» This Story:Read +|Talk +| Comments

Pearlstein: Mortgage Foreclosure Crisis

Network News

X Profile
View More Activity
Steven Pearlstein
Washington Post Columnist
Friday, July 25, 2008; 11:00 AM

Washington Post columnist Steven Pearlstein was online Friday, July 25 at 11:00 a.m. ET to discuss the mortgage foreclosure crisis, the housing legislation that recently passed in the House and the rescue of Fannie Mae and Freddie Mac.

This Story

About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.

Pearlstein was honored with the Pulitzer Prize for commentary for his columns about mounting problems in the financial markets. His award was one of six Pulitzer Prizes won by The Washington Post this year.

Read Pearlstein's latest columns.

The transcript follows.

____________________

Fishers, Ind.: Assume that a financial institution devalues or writes off its mortgage portfolio by, for example, 50 percent, or sells the portfolio at a 50 percent discount. Assume also that my $150,000 mortgage is in that stack of devalued paper. So, it's now been sold at or devalued to $75,000.

Why can't I pay, for example, $80,000 to satisfy my mortgage? Whoever now holds that piece of paper valued it at only $75,000, so they'd make $5,000. What am I missing (besides a few brain cells)?

thanks!

Steven Pearlstein: What your missing is that the discounted price doesn't reflect the fact that each mortgage in the package is likely to pay off half of what it should -- it is that, say, half will be fine and half will be worthless. the fact is that somebody (the investor who bought a piece of that mortgage package) effectively lent you that money under a good faith contract, and you still owe on it, irrespective of what anyone else might be doing. How much that mortgage is now selling for on secondary makets is really not your business -- it is a reflection of the supply and demand for those mortgages among investors, and right now there are many more enthusiastic sellers than buyers.

_______________________

Manassas, Va.: NACA's services aren't free, you know. If you can get a mortgage through them, you have to pay them $50 a month for 10 years, plus "volunteer" at least once a year to attend their protests.

Although I don't agree with the tactics of NACA's shock troops, the biggest beef I have with them is having to wear those hideous mustard yellow shirts.

Steven Pearlstein: Yes, the color of the shirts is a good metaphor for Bruce Marks' tactics -- a bit over the top. As for the fees, it is true that they require you to become a member and volunteer your services annually. And whatever fees they charge, they are a good deal less than any other broker or lender charges.

_______________________

Laurel: Is there anything like NACA in the consumer debt area? It's time someone stood up to $29 fees+1.5 percent interest on day-late payments that cost the bank practically nothing, and credit agreements that forcibly remove participation from class action complaints.

Steven Pearlstein: I'm sure there are non-profits that offer advocacy services to people who have gotten over their head in debt. These tend to be local and I'm not that familiar with them, however. Google might help you get to non-profit credit counselors in your area.

_______________________

Bethesda, Md.:1. I don't understand why everyone says that the taxpayers won't foot the bill for the mortgage mess, even if it is solved in large part through these renegotiated mortgages. Won't the companies forced to take these losses be paying a whole lot less tax? And ultimately, who makes up the difference?

2. How many of those who have been given a second chance will slip back into bad financial habits? Even at the original loan rates/payment terms, they were marginal borrowers at best, so even a small relapse into poor financial management is going to send them back into crisis and probably foreclosure. These are people who are always on the financial edge, without any financial reserve. One short layoff or illness, or too much spending on nonessential consumer goods, and they will be right back where they started. It will be very interesting to see how many of those who have managed to save their homes later end up in foreclosure or having to sell because they just can't keep up. We are middle class and live well within our means, with a substantial financial reserve, but we can't afford to buy a home, so we didn't. We know we can't keep up with the monthly payments without being house poor, and foregoing all ability to save. Renting isn't wonderful, but it is better than worrying each month about not being able to pay the mortgage. You can't always get what you want.

Steven Pearlstein: Thanks for those comments. They represent sentiments that are widely shared. So let me try to address them.

As you say, there's not a lot of direct taxpayer money involved in these various efforts, although there are low-cost government loans, increase in the issue of tax-exempt bonds for use by state housing authorities and, the big enchilada, the government'guarantee of Fannie and Freddie's debt along with the possibility of a government investment. We'll have to see how it all comes out. Real cash could be involved. But the idea is that if these backstops are in place, then creditors will not all pull their money at once and institutions remain in business and we work through this in a market fashion.

