Los Angeles Personal Injury Lawyer - Secretary Paulson

The Next Bailout: How Much Will It Cost?

Paul Kiesel — Tue, 07 Oct 2008 16:35:28 GMT

A few excellent points on the $700 billion "Rescue Package" have been made since President Bush signed it into law last Friday.

1. The plan does not recapitalize banks, it just buys their troubled assets.

2. It won't clean up the banks' balance sheets anytime soon (the $700 billion will be slowly allocated to banks, as determined by the Treasury Department and Congress).

3. Because of the two aforementioned points, there here will be an inevitable FIFTH bailout, and it's likely to occur before the end of the year (The four bailouts: Bear Stearns, Fannie Mae/Freddie Mac, AIG, and the "Hank Paulson" bailout plan).

The Los Angeles Times' Peter Viles reported on this looming problem yesterday in his L.A. Land Blog. Below are Edmund Phelps' (2006 Nobel Prize winner for economics) thoughts on the matter and Paul Krugman's assessment, who's a New York Times columnist. Both are two of the more erudite individuals on U.S. economic policy.

U.S. Treasury Secretary Henry Paulson's $700-billion plan to buy troubled assets from financial firms may not work because it doesn't recapitalize banks, said Edmund Phelps, winner of the 2006 Nobel Prize for economics.

“There are lots of reasons to think the Paulson plan won't succeed in cleaning up banks' balance sheets any time soon,” Phelps, an economics professor at Columbia University, said at a conference today in Washington. “It may aggravate the second problem banks have, which is that they're quasi-insolvent.” (L.A. Land Blog, 10/6/08)

Speaking at the same conference, New York Times columnist Paul Krugman agreed, saying the Paulson plan fails to recapitalize banks, and that another government intervention, to inject capital into the banking system, is probably inevitable.

Last Friday, Krugman questioned the just signed "Rescue Package" in a New York Times Opinion column, "Has the Bailout Already Failed," and then went on to write:

OK, I know that’s premature. And I place no weight at all on the fact that the Dow plunged after the vote.

But it is interesting that short-term Treasury yields are down — only 0.13% on one-month — suggesting that the flight to safety continues unabated. Against this, John Jansen reports some signs that money markets are unfreezing, slightly.

We’ll learn more next week. But I have a prediction: well before January 20, Congress will be asked to vote on bailout 2.0.

Only time will tell, but it looks like the portending by both Krugman and Phelps is likely to occur, as President Bush tried reassuring Americans today, telling them to give this current rescue package time to work. (The President's reassurances over the past seven and a half years always signal more troubling times ahead, whether it's in regards to Hurricane Katrina, Iraq, Afghanistan, the Mortgage Crisis, etc., etc.) This is also coming from a president who has not answered reporters' questions since August 6.

Originally posted at InjuryBoard by Paul Kiesel

Three Blind Mice: Bush, Bernanke and Paulson on the Economy

Paul Kiesel — Thu, 25 Sep 2008 15:53:40 GMT

How wrong were Bush, Bernanke and Paulson on the state of the economy over the past six months? Very wrong.

"I have great confidence in our capital markets and in our financial institutions. Our financial institutions, banks and investment banks, are strong. Our capital markets are resilient. They're efficient. They're flexible." -- Treasury Secretary Henry Paulson on March 16, 2008

"Our policy in this administration -- laws shouldn't bail out lenders, laws shouldn't help speculators." -- President Bush on May 19, 2008

"There is little public policymakers can, or should, do to compensate for untenable financial decisions." -- Treasury Secretary Henry Paulson on July 8, 2008

"Our economy has continued growing, consumers are spending, business are investing, exports continue increasing and American productivity remains strong. We can have confidence in the long-term foundation of our economy [. . .] I think the system basically is sound. I truly do." -- President Bush on July 15, 2008

"I understand there's a lot of nervousness [. . .] The economy is growing. Productivity is high. Trade's up. People are working -- it's not as good as we'd like. And to the extent that we'll find weakness, we'll move." -- President Bush on July 15, 2008

