Well, from what I read, Sen, Dodd has a great plan to change the operationg rules governing the FHA, and allow them to take over the adjustable rate loans (coming due for reset)…. and convert them to fixed rate loans. So, the FHA moves “bigtime” into the mortgage / refi biz, if Dodd has his way?

Yesterday, it was the NY Federal bank which went into the asset-backed / commercial paper biz, accepting ” that paper” as collateral on loans to banks. ( this is a FIRST, in history).

LOTS OF RULE CHANGIN’ GOIN’ ON …more govt intervention / less private operation – is this more like Communism / Socialism, or what? Whatever did happen to the private marketplace?

Back to the FHA / Sen. Dodd … It was my original idea that if a BAILOUT of the adjustable rate homeowers was to be done, well, why not just give em’ each $15,000 , to allow them to buy-out of the adjustable loan ( refi penality)…and allow them to go to a private lender, to refi… i.e. let the marketplace work. Don’t have the govt. involved “from soup to nuts”…holding the “paper”, too.

But then, it occured to me that 63% of those loans were “liar loans”, so those individuals might not even qualify for a refi-to- fixed loan, esp. with the tougher lending stds, going into place (now that the horse is out of the barn).

So, hahahaha…yeah, I guess Dodd has a point – perhaps the govt. will (have to) be the one to hold it’s nose, look the other way…not ask for proof of income…and just ‘do the dirty deed…refi anything and everything that’s crawling out there…. Do anything to keep the 2 million homes from going into foreclosure, adding to the (already) huge supply of unsold homes.

Of course, those loans do have that sticky “refi penality” attached…. and those lenders who made those loan contracts (or the ones now holding them), will want the “refi penalty” money, won’t they?

You’re probably looking at $30 Billion to “buy out” those refi-penality clauses…I don’t think the lenders will simply hand over their portfolios to the FHA, without being compensated…they want that $30 Billion, right? ( and perhaps that’s why Wilbur Ross suddenly has an interest in owning some mortgage company assets? … I believe he’s already a ‘partner’ now, in Accredited Home Lenders? you’d have to check the news to see exactly what Wilbur is up to – but if he sees the FHA handing out money, to cover those refi penalities, well… money is money)

“No state has an inherent right to survive through conscript troops and, in the long run, no state ever has. Roman matrons used to say to their sons: “Come back with your shield, or on it.” Later on, this custom declined. So did Rome. Robert Heinlein, “The Notebooks of Lazarus Long”"

Heinlein is wrong for two reasons. First, it wasn’t Roman mothers, it was Spartan mothers — and Sparta declined largely because of its militarism. The decline of the Roman Empire has been attributed to many, many causes, but the conventional claim that it was due to libertinism is way off the mark. The biggest problems were an increasing concentration of wealth and the intrinsic weakness of a slave-based economy.

No, this is not a grand conspiracy to cheat the little guy. Yes, if inflation is high, then pensioners lose, but debtors win. If there’s deflation, then pensioners win and debtors lose. The ideal, again, is to get no inflation — but that’s almost impossible to achieve in the real world.

In general, I oppose government meddling in the economy, but the Fed is one of few government institutions whose intervention has generally been beneficial (in the last few decades). The example you cite (called ‘moral hazard’) is a fundamental problem with all government meddling in the economy. The problem is that, if the government takes no action and permits the financial institution to fail, then a great deal of wealth is destroyed and the effects ripple through the entire economy, hurting lots of people — including lots of little guys.

The better analogy would be the alcoholic brother developing a liver disease because of his alcholism. Do you treat the disease, so that he continues to live as an alcoholic, or do you let nature take its course and let him die?