Andrew Napolitano and his panel on "Freedom Watch" take on the Davos Dodos of the ski party, one in the same that we did here, and yet another round of Keynesian gimmickry to keep people who are underwater in their homes still further forestalling a true housing recovery.
"It's kind of grotesque that the government is coming in and abrogating privity of contract."
And even more grotesque when you can say it with an indignant British accent.
If compelling banks to write down home loans sounds familiar, it should, as we have been down this road before back at the beginning of the Obama administation in January of 2009.
With the help of Martin Scorcese, no less, here is what we wrote about it at the time which illustrated not only the non-sensicalness of it but more importantly, the moral hazards inherent to the cozy private-public relationships in Bailout Nation:
From the Wall St. Journal:
A Senate bill aimed at giving strapped homeowners more leverage in renegotiating their mortgages cleared a hurdle Thursday when Citigroup Inc. dropped its opposition.
The legislation, which is being advanced by top Senate Democrats, would let judges set new repayment terms for mortgage holders in bankruptcy court. Lawmakers say the measure is aimed at jump-starting broader efforts to renegotiate millions of underwater mortgages now weighing down the housing market.
To better help illustrate what you just read, we call in Academy Award-winning director Martin Scorcese and his outstanding movie Good Fellas. In this scene, a restaurant owner needs some financial help and needs some protection from the cops, other wise guys, people who don’t pay their bills, etc., so he goes to the local crime boss and talks him into going in as partners. Great. The restaurant owner is now partnering up with the local muscle. Good times, right? What could possibly go wrong?
In this clip, Citigroup is the restaurant owner and “Paulie” is the Federal Government.
Wow. That didn’t end too well, now did it?
Maybe now, you are beginning to get an idea of why this bailout business was such a bad idea from the get-go. We’re not Wall St. experts but perhaps the reason why Citigroup dropped its opposition to this legislation is because “Paulie” is into them for $45 billion.
Until recently, Citigroup had fiercely opposed proposals to give bankruptcy judges latitude to change the terms of mortgages. Its about-face comes after the federal government has pumped $45 billion into the company since last fall. The government is now keeping the company on a tight leash.
Just. like. that.
Let that last line linger for a moment. Taste it again. Let it roll over your palate like vinegar.
Citigroup danced with the devil and lost. They never had a chance. Now that they are the Feds’ lap dog and a newly-minted GSE, any hopes they had of exercising any independent decision-making pretty much just blew right out the window.
And that money that the lenders will be losing with the “restructured” loans will have to made up from somewhere, right? But, where? The first logical place would be to charge higher interest rates for new home loans… but if those higher interest rates are not competitive then Citigroup cannot offer their money for these loans which could then ultimately lead to… if you were going to complete this sentence with “bankruptcy”, you haven’t been paying attention… even more of your tax dollars going to pay for other people’s home loans.
The lynchpin of free enterprise and capitalism: the contract – a contract between two independent entities spelling out the terms for an exchange of goods, services, money and which is bound by law is about to become a thing of the past.
In its place, a capricious set of variables set forth by some who are on the take from the very people they are overseeing and and who are dispensing this power in an arbitrary fashion as they see fit. (ed. note: remember what the British chap said about grotesquness)
We hope we are being guilty of hyperbole, but of all the ridiculous non-sense we have seen and heard with respect to Bailout Nation, this was the first instance that sent shivers down our spine. We welcome cheerful thoughts and comments.
3 years on and nothing has been learned. 3 years on and it's all still business as usual.