"We will work our way through these financial storms [. . .] Freddie and Fannie are in no danger of failing." -- Fed Chairman Ben Bernanke on July 16, 2008

"Market intervention is a policy that's been undertaken a few times. I think it's something that should be done only rarely. But there may be conditions where markets are disorderly, where some temporary action might be justified [. . .] But I think the dollar in the long term depends really on the fundamentals, and it's up to us to get fundamentals right." -- Fed Chairman Ben Bernanke on July 16, 2008

Bush, Bernanke and Paulson: How did these guys not warn the public earlier? If they truly believed in these statements on the economy, they were completely wrong. If not, then the motives for statements like these are even more insidious.

It's not like all of these economic problems with regards to the housing market, inflation and Wall Street just started happening this year. The wheels were in motion for our current financial crisis years ago -- one could even say almost a decade ago, as a Republican-led Congress pushed for deregulation and, ultimately, got their way, which has proven to be the at the root of this problem: Nobody was regulating or overseeing the type of lending and banking that was taking place.

Also, nobody is looking at the sudden shift in the Bush Administration's economic policy. Bush, for months, had been against any type of government intervention into the "free markets." It wasn't until July, shortly after making inappropriate comments about the health of the economy at a private fundraiser and having it leaked onto the internet (thanks, YouTube), that Bush conceded and supported a housing bailout package. Now he's for rewarding the people that provided these loans with misleading language -- sometimes fraudulent language -- that has helped spur some of the highest foreclosure rates in modern history (TILA and other mortgage fraud have been rampant throughout the course of the subprime and option ARM lending boom).

Bernanke, since becoming the Fed chairman on February 1, 2006, largely ignored the signs that the economy was turning sour, however, at his defense, Greenspan didn't provide much help as he left his post; Greenspan himself ignored the signs and assessed the entire situation incorrectly (short term and long term -- particularly with housing).

And Paulson, well, he might have the most at stake with regards to the Wall Street Bailout package. Paulson's net worth was almost $700,000,000 before the markets started hemorrhaging over the summer. He has almost $500,000,000 tied up in the investment bank Goldman Sachs, where he was the CEO before he became the Treasury Secretary. Goldman Sachs' biggest competitor was Lehman Brothers. Lehman Brothers filed for Chapter 11 four days before a bailout package was announced. Lehman Brothers will not benefit from this bailout package. Lehman Brothers' assets are being broken up and sold to other investment banks like London based commercial and investment bank Barclays. Goldman Sachs no longer has Lehman Brothers to worry about. Also, Section 8 of the original bailout proposal gave Paulson the authority to disperse funds as he saw fit, and that his decisions may not be reviewed by any court of law.

Fortunately, Congress, led by strong bipartisan efforts (many Republicans were willing to work with Barney Frank, Chris Dodd, Jack Reed, and other congressional Democrats on amending the original Bush Bailout Plan, so troubled homeowners and other under represented parties benefitted from a rescue package, as well), has come to terms on a revised Wall Street Bailout plan. Now we'll just have to wait and see if Bush, Bernanke and Paulson waited too long to make a move and who benefits most from the bailout package.

Originally posted at InjuryBoard by Paul Kiesel

SEC Chairman Chris Cox: "Market Ripe for Fraud and Manipulation"

Paul Kiesel — Tue, 23 Sep 2008 14:15:15 GMT

SEC Chairman Chris Cox testified this morning at the Senate Banking Committee hearing in regards to the potential Wall Street Bailout plan that was proposed over the weekend. Cox said that his agency has more than 50 investigations open on subprime mortgage cases. However, Cox said that he's also trying to "ascertain" if anything illegal went on in the risky-mortgage market that contributed to the current crisis.

If Chris Cox was truly uncertain as to whether any illegal activity and lending was going on amongst Wall Street firms and mortgage lenders that led the way to the financial crisis, then why would he later say in his testimony, "This market is regulated by absolutely no one [. . .] It is a market ripe for fraud and manipulation."

