Insuring Defeat

I can’t believe our Republican leadership let an insurance salesman in the door.

Some have proposed that we just guarantee the prices (provide insurance) for the buyers of securities. It is said this would cost less than $700B.

“Insurance” guarantees that taxpayers will lose money on every mortgage backed security (MBS) that defaults. And make little on any that work out.

Bad as it is, the proposed bailout gives Treasury ownership of real assets. Most will at least break even in a few years … many will generate a profit.

Owning something is far better than insuring it.Even during the worst downturns of the past 50 years, housing prices have never declined more than 30%. While this is terrible for the home-owner or speculator who is showing a $30,000 loss on their $5,000 (or less) downpayment for $100,000 worth of house … and terrible for whoever bought the mortgage … even a forced sale is going to net 70 cents on the dollar.

But there has not been a market for mortgages in the financial world. One recent interview said that bid prices were 20 cents on the dollar, with asked prices at 60 cents on the dollar. Neither represents the real value of a home, even if drastically reduced in price.

If we taxpayers buy up mortgages at even 70 cents on the dollar, we’ll break even over time. And the financial companies (if any are left) will take their losses and go on.

If we simply insure mortgage prices, we stand to lose on any that drop in value and make nothing on any that go up. Taxpayers really will be giving our money to Wall Street.

Insurance is no answer. If we have to bail, lets get some real property in return.