Charlie Rose

Bill Dick  10/08/2008 01:37 AM Report

Marty is right!! Stop the foreclosures and short sales for 120 days and give the Treasury time to workout the problem loans. That is the first step. Nothing else is as important.

The "death spiral" in home values will not stop if Banks are allowed to keep selling at foreclosure sale or short sale at the firesale prices they are willing to take thereby driving down all the other home values on the same street and adding to the problem ad infinitum. A moritorium wouldn't cost anything. The cost of acquiring the loans would be a better idea than waiting to acquire vacant homes that would cost more to manage and liqidate. At least the recast loans will generate cash flow and repay at some point.

Let's not forget...without a floor on housing values, the Bailout Plan will not work...period. The "knife" will just continue to fall. All the above about who is to blame and more arcane solutions are a waste of time.

Sorry Guys...

Robert S. Krauser  10/04/2008 07:02 PM Report

Dr. Felstein makes the point that housing prices became overvalued by 60%.

Hegoes on to say that housing prices have declined by about 20% and that another decline of 20% would be a disaster, as many more mortgages and mortgage related paper,will be under water.

However, if housing prices were overvalued by 60%, what is there to stop them from declining that next 20% which would then put around "fair" value.

I assume that Dr. Feldstein can do the math.

SAChaplin  10/02/2008 09:48 AM Report

Oh, Marty Feldstein..give me a break! You are one of the world's biggest gurus of wild west style market speculation! You always said that the government should stay out of the marketplace! Now you are blaming the government of not regualting. You, Milton Freedman, and Alan Greenspan have done more damage to our country than anyone I know!

New Yorker  10/02/2008 12:13 AM Report

New York hasn't been what it once was, and the collapse of the financial market on its own artifical weight is a testament and proof that I have been long awaiting. Well, lets see what mother nature brings in next. But this definitely and deservingly marks the end of new york city, and at least the new york city of the once upon a time I knew... I never did like it much after 1999!

I awaited a long time for this to happen and now I see it, ofcourse all will be affected including myself but I really hope those who knew they were doing wrong night after night, and know now that they did and includes many people small traders, intermediate traders, big traders, risk groups, quant (phd) groups, not all ... but many knew and many like myself knew it didnt make sense although not in the financial industry (once upon a time I was though).... those who knew should be have all their money stripped away from them (no, no jail because in jail they give you tv, work out rooms, food, clothing, and shelter).. Just strip away their money, make their work-resumes zeroed out, and mark them in the system as not fully trustable.. and let them live.

The good people well we need to become more aware and not give in, and lets stop that dependence on oil really we are freaken idiots in some ways - we need a mass and fast transport people/goods system. We need honesty and integrity in the workplace/businesses. We need to get rid of those H1 visas, we have plenty of good people here! We need to make and consume our own products, and we need to stop buying things we dont really need nor want them... Stop the excess and stupidity people!

CJ  10/01/2008 10:38 PM Report

I have been reading and re-reading my loan docs to figure this very topic out. One thing is for sure. If you miss just one payment due date the bank can take your house via a legal foreclosure process (not that they ever do that). PMI or not that is probably true, except with PMI they can recover any losses or expenses from the insurance policy (FHA?). But, there are clauses in my loan docs saying they can recover "expenses" and "attorney fees" and possibly even losses that the borrower is liable for. They just don't spell out HOW. In practice they probably turn it over to collection and you get hounded for years and perhaps if you get paid via an employer and they can get an enforceable judgment they can tap your pay check. Hard to do if you work for yourself to avoid having your paycheck attached.

Ken  10/01/2008 10:06 PM Report

I am confused about Dr. Feldstein's plan to convertlarge numbers of "non-recourse" mortgages to "recourse" mortgages. Very Very Very Very few residential mortgages are "non-recourse". Is he talking about mortgages that have Private Mortgage Insuurance?

CJ  10/01/2008 07:29 PM Report

Per these comments made on Sep 30 by Martin Feldstein, while talking to Charlie Rose, there are currently around 10 million home owners who owe more on loans than their home is worth. Some of these are trying to sell. Some are considering the idea of stopping their payments due to the drop in value of their bad RE assets. Most of this is due to 95% or 100% loan to value situations (in their initial loans) and then having house values reverse direction recently. Many may have begun with 95% loan to values back prior to 2005 or 2004, had their LTV drop to more like 80% when the market was still rising (as in my case for example), but have still been caught short now that values have dropped back down so quickly and sharply.

