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Obama proposes to raid pension funds to bail out banks

DCblogger's picture

Talks set out terms of US mortgage deal

The banks would receive less credit if they reduce balances for loans packaged in bonds or by reducing monthly payments through cuts in borrowers’ interest rates. In one scenario, the banks would get about 50 cents of credit for every $1 of reduced mortgage principal in home loans used to back bonds. In another scenario, balances on loans held on the banks’ books that are cut in the first year of the deal would receive $1.25 credit. This means, under certain circumstances, the aid to homeowners would be less than the aggregate size of the settlement, people familiar with the matter said.

Investors in US home mortgage bonds may have to swallow significant losses as part of the deal, people familiar with the matter have said. Sherrod Brown, an Ohio Democratic senator, sent a letter to negotiators this week urging them not to allow the banks to pass on the cost of the settlement to pension funds and other investors.

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Submitted by Alcuin on

Since I'm close to retirement, the title of this piece definitely caught my eye. However, the title is a little bit deceptive, in that the legislation doesn't propose "raiding" pension funds - it says that pension funds which hold mortage related investments will take a "hair cut". Corporations have raided their own pension funds many times in the past to socialize their costs, but this is a little bit different. Sherrod Brown opposes this idea, as well he should. Pension funds which buy mortgage backed instruments shouldn't have to take a haircut. Banks should, through lower profits over a multi-decade timeline. But that isn't going to happen in this country. Oh, no! Stick it to the people who have no say in the matter. That's the American way, isn't it?

And Obama thinks that's a great idea? Wow, thanks!! Shit on me some more, dude.

jest's picture
Submitted by jest on

Sherrod Brown, an Ohio Democratic senator, sent a letter to negotiators this week urging them not to allow the banks to pass on the cost of the settlement to pension funds and other investors.

This is stupid, and criminal, regardless of the optics. But my God this is tone deaf.

reslez's picture
Submitted by reslez on

is the bankster stooges' favorite ploy. Do you honestly think they give a flying squirrel about pensions? They're focused on bank profits.

According to observers like Yves Smith at Naked Capitalism, investors such as pension funds would actually do far better if banks modified mortgages instead of foreclosing. This is because the housing market is so depressed -- once the home is repossessed the investors have to pay for taxes, maintenance, etc. and search for a buyer. Investor losses are actually minimized by avoiding foreclosure. Yet servicers -- and the banks who run them -- earn far more in fees if they foreclose.

This has nothing to do with pensions.