Will the bail out work?

[Guest Kenn Spacefield]

No one knows if the US governments bail out of bad mortgage debt will work.

I feel it is a trillion dollar band aid for a much larger problem; and whether or not it works - will mean what you meant by; "Will the bailout work?" I feel it is only going to slow the economic problem down in hopes US residential real estate will start to appreciate and the "crisis" is solved.

 

So the question really is; When will US residential real estate start to appreciate?

So the question really is; When will US residential real estate start to appreciate?

No one knows, but here is my opinion;

 

The US residential real estate market will not be appreciating much over the next ten years.

 

US real estate is over-valued and still has not come down enough to sell excess suburban homes.

 

A lot of US residential real estate built over the last 30 years was built out of materials with a 30 year lifespan.

 

Tens of millions of US homeowners are aging and selling homes in the suburbs and this will accelerate.

 

There is an exodus from the suburbs to population centers as traffic, cost, age, and pollution, become more of a concern.

 

The US is experiencing high unemployment, and an economic "slowdown" as "consumers" have less to spend.

 

The number of residential mortgages "underwater" will continue to rise for at least a year.

 

It is no longer a new homeowner "sub-prime" lending problem - as many "prime" older homeowners are now underwater due to the constant chiseling away at their equity through second mortgages, and equity lines of credit.

 

Sixty to eighty percent of US residents are two weeks from the streets, if their lines of credit-money and/or job is lost.

 

So the question really is; When will US residential real estate start to appreciate?

[Guest Senator Hillary Rodham Clinton]

Senator Hillary Rodham Clinton today called for swift action on the bipartisan proposal to address the growing economic crisis. In remarks on the Senate floor, Senator Clinton described the plan as a flawed but necessary compromise and warned of escalating economic damage far beyond Wall Street if Congress fails to act.

 

“Tonight we will vote on legislation none of us wish we were considering and none of us can afford to see fail. The costs of inaction are far too great. We are already seeing the consequences of a freezing credit market that will only worsen,” Senator Clinton said. “We failed to tackle a home mortgage crisis, and now we are facing a market crisis. If we fail to tackle the market crisis, we risk an even deeper economic crisis. I don’t think any of us want to see irresponsibility on Wall Street compounded by ineffectiveness in Washington. That’s why we must act, even as we do so with regret and reservations, because we have little choice.”

 

Senator Clinton underscored that today’s vote must be just the beginning of what needs to be done and laid out goals for further action to address the underlying causes of the current crisis. She proposed steps to protect taxpayers, ensure transparency and accountability, aid homeowners facing foreclosure, and pursue broad economic reforms.

 

“This is not the end but the beginning of what we must do,” Senator Clinton said. “We must pursue broader reforms. That is one of the lessons of this turmoil. We cannot continue to shuttle from crisis to crisis. This is a sink-or-swim moment for our country and we cannot merely catch our breath. We must swim for the shores. And we must do so together, not only as a united Congress, but as a united country.”

 

Senator Clinton called for a number of provisions to protect taxpayers and ensure transparency and accountability, including a new proposal to establish an “e-TRUST” program to require that assets bought and sold by the Treasury Department are reported online in real time. All assets bought and sold would be available on a publicly accessible website that discloses the buyers, sellers, and values of these assets.

 

Senator Clinton also underscored that only by helping homeowners restructure their mortgages and avoid foreclosure can we address the root cause of the crisis. She proposed creating a Home Owners Mortgage Enterprise, or HOME, to rewrite mortgages and reset terms so families can keep their homes and continue making affordable payments. A similar program during the Great Depression saved a million homes and made a profit for the taxpayers.

 

A transcript of Senator Clinton’s remarks follows.

 

Senator Clinton: Thank you Mr. President. Thank you very much, and I appreciate the extraordinary work that has been done with respect to the rescue package, led in a bipartisan fashion which has certainly produced significant changes in the original request that came to the Congress from the Treasury Department. And tonight we will vote on legislation none of us wish we were considering and none of us can afford to see fail. The costs of inaction are far too great. We are already seeing the consequences of a freezing credit market that will only worsen.

 

I hear across my state of New York, small businesses are struggling to find affordable loans to keep their doors open and their inventory stocked. Even larger businesses are being pushed to the breaking point throughout the country, the impact of this credit crisis is beginning to be felt, with students who are seeing the sources of student loans drying up, interest rates on car payments rising, families who had saved up and acted responsibly seeing higher mortgage rates, shrinking their dream of homeownership.

 

Our economy runs on credit, and underlying that credit is trust. Both the credit and the trust is running out. Essentially what we are doing here in an intangible way is restoring trust and confidence in a very tangible way: helping to restore credit. Banks will refuse to lend to businesses and even to one another. Investors continue to withdraw into the safest if investments, treasury bills, even cash. Tens of thousands of jobs in New York have been lost and a study this morning projected that New York alone would lose at least 120,000 jobs.

 

Now I think we are here in some respects because we failed to tackle a home mortgage crisis, and now we are facing a market crisis. If we fail to tackle the market crisis, we risk an even deeper economic crisis. I don’t think any of us want to see irresponsibility on Wall Street compounded by ineffectiveness in Washington. That’s why we must act, even as we do so with regret and reservations, because we have little choice.

 

The proposal we are considering is far from perfect, but it is a far cry from the original plan sent over by the Treasury Department that installed virtually unlimited powers in the hands of the Treasury Secretary. As I said when we first examined that original three-page proposal, we needed a plan that included checks and balances, not a blank check.

 

And thanks to the leadership here in the Senate and in the House, we have negotiated through the Congress, on a bipartisan basis, a better alternative that installs taxpayer protections, asserts oversight, and maintains greater accountability. As is the case very often in effective compromises, no one is happy. But we cannot let the perfect be the enemy of the good, or in this case, the enemy of what’s necessary. But as we vote for this proposal tonight, we must do so considering what steps we will take next.