In any event...

If 1 in 5 (it is probably far less than 1 in 5 keep in mind) of these people are trying or have to sell in today's market, but can't, then that comes to 2 million (give or take) owners who are up side down and can't sell or who may short sell or perhaps go into foreclosure.

So, if all of these properties turned into distressed properties and the Fed were to take the $700 billion they plan to use to buy junk paper and, instead, were to buy ALL of the distressed properties and ended up owning actual real assets vs. paper assets THEN, on average, they could buy upwards of 2 million such houses for an average of $350,000 each. So, the numbers I suggested a few days ago would actually work and would work even easier than I first thought.

So, why isn't anyone looking at this as a viable option?

CJ  10/01/2008 07:27 PM Report

HERE IS WHAT I WROTE TO CONGRESS, PALIN, MCCAIN AND OTHERS A FEW DAYS AGO... The U.S. Congress, as I type this, is debating how to bail out the U.S. economic boat... with a big wad of cash! President Bush was on TV the other night and said it all started way back when and had something to do with the so called sub-prime loans. The folks who took out those loans began to default and it went down hill from there. Eventually lenders came up short because sellers came up short and before long anyone who owns a house has lost money on paper at least. Anyone who needs to sell, for whatever reason, is having a heck of a time finding buyers because of a number of reasons, not the least of which being that the lenders are getting tighter with their cash because they don't want assets backing loans that are dropping in price either and because they can't sell those loans and because they are having liquidity issues thanks to goof balls packaging the loans by the thousands into "mortgage backed securities" that could once upon a time be sold on some securities markets but now they can't because buyers have no idea what these fancy securities with a complicated bunch of mortgages behind them are or are not worth.

Talk about grid lock.

In the mean time the stock market is going south as people cut and run and hide under their beds while hundreds of financial company stocks are dropping like flies and the companies are thus being sold off in fire sales. And, when companies get sold, left and right, people lose jobs and retirement plans invested in stocks lose value and... you get the idea.

So, what is the FIX?

That depends on who you ask. Should we use tax payer IOU's to buy the mortgage backed junk paper? Or should we ignore the situation and let everyone sort it out on their own? Or should we bail out each company we think holds the world together and let all the other small potatoes cave? Or should we give everyone $600 again and see if that helps? Boy was that a lame idea!!

Answer: NONE OF THE ABOVE. What we should do is very simple and easy and will get right down to the root cause.

We should BUY HOUSES... directly... with tax payer funds. Rather than use $700,000,000,000 in tax payer money to buy "securities" or "companies" what we should do with that load of cash is BUY HOUSES. The US government owns forests full of trees. Now they should own cities full of HOUSES... and perhaps a few townhomes and condos also.

Which houses and what am I talking about?

Answer: Any houses that meet certain REQUIREMENTS should be purchased, on sale, for what is currently owed on the houses plus closing costs. The requirements are as follows...

(1) House owner must be in default for 90 days or more (and thus have a big fat ding on their credit history by now). Bad home owner. Shame shame.

(2) House should have been listed for at least 120 days with no sale offer pending. Honest effort has been made but no luck.

(3) House appraised value and sale price should be less than balance on loan plus late fees. Upside down thanks to bad house market.

(4) Home owner should have been out of work or, at least, earning less than needed to pay high house payments and have little or no savings as reason for missing payments.

(5) Lender must show proof that loan was reasonable to begin with but due to terms or current situation of borrower loan has gone bad.

(6) House must be in decent shape and will cost very little to clean up and be able to be rented. If not owner must make effort to bring house up to snuff.

(7) House loan must be under $500,000 and average $300,000, give or take, over entire market of houses being purchased.

(8) Can not be owned/occupied by illegal aliens, rats, ...

(9) Etc.

If house meets Government requirements then Government will make offer to seller, on a first come first serve by who is most in distress order, to buy house for loan amount plus closing costs.

