugabe calls Zimbabwe a democracy, does that make it true?

      Saddam Hussein had 90-95% voter turnouts, was that democracy?

      Maoism, in India and Nepal.

      Maoism in China.

      is NOT Communism.

      The former Soviet Union, N. Korea, Cuba, Vietnam.

      they were/are NOT communist.

      Communism cannot exist in a vacuum, cannot exist on its own. It, by definition must be a part of a greater world wide change in order to become viable.

      What those states created and put into practice are, generally, awful mutations. Dictatorships, state-capitalist entities, totalitarian regimes.

      Lenin, if he had not died or been attacked militarily and financially by the West, and with the help of Trotsky may have kept close to the ideal.

      Guevara, if he had had more influence in Cuba and if the US had not begun it's now 40+ year psychotic rampage against Cuba, may have been able to keep somewhat to the ideal.

      but it couldn't withstand the rampaging beast.

      Capitalism, like any rabid animal, will do anything to preserve itself.

      Propaganda, lies, brain-washing, manipulation, assassinations, blackmail, seductions, military attacks…

      nothing is above or below what it will do to ensure its cancerous survival.

      sadly, since the 1930's, people have bought it. pun intended.

      now they are simply getting what they deserve, what they chose, what they bought.

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