Wednesday, September 17, 2008

Resurrect the Resolution Trust Corp. (WSJ)

I've been arguing for two years to bring back the RTC. I'm happy to see this WSJ article (hattip Calculated risk) with Volker recommending it too!

Can we have Volker back as the Fed chair? Please!

here is something we can do to resolve the problem. We should move decisively to create a new, temporary resolution mechanism. There are precedents -- such as the Resolution Trust Corporation of the late 1980s and early 1990s, as well as the Home Owners Loan Corporation of the 1930s. This new governmental body would be able to buy up the troubled paper at fair market values, where possible keeping people in their homes and businesses operating. Like the RTC, this mechanism should have a limited life and be run by nonpartisan professional management.


What isn't mentioned in the article is one of the RTC's best functions: To seize foreclosures, clean the title, and get them back out onto the market at 'market prices.' What they do is demand a roll call of who has claims on a property (taxes, repairs, 1st and 2nd mortgages, etc.) They then award each claim shares based on the dollar amount of the claim and the type of claim. e.g., For every $ of a 1st mortgage, one share. For a second, every $10 is a share... The house sells and after fees the shareholders split the proceeds on a per share basis. The new owners have the home free and clear and all claims that predate the deed transfer from the RTC must go through the RTC.

Bring back the RTC! Too many cities are in purgatory without it: Sacramento, Las Vegas, Phoenix, Palm Beach, Miami, Orlando, Tampa, Los Angeles (and suburbs, including the OC), San Diego, DC ex-urbs, and most likely a dozen other places (or more). I'm not for big government; but the RTC did its job well last time and is overdue.

It looks like my prediction that the RTC would be reformed 1Q08 was a bit premature... How do I know its needed? All of my wife's talk shows are about the economy. I think its funny how they're pointing out how those that 'live on a budget are ok.' ;)

Coworkers are in trouble and DOZENS (perhaps more) are staring to look into short sales; this isn't trivial. Let's just say our employer can determine that this breaks the terms of employment... But there are ways to work this out.

Got popcorn?
Neil

5 comments:

The Anonymous said...

Good post Neil - the RTC does seem to be very much en vogue with the treasury guys working downstairs from me. We'll see if it happens or not.

Incidentally, a comment of yours struck me:

"Coworkers are in trouble and DOZENS (perhaps more) are staring to look into short sales; this isn't trivial."

I agree - for the first time there is a palpable sense of tension in the air here in DC - something I havent felt since Autumn 05 when the housing merry go round stopped.

In my mind, this is the breakthrough you have been looking for in your emotions series. As I see it, there is a near panic sense in the air - there is no other way to describe it.

The Anonymous said...

Minnanyville & others are wondering aloud - is this capitulation???

Laura said...

How does a short sale break terms of employment?

wannabuy said...

I agree - for the first time there is a palpable sense of tension in the air here in DC - something I havent felt since Autumn 05 when the housing merry go round stopped.
Interesting... Now you might find this funny... but I'm not sure Nationally we have gone to panic. Seriously, I think we're still in the run up. Close... oh so close. But we'll see. Its easier to tell in hindsight. ;)

As to Minyanville, if we were near capitualation, it would be different. Some bloggers think we're only entering desperation! So there will *always* be a difference of opinion.

Hence why there is a market. Some buy... some sell. ;)

Panic starts when very few buy and enough sellers discount to drive the market down. Capitualation happens when sellers 'dump inventory' cheaply faster than buyers can absorb the inventory (e.g., this is one job of the RTC) .



How does a short sale break terms of employment?

when handling sensitive stuff (e.g., medicines or other stuff), if there is a major 'credit event,' its in the contract of employment to undergo a revue. You know my best friend. He used to handle the global IT of a major medical manufacturer. Since he was in a drug factory... they anyone desperate for cash might sell the drugs they make (steal). So when he sold his house, he accepted the 5 figure loss without trying a short sale due to the implications on his future employment.

The same is true of my field. If someone is in dire straights for cash... you no longer have to trust them not stealing information. Its in the employment contract. e.g., one of my employees was in financial trouble. He's on probation. One major credit event and he's walked out the door (no further questions asked). Why? Most industrial espionage happens with people in financial trouble. For those who need a security check... a short sale is grounds for suspension of the security privlages. At which point the individual cannot do their work and is fired for 'abandoning their employment.'

Sorry for no posts for a bit... I bought a new Camera and my daughter is the model. ;)

Got Popcorn?
Neil

The Anonymous said...

"Now you might find this funny... but I'm not sure Nationally we have gone to panic. Seriously, I think we're still in the run up. Close... oh so close. But we'll see. Its easier to tell in hindsight. ;)"

Fair enough...But if the housing market starts to show symptoms of sickness in the next month or two, I think its almost certain that we can point to this last week as the cause.

It really is incredible - several of the large venerable institutions - the ones that survived the great depression - are gone within a weeks time. I dont think we'll ever see another week like that (or let me say I hope we never see another week like that)!!!

Your comments on employment contracts are correct. Except around here for a lot of the DC workforce, the concern is not committing "industrial espionage" - its just espionage (the original type)...