• News
  • Celebrities
  • Finance
  • Crypto
  • Travel
  • Entertainment
  • Health
  • Others

What About Main Street?

Image has not been found. URL: /wp-content/uploads/2008/09/moneyhose.jpgIllustration by: Matt Mahurin

Now that JPMorganChase has raised its bid for Bear Stearns, angry shareholders seemed to have calmed down and Wall Street isn’t as worried that the investment bank’s problems will drag down the rest of the financial markets.

But among people who’ve been dealing for a long time with the fallout from the kind of subprime loans Bear Stearns aggressively pursued and profited from, emotions are running high.


Illustration by: Matt Mahurin

They’re stunned that the Federal Reserve Bank stepped in to engineer the deal and to provide $30 billion in guarantees, considering consumer advocates have badgered the Fed repeatedly for years to curb subprime lending, to no avail. They can’t believe that the Fed demanded nothing in return from the banks — like accepting more lending oversight or modifying high-rate mortgages. They find it hard to sympathize with reports of billionaire shareholders losing money or Bear Stearns employees crying in their offices while selling off their wine collections. Mostly, they can’t believe the question of fairness surrounding the deal isn’t being debated more during a heated presidential campaign.

“We see people who are going without food, without heat, sleeping on the floor or doing anything they can to keep their house,” said Diane Thompson, former director of the Land of Lincoln Legal Assistance Foundation in East St. Louis, Ill., and now a housing consultant to the National Consumer Law Center. “One of those bottles of wine would pay for their entire mortgage. This is all completely out of perspective.”

The financial hits for Bear Stearns employees and shareholders hardly compare to the pain of facing foreclosure, said Kathleen Keest, senior policy counsel for the Center for Responsible Lending, a nonpartisan research group. “Probably none of them will be losing the roof over their heads,” she said.

Unless it’s the roof on the second home in the Hamptons.

Jim Rokakis, the Cuyahoga County Treasurer in Cleveland, where foreclosures are high, recalled holding a conference on predatory lending in March 2001, with the late Federal Reserve Gov. Edward Gramlich as the keynote speaker. Advocates presented the Fed with complaints about the subprime products that Bear Stearns and other investment banks were buying. They warned the Fed then, and on many subsequent occasions, that subprime loans were likely to fail and that homeowners were in trouble. Gramlich pushed without success for the Fed to regulate the subprime market.

So it’s especially grating to Rokakis when he sees the Fed make such a bold move only when it involved saving a once-powerful Wall Street player.

“We’ve been talking about this forever,” Rokakis said. “But we’re nobodies. We’re Cleveland. We’re Detroit. We’re just fly-over country to them.”

He added that he’s “completely stunned” that none of the candidates reacted immediately to the deal, particularly the fairness of it. “I’m really disappointed that this isn’t more of an issue,” he said.

Both Sen. Hillary Rodham Clinton and Sen. Barack Obama have introduced plans to deal with the housing crisis, with both supporting relief packages for homeowners. Both also say they favor tighter regulation of the mortgage industry. On Monday, Clinton unveiled a newer plan for dealing with foreclosures and began to mention Bear Stearns, saying that the federal government should help people in the same way it rescued Bear Stearns, and with a similar $30-billion fund. She has called for an emergency working group on foreclosures, to be led in part by former Federal Reserve Chairman Alan Greenspan.

On Tuesday, the Republican nominee-to-be Sen. John McCain spoke out against any government intervention to stave off foreclosures, and criticized proposals to do so.

Yet, as foreclosures continue to rise, the fairness question might become more contentious, said Dimitri Papadimitriou, president of the Levy Economics Institute of Bard College in New York. Government bailouts in the past, like the Carter administration rescue plan for Chrysler Corp. in 1979, that involved $1.5 billion in federal loan guarantees and concessions from unions, bankers and dealers, usually have created controversy. “And in this crisis, so many people have been left to hang out to dry, without any help from the government,” he said. “So it will have to become political.”

But the candidates nonetheless will probably continue to shy away from the specifics of the Bear Stearns buy-out, and for good reason, he said. There’s no way to come out ahead politically. If you oppose it, you look like you want to see the markets fail. If you support it, you seem to be favoring businesses over homeowners. Not to mention that both Obama and Clinton have accepted substantial contributions from the mortgage industry. “You’ll never be right, no matter what you say,” Papadimitriou said.

For housing advocates, the deal also presents a dilemma. They don’t want to criticize the Fed too much, considering a collapse in financial markets would have created widespread economic pain.

“There’s part of me that says, this is just outrageous. Here’s a company that was probably more responsible than any other single firm for having created this problem,” said Alan Mallach, a senior fellow at the National Housing Institute. “On the other hand, had Bear Stearns gone under, it would have created a run on the financial system that would have been disastrous for everybody, and not just rich people.”

