We've Been Scrooged!
Saturday, December 20, 2008 at 1:25PM 
On December 10th, 2008, congressional hearings were held to get an update on the federal bailout—oh sorry, TARP (Troubled Asset Relief Program).
Neel Kashkari from the treasury department testified.First, the financial system hasn’t collapsed. And that, Kashkari said, is “the most direct, important information.” If you want a somewhat more refined assessment than that, it gets more complicated. Things have gotten better, Kashkari testified, but we’re still at a “point of low confidence.” Banks, he acknowledged, are being “cautious” in using the bailout billions to make new loans. Only when “confidence returns,” he said, will he “expect to see more credit extended.”
While the impression I got was that injecting cash into the system would bring about an increase in confidence, we can all see that it will take something more.
In the holiday spirit, perhaps the banks need a visit from the ghosts of Christmas Past, Present and Future?
If they received a visit it from the Past, they would remember how extremely profitable conditions were when things were better regulated. They would also see that housing is not part of a Ponzi Scheme, but an asset that needs to be protected, and its investors/homeowners held to a high regard and accountability. They would also learn that we must say “No” to the bundling of mortgages and the creation of no skin in the game loans (sub-prime).
A visit from the Present would help banks realize that holding onto cash and limiting lending to such extremes will not produce the consumer confidence they seek. After all, how can consumer confidence be re-established if borrowing is so difficult for the average consumer? CONFIDENCE will not magically appear like the candy canes on your tree Christmas morning (Well they do at my house—thanks, Santa).
In the Future, there is potential for a new storyline, but only if in the present banking system changes course. Banks could extend mortgages to keep people in their homes, refinance loans at lower rates, do work-outs in a timely manner, and respond quicker to short sale offers so buyers do not become frustrated and walk away from a deal (and with that said, foreclosure offers as well). Banks should realize that the actual average credit score in the United States is 660 not 720; this would free up more credit for more buyers in all industries. We are living in the age of credit, and are in need of credit.
We just had an election and the winner, Barack Obama said, “I am asking you to believe not just my ability to bring about real change in Washington... I’m asking you to believe in yours.” Well, LET’S DO IT! I am confident we will see effective change, but it will take all of us. This future will only happen if we act and contact our representatives and push back.
Merry Christmas to all, and to all a loan with no pre-payment penalties, a decent interest rate, and full documentation. And a 15% increase or twelve extra transactions for 2009 for all those who call and ACT NOW!
What do you think would encourage a return of Confidence? Tell us... BLOG ON!
Reader Comments (2)
I totally agree with you Mabel! It is just like the old 'chicken or the egg' story - which comes first? The banks have to pull their head out of the sand and start lending - they are the only ones that can change the sentiment in the market. You can't have increased confidence to lend UNTIL you give people the confidence that they can borrow without an extreme number of hoops to jump through OR that they might get bad information from corrupt lenders that will cause them to lose their homes like so many others. Fair rates with good terms to qualified buyers isn't too much to ask for.
On top of that, I've heard economists predict that once housing gets back on track the rest of the economy will follow. There are many people concerned about their own personal nest eggs' decreased value, salaries being cut, jobs being being lost - what makes you think they will want to or be able to take advantage of all of the benefits the current housing market is offering, i.e. amazingly low rates, and affordable home prices.
Personally I am not sure about what I can do about all of this and feel a bit helpless but I think Mabel's suggestion to take action and call/write/email the people that can actually make the decisions needed is the right thing to do!
Thanks Mabel for your insight and call to get us all off our bums and do something!
Great comment Sarah. I can feel your passion on this topic. I have been frustrated like everyone else. Lending starts with banking. Financial institutions are created for the purpose of finance. Lets keep the flow going by being fair and not setting expectations too low or too high. Again, great comment Sarah. All we can do is call. Remember legislatures Do NOT move as frequently as the rest of us do, if at all.