Coming to Terms with Unfairness

As someone who bought a house in 2005 and knew he was likely overpaying, I certainly need to take Roger Ehrenberg’s advice.

Many also need to come to terms with modifying mortgages for millions of homeowners on the edge. We can argue forever about how it’s not fair, the borrowers screwed up, etc., but we are way, way beyond the point where intellectual jousting will help us achieve a better outcome.

However, I am a firm believer that the more fair approach would be for the government, and the taxpayer, to be a participant in the upside associated with keeping the bailed out borrowers in their homes.  As Jeff Minch, a guest poster for Fred Wilson stated:

The government should get an “equity kicker” for their trouble.  If you participate in the plan and peg a new value on your home, then the government should get either a par payoff of a 25% equity kicker above the marked down price for the next ten years.

I don’t know if this option is technically possible, or was even explored, but I would have liked to have seen it included in the governments plan.

Bank Nationalization

There has been a lot of commentary over the past few weeks about the value of nationalizing major US banks like Bank of America and Citigroup.  Many feel that the current bailouts are propping up the shareholders at the taxpayer expense.  Given that bank shares keep going lower and lower, a commenter at Baseline Scenario raised an interesting question:

Nevertheless, if you are still feeling miffed that your tax dollars are inapppropriately [sic] propping up shareholder value, allow me to make a suggestion. Buy a hundred shares of Citigroup. Then you too can reap the largesse at tax payer expense. You don’t have to be rich. 100 shares of C cost about $420 presently [even lower now, given this was posted in late January]. I keep wondering, if the shareholders of banks are getting such a great deal at the expense of the tax payer, why isn’t everybody rushing to purchase shares of bank stock now?

(Emphasis mine)

The obvious answer makes the case against government intervention in the markets; shareholders are fleeing in part because of the fear of nationalization.

Witch Hunting

I think this is a great quote for the current political environment:

Assuming that we are indeed facing, in large part, a crisis of confidence, would this crisis be solved more quickly if we stopped nattering about the banking system and simply burned us some witches?