The only thing that's left to ascertain is to pinpoint where this type of "illegal activity" originated, and why it was allowed to spiral as out of control as it did.

Interestingly, Cox does mention credit-default swaps (CDS). CDSs are unusual or creative financial instruments where the risk of default on credit is passed among lenders and investors, much like the game Hot Potato. This type of creative financial packaging became popular after the Gramm-Leach-Bliley bill gutted Glass-Steagall and the subsequent passage of the Commodity Futures Modernization Act. Cox believes, and is most certainly correct, that CDSs allowed a forum for the shorting of corporate debt without the oversight imposed on cash markets.

Unfortunately, Cox doesn't mention fraud or manipulation in mortgage documents like TILA forms or the presence of both in the Alt-A/Option ARM loan market. Fraudulent claims and ambiguous language were littered throughout Truth in Lending documents. For instance, whenever a loan failed to state that it was a negative amortizing loan -- when it was that type of loan -- it was in explicit violation of the Truth in Lending Act.

The reality is that the fraud and manipulation Cox is aware of, suspects, and/or turned his head away from could have been prevented: A Republican-led Congress chose in 2000 not to extend regulation to OTC derivatives markets. One of the most influential proponents of not regulating OTC derivatives was Alan Greenspan, then chairman of the Federal Reserve. Greenspan said, "OTC transactions in financial derivatives are not susceptible to - that is, easily influenced by - manipulation.” Nobody questioned Greenspan when he made this claim. Nobody questioned Greenspan when he said on October 9, 2006 that the housing market would soon rebound from its slight slump, "I suspect that we are coming to the end of this downtrend, as applications for new mortgages, the most important series, have flattened out [. . .] There is a good chance of coming out of this in good shape, but average housing prices are likely to be down this year relative to 2005. I don’t know, but I think the worst of this may well be over."

Without proper oversight, the people responsible for this mess were able to do and say whatever they felt looked and sounded good, whether their claims were accurate or a series of mistruths.

I think it's safe to say that the next time broad claims like Greenspan's, Ben Bernanke's, Hank Paulson's or anybody pushing a heavily deregulated industry goes unquestioned, consequences are likely to follow again.

Originally posted at InjuryBoard by Paul Kiesel

What's Missing From Bush's Bailout Plan? For Starters, the Word Bailout...

Paul Kiesel — Fri, 19 Sep 2008 19:36:27 GMT

It's finally happened. The federal government, much to the chagrin and support of Congressional leaders, stepped in this morning and has written a blank check for Wall Street's blunders.

In his speech, President Bush did not use the word "bailout" once to describe a plan that is nothing short of a bailout. Treasury Secretary Paulson, Fed Chairman Bernanke and SEC Chairman Cox briefed leaders on Capital Hill, and urged Congress to pass legislation approving the federal government's purchase of illiquid assets, such as troubled mortgages (bad loans, like subprime and option ARM loans; the latter loans are about to reset early next year and cause more financial tumult, but now it will be at the expense of taxpayers instead of Wall Street CEOs and investors), from banks and other financial institutions.

CNBC has reported that, "The proposal to create a massive facility to buy mortgage-backed securities could cost as much as a half-trillion-dollars (this figure does not include the more than $200 billion already at stake from Bear Stearns, IndyMac, Fannie Mae, Freddie Mac, etc., etc.) and would involve the purchase of both private-label and government-guaranteed mortgages, according to an administration official.

The copious amount of illiquid assets (which is likely to be a buzz word for sometime) on many of these firms' balance sheets -- firms that will benefit and not be held responsible BECAUSE of Bush's bailout -- was due to the practice of lending mortgages with ambiguous, misleading and fraudulent language in the Truth in Lending forms. The problem is that these types of loans are still out in the market, they will have interest rate resets (ballooned payments on loans that were negatively amortizing) and cause borrowers much financial stress in the coming months, and now the government will assume the responsibility of them (illiquid assets), while Wall Street, without any regulation reform passed by Congress, will be able to go back out and lend some more.

