Tag Archives: bernanke

New Foreclosure Data Makes Us Ask: When Will We Stop The Insanity?

(Assemblyman Lieu has been a leader on the foreclosure issue.  Welcome him to Calitics. – promoted by David Dayen)

        Albert Einstein once said that insanity is doing the same thing over and over again and expecting a different result.  Wall Street and Treasury Secretary Henry Paulson have continued to ignore the home foreclosure problem, despite clear and urgent warnings from consumer groups, legislators, and regulators.  Virtually none of the $8.5 trillion in federal taxpayer bailout commitments is directed towards helping reduce foreclosures.   So it should come as no surprise that new data from the Mortgage Bankers Association shows that foreclosures have increased 76% compared to a year ago to hit yet another record high, with a record 1 in 10 Americans now experiencing mortgage trouble.

The problem is particularly acute in California, which accounts for one-third of the nation’s foreclosures.  California alone has 54 percent of all foreclosure filings on adjustable rate loans.  

         Despite the massive foreclosure meltdown, Wall Street and Treasury Secretary Paulson continue to believe a top-down solution of injecting taxpayer bailout money to private Wall Street companies will somehow help our economy.  How does giving hundreds of billions of dollars to large banks so that they can gobble up other smaller banks help homeowners?  How does injecting AIG with $150 billion of taxpayer funds help keep distressed homeowners in their homes?  The answer is those solutions do nothing to address the core problem of unmitigated foreclosures.    

        It is precisely the record number of home loan defaults that is causing the current credit and liquidity crisis.  AIG and numerous other Wall Street institutions collapsed because of rising home loan defaults, not the other way around.  It is insane to keep pouring federal taxpayer money down the Wall Street sinkhole while doing nothing to help reduce foreclosures.  None of Treasury Paulson’s solutions to benefit Wall Street have helped the problem; his solutions have only made our economy worse off.  We cannot keep doing the same thing expecting a different result.  

         It is time for Treasury Secretary Paulson to listen to Federal Reserve Chair Ben Bernanke and FDIC Chairwoman Sheila Bair, both of whom are calling for loan modifications to keep people in their homes.  Bernanke and Bair have been far more prescient, insightful, and rational than Paulson has been.  Until we change our policies, home foreclosures will continue to rise, Wall Street firms will continue to collapse, and our economy will continue to suffer.        

         Wall Street banks should also be ashamed of themselves for not only opposing past attempts to reform the mortgage market, but also current attempts to help alleviate the foreclosure crisis.  The California Foreclosure Prevention Act sets a 90 day foreclosure moratorium unless the lender has a comprehensive loan modification program designed to keep people in their homes.  Wall Street should not only stop opposing this bill, they should embrace it because this is one of the solutions that might actually keep them from going out of business.

Ted W. Lieu is Chair of the Assembly Rules Committee and author of the California Foreclosure Prevention Act