I’m taking the fifth

I’m taking the fifth on this one. I won’t say anything that may be used to portray me as an anti-Obama activist or a detractor of his economic policies. But for the love of God I can’t fathom out what were they thinking—smoking?—at the White House when they came up with the idea of paying distressed homeowners to short sale their homes. What is the rationale here? Am I missing something? How would this help the economy, the real estate market, the distressed homeowners and his/her neighbors? I’ve been scouring the press seeking guidance, for a ray of light, for a good soul who would take pity on me and infuse me with the broth of knowledge pouring onto the Nation from Pennsylvania Street.

Unfortunately I haven’t come, yet, across an interesting point of view or a reasonable explanation. Not even Mr. Krugman, who’s always sooo opinionated about everything, has made a pip about it. Then it must be me, but I cannot help feeling that this is another measure conceived to help banks to get rid, conveniently rid I should say, of their troubled assets, and having the community paying for it. How is that so? One may wonder, since also the banks are loosing money. In fact in a short sale, which is carried out over a very short period of time, a bank must agree to sell the asset below the face value of the note it holds on it. Let me speculate.

In a foreclosure the bank looses all the money, has to put up with long and costly legal proceedings, furthermore the foreclosed homeowner–in many cases–can stay up to a year in the house without making a single mortgage payment. And that’s not all, once it gets the house back from foreclosure the bank has to manage it and prepare it for a sale. As you can see, there’s plenty of ways for the bank to loose even more money. Now instead with the Obama plan they would be getting what the market is really willing to pay for the house, no hassle linked to reselling the bankrupt property, it gets off its books and the Obama administration will throw in also some chump change to make the loss more palatable. Of course once its gets her money back the bank will immediately reinvest it into a speculative asset, let’s say for example carbon offsets, which now are all the rage among brokers on Wall Street.

But what does this do in terms of putting a floor under the real estate market? Or to the end of slowing the rate at which homeowners become insolvent, or even contributing to create new occupation? Nothing, zero, zilch, nada. Oh yes a few hundred of thousand homeowners will not have the black mark of a foreclosure on their credit history, but form this to really resolving the problem of the housing market, which is still the main drag onto America’s return to growth, there’s still a lot of ground to cover. It won’t be covered though unless we make banks accountable for their access, those of the past and those currently under way.