What about homeowners? What about Main Street in general? Just because Wall Street's trash was being carried out to the curb by the Treasury and Fed, doesn't mean "Bush's Bailout" automatically smells good for the rest of America. Why wasn't mortgage modification for troubled borrowers a provision added to the bailout? Then, lenders would have had to modify mortgages (that had no business being written in the first place) in order to dump their garbage assets onto the government. Bush wasn't vague about this issue, he just omitted it all together.

Bush said today, "[M]y administration looks forward to working with Congress on measures to bring greater long-term transparency and reliability to the financial system, including those in the regulatory blueprint submitted by Secretary Paulson earlier this year."

One has to be dubious of the president's claim of restoring transparency. Not only was it Republican-led legislation (Phil Gramm: Commodity Futures Modernization Act of 2000 and Gramm-Leach-Bliley Act, which repealed part of the Glass-Steagall Act, allowing commercial and investment banks to consolidate) that enabled today's bailout, but the fact that Bush doesn't even use the word bailout is troublesome and lacks transparency.

Again, as I've said in many other blogs, we'll have to wait for the next administration to come in and do its best to try and straighten out the last eight years of missed opportunities. Not extending an olive branch to average citizens, as Obama suggested today, is another missed opportunity by the Bush Administration.

Originally posted at InjuryBoard by Paul Kiesel

Housing Crisis has Los Angeles Upside-Down

Paul Kiesel — Tue, 12 Aug 2008 14:48:10 GMT

There is good news and bad news coming from Zillow.com's recent home value statistics for the Los Angeles area.

The good news: If you purchased your current home in 2003, you're very likely not to have negative equity, or be upside-down in your mortgage, as only 1% of homes purchased that year have negative equity.

The bad news: There's a bell curve trend in Los Angeles of homes having negative equity, peaking in 2006.

2004: Almost 25% of homes purchased this year have negative equity.

2005: Just under 60% of homes purchased have negative equity.

2006: 71% of homes purchased have negative equity! (Option-ARM loans spiked this year, as well -- these loans helped usher in many of the 71% of upside-down mortgages, as teaser rate payment loans, unfortunately, amortized negatively, even though most lenders failed to disclose this information: TILA violations.)

2007: 56% of homes purchased have negative equity.

2008: And as of the first two quarters of this year, about 15% of homes in the L.A. area have negative equity. Obviously, if that trend continues, lenders are showing us that through eliminating teaser rate payment loans and requiring a down payment of at least 10%, it helps mitigate the amount of homeowners that are upside down in their loans. However, lenders had no other choice but to be more responsible in their mortgage lending practices (i.e. see all of the recent bank failures from Bear Stearns to IndyMac).

As government officials, like Treasury Secretary Paulson, have been saying for the past two weeks, the housing crisis is barely half way over, and the 40% of homes purchased over the last five years in the Los Angeles area that have negative equity, a number that continues to rise, proves why we won't see relief from the housing crisis until next year or until home prices stabilize and start inching their way back up.

Originally posted at InjuryBoard by Paul Kiesel

Secretary Paulson: Housing Crisis Remains the Biggest Threat to U.S. Economy

Paul Kiesel — Mon, 11 Aug 2008 20:42:24 GMT

Even after Fannie Mae and Freddie Mac announced last week that their losses were three times worse than estimated, Treasury Secretary Paulson said, "We have no plans to insert money into either of those two institutions."

The government might not have plans as of this moment to inject capital into the struggling mortgage giants, however, if they didn't have plans at some point to support Fannie and Freddie financially (even if it's just buying up their stocks), then they wouldn't have added provisions to the recent housing bill that explicitly guarantees government aid if the mortgage lenders continue to report losses. It's likely that if the next wave of foreclosures is more depressing on the U.S. economy than what we've seen so far, and is preventing Fannie and Freddie from originating new mortgages, then Paulson will give the signal to relieve the two companies from their financial distresses.

