Mortgage Blog

I was waiting for the final bill to be passed by the House of Representatives before I commented. There is so much "spin" around this bill, I wanted to see what the 700 billion dollar bailout plan really meant.

So I decided to try and read the document myself. What started as 3 pages originally put forth by our Treasury Secretary, Hank Paulson, evolved into 451 pages after congress got a hold of it. After a few pages of intense scrutiny and attempted comprehension, I realized that my own version of "speed reading" was appropriate. I basically skimmed each document and looked for important clauses that actually meant something. It was not that hard really, attorney talk is easy to omit while you are reading, so you are left with just the meat of the document. After the first 100 pages or so, it boils down to this:

This bill gives “absolute power” to our Treasury Secretary, to do whatever he thinks necessary to bolster our financial markets. Nicknamed TARP, (Troubled Asset Relief Program), it opens up a cash account, (taxpayers money), to buy bad mortgage debt from banks and other financial institutions. It lets the Secretary set the rules and decide what an appropriate price for the bad debt is. This is essentially what Hank Paulson wanted when he submitted his original 3 pager two weeks ago.

Congress has added lots of their own verbiage to the bill, mostly using terms and rules suggesting that they are protecting the taxpayer’s interest. They have also established two oversight committees to be the watchdogs over the program. Frankly, asking members of congress to make sure that this plan is implemented in our best interests does not instill much confidence.

There are plenty of other important items that the first 100 pages of the bill cover such as raising FDIC insurance protection to $250,000 per bank account ; Changing bank accounting rules ; Encouraging mitigation of foreclosures ; Curbing executive pay for banks that sell their troubled assets to the Treasury, etc…

However, the next 350 pages of the bill is the pork that everyone is talking about. These are all of the "gimmees" that the senate injected to buy votes from other congress members: A 39-cent tax break for an Oregon firm that makes children’s wooden arrows; $128 million of tax relief for the manufacturers of car racing tracks, aimed at congressmen in Nascar states, such as Virginia and North Carolina ; A provision to give $10 million in tax breaks to small television and film producers ; Tax credits for Alaskan fishermen who were affected by the 1989 Exxon Valdez disaster; What does the Exxon Valdez have to do with a bailout bill?

I guess that’s business as usual, they can’t help themselves. They just want to get reelected and the only way to do that is to show their constituents how much pork they bring to their state or district.

The bottom line of all of this is: if our Treasury Secretary, Hank Paulson, is a good guy, a smart guy, that makes wise decisions with our money then this could turn out ok. . If he is just a politician like most of our congress, it will be a tough road ahead for all of us. We are betting our future on the performance of one individual, I hope we picked the right one.

Market Update:  Now that the bill is passed, we are all waiting patiently for the banks and othe financial institutions reaction.  if the banks think the details of the plan are good, our interest rates will get better.  if they think this plan is not feasible and does not benefit them our rates will get worse. There is talk that the federal reserve is ready to lower the fed funds rate again, due to signs of the slowing economy.  Currently our 30 year fixed rates are still in the low 6 poercent range with zero points.