Remember that bailout?....

Oh yeah what ever happened with that? How did the buying up toxic mortgages go? Nope not doing that anymore... okay... Well what are you doing? The answer... not much. According to Bill Moyers Journal, Paulson has destroyed confidence that he or anyone in the Bush administration can do anything to stop this or turn it around. We will basically be coasting (without wheels) into the next administration. An excellent (or at least workable) plan for preventing foreclosures has actually been proposed by someone in the Bush administration and Paulson and Bush said... no thank you (more on that later).
Anyway, check out the transcripts for this week's Bill Moyers Journal. I will give you some choice exerps, this weeks guest is Joe Nocera, a writer for the NY Times... (Bill Moyers was out this week).

DEBORAH AMOS: When there was talk in the beginning about the bailout plan, that was one of the major issues that Hank Paulson talked about that we have to fix the mortgage crisis. He acknowledges that it is at the basis of what the problem is. And yet he hasn't addressed it. Why?

JOE NOCERA: It's so hard to figure out. Number one, as Barney Frank said this week in one of those hearings, Mr. Secretary, it is explicit in the legislation that preventing foreclosures is one of the things this money is for, which he kind of keeps denying. Secondly, he makes this distinction between investing in the financial institutions, which he does call investing, and giving money to homeowners or doing something for homeowners, which he calls spending. In other words, he sees that as a government spending program. And he's opposed to that. But if you don't do something for homeowners, not only will it hurt the economy, it'll hurt neighborhoods. It'll hurt the next door neighbor. And by the way, it'll go all the way up the chain of Wall Street and you'll start to see the write offs all over again and the same problems all over again.

DEBORAH AMOS: The counter-argument has been about moral hazard. That if you bail out homeowners, there'll be more people who will say, "I need help."

JOE NOCERA: And there's more than a little truth to that. And the moral hazard is a real argument. And it has driven a lot of the thinking in Treasury about what to do about homeowners. It's like if you give people incentive to foreclose, more people will decide, "Hey, I'm about to foreclose." So my problem with it really is that if you're going to say that about homeowners, why don't say the same thing about financial institutions? Why doesn't moral hazard work for them as well? And, you know, the government has bent over backwards to give money to financial institutions whether they need it or not. And they just don't seem to have the same set of standards.

Turns out there actually is a plan out there that looks like it will work to help struggling homeowners that helps solve some of the moral hazard argument. It was proposed by the head of the FDIC Sheila Bair, a Bush appointee...

JOE NOCERA: Well, she has been in this position where she has, the FDIC took over a bank in California, IndyMac, and they have used it as a petri dish to experiment with mortgage modifications to see what can be done, what can't be done, how many can we do. Now, the program is still in its beginning stages. There are 60,000 mortgages at IndyMac. And I think they've only modified 3,000 or 4,000. But she does view this as a way to do major modifications. And the idea is, you know, you get it down to 31 percent of their income, however you have to do it. Income, interest rate readjustments, even some principle readjustments. You broaden the length of the loan. You make them fixed rates. There's a lot of things she's doing.
DEBORAH AMOS: And they work?
JOE NOCERA: They absolutely do work. Now, what she wants to do on the federal level is cut a deal with banks that basically says if you modify mortgages so you take a bit of a hit and you do same thing we're doing at IndyMac, we will guarantee that you won't lose any more money on those deals. In other words, if the person re-defaults after you do a modification, the government will guarantee to cover the loss on the re-default. The estimate for that at the moment is about $40 billion. She has been negotiating with the White House for well over a month on this and the Treasury Department. And they basically think it's too much money and they don't want to spend it. And they also think her criteria is too broad, and they want to narrow it. So she finally, in disgust really, just posted her plan on the FDIC website and basically said, "Here, America, is what I want to do and they won't let me do it." She is completely broken with the administration.

There you go, 700 Billion to throw at Wall Street, and 40 Billion to actually help real Americans facing foreclosure... and the 40 Billion is too much money... Here is a link to an article about her plan.

This post is too long and boring as it is, but I will leave you with this uplifting paragraph..

DEBORAH AMOS: For you, what's the headline this week?

JOE NOCERA: I think the headline this week is "Government Throws in the Towel." It's a terrible thing to say, but I do think that's the headline this week. The one good headline, we haven't really talked about it much, is that the Democrats told the auto companies to come back with a plan in 12 to 14 days. And you think to yourself, "Guys, don't you realize you should have come up with a plan in the first place?" You can't just come up and beg for money after all the problems you've had.