Paulson, however, did point out that the financial problems at Fannie and Freddie validated his recent assessments that the housing crisis remained the biggest threat to the nation's economy.

According to the New York Times, Paulson said that he believes the housing crisis is going to take us well into next year before the economy is able to work through all its housing problems.

Even with all of these problems, Paulson made a point to say that he would not stay on as Treasury secretary after President Bush's term ends in January. His successor will have, potentially, a big mess to clean up if Paulson isn't able to mitigate the next stage of foreclosures in a more appropriate manner than the first round of mortgage defaults (i.e. Hope Now program).

Originally posted at InjuryBoard by Paul Kiesel

Bush Signs Housing Relief Package

Paul Kiesel — Wed, 30 Jul 2008 14:27:06 GMT

President Bush finally signed into law this morning the housing relief bill that seemed, until two weeks ago, as if it wouldn't get signed (see the President's comments from last week), after months of effort by its co-authors, Senators Chris Dodd and Richard Shelby and Congressman Barney Frank, to get the legislation passed.

Congress approved the bill last week and at around 7 a.m., in the Oval Office, Bush took to signing a bill that is filled with many provisions he opposes.

Congressional proponents of the bill deem this the most aggressive government intervention into the housing market, when it is needed most, since the New Deal, however, no members of Congress were invited to the signing; it would appear, due to the months of opposition to the bill and that none of the bill's co-authors (Dodd, Shelby or Frank) were present when the President signed it, that the signing of the housing package is bittersweet for Bush.

Bush could no longer argue not signing the bill because it also aims to help Fannie Mae and Freddie Mac, the two-headed giants of the mortgage industry, as both companies own or guarantee over half of the $12 trillion worth of the nation's mortgages. Since Treasury Secretary Paulson and Fed chairman Bernanke said two weeks ago that Fannie and Freddie needed financial backing, the two government sponsored entities (GSEs) were subsequently added to the housing bill with a high rise ceiling on what they could borrow from the government (very close to a blank check from the Fed). Therefore, Bush was pushed into an uncomfortable corner and was forced to sign a bill he mostly criticized for the last four months. (However, his Hope Now program provided only a scintilla of relief to an increasing housing declivity and foreclosure crescendo, so his arguments against the housing bill were weakening by the day anyway before he agreed to sign off on it two weeks ago.)

Housing Bill Concerns

According to the New York Times, there is much trepidation by many economists and experts as this housing legislation now becomes effective. "Some experts have said that the law was wrong-headed in its effort to retain the hybrid nature of the mortgage finance giants [Fannie and Freddie] which are private companies with publicly traded stock [. . .] an arrangement that critics say privatizes the profits and socializes the risk and any losses," (New York Times, 7/30/08).

Also, the former comptroller general of the United States and head of the Government Accountability Office, David M. Walker, said in an interview earlier this week that Bush, "might have been unwise to sign the measure," and that," providing authority to the secretary of the Treasury to extend credit or to buy stock is one that will end up costing the taxpayers tens of billions of dollars [. . .] The way this is structured, it's only a matter of how much the taxpayers are going to lose."

Chris Dodd, Richard Shelby, and Barney Frank believe that the law represents the best way to help stabilize the housing market, potentially putting a solid floor under declining prices. Democratic presidential nominee Barack Obama, reiterated the same sentiments with Tom Brokaw on Sunday, "[. . .] What we need is a floor in the housing market, a stop to the decline in housing values, as well as some certainty on the part of lenders in terms of what houses are worth so that we can start restoring confidence in the housing market, but also confidence in the financial markets where credit has been contracting."

It'll take a couple months to see how well this bill addresses the housing/foreclosure problem, but more importantly, it'll be interesting to see how accommodating lenders are in renegotiating mortgages, something they'll have to do in order for this bill to do what it's supporters hope it can provide: much needed relief -- a floor -- to the troubled housing and mortgage markets.