You are right that institutions that lose money don't have to pay taxes. But to say that taxpayers are subsidizing those institutions is a very strange (and economically incorrect) way of looking at it. Corporate taxes are taxes on profits, or corporate income. No income, no taxes. Your comment assumes that all corporations should pay income taxes no matter what their income. Would you also say that if you lose your job and don't pay income taxes in one year, that the government is "subsidizing" you because you didn't pay taxes. I don't think so.

I've gotten a lot of email this last year from people who have not bought a house because they couldn't afford it, taking a conservative approach, and they are angry that people who also couldn't afford a house but bought one anyway are now getting all this help and sympathy.

First, let me say that in an emotion and financial way, these folks will suffer -- not to the full extent of their financial miscalculation, but to some extent. They are not happy campers right now.

Second, as I wrote a couple of weeks ago, this is a financial crisis, not a morality play. If you address every question from a perspective of "fairness," then what will happen is that the financial system will crater and everyone, including YOU, will be hurt quite badly. And so the calculation is made by people like Secretary Paulson and Fed Chairman Bernanke that it is better to take some carefully crafted initiatives that might shield some people from some of the impaact of their mistakes, as the best of a set of bad choices. Yes, we need to make sure those are as carefully crafted as possible, and that those who are helped are required to pay back in the future, although that is not always possible and we can have a debate about how carefully tailored these "bailout" efforts are. But please, let's all understand here that fairness is not the top priority. Getting through this without a collapse of the financial system is the top priority. We're talking tradeoffs here, not moral purity.

_______________________

Arlington, Va.: I am a former real estate agent in Arlington, Va. The market went way too high way too long. People bought houses they could not really afford because they were afraid if they didn't buy they would never get in. Now the opposite is happening and I personally believe the market will continue down and foreclosures will continue for several years as the economy slows.

Steven Pearlstein: Yes, I think that's right. Foreclosures should peak next year, though, and it may take several years for them to return to "normal" rates.

_______________________

San Luis Obispo, Calif.: Aren't there better ways to promote home ownership than by sponsoring for-profit companies like Fanny and Freddie? It always makes me nervous when Congress gets in bed with private enterprise.

Steven Pearlstein: Congress is in bed with Fannie and Freddie because Congress created them. And they wre intentionally created as a way to bring a larger, cheaper and steadier supply of PRIVATE capital into the housing market, which they did -- perhaps too well. The only way you get private capital is to offer a competitive return.

I think it is true that they were allowed to earn above-average returns for a while, and it is true that too much of that profit was either paid out to executives or investested back into the housing market, unintentionally adding to the bubble. It is also true that if that money were simply squirreled away, it could have provided a bigger capital cushion for hard times like we are going through now. But that is why these institutions are regulated, and why they need to be better regulated, which is a big part of the housing bill that just passed the House and is before the Senate.

There are some, like the editorial page of this newspaper, that have decided the part public-part private model for these institutions is inherently dangerous, unfair, stupid, whatever. I disagree. I think it is a fine model that has needed a better regulator overseeing it, so Fan and Fred executives are required, and have incentives, to strike a better balance between their obligation to shareholders and their obligation to the public and taxpayers.

_______________________

Franconia, Va.: Steven, you wrote: "The big lesson here is that the foreclosure crisis is not unsolvable and that the solution need not involve large sums of taxpayer money."

I agree. Unfortunately for us Wall Street owns our worthless, corrupt Congressmen and the banks will continue holding all those homedebtors hostage until they get that $300 billion bailout thru the House (done) and the Senate (up next).

And what kind of $7500 "first-time" buyer tax credit has to be paid back over 15 years starting the next year after you apply it?? In my book that's an interest-free loan. What misleading hogwash typical of a bailout written by Bank of America's lobbyists!

Steven Pearlstein: I don't like the tax credit idea either. I think that was the realtors and homebuilders handiwork. The payback provision makes it a bit more palatable -- given the government's borrowing costs at this time, the cost isn't all that great. But given how bad the housing market continues to be, anything that can slow the slide is probably helpful.

I strongly disagree with your $300 billion figure. Not sure where you get that, but it is likely to be way off the mark. And as for Wall STreet owning Congress, that's unfair. There are a lot of things Wall Street wanted that it didn't get, and some things in there that they don't like. This is a Democratic congress and it is not dancing to Wall Street's tune on everything, although Wall Street does pretty much have a veto because it has enough supporters (Republican mostly, but not exclusively) to stop things. It is easier to stop things in Washington than to get them through.

