Value Microcaps Free-For-All

[lentinman]

Principle Reduction & Moral Hazard:

If it takes giving these people (those who are making payments to date and are living in the home) 1) slightly lower interest rates or 2) remortgaging them such that balloons are gone or 3) increasing the term from whatever it is to 30 years or 60 years (for all I care)...

... then FINE. If that is what it takes to stop the further collapse of the housing market due to foreclosures, then you very well may be able to convince me of it... HOWEVER...

... You will notice the one thing I did NOT say was ok is PRINCIPLE REDUCTION! That really pi$$es me off!!! On the one hand (those suggestions I made earlier) make it more manageable and tolerable for these people such that they may be able to overcome their mistake someday if they work their a$$es off. On the other hand, you are simply handing them money - almost certainly guaranteeing they will have a much nicer property than they ever deserved. And, it will be at the expense of those who were not greedy, but were fiscally responsible.

There is no way on earth principle reduction should EVER be considered - and I don't care what the ramifications of not allowing it are. That is the ultimate moral hazard. Should you (gubment) abdicate your responsibility to protect the moral hazard in this situation by allowing principle reduction, you will have forever destroyed any confidence that we might still have in the "system".

There was some idiot (John Taylor, National Community Reinvestment Coalition president/CEO.) on Squawk Box this morning with Joe, Becky and Carl. He was promoting, among other things, principle reduction. He indicated that what was needed was for "you guys" (media) to sell the idea to the populace so that congressmen could have cover for doing something that otherwise would be incredibly unpopular. I just loved Becky Quick's response... "I'm not carrying that bucket of water!" - specifically referring to principle reduction. You could immediately see the surprise and disappointment in Mr. Idiot's face as he realized his one mission (at least for this day) was shot to he$$.

Len