How will this affect bankruptcies and foreclosures?

    Critics of the federal Bailout plan are many in number, and are ever more ferociously shouting their opposition.  Even to those who know nothing of financial matters, it can be clearly seen that the United States Government is treading in dangerous territory.  Essentially, the government has agreed to buy the sick and troubled assets of institutions that neared or fell into collapse as a result of those assets.  How does that make any sense?  Treasury Secretary Henry Paulson tells us that the purchase of these unhealthy assets will allow banks to distribute capital in the form of credit and other types of loans.  The idea is that the outflow of this credit will move the economy forward again, which will in turn increase the value of the assets held by the government, which can then be sold or returned to the issuing institutions.     While there is a possibility that this plan will work, it will in all likelihood only be for a short period of time.  What the bailout plan does not allow for is the fact that the troubled assets were troubled before the crisis began.  In fact, they were troubled because the borrowers themselves were in danger of defaulting.  Is it any wonder?  Subprime loans are exactly that- substandard.  American borrowers- be they individuals or businesses, carry far too much debt.  That simple fact is the cause of most of our current financial woes: we are over-burdened with debt, and as a whole will never be able to pay back what we owe.  Now, that being the case, how can buying the bad loans of banks so that they can make more loans to people who already could not repay the original loans solve the crisis that has rapidly turned global?  The answer is simple: it can’t.      Many critics of the bailout plan are in support of an alternative plan- one not likely to occur, that would aid the borrower as opposed to aiding the institution.  It makes absolute sense that by alleviating the current debt load of borrowers, there would be an immediate rise in spending, which would mean a rise in the production of goods and services- the healthiest type of stimulation an economy can receive.  Instead, the bailout plan seeks to do nothing more than continue the current status quo; and we have already seen where that will lead us.     So is there a “Plan B?”  Other than theories that will be posted everywhere in frustration and never attempted, the answer is no.  Nevertheless, for some, taking control of their own debt eradication comes in the form of a foreclosure or a bankruptcy.  In many cases, a borrower is better off financially by letting the bank foreclose on their home, rather than owing on a mortgage that is higher than the value of the home.  Bankruptcy is also an increasingly popular option to wipe debts clean and start over financially.  In many cases, bankruptcy even allows the owner to keep their home.  One thing is for certain- in these most trying of times, we should allow all options to remain open, because the only thing we can say for sure is that we cannot continue to do things the way we have been.   As Mike Bergeron from Nassau County, New York, put it:

        “We need a Plan B, C, and D- and they all need to be in action at the same time…”

  Agreed.  Now how exactly should Main Street communicate that to Wall Street and the Fed?                –

This entry was posted on Monday, October 27th, 2008 at 7:14 am and is filed under Financial Market, Long Island Bankruptcy, Long Island Law Firm, Nassau & Suffolk County Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.