Amateur Hour teams at the Fed and Treasury

The subprime workout will be a blessing to any family whose home is saved. However, as an economy-wide reality, benefits from the workout will be undetectable. This episode will defy workout efforts for several reasons: 1. The primary cause of foreclosure is zero or negative equity and this is the situation today in the aftermath of a plague of idiotic and predatory, no-down-payment 100 percent lending. There's no hope for these homes. 2. The first step in workouts is to add delinquent payments to balances and recast future payments ("capitalized interest"). See #1: no equity, no room to add. 3. Another common workout: convert to a period of interest-only payments. A ton of these troubled loans already are interest-only so this won't work either. 4. Another traditional approach: reduce the interest rate. The FHA "streamline refi" was fabulously successful in the 1980s (available today, but only for FHA loans). Families under water or in job trouble were stuck with 14 percent loans and walking away. A streamline allowed them to refinance to then-current 8 percent rates with no proof of income and no appraisal. This won't work today because the inventory of loans made from 2001-2006 carries average rates that are too close to today's rates. The Amateur Hour teams at the Fed and Treasury have missed two remedies. The obvious one: restore an adequate supply of new credit (re-guarantee Fannie Mae and Freddie Mac, expand their limits; unblock bank financial statements). Also, rate cuts, discount-window blabbing, and announcements that the crunch is loosening. Get with it, guys. www.whybuyhawaii.com www.lighthousebistro.com