_______________________

New York, N.Y.: Dear Mr. Pearlstein,

I heard this morning that it has been announced that mortgage rates are going to (have?) increase. Could you please explain to me how this helps the current housing crisis. In my naive and very uneducated view on this, it would seem to me that raising interest rates would further deter people from purchasing a house.

Thank you

Steven Pearlstein: They are increasing because so much investment capital is now going into super-safe Treasury bonds, and so much less is going into mortgage backed securities. Less supply, higher price -- that's just the market at work. Investors are also demanding higher yields on their investment (which for the borrowers translates into higher rates and monthly mortgage payments) because inflation is higher, and investors need to protect themselves against that since their principal will be repaid in deflated dollars. So that is also at work in rising mortgage rates.

To say that doesn't help the housing situation is obviously true. But it is not something anyone is doing consciously, or some act of public policy. It is what happens in a market when investors don't want to invest in mortgages like they used to, leaving it mostly to Fannie Mae and Freddie Mac to borrow money (backed by the government's implicit guarantee) and buy up what new mortgages are being written. Put another way, investors don't want to buy the mortgage packages any more, but they are willing to buy bonds issued by Fan and Fred (and effectively insured by the Treasury against default) allowing Fan and Fred to use the money to buy the mortgages they wouldn't.

_______________________

Silver Spring, Md.: First, I've really enjoyed your reporting on the current financial crisis - you've been spot-on most of the time. Second, I am convinced we will keep having bubbles and crises every few years, and here's why:

I am an MBA student. I go to school with a lot of past and future bankers, and they're really, really smart. Banks and funds recruit the creme de la creme, top MBAs, Math PhDs, etc. I am no dummy but when it comes to quant issues these guys (and they are mostly guys) leave me in the dust. And once the firms have them, they create an aura of invulnerability, and the only accountability is in how much short-term earnings you've made. So these brilliant guys are spending long hours running rampant and looking for regulatory loopholes to make profits.

Not that regulators are stupid - but they simply can't keep up. We can try and try to get the banks under control, but ultimately they'll always find something shady to make a profit on in the short term. Pessimistic? Maybe, but history has borne me out.

Steven Pearlstein: It is you who are spot on. Maybe you should write my column.

You've identified two good points. One is that the banks and the regulators have put way, way too much faith in these risk management models that the braniacs come up with, even though they don't really understand them. And it turns out that the braniacs aren't as smart as they thought they were. These models -- any models-- have limitations and regulators and top executives at these firms have to bring common sense to their decision making and not blindly follow the models.

Second, it is true that regulators are always going to be a step behind these guys. But the reason bubbles develop is that they are two and three steps behind, because they have forgotten what their jobs are, which is to second-guess markets sometimes. Lately they have been blinded by this deregulatory ideology that markets know best. They need to take off those blinders and start doing their jobs more agggressively, and have the backbone stand up to the White House and Congress when they are criticized (at the behest of the regulated industry, of course).

I'm old enough to remember the "scandal" that happened when it was revealed that ITT, through its infamous lobbyist Dita Beard, tried to influence the justice department in an antitrust case. It was considered shocking at the time, way outside the bounds of proper behavior, to try to influence what was thought of as an independent review by respected civil servants. That all seems rather quaint today, but we need to get back to that, and to shield regulatory agencies from political interference so they can do their jobs.

By the way, liberals and Democrats like to say that it is the Republicans who politicized the independent agencies. Actually, that is not true. It is the Democrats who did it after having control of the Congress and White House for so many years. Since then, however, the Republicans have taken it way beyond.

_______________________

New York, N.Y.: Are you aware whether those who receive loan modifications are required to cut back spending to the extent they reasonably can? I'm 100 percent behind loan modifications for moral and financial reasons, but if people get a lower mortgage bill, and then go out and blow the extra cash on a big screen TV or a vacation, they should be penalized to the fullest extent allowed.

On a separate note (if you have time) I was wondering if you could answer a financial/legal question that's vexed me for the longest while: If I go out and buy a fridge from Sears or a car from Toyota and it blows up in three months, I'm pretty sure that Sears or Toyota will replace the fridge or car. When then, if Goldman Sachs sells a subprime CDO to a Norweigian pension fund or a US municipality (and Goldman knows the CDO is garbage) and the CDO plummets in value in a short period of time, is Goldman not obligated to reimburse the pension fund or municipality? Isn't there some warranty of merchantability of some sort?