 

On the floor at this moment are three of the leaders who shaped this, under the very able leadership of Chairman Dodd, and the chief Republican negotiator, Senator Gregg, and of course the Chairman of the Finance Committee, Chairman Baucus.

 

But I think we all recognize that this is not the end but the beginning of what we must do. And I believe there are three big goals that we will have to address even after we pass the Rescue Package tonight here in the Senate and send it over to the House.

 

First, we must address the home mortgage crisis. For two years, I and others have called for action as wave after wave of defaults and foreclosures crashed against communities and the broader economy. We are not yet through the woods. Millions of mortgages are underwater or under specter of adjustable rates set to rise.

 

I am proposing what we're calling The Homeowners Mortgage Enterprise, an acronym obviously spelling HOME, to rewrite mortgages and reset terms so that creditworthy, responsible families can keep their homes and keep making affordable payments. Through such a HOME program, we'd also be able to consider freezing adjustable mortgage rates and even placing short term moratoriums on foreclosures.

 

When our country enacted a similar program in the Great Depression, we saved one million homes without costing the taxpayers a dime. In fact, the program ended up with a surplus. And only by rewriting the terms of the debt held by families whose mortgages can be salvaged will we recoup a great deal of the value of the debt we are purchasing from Wall Street firms.

 

I also believe we need to consider a real tax credit for homebuyers to jump start the housing market. This has been an effective tool in the past and it can be an effective tool again. We have too much supply and too little demand, and getting the liquidity that will be injected into the credit markets to work its way through the entire economy will take time. I think we need not only a supply of liquidity but an increase in demand, particularly in the housing market.

 

Second, we must be vigilant on behalf of taxpayers, putting in place safeguards so the Treasury is maximizing the value of the assets purchased with taxpayer dollars. We need to have the flexibility to ensure we're not just subsidizing investors and executives, but we should tie this debt relief to strong recapitalization requirements and greater accountability.

 

I also want to be sure that companies do not take undue advantage of this program and sell securities to the Treasury with one stroke of the pen and claim a deduction for the losses on those assets with the other—in essence, double dipping, dumping their bad assets on taxpayers, and getting a tax break as well.

 

I'm proposing we build on a very creative provision in the bill before us, and establish an e-TRUST Program. That would stand for Transparent Rules Used to Safeguard Taxpayers. In the bill, there's a provision that transactions be put on the Internet. I want to ensure that the assets brought—bought and sold by the Treasury Department are reported online in real time, so any American can log on and see how their tax dollars are being spent. All assets bought and sold must be available on a publicly accessible website that discloses the buyers, sellers and values of these assets. The American people are buying these securities, and so the American people must have easy access to their portfolio.

 

It's also important for the American people to understand that lying behind these complex transactions, with all kinds of long names that you read in the newspaper—collateralized debt obligations, and credit default swaps and all the other, you know, words that are used to in some way explain the complex financial transactions that brought to us this place—standing behind are real assets. There are real homes owned by real people on real land in real communities across America. So we want to know how those securities that stand in for these real assets are being traded, bought, and sold, and we want to be sure that we realize for the taxpayer the benefit of these transactions.

 

And third, I think there is general agreement we must pursue broader reforms. That is one of the lessons of this turmoil. I know that Chairman Dodd and others will be holding hearings to try to untangle how we got to where we are. We know we have to rein in executive compensation by giving shareholders a greater role and eliminating loopholes that allow boards to conceal the value of salary packages. We've got to end the quarter-by-quarter mentality in which long term prosperity is subverted by short term stock valuations. And obviously, we have to end the culture of recklessness in our financial markets endorsed by an ideology of indifference in Washington.

 

As the American people invest in these companies, I think we should ask the companies to invest in the American people. I think we should consider requiring financial institutions participating in this Treasury plan to create an American Priorities Fund to be part of their portfolios, to invest in clean energy, infrastructure, mass transit, manufacturing, education, and other public goods and goals that would be well served by greater private investment.

 

Along with the rescue package will be a number of tax credits that will be passed by the Senate tonight. Again, Chairman Baucus has done yeoman's work getting these tax credits put together. The Senate supported them before in it as a fix for the Alternative Minimum Tax, energy production tax credits. In fact, we will be stimulating the economy for Main Street while we pass this rescue package for our credit markets. I think that's the right combination.

 

But we need to do more. Instead of toxic securities that nobody can understand, are so complex and lack all transparency and accountability, banks should be investing in clean energy facilities in Buffalo, or new auto manufacturing plants in Detroit to build more fuel-efficient cars. We should be repairing our bridges, our roads, our tunnels. We should investing in high-speed rail and making sure that Amtrak is just not a second-class railroad, but competes with the best anywhere in the world.

 

I think, Mr. President, that the agenda before the Congress is a very important one for our country. We cannot continue to shuttle from crisis to crisis. This is a sink-or-swim moment for our country and we cannot merely catch our breath. We must swim for the shores. And we must do so together, not only as a united Congress, but as a united country. There's so much work to be done in America, so many investments that will make us richer and stronger and safer and smarter, that will enable us to look into the eyes of our children and grandchildren and tell them that we're leaving our country and in as good, in fact, better shape than when we found it. At this moment we can't say that. But I am absolutely sure, based on the bipartisan cooperation that we saw on this bill in responding to a real crisis, that we will see more of that in the months ahead. Our new President will certainly demand it of us, but we should be demanding it of ourselves, and demonstrate to the American people that the United States Congress will lead the way into a much more confident and optimistic future for America.

 

Thank you Mr. President. I yield the floor

 

 

View the video at YouTube.