7 Reasons Why the Mortgage Crisis Is Dragging Down the Entire Economy
Continued from previous page
What is the "Homeowner Bank Bailout"?
The first column represents my quite rough (but very conservative) estimate of the payments that consumers will make to banks in 2011 for home value that's evaporated. That's money to repay loans which banks often knew were likely to go bad when they issued. (If they didn't know, they should have.) After their generous bailout (which was must costlier than has been acknowledged), the banks are still collecting payments for that portion of the loan that covers assets which no longer "exist."
That amounts to an additional, invisible annual bailout every year for the US banking industry, funded by some of the people who can least afford it: struggling homeowners.  (This figure doesn't even include people who've been foreclosed upon, which means the bank got to keep everything they'd paid into the house - and got the house, too.)
The "homeowner deficit" is strangling the country as the financial sector drains money from the overall economy for its own non-productive coffers. This chart illustrates that by showing that banks are once again grabbing an unhealthy share of our national wealth:
Source: Kathleen Madigan, Wall Street Journal
Without this drain, homeowners would be pumping hundreds of billions of dollars into the economy every year. Now that would be a stimulus.
Entitlement Cuts: Misguided Missiles
Instead of addressing the mortgage crisis, politicians (and the journalists who love them) are fixated on entitlement programs. How much sense does that make in dollars-and-cents terms?
The Best Stimulus: Homeowners or Corporations?
What's the best way to stimulate the economy: By giving corporations tax breaks and regulatory relief, or by fixing the housing crisis? Both political parties are turning themselves inside out trying to please corporations - partly, they say, because reports say those corporations are sitting on nearly $2 trillion in cash. If we make the CEO's of those corporations "feel better," the argument goes, they'll cut some of that cash loose for hiring and investment and the economy will pick up.
Let's look at that $2 trillion in comparison to lost housing value, and to our estimate of the mortgages being paid on lost housing value:
Those corporations won't really cut that cash loose until they know there are customers waiting to buy their products. There's a great way to make that happen: by helping consumers (more than 20 million households altogether) escape the burden of all this underwater debt.
Less Is Less
The Administration's response to this crisis has been woefully inadequate ... and the Republicans are much worse than that. The GOP's hard at work trying to end any assistance for underwater homeowners.
Administration programs were insufficient by design and then failed to meet even their own, overly modest goals. The HAMP program, for example, was never intended to help all of the homeowners who are still paying underwater mortgages. It should have been. Here's how limited its goals were, when compared to the problem:
But even when compared to the number of homeowners facing foreclosure, it's been a failure:
It hasn't even spent more than a tiny fraction the money allocated to it!
And yet, incredibly, Republicans want to cut it. And the GOP's Congressional leaders also want to kill several other programs for struggling homeowners, including a principal relief program that might help some of the 14 million underwater homeowners who haven't yet missed a payment.
Source: New York Times
Despite the magnitude of the mortgage crisis, all we've been hearing out of Washington is endless chatter about "deficit emergencies," the need for so-called "entitlement reform" (aka cuts), and the supposed "financial Armageddon" that faces us.  We've heard almost nothing about the crisis that is ruining millions of lives, costing us millions of jobs, and strangling the economy.