Steven Pearlstein: On your second question, Goldman is not Sears and doesn't stand by the paper it underwrites. You should always remember that. Goldman is out for Goldman first and its client (the issuer of the bond or stock or CDO) second, only because it wants the clients business in the future. The people who buy the paper it underwrites -- Goldman couldn't care less about them, and you should assign no value -- absolutely none -- to the fact that they have underwritten an issue (that applies to JP Morgan and Merrill and the rest as well). It was true, back in the old days, that these firms took steps to protect their reputation among investors. But those days are long gone. It's buyer beware now, and they'll shovel the crap out the door as fast as people are willing to buy it, as long as they can collect their oligopolistic fees.

_______________________

Chicago, Ill.: Hey Steve, Paul Gigot had this to say about you earlier this week, "Fan and Fred also couldn't prosper for as long as they have without the support of the political left, both in Congress and the intellectual class. This includes Mr. Frank and Sen. Chuck Schumer (D., N.Y.) on Capitol Hill, as well as Mr. Krugman and the Washington Post's Steven Pearlstein in the press. Their claim is that the companies are essential for homeownership. Yet as studies have shown, about half of the implicit taxpayer subsidy for Fan and Fred is pocketed by shareholders and management. According to the Federal Reserve, the half that goes to homeowners adds up to a mere seven basis points on mortgages. In return for this, Fannie was able to pay no fewer than 21 of its executives more than $1 million in 2002, and in 2003 Mr. Raines pocketed more than $20 million. Fannie's left-wing defenders are underwriters of crony capitalism, not affordable housing." Any response?

Steven Pearlstein: Thanks for asking.

First, I love reading Paul's editorials. Even though I often disagree, I always get a kick from his arguments.

Second, he mischaracterizes my position. I don't think Fan and Fred are essential for home ownership. I think they have been, at times like this, very important in assuring the availability of mortgage credit at times when the private markets are retreating, as they do from time to time. I also disagree with the Fed study, which was commissioned by a chairman who wanted to dismantle Fred and Fan: because it can borrow money at lower rates and because it is such a big player in the market, these insitutions have probably lowered prevailing interest rates by a quarter of a percentage point over time. Not a huge deal, but it has spread the "benefits" of Fannie and Freddie widely and, at the margin, allowed some people to buy homes who otherwise couldn't.

As I said above, I do believe that Fan and Fred diverted too much of their profits toward unnecessarily enlarging their balance sheet and increasing their market share during the boom years, and too much to executives. They needed to be reigned in in these respects by regulators who were either asleep at the switch or hamstrung by Fan and Fred's sometimes thuggish lobbying efforts. But we can correct those things -- and we are in the process of doing just that -- without throwing the baby out with the bath water.

Finally, while I didn't mind Paul taking a shot at me about Fan and Fred, I thought lumping me in with Krugman was below the belt.

_______________________

Washington, D.C.: Mr. Pearlstein,

As someone who bought a house with a conventional mortgage, and is now upside down on that mortgage, clearly I screwed up. Apparently I should have gotten a loan with really horrible terms so that I could refinance to "go to grad school" or get a 4.5 percent interest rate. Instead, I'll just have to keep paying the mortgage like a responsible debtor, and hope to get my head above water before we outgrow this place. This sort of mass extortion just really irritates me.

Steven Pearlstein: Yeah, life can sometimes be unfair. Bummer.

_______________________

West Palm Beach, Fla.: If the gov't bails out Fannie and Freddie using our tax dollars, shouldn't those two institutions STOP paying out dividends and pay back the government first before worrying about the stock holders?

Steven Pearlstein: I can assure you that if the government is forced to bail out Fannie and Freddie, as you mean it, then there will be no dividends paid out. I imagine the dividends are probably about to go away now for a while, anyway, as a newly-empowered regulator requires the companies to increase their capital. Since attracting that equity capital now would be so expensive, the best alternative for shareholders would be to husband whatever cash they are earning in operating profits. That means cutting out the dividend.

If you need to lose weight, the first step: cut out the dessert.

_______________________

Royal Palm Beach, Fla.: My $350,000 home is now worth $200,000. I owe $275,000.I am trying to short sell my home but there are no takers. I am ready to walk away from it because it doesn't make sense to throw good money after bad. Wouldn't it make sense for my lender to restructure my loan at the market value of $200,000 and forgive the difference so that the bank doesn't have to foreclose on it and add to their already full inventory of foreclosed properties? It would also save the bank thousands in foreclosure costs. Otherwise, they would eventually sell my foreclosed property for less than the market value anyway.

