Money manager and PIMCO founder Bill Gross is right to be worried about this nation's financial system ["Looking to Washington to Save Housing," February 25-March 3].
But when he advocates the government's subsidizing loans with zero percent down, he is under the same self-delusions as the mortgage wizards who brought us this downturn. In the days when loans were based on sound business practices, the rationale for down payments was twofold: people who had saved enough to make a down payment would likely be able to make monthly payments on a home mortgage; and by putting money into a house, people would be invested in it and have something to lose if they defaulted. Offering subprime loans with no money down to non-qualified home buyers is like setting a plate of cookies in front of a hungry kid; can you blame the kid for eating the cookies? So let's call it for what it is. The current mortgage fiasco was brought about by two things: the unrestrained, insatiable greed of financial system gamblers who invented the shell game of mixing subprime mortgages into instruments with sounder investments so no one could determine the real magnitude or locus of the risks involved; and similar levels of greed among the gurus of financial institutions who were willing to be conned into investing in those instruments while maintaining an incredible level of self-delusion. Any industry that can torpedo the world's largest economy as the financial greed industry in this country has done needs to be regulated—and tightly.
Wisest words about housing I've heard in a long time. No wonder PIMCO has such a solid record. Why doesn't Washington listen to advice like this instead of fighting over who hates taxes the most?
Bonnie Compton Hanson
Santa Ana, Calif.
The government does not need to subsidize rates as Goss suggests—an incredibly expensive proposition—it only needs to expand FHA eligibility to allow more people, not just low income citizens, to qualify for FHA loans. Then the government will only have to pay for the small percent of FHA loans that default and not every loan originated.
Bill Gross wants government to subsidize mortgage rates? Government is me—a taxpayer. I would be subsidizing rates. I don't think I should do that. I'm a guy who took out an Adjustable Rate Mortgage on a house I could actually afford, then refinanced to a standard 30-year mortgage as soon as possible. I'm still making payments, but the value of my home is lower than before. My equity has eroded. I accept that. But now you're asking me to subsidize the folks who want to buy a house beyond their means, under the assumption that prices will rise and the government will keep interest rates low? No way! Home ownership is not one of our constitutionally protected rights. If a person can't afford it, they shouldn't sign the papers.
Government doesn't solve problems, it creates new ones. The only problem solved by government to the benefit of the country was the guaranteeing of Chrysler's loans so it wouldn't go bankrupt. It did not cost the taxpayer one penny, the government actually made money on the deal and Chrysler survived and prospered. But government didn't solve the problem; it just got out of the way so Lee Iacocca could work his magic. If the housing problem is "fixed" by government and not solved by market forces, we will live with the fallout forever.
William P. O'Brien