If we can consider TARP as being the medicine, why is it being used to treat the symptoms (banks & recession) instead of the disease (collapse of the housing market) ?
If the real estate bubble doesn't burst, there is no financial crisis and no recession. Giving money to the banks is not helping anything, in fact there should be no money going anywhere. The government should have used the TARP to keep families in their homes while passing regulations that would let the air out of the bubble slowly.
Double-edged sword... the only reasonable way to alleviate the housing bubble is to arbitrarily re-value mortgage principle. You can't do that w/o killing the banks anyway because they then have to write down the value of the modified loan.
Since the banks' business is directly tied to tangible assets, they still have billions in loans and investments that have to be deleveraged to bring them into compliance w/ government regulations.
True, some banks have actually begun re-writing mortgages they hold for customers in good standing at the moment. Until this happens on a wide scale which will kill many banks across the country (world), there's no way for government intervention to force housing demand on the American public. Therefore, the only solution so far is to pump money into the banks to keep them alive, in hopes that demand will eventually return naturally and right the system.
It's a difficult environment, and I can attest that my home, purchased in 2006, is now >$100k under water due to the large number of short sales happening in our area. We are comfortably making payments but further downturn in the economy might leave us no choice but to foreclose unless our lender agrees to re-negotiate principle. I'm hopeful it won't come to that. GLTA
What do you mean re-negotiate the principle? Do you mean re-negotiate the loan?? Surely you didn't mean that the bank would write off 100,000 off of the principle & then lets say in 5 years you sell the house at 200,000 higher that the current priciple - would you give the bank back the 100,000 they wrote off??? If you didn't give the money back, you sound a little like that fella that just ripped off 50 billion dollars off of other people, but you would be taking from the bank!!!!
No, you don't arbitrarily re-value the principle. The government would actually pay down up to 75% of the mortgage, and offset the capital with a lien on the home. The bank gets their money, and the homeowner now has an affordable mortgage. In time, when prices recover and the homeowner sells the home, the government gets their money back.
Housing crisis and recession averted.
Obviously, this program cannot be made available to speculators, only honest homeowners like yourself.