House is purchased only once. Then becomes exempt from any other Government loans or bail outs for 20 years. Don't expect to buy that house or sell it again to the Government.

Once purchased then house is contracted to real estate managers (share the business) who find renters who rent houses at fair value in the area.

Landscapers are hired to maintain yards and exteriors and cost is included in rent price. HUD manages all properties and hires enough help to take care of all issues.

Eventually, when market recovers houses are sold a few each year over time. Others that are profitable as rentals are retained longer while tax dollars are recovered via rents.

How many houses would be purchased?

Simple. $700,000,000,000 worth. At an average of $300,000 that would be about 2,300,000 houses the U.S. Government would PERHAPS own. So, we are talking about a LOT of houses. A LOT of houses. About 46,000 per state on average. About 3,800 per month per state on average over the next year. Just enough to stimulate the housing market. Probably not enough to buy all the bad loan homes. But a dang good start. (see below)

And a lot of banks would get a lot of bad loans paid off keeping them in business. And a lot of those mortgage backed securities would be worth something again rather than backed by a lot of bad loans. And if not, well, too bad. And a heck of a lot of buyer and seller RE agents would get commissions too. And a heck of a lot of RE managers would have good businesses again. And a heck of a lot of people could rent those houses for a good rental rates. And a heck of a lot of landscapers could keep working too,making neighborhoods look better in the process. And the property tax bases of a heck of a lot of counties would be shored up and peoples' home sales would happen and all of a sudden the bad buyers would become renters... perhaps even renting back the houses they sold for less than they were paying in mortgage payments too... if they qualify... or are the best rent applicants that can be found. And, with any luck, the houses still left on the market would not have to be sold at fire sale prices because supply would, once again, be more in line with demand. And builders could get their employees back to work building a few extra new homes again too as there would finally be a better economic environment in which to sell the houses in. And, guess what else, maybe even all the other businesses in town would come back to life... and on Wall Street too... and people would keep their jobs and have a place to live and we might just get out of this mess w/o bailing out the scum bags who cooked up the "mortgage back paper mill" to begin with.

In fact they could also pass a law that says, "You make a loan... you keep the loan... you don't sell the loan... so it better be a good loan."

Now, last question.

HOW DO WE ALL GET A COPY OF THIS EMAIL TO ONE OF OUR FINE FEDERAL AND/OR STATE GOVERNMENT REPRESENTATIVES so they can get with the program??

http://www.usa.gov/Agencies/Federal/Legislative.shtml

You know, come to think of it, what would stop each state and county government from getting with this very same program and kicking in a little free cash also? In fact, what would stop any "fat cat" with a few billion laying around (can you say Bill Gates or Warren Buffett or Carlos Slim Helu or Forbes Richest People ... http://www.forbes.com/worldsrichest/ ?) going to waste on the stock market from doing the very same thing? Makes you kind of wonder doesn't it?

Pass it on before it is too late. PLEASE.

Ramesh  10/01/2008 05:54 PM Report

There are so many bright economists out there who have had a hand in creating this mess we are now in. I wonder why their wisdom was not able to help us avoid getting here to begin with. I suppose when everyone is gaming the system and profiting handsomely, no one wants to be the one to end the party.

patrck  10/01/2008 05:33 PM Report

one of the best plans I have heard of lately - it should be given serious consideration. But unfortunately, I suspect the problem is now more wide spread than housing. Markets are disappearing in certain derivative products which have been circulated everywhere in the global economy. The unregulated 64 trillion dollar CDS market will not be supported by the 700 billion dollar or so proposal of Mr. Feldstein, unfortunately.... The deleveraging process now is something we cannot avoid, and unfortunately, I suspect, it will simply turn out that many types of financial products sold by the investment banks are worthless. The big political question - one no market will be able to allocate - now is how those losses and blame itself will be distributed. Speaking of which, I still have a hard time with the fact that Mr. Feldstein made a great deal of money as a director of AIG, that he is an economist, and obviously very bright, but that the company failed so quickly. What is his responsiblity in this case? None? Some? Quite a bit... Congrats to Charlie for at least trying to raise the question - it would be interesting to have some talk about corportate governace issues and its role in this mess