Bush pushed the ownership society, the regulators tried to operate in a deregulatory political environment, the bankers found new, and increasingly irresponsible ways to “help” join the ownership society whether it made any sense or not. Loan originators raked in commissions, the financial wizards sliced, diced and sold off the crummy securities and the tax payer is left holding the bag.

So today, we are told the economy is recovering. The bank crisis has been averted, banks are back to paying the big bonuses that is so key to a recovering economy and things are rosy, right?

Well, not so rosy for the average jane or joe who is still trying to hang onto their little piece of the american dream and has not been able to keep working at a job and wage that will support the mortgages. So the AP reports that foreclosure activity is up and the forecast is not good for the ownership society.

There is a solution that could have really helped stop this mortgage disaster depression and it was to rewrite the bankruptcy code to allow bankruptcy courts to rewrite the terms of mortgages on primary residences. It’s called “cram down” in bankruptcy circles. The court can cram down a loan balance and dictate interest rate to a fair market value. This is allowed on vacation homes, airplanes, yachts, cars, but not primary residences. Under the current statute I guess it makes sense to walk away from the house, leave the bank holding the bag, cram down your loan on the yacht and live aboard for a while. This solution doesn’t work if you failed to buy the yacht. What an oversight!

The problem with mortgage cramdown of homes is that the banks take it on the chin. At least with yacht, airplane, vacation home cramdown, decent folks of means are being helped. But with primary residence cramdown, an average jane/joe benefits while banks lose. Primary residence cramdown was considered early in the mortgage crisis, but there was too much opposition and a congress owned by the financial industry could not muster the courage to challenge their owners.

I think it’s too late for this solution to do much now, but it might be a good idea to fix for the next time this kind of thing happens. For now, we are into Stage Two, a jobless “recovery” and employment prospects remain bleak as Obama did not do the smart thing and go all out on R&D of a green energy system to address climate change and to get us out of the petro wars. It’s still the right solution. We are going to do this eventually because we have to.

See you there.

[1] clipped from [2] news.yahoo.com Foreclosure activity up across most US metro areas LOS ANGELES – Households across a majority of large U.S. cities received more foreclosure warnings in the first six months of this year than in the first half of 2009, new data shows. The trend is the latest sign that the nation’s foreclosure crisis is worsening as homeowners battling high unemployment, slow job growth and an uneven rebound in [3] home prices continue to fall behind on their mortgage payments. “The face of foreclosure is driven much more now by unemployment than in the past, and it’s moving out from the places where we’ve been focusing on in the last few years,” said Rick Sharga, a senior vice president at [4] RealtyTrac. “The combination of a weak job market and a weak housing market is making it difficult in some of these areas.” [5]