Mallach said advocates are moving beyond their anger toward using the Fed’s action to their own advantage — arguing that it proves the government should intervene further in the housing crisis. For some time, he and others have been pushing for the government to create an agency to buy up abandoned and foreclosed properties and rehab or sell them, similar to what the Resolution Trust Corp. did in the 1980s.

David Berenbaum, executive vice president of the National Community Reinvestment Coalition, also said the Fed’s action proves government should be doing more to help homeowners. His group recently proposed HELP Now, an emergency loan program that would involve the Treasury Dept. buying up pools of subprime loans at a steep discount, then selling them back to the private market once the loans are discounted and modified.

If it’s fair game to step in on behalf of Bear Stearns, then it’s harder to argue the government shouldn’t get more involved in stemming the housing crisis, he said. “We don’t want to say, ‘I told you so,’” Berenbaum said, “but we’ve been pushing for regulatory intervention for a long time.”

Credit experts who have been fighting to allow mortgages to be modified in bankruptcy also see an opening now. Mortgage loan servicers in particular have strongly opposed the idea, but the Fed’s move may change the political landscape, noted Adam Levitin, a Georgetown University law professor and bankruptcy expert.

For now, however, most advocates say the Fed’s actions toward Bear Stearns contrast strongly with the lack of government involvement in the foreclosure mess. Government action has been confined to pressing loan servicers to work with nonprofit groups and troubled borrowers to redo loans on more affordable terms. But a voluntary program aimed at doing just that, the Hope Now hotline, has been widely criticized for making few gains. “If you’re working with people all the time on the ground, you’ll quickly find that this stuff is worse than useless,” said Thompson, the housing consultant.

She and other advocates now say they’ve got even more reasons to feel the government’s response has been unfair to homeowners.

The Federal Reserve for the first time opened its discount window to Goldman Sachs, Lehman Brothers and other Wall Street lenders recently — meaning it will lend money to them on the same favorable terms it does to commercial banks, which are subject to regulation. That means it will be easier and cheaper for many lenders that profited from subprime lending, while the credit crunch makes it harder and more expensive for consumers to get loans.

And then there’s the possibility that the Fed will begin buying up mortgage-backed bonds outright to ease the crisis, which housing advocates say would be tantamount to a total investor bailout – something that would give the unfairness controversy a very high profile.

“I don’t know why investors should be let off the hook at all,” Thompson said. “There would be no lessons learned here.”

Discussion & Comments (0)

    Recent Articles

    • Things You Should Know about North America

      Things You Should Know about North America

      Get to know more about North America.

    • Eurovision 2010 Paula Seling Unpredictable Contest

      Eurovision 2010 Paula Seling Unpredictable Contest

      Paula Seling's experience on the Eurovision stage led her to declare that "Eurovision is an unpredictable contest". Which may explain the success of the young Lena from Germany, about whom the predictions before the event did not offer much chances for victory.

    • VIPRow.me - The Best Sports Streaming Website Today

      VIPRow.me - The Best Sports Streaming Website Today

      Have you ever contemplated creating a user-friendly site dedicated to sports-related free live streaming channels?

    • Learn How To Download, Install, And Use The Xnxubd 2022 Frame App

      Learn How To Download, Install, And Use The Xnxubd 2022 Frame App

      XNXUBD 2022 Nvidia users are able to watch thousands of videos and other contents online. XNXUBD 2022 Nvidia New is a piece of software that enables people to watch videos online without having to pay for memberships. On a graphics card, the XNXubd also provides some of the best gaming and virtual reality experiences.

    • Xvideostudio Video Editor Apk Free Download For Pc Full Version In 2022

      Xvideostudio Video Editor Apk Free Download For Pc Full Version In 2022

      A new edition of the Video Editor Apk for xVideostudio.Video Studio has all the latest features, including support for multiple video download formats in HD, FHD, and even 4K resolutions.

    • 9 Best Lotion For Masturbation - Popular Choice For 2022

      9 Best Lotion For Masturbation - Popular Choice For 2022

      Masturbation is a common activity for men and women. It's a natural and risk-free way to explore your body, experience pleasure, and release sexual tension.

    • Reasons Why You Need To Stop Watching Movies From Sflix

      Reasons Why You Need To Stop Watching Movies From Sflix

      Without having to sign up or pay anything, you can watch movies online for free with SFlix. It has more than 10,000 movies and television shows.

    • Coi Leray Mom And Dad's Family History & Wife, Explained

      Coi Leray Mom And Dad's Family History & Wife, Explained

      Coi Leray Collins (born May 11, 1997) is a rapper from the United States. Leray started publishing songs to SoundCloud in 2014, and in 2018 she released her breakthrough track "Huddy" as well as her first mixtape, Everythingcoz.

    • Listen And Download Music On MyFreeMP3 For Free

      Listen And Download Music On MyFreeMP3 For Free

      Are you in a bind and looking for a place to obtain free mp3 songs? Never again will you need to bother, since this article has everything necessary to obtain your solution. Download free music from MyfreeMP3.com, one of the world's most popular websites.