Originally posted at InjuryBoard by Paul Kiesel

Bush Embraces Housing Bill, GOP Demands More Time to Review Rescue Package

Paul Kiesel — Wed, 16 Jul 2008 22:06:26 GMT

A grinning Barney Frank told Politico.com that, "The top financial officials of George Bush's administration have come before the public and said 'We're from the government, and we're here to help you,'" (Politico.com, 7/15/08). The fact that Frank was grinning means one thing: His bill and Senator Chris Dodd's housing bills (coming out of the House and Senate respectively) will likely avoid a Bush veto, as long as they make minor provisions to it.

After Treasury Secretary Hank Paulson spoke with Frank over the weekend, the Massachusetts congressman and also the House Financial Services Committee Chairman, feels the bill could move through the House as early as Thursday, much to the chagrin of conservatives, who are now demanding for more time to reexamine the bills.

Interestingly, Senator John McCain continues to voice his newly formed opinion of the housing crisis, a crisis that he felt wasn't that much of a priority three months ago and one that he felt the government shouldn't involve themselves with, now agrees with the Democrats housing proposals saying, "I hope that Congress will give them the needed authorization [. . .] These are very difficult times and a time where Americans need confidence. And I hope that these measures will restore some of the necessary confidence in our institutions and preserve the ability of Americans to obtain loans in order to buy a home."

Actually, because of Senator McCain's economic adviser, Phil Gramm, and his reckless deregulation bills in the late-1990s to early-2000s, it will now be more difficult for many Americans to purchase a home whether they have good credit or not.

McCain has also been touting his economic plans on his "Straight Talk Express" tour, saying that the government has grown substantially in the past decade and needs to spend less and become smaller, yet he wants the government to intervene (which they should do -- they should have done this months ago) in the housing crisis.

At least the Bush Administration is finally getting involved in the housing crisis and hopefully they can continue to work with the Fed and Congress to help the homeowners who were taken advantage of during the subprime boom (see the FBI's investigation of IndyMac).

Originally posted at InjuryBoard by Paul Kiesel

Taxpayers on the Hook for Fed's Recent Fannie Mae and Freddie Mac Intervention

Paul Kiesel — Mon, 14 Jul 2008 16:22:08 GMT

Fannie Mae and Freddie Mac own over half of the $10 trillion in home mortgages in the U.S. combined. These two government sponsored entities are seen as the wheels that make the mortgage industry move. Therefore, the government, in order to ease investor concern that the two mortgage giants were having "liquidity" problems and/or their ability to originate new mortgages, decided to swoop in and help boost "investor confidence" on Sunday with government backed money: Fannie and Freddie were able to access ultra-low interest loans from the Treasury Reserve (i.e. taxpayers are now on the hook for potential losses and will continue to be as Fannie and Freddie struggle over the coming months).

Since IndyMac failed and was taken over by the FDIC on Friday, all scrutinizing eyes turned to Fannie and Freddie, and the move by the Fed on Sunday was not seen as a surprise, but more as a "why did it take this long for the current administration -- which promoted the lending practices that they're now condemning -- to step in?" Most analysts have been very surprised that it's taken the government this long to intervene. And many suggest it's too late -- the best the Fed or the Bush Administration can do is prevent another one of these mortgage/credit crises from occurring again in such a severe manner. For the meantime, we are apparently amidst the beginning of further market distress.

Here's what the New York Times had to say on Sunday regarding the Fed and Fannie/Freddie:

"Over the course of this 18-month financial crisis, we have lurched from land mine to land mine. Last week’s was all about Fannie Mae and Freddie Mac, the giant government-sponsored enterprises set up to provide affordable housing across the nation. By issuing debt, these shareholder-owned companies guarantee or own more than $5 trillion in home mortgages. Got that? $5 trillion.

