Rick Lowe
Dr. Rodgers recently announced his remedy to save homes from foreclosure.
- "…reduce the Central Bank Prime Rate from 5.25 per cent to 2.25 per cent or lower,…"
- Banks "could reduce the principal on their troubled mortgages by 50 per cent,.."
- "…the Government should take immediate steps to establish a Foreclosure Trust Fund."… of $150 million.
Read his entire "plan" here… and here…
Admittedly times are difficult and families losing their homes must be devastated, but to suggest that reducing the Prime Lending rate to 2% would help save a home from foreclosure is mere political rhetoric. I wonder if he worked the sums? The Nassau Institute did. Go here… to see their piece from June 2011.
Secondly, to state that banks should reduce the principle of mortgages in default by 50% is reckless. Banks lent money to the borrowers in good faith, at market values, and besides banks here are not responsible for our economic woes.
And thirdly, government has no money to establish a Foreclosure Trust Fund. As Milton Friedman is reported to have said, government has no money, they must take it from the taxpayer one way or another – taxes and or debt etc.
Now if Dr. Rodgers wishes to establish a private fund to attempt his scheme, I say go for it.
It's always curious how so many of us justifiably take issue with government programmes, yet believe that we can design them and everything will work just fine. Freiderich Hayek called that sort of stuff The Fatal Conceit. Specifically he said:
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
What is said at election time in an attempt to gain political power should be filtered through the finest of mesh.
Hard times like this is when families need to come together to best see how they can help each other. Sometimes forclosure is the only option. Other people have been lucky enough to move in with their family members and rent their home so keep the payments current.
Even with his scheme, Dr. Rodgers laments, "You can't save all of the mortgages. Some of them are going to go down because people have no jobs and no monies at all."
I'm not in favour of taking tax dollars from Bahamian's so people in the political class can decide who they want to give it to. They want to appear to be helping with other peoples money. Heck that's easy.
I would prefer the private sector, people with like minds to Dr. Rodgers, risk some of their money to be altristic with. Who knows, I might even make a donation.
My God Dr Rogers, why don’t you give them all of your money & then move in with Chavez ,apparently you think just alike.Now if that isn’t socialism,then i don’t know what is.You must be in dreamland somewhere because we will be taxed for that to.Dad always said that nothing is free, somebody is paying for it make no mistake about that & in your bad dream it will be us the taxpayer.Why don’t you suggest less taxes so people might have something left after we are taxed to death to give of our own free will, not yours.Sorry Dr.Rogers but i think that is a very bad idea you have there.
I like the bit about the dream of home ownership.
Dreams come true in Fairy Tales, they are not the substance of calculated decisions about the use of resources.
Nightmares are also dreams that are coming true for those who miscalculated and over indulged their dreams of home ownership.
Regretably Members of Parliament also have dreams that become nightmares for those whose dreams they think they can fulfill.
In due course lower priices will attract new buyers and the market will adjust.
Government is not needed to fix prices
All ideas are constructive and adds to the economic debate.. Our social consciousness cries out for the many good Bahamians that may lose their homes through foreclosure.. Yet we also must be concerned with the financial condition of our banking system.. Marking loan portfolios (assets)to market may very well show just how deficient the financial condition of the banking industry maybe.. Our country need a strong and sound banking system not only to finance the expansion of anticipated business recovery but to maintain the creditability of our system of deposit savings as well..
Thanks Tradewinds.
Moving toward a Sound Money is a better alternative in my view.
Marking assets to market value might be good, but in good times, the values will increase exponentially as well.
My concern with Dr. Rodgers approach is it sets people against institutions based on envy.
Should all business people be required to take a 50% loss on their inventory for example?
It might also make banks even more cautious with their lending.
I read Jonathan’s comments and I read the NI’s piece. But what is confusing me is the figures that you used in the NI examples , especially for mortgages. You quoted the example of interest rates going from 14% to 13.25% and your analysis quite rightly said that the resulting saving would not be sufficient for the distressed homeowner to provide any meaningful relief.
But my question is why are banks charging 14% when the prime rate is only 4.75%? In truth I have no idea what interest rates are being charged for home loans at the moment or was the 14% rate you used merely for example purposes? If banks were charging only 2% above prime then obviously the mortgage payments would be considerably less. Also, obviously the difference a drop of 3/4% would make would be even less significant. Bottom line is if a homeowner has no income at all because they have lost their job, then it doesn’t matter much what the rate is.
So, what margin do the banks operate on for mortgages?
Thanks for stopping by and commenting.
The reality is there has to be a spread, otherwise the banks would have to close.
Just like in retail businesses or professional services, profit is imperative.
That’s why I’m concerned with unrealistic rhetoric creating envy rather than finding a reasonable solution.
Rick, I couldn’t agree with you more about the concept and need for sound money.. But the issue here specifically is the stability and creditability of our Banking system.. Four and a half pages of repos from Finco in the Tribune is very troubling and is a meaningful indicator of what is going on in the real estate market.. Even our politicians just might understand what this means to our economy..
There needs to be more scrutiny and analysis of not only bank lending practices but of loan lost accounting decisions on the part of bank management and directors.. Market valuation of assets is perhaps a step in the right direction to determine the true financial condition of our banking institutions.. The depositors and the public at large deserved to have full disclosure of the institutions they trust to protect their hard earned savings..
Thanks again Tradewinds, but are you suggesting the banks should be more liberal with their lending practices as I perceive Dr. Rodgers is?
Or are you saying they need to be more conservative?
Try as I might, I cannot connect the dots with lending practices here and the economic crisis that has caused these foreclosure problems.
I think it’s an unfair criticism. Populist rhetoric.
Well how about we fix the prices on what you can charge for a visit to the eye doctor.I think maybe $20.00 should do because i do not want to pay any more than that.Also,i would like for the government to pay that for me please.Surely you would not mind that doctor Rogers.