And again our leaders confuse liquidity and solvency. You can’t fix a solvency problem with a liquidity solution.
A poorly run company has a cash flow problem, and can’t meet their debts. Their business model is busted, and they barely have enough income to operate, let alone pay down obligations. They come to you for a loan, and you ask “What for?”. If they tell you they are going to use your funds to help cover short term obligations, would you make the loan? Heck no you wouldn’t, because once that money runs out they are back to square one. That money wasn’t invested to grow the business, or otherwise that might actually result in increased earnings, lower operating costs, greater sales, etc.
Another scenario, a few years back, top of the bubble, poor credit and low income homeowner comes to you looking for a loan. It is clear that they the only way they can continue to afford their home and lifestyle is through extracting illusory equity from their home and piling on additional debt. They come to you for an additional $50k loan, not to make improvements on their home, but just to pay the credit card bills, mortgage, etc for the next few months, what do you tell them? Sure, this is a great investment.
Zero interest $50k loans to folks who can’t pay it back? What is the repayment schedule on this thing? Better be 15 years or longer, otherwise it isn’t getting paid back.
Whatever happened to saving for a rainy day? Having a “cushion” or “safety net” or otherwise to get through “the hard times”? Debt is the problem here, not the solution, so let’s take a set of people that can’t currently afford to service their debt, and saddle on more debt. I can’t wait for the first stories of new car purchases or iPads to hit the papers.
Don’t get me wrong, I’m sure there are a handful of borrowers that this kind of program would help. A set of folks with real earning potential, in demand skills, that will be able to pay it back when they find jobs again. You know, fiscally conservative, responsible. Sorry, I’m dreaming.
Where’s my pony?
From the Record:
Staying out of foreclosure in this economy can be tough enough. Try keeping up with the mortgage after losing a paycheck.
To try to help prevent more defaults, the Obama administration Wednesday said will send $112 million to New Jersey to design a program to help unemployed homeowners stay in their homes while looking for work.
New Jersey is one of 17 states with persistently high unemployment rates to share $2 billion in funding through the program, dubbed the “Hardest Hit Fund.”
California will get the largest share of money for the Treasury program, at $476 million. Florida is in line for nearly $239 million. Illinois will receive $166 million and Ohio will receive $149 million.
New Jersey’s unemployment rate has remained above 9 percent in New Jersey for more than a year, though it inched down to 9.6 percent in June. Foreclosures slightly decreased in July, down 6.7 percent from the previous year, foreclosure data company RealtyTrac said today.
Also Wednesday the Obama administration said it would open up a program through the Department of Housing and Urban Development to provide zero-interest loans of up to $50,000 for homeowners, a program that was part of the financial regulatory bill passed last month.