Being Fair To Ford

[john morris]

I am not an expert on the business prospects or financial positions of the car companies. But, one thing seems to be standing out; Ford apears to be if not healthy, at least reasonably able to have so far survived on it's own without large helpings of taxpayer cash. They have negotiated with their unions and made business adjustments that may enable them to survive and perhaps position themselves for change and growth.

There is a rub however in that they now have to compete with the subsidised capacity of two taxpayer funded competitors. This seems both unfair and highly irrational. Without the taxpayer, Ford would likely be operating in an industry with far less excess production. It also might find it much easier to hire a few workers or buy a plant or brand or two from GM and Chrysler. Instead, if it makes any profits it must pay a portion of them to keep more poorly run car firms alive. Soon it will likely just throw in the towel and learn the new lessons of our economy--- losers are the new winners

[Teri Lussier]

We can take this down to a personal level, can't we. Everyone who has kept their credit clean, bought a house that was within their budget, didn't overspend even when the overspending was good, now gets to help/subsidize/bailout their neighbor who was unwilling and/or undisciplined enough to make smart decisions.

Nice.

And it's gonna be on the backs of my children to dig out from this monster sized pile of bile.

Again- nice.

[john morris]

You said it very well. It doesn't seem like many people in power have much concern for the Constitution, or the rule of law, or contract rights or fairness. OK, that's fine- they tell us it's all about stopping the pain now and being "practical".

I myself wonder how what they are doing can possibly help. The problem they are denying is that people respond to incentives, punishments and rewards so each time they bail out one irresponsible person they another set and so on.

This is what makes any fantasy budget projections of success so unlikely.Let's just take housing. Many, many, many people (millions) for whatever reason borrowed more than they could reasonably afford to pay for their homes, mostly because they assumed that homes only went up in value. Contrary to popular belief, most of these people were not poor and a lot were rich they just overeached. This can be seen in the explosion of defaults by borrowers considered to be prime credit risks.

The number one predictive indicator of future default seems to be negative equity or a loan amount exceeding the value of the property. Tens of millions of people are now in that position, paying for loans on investments that now seem unlikely to pay off. As they turn around and see more of their neighbors bail out or recieve special deals, they are more likely to do the same. This would push us further and further underwater,

The same is now going on with business bailouts that weaken the business climate for the surviving firms.

[john morris]

Mr Mortgage, a blogger who with a lot of inside knowledge of the mortgage and banking business did a post back in November laying out the danger posed by the negative equity position of millions of homeowners in the bubble states. Since, prices have dropped considerably since that time more and more borowers, even those with 20% down fixed rate mortgages are falling into this position. The government is playing these people for suckers and more and more of them are sending their keys to the bank and walking away.

"I originally posted the negative equity story below on November 10th. I am hard to shock, but this one is worth revisiting now that analysts and the media think we are going through some major mortgage recovery. Reality could not be further from that. Remember, in bubble states negative equity is so epidemic that 60% of all homes in CA, greater than 95% in NV, 65% in AZ and 63% in FL are in or near negative equity. Nationally, 41.6% of all home owners are at or near negative-equity and can’t refinance or sell without bringing significant cash into the transaction, which very few ever opt to do."

[john morris]

Even S&P which usually detects fires when they hit the roof of the building is starting to ackowledge the problems with prime mortgages.

"Standard & Poor's Ratings Services today placed its ratings on 3,279 classes from 209 U.S. first-lien prime jumbo residential mortgage-backed securities (RMBS) transactions issued in 2006 and 2007 on CreditWatch with negative implications. The affected classes totaled approximately $172.02 billion of original par amount, and have a current principal balance of $139.96 billion.
...
The CreditWatch placements reflect an increase in projected losses for prime jumbo transactions from these vintage years ... Our revised loss projections reflect an increase in our loss severity assumption to 40% from 30% for prime jumbo transactions issued in 2006 and 2007. This change is based on our belief that the influence of continued foreclosures, distressed sales, an increase in carrying costs for properties in inventory, costs associated with foreclosures, and more declines in home sales will depress prices further and lead loss severities higher than we had previously assumed. Additionally, there has been a persistent rise in the level of delinquencies among the prime mortgage loans supporting these transactions. ..."