The $700 Billion dollar bailout plan is making many of us very uneasy (including Gov Deval!). I’m uneasy because it sounds like a huge blank check. And we know from experience how poorly things go when the administration gets blanks checks. I’m glad that Congress has put up the fight they have, and I hope they continue to do so. The NYT has an article about the difficult of knowing what the assets that the Government is buying out are worth: for example is a house now worth 60 cents on the dollar or 20 cents? Who gets to decide what the value is, Wall St? This is a really important point and I’d like to relate some information.
My sister is an NPR reporter who has been covering the house bust in Cleveland, and the reality could be even worse than than what the NYT is saying. Houses in some parts of Cleveland are on sale on Ebay for as little as $2000 (or $676.66, or $1225), but people who buy them sight unseen suddenly find themselves owing 10’s of thousands of dollars in city-enforced immediate upkeep costs. (Note to fellow sticker shocked Massachusetts residents, resist the urge to go bid on these houses, you’ll really regret it). These houses have negative value. You can imagine Wall street telling the government to buy them close to what the now-long-gone homeowners took a mortgage out for them for (probably ~100k range), and the taxpayers will be stuck with those huge losses. Who will have been helped? Certainly not the foreclosed homeowner, now long moved out. Nor Cleveland who is trying to figure out what to do with whole neighborhoods that are abandoned. Cleveland won’t get the money, they’re trying to sue the Banks who created this mess. As best I can tell the funds will go to Wall St, and will tidy up the accounting books.
I think Congress owes it to the constituents to do this very carefully and to take the time necessary to do so.