US Subprime Bailout Won’t Reverse Trend in House Prices

We can hardly bring our self to talk about America’s socialist subprime bailout. So we won’t spend much time on it!

Don’t confuse the Hope Now Alliance of lenders, investors, and banks for a bunch of modern day capitalist altruists. A close examination of the plan offered by George Bush and Hank Paulson shows that it’s an excellent example of battlefield triage.

In triage, there are three kinds of victims. The first is the guy who’s going to die anyway. He gets no medical care because it won’t save his life. The second is the guy who will survive anyway. His injuries may be disfiguring and gory. But he doesn’t need any immediate care anyway. He’s going to live.

The third guy is the guy who gets triage. He’s the guy who will survive only if he gets immediate medical care. This is the guy the mortgage bailout plan is aimed at. Why?

The folks already in default are never going to pay back their loans. The bankers know this. And the schmucks who are responsible enough to keep paying their loans, they are too conscientious to default. They’ll keep paying on their mortgages, and this money will go to bondholders and prevent the banks from having to take larger losses.

But what the bankers and bondholders were really after is a way to reduce losses and ensure continued payments from distressed borrowers. Freezing the resets on ARMS for five years does this. It means investors and lenders recoup a larger portion of the loan/income that looked in doubt prior to the bailout.

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