Just as I was drifting off to sleep last night I thought to myself:
- What if this $700 billion bailout demand is Bush’s parting gift to Wall Street merely for their irrational exuberance?
- Is this bailout the equivalent of the Bush giving Wall Street a pardon for all the sins of the last 8 years?
- What if this is like the WMD (weapons of mass destruction) in Iraq that didn’t exist and there really is no crisis?
I’m cynical about just about anything the Bush administration portrays as an exigent circumstance.
I proposed a series of questions yesterday in a post and, while I’ve searched and searched for answers to those questions, I can’t find them anywhere: Fortune, Wall Street Journal, etc. Those questions can be found at:
Last night on the news, I see the FBI is investigating fraud at some of the major institutions at the center of this “crisis.” Duh! Anyone who knows anything about mortgages in the past 4 years knows that the system was stuffed with loans that would have spelled disaster for the lien holders UNLESS the value of homes continued to rise year over year. Why?
The loans needed to be refinanced under the same “below market interest rate” terms as the existing loans for the owner to keep their home. The “Option ARMS” often required no down payment, had 1% interest rates for the first 3 years (below market interest rate loans) which meant the house payment would have just about doubled at the beginning of the fourth year.
People struggling to make that current payment would likely be forced into default at the end of year 3 if they couldn’t refinance under the same terms. Why? How many people could absorb a change in monthly payment terms from let’s say $1700 a month to $3500 a month? Not many.
The loan underwriting process–instead of confirming that the borrower met the terms and conditions of the loan–became a “look the other way” to fund the loan. In other words, there was a lot of fraud. Everyone in the industry knew this was the case! Fannie Mae and Freddie Mac were the recipients for this toxic waste.
It’s okay to be cynical. I don’t trust the Bush administration or anything it advances at this point.
I want the questions I asked yesterday in my post answered. It’s up to Congress to get those questions answered before any bailout legislation is approved.