"Because the federal government established the companies, investors view them as backed, at least implicitly, by taxpayers. And that implied guarantee is what drove Fannie and Freddie’s business models.

"The advantages the companies gained from this unique arrangement were huge. They had to keep less cash on hand than traditional lenders, for example. They also made more money on their mortgages than lenders because they paid less to borrow money in the bond market. These profits enriched Fannie and Freddie shareholders over the years and bestowed significant wealth on the companies’ executives.

"Now it looks as if the bill for that largess is coming due. Of course, it will be borne by the usual bagholders: United States taxpayers. You and me [. . .]

"[. . .] Even as investors were stampeding out of these stocks, the claque in Washington rushed to reassure them. Both Ben S. Bernanke, the Federal Reserve Board chairman, and Henry M. Paulson Jr., the Treasury secretary, said the mortgage giants’ regulators confirmed that the companies were “adequately capitalized.”

"Which brings us to the main problem: credibility. Wall Street and our senior regulators seem to be running out of that precious commodity almost as quickly as cash," (New York Times, 7/13/08)

The New York Times' Gretchen Morgenson nails the other major problem: Americans' are continuing to lose trust in Wall Street and regulators, as the latter has been chameleon-like in its opinion of the mortgage crisis, from optimistic to pessimistic to indifferent over the last 10 months alone. What should Americans believe?

There's a very good chance that this mortgage crisis will continue for at least another year and will also likely get worse; and regardless of the positive words coming from the Fed, the White House and others on Wall Street, the actions of all three over the last four months are giving us a better idea of what's to come: A potential trillion dollar bailout for Fannie and Freddie.

Originally posted at InjuryBoard by Paul Kiesel

Treasury Secretary Paulson: Foreclosures are "Not Preventable"

Paul Kiesel — Wed, 09 Jul 2008 14:48:30 GMT

Treasury Secretary Henry Paulson said Tuesday that many homes cannot be saved from foreclosure and that, "There is little public policymakers can, or should, do to compensate for untenable financial decisions," (Associated Press, 7/8/08).

However, Paulson has been touting the Hope Now program, which is designed to help prevent as many foreclosures as possible or in Paulson's prior statement "compensate for untenable financial decisions," for months and has been basically bragging about its success rate of keeping people in their homes (which is debateable).

According to the AP, "The administration has been working with the Hope Now alliance, an industry group trying to coordinate a response to the mortgage crisis, to encourage lenders to work out loan modifications or refinancings for people that will be able to afford the new terms and can keep making payments."

But wait, didn't Paulson say that many homes (many, let's assume, meaning a majority) cannot be saved from foreclosure and that policymakers should not be trying to come up with relief or compensation for poorly written loans that were flooded throughout the mortgage market over the last five years?

Paulson's contradictory or "doublespeak" statements from the last four months, however, are not the problem, that's just an inexorable mind-set that believes Hope Now is the only and best solution to combatting foreclosures; and a blatant refusal to come up with anything better to prevent foreclosures or to adapt to market turbulence. The real problem is that the rules that were in place at the beginning of this subprime boom and its subsequent bust were very grey and allowed for a lot of deregulated and insidious lending practices to take place; the same rules that were written into law by former policymakers like Newt Gingrinch (Home Ownership and Equity Protection Act of 1994) and Phil Gramm (Commodity Futures Modernization Act of 2000).

And now Paulson suggests that policymakers "should not" help fix the foreclosure crisis that they technically helped start or allowed to take place. This is a complete deflection of accountability and its mainly being placed on homeowners who were cajoled into bad loans, loans that mortgage lenders were able to write because of the rules set by policymakers. This is the problem.

It is not clear if Paulson would change his attitude towards the foreclosure situation if (and likely when) it gets worse after the next round of interest rate resets take place next month and in September. Either way, the Treasury Secretary has made it clear to homeowners: If Hope Now doesn't work for you (and for many it hasn't), you're on your own.

Originally posted at InjuryBoard by Paul Kiesel