Bank Bailout--Another Sleight of Hand

AIG is getting more money, another $150 billion, because, well, let's face it, no one knows what it did with the first hand outs to prevent the world's largest insurance company from going under. Let's look at the handouts so far: $85 billion, $38 billion, then it sold $21 billion in commercial paper to the federal government. Now there is this $150 billion. No one knows where the money has disappeared to because there is no accountability, no transparency, no oversight. $294 billion just to AIG. Click here to read The New York Times article, dated November 10, 2008.

Review the updated bailout chart at propublica.org.

Add to this the fact that banks received a very quiet assist from Treasury Secretary Henry Paulson while Congress was busy trying to turn his two-page idea into the original $700 billion, the purported first bailout. However, it wasn't.

Paulson repealed a tax code section that immediately provided $140 billion to banks, and no one in Congress noticed! It was a back door way to aid US banks. Read the Washington Post article and get really angry.

This morning NPR reported that CitiBank announced a moratorium on foreclosures of houses. The story was confirmed in the Washington Post although the numbers differ. That is good news, because there is another sneaky thing happening behind our backs that is aiding banks and screwing people and local government. HUD, Housing and Urban Development, is offering local governments funds to purchase foreclosed houses from banks through the Neighborhood Stabilization Plan. The local plans on how to do this are being written right now and then will be open to public comment. Nassau County, where I live in New York, is getting $7.6 million, a paltry sum, but Nassau has the fourth highest foreclosure rate in the State: some 6,000 houses in foreclosure.

But what happens when a municipality purchases these homes? It depresses the price of real estate for the other homeowners in the community, and yes, here it is: it bails out the banks by relieving them of the collateral for the bad loans they made and of being landlords.

What does it do for the families who are being displaced? Nothing.

I'm no economist, but I believe this money should be used to lease foreclosed houses from banks. Make the banks hold onto the real estate to prevent a serious dip in neighboring home values, and let the counties and towns lease the houses. Then municipalities can rent homes back to families to avoid dislocation. Families who might not be able to afford mortgage payments, would be able to afford some form of fair market rent.

The impact would be that the county could relocate more families while stabilizing communities. Every boarded up house is a potential liability to the neighborhood; every foreclosed home depresses the value of the surrounding homes. However, by keeping neighborhoods intact, we can keep children in their schools, families in their communities, and people at their jobs.

Plus, the municipalities will be able to rescue more families. Leasing is far less expensive than purchasing these homes.

Watch for the public hearings in your area. This is what it means to be engaged. Attend the meetings. Demand accountability.