Steven Pearlstein: It may well make sense, financially, for the bank to take a haircut. But then again, you made a deal and you sort of have a legal and moral obligation to honor that deal if you can afford to keep up your payments. The fact that your house is worth less than the loan for which it serves as collateral doesn't change that obligation.

Obviously, if you have no qualms about ignoring your obligations, you can suggest to the bank that it will wind up with more money if it lets you refinance it at $200,000, assuming that is true, and giving it back at least part of its money. But you need to make sure that is the case -- that if it went to foreclosure, the house would sell for less than that. Remember, for expensive properties, it may be worth it for the bank just to hold the property, and rent it, until the market comes back. So you may not be in as strong a bargaining position as you think you are.

_______________________

Reisterstown, Md.: Treasury Secretary Paulson keeps saying we need to "stabilize" the housing market. But when he says "stabilize" doesn't he really mean, "keep house prices at their artificially - and unsustainably - high level"?

Prices rose so high, so fast in part due to people who should never have had mortgages bidding up the prices.

Thanks!

Steven Pearlstein: No, I think he means slowing the pace of decline in the housing market so that it is orderly and reflects the underlying fundamentals of supply and demand rather than the temporary herd mentality of buyers, sellers and investors.

_______________________

Falls Church, Va.: I am perplexed about why Bear Sterns was bailed out but not IndyMac ? Doesn't IndyMac has as much "counter party" risks as Bear Sterns?

Steven Pearlstein: Bear Stearns shareholders were not bailed out -- its creditors were, the people who lent it money. Similarly, the people who lent IndyMac money-- depositors-- were also protected, even while their shareholders were wiped out. The two things are roughly parallel.

_______________________

Arlington, Va.: I am just curious. Has anyone who attended NACA's event this past week had their mortgage modified by their lender or even heard back from their lender or is NACA still working through the volume of paperwork?

Steven Pearlstein: Yes, I saw it happen right in front of me. I think Bruce said about 700 had already gotten positive answers back by Tuesday afternoon.

_______________________

Falls Church, Va.: SP: "What's remarkable about NACA's format is ... how enthusiastically people respond to it."

Why is it remarkable that people are enthusiastic about free money?

I have no problem with what NACA is doing; I just thought your observation was odd.

Steven Pearlstein: Well, when the banks send letters to people asking them to call them because they may be facing default, and that they are willing to talk about loan modifications under the right circumstances, there are lots of homeowners who haven't responded. There doesn't seem to be that reluctance, however, when roughly the same opportunity is presented by a third party like NACA, which at least some people seem to trust more.

_______________________

Woodbridge, Va.:"NACA's services aren't free, you know. If you can get a mortgage through them, you have to pay them $50 a month for 10 years, plus "volunteer" at least once a year to attend their protests."

Is this even legal? Forced participation in political activity as a condition for receiving assistance plus a $6000 fee? What is NACA's tax status? I cannot believe there is anyway a 501-3(c) could get away with this.

Steven Pearlstein: They are able to do that because they only offer their services to "members," and members agree to this obligation. But as you can imagine, Republican politicians probably don't much like the fact that they are the beneficiary of public funds.

_______________________

Huntsville, Ala.: This is the second positive article (column) on NACA in the Post in less than a week. Michelle Singletary did one as well, even though the people working with NACA are the kind who violate her basic advice everyday. She also uses the "common good" defense you throw out. I argue it would be for the common good if the Feds and/or State started paying my mortgage for me too, or give me a lower rate. I guess I should just go to foreclosure.

Steven Pearlstein: No, you shouldn't. You sign a mortgage, you have an obligation, which goes for everyone else who has one. In your case, you have the money. In their case, they don't. And if they don't, that's a problem, and so the next question is what to do about it. NACA figures out what they can afford to pay, using pretty strict guidelines about household expenses. Beyond that, there's not much to do other than throw people into debtor's prison. Making them file for bankruptcy and initiating foreclosure proceedings probably won't get the lender much more money.

_______________________

Washington, D.C.:"an organization that treats them as victims, rather than deadbeats"

I'm a responsible homeowner who didn't overbuy and who works hard each month to make my mortgage payments. If these people are victims, then that makes me a sucker.

More broadly, giving these people handouts to prop up their home ownership delays the workout of the housing market and keeps home prices artificially inflated. Plenty of real victims among the working poor have been saving diligently but have been priced out of home ownership for years. Helping deadbeats avoid the consequences of their overstretch hurts the people who are still stuck outside looking in.

