Elizabeth Warren is the head of the Congressional oversight panel on TARP.
Elizabeth Warren: But the mortgage crisis presents a somewhat different problem.
The problem there is much more a one of who’s going to bear these losses?
We’ve got houses that are now worth $100,000, let’s say. But they have mortgages against them for $140,000. And the mortgage on that house has been sold and sliced and diced and moving out–
Dan Rather: Bundled–
Elizabeth Warren: Bundled and all the fancy things that have happened. And now you’ve got a family living there.
And because of the crazy terms in this mortgage, they– they can’t pay the $140,000 mortgage. There’s no possible way.
If this house gets foreclosed, they’re gonna be out of a house. And ultimately, here’s the ironic part, the investors way on down the line, $100,000 house, they’re likely to get somewhere between $40,000 and $50,000 by the time you work through the process.
Lose, lose for both groups.
What we have to do is we have to find the mechanism to get ‘em together and say, look, let’s be realistic. Can you pay $100,000 for the house? Can you get yourself in a level mortgage? If you can, let’s do it.
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This-you know-in a funny sort of sense, this isn’t about bankruptcy, this is about reality.You can beat on this family all you want. But they’re not gonna produce $140,000 for this house. They just can’t do it anymore.
And the day we finally get realistic, we recognize the losses, we write down what we have to write down, we let some businesses go away and we begin to count on the fact that those that are left really do have their feet on the ground, you know, that the– it– it’s solid all the way down, then we start to rebuild an economy.