Steven Pearlstein: Well, here we go again. I'm not suggesting all of these people are victims -- far from it. The only point I was making is that by treating them as if they are victims, there are some people who are willing to go through the process with NACA that haven't responded to similar offers from the lenders. You can get more bees with honey than vinegar, in other words.

BTW, some of them are victims -- victims of predatory and abusive lending practices by people who took advantage of their relative unsophistication about financial matters. You take the attitude that all people are aware and knowledgeable enough not to be snookered by unscrupulous brokers. There is another view that there are people who really don't know enough to make informed decisions when confronted with con-artists.

_______________________

Silver Spring, Md.: Mr. Pearlstein, earlier you said, "Would you also say that if you lose your job and don't pay income taxes in one year, that the government is "subsidizing" you because you didn't pay taxes." Yes, I would say that. I was jobless during the mass downsizings of about 15 years ago, and during that time, I used public roads, collected unemployment benefits, etc. If I had needed the fire department or police department, I wouldn't want them not to come just because I wasn't paying taxes that year. There are no free lunches, you know. Someone has to pick up the tab.

Steven Pearlstein: An income tax is not a head tax. I think you are ignoring that fact.

_______________________

Franconia, Va.: Steven,

I love how you always paint the bailout of Wall Street and commission-hungry bankers as Bernanke and Paulson doing ME a favor!

That is really priceless... and baseless.

What this country needs is a splash of reality and humility, not more inflationary monetary policy that creates debt slaves out of the upper/middle middle class and welfare recipients out of the lower middle class.

Steven Pearlstein: I'll give you the last word on that.

_______________________

State of Dyspepsia: Isn't it a bit disingenuous for the media to continue to talk about 'bailing out' Freddie and Fannie? That's not really what they have done, is it? They've pledged to do so in the future, perhaps, but really they have just stopped the massive short selling of their shares on Wall Street, which was driven by traders themselves, no?

Am I right in thinking there's a lot of bad info in the headlines on this issue?

Steven Pearlstein: Yes, the bailout term is thrown about rather cavalierly, mostly by people who take a negative view of any government intervention.

_______________________

Minneapolis, Minn.: If we are going to bail out the GSEs, why don't we demand the actual data on how the mortgages are performing? They claim that their values are based upon cash flows, so why not require that they disclose that information to the market and the regulator so that the latter will know what's really going on?

Steven Pearlstein: The regulators can know as much about these mortgages as they care to, I'm fairly certain of that.

_______________________

Silver Spring, Md.: I am a former real estate agent and I know first hand that during 2004 - 2006 we intentionally cold called homeowners and used a well crafted script to convince them why they should sell their homes immediately and use the equity as a down payment on a more expensive home. We used objections handlers, area appreciation and market area comps to entice them to lists their homes for sale with us and allow let our brokerage find their next home. The goal obviously was to earn a double commission. This type of tele-marketing conducted by the lenders and real estate brokers is never discussed in the media. We simply took advantage of those unsuspecting homeowners to increase our sales volumes. Many of those homeowners are not currently in pre-foreclosure or at a minimum underwater.

Steven Pearlstein: I hope our previous correspondent has hung around long enough to read this. Thank you very much for sharing.

_______________________

DC: Social liberal fiscal conservative (if you play the money game, play by the rules)...I was responsible and didn't buy when I couldn't afford it (it was close) and I don't approve of bailing out those who were the most irresponsible (buyers and lenders). What would have been the consequence of letting them (Fannie, Freddie, Bear and others) fail? People would have to go back to renting. Housing prices would fall and banks would be forced to rent out the glut of homes. Is my assessment simplistic or am I missing something?

Steven Pearlstein: The consequence of allowing Fannie and Freddie to default on their bonds would be a collapse of the global financial system, nothing less. It goes way beyond forcing some homeowners to go back to renting, believe me.

_______________________

Steven Pearlstein: That's all the time we have today, folks. Good discussion. "See" you next week, I hope.

_______________________

Steven Pearlstein: Thanks for all of your questions. This concludes today's chat.

_______________________

Editor's Note: washingtonpost.com moderators retain editorial control over Discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions. washingtonpost.com is not responsible for any content posted by third parties.


» This Story:Read +|Talk +| Comments
© 2008 The Washington Post Company

Discussion Archive

Viewpoint is a paid discussion. The Washington Post editorial staff was not involved in the moderation.

Network News

X My Profile
View More Activity