The Mighty HOLC

Remember HOLC? Via Atrios, Rep. Brad Miller (D-NC) is talking about it again:

If the government could purchase, either by voluntary sale or by eminent domain, distressed mortgages for 30 to 50 cents on the dollar, there would be ample room to reduce the principal to make the mortgage affordable. In other cases, the government could buy the home in exchange for cancelling the mortgage and enter into a long-term lease with the former homeowner.

[. . .] The Obama administration can establish a new HOLC without any additional action by Congress. The Troubled Assets Relief Program (TARP) legislation already gives the Treasury Department the power to acquire financial assets, specifically mortgages, and Treasury could fund the program with the $75 billion of the TARP appropriation allocated for HAMP.

The time for a new HOLC was last year. But better late than never.

Speaking for me only

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    It is the only thing that is going to (5.00 / 2) (#1)
    by Militarytracy on Wed Feb 24, 2010 at 02:12:17 PM EST
    stabilize mortgages and housing for people.  The market is going to continue to deflate.  You can't have this sort of unemployment (and now it is going to be long term unemployment) and not experience that.  Everything else happening that is being touted as an improvement in the housing market is only monthly hiccups while we all take the big flush.

    I'm certainly (5.00 / 1) (#2)
    by Ga6thDem on Wed Feb 24, 2010 at 02:13:35 PM EST
    glad someone is talking about this but it mostly looks like flailing around in desperation now. The party emails I get are stupider and stupider when the party has had MONTHS to put forth effective legislation.

    That's what I was thinking (5.00 / 1) (#3)
    by jbindc on Wed Feb 24, 2010 at 02:22:30 PM EST
    The "throw everything against the wall in the hopes that something will stick" strategy - just to show voters "We're really working for you!"

    Cue the Moral Hazard Chorus (5.00 / 2) (#4)
    by ruffian on Wed Feb 24, 2010 at 02:24:04 PM EST
    Something tells me we are still less forgiving of our friends and neighbors than we are the banksters. Don't ask me why.

    gee (none / 0) (#13)
    by CST on Wed Feb 24, 2010 at 03:24:51 PM EST
    that didn't take long...

    It never does (none / 0) (#18)
    by ruffian on Wed Feb 24, 2010 at 03:39:54 PM EST
    the Clinton policy difference (5.00 / 2) (#6)
    by souvarine on Wed Feb 24, 2010 at 02:51:56 PM EST
    Still think there was little policy difference between Clinton and Obama?

    It's important that we recognize mistakes so that we can avoid repeating them. Differences in candidate's policy positions in a primary, especially apparently small ones, can mean significantly different policies are enacted if we win the office. Hillary Clinton's HOLC proposal after the primaries was aligned with her economic positions in the primary, which were a key difference from Obama's market based economic policies.

    It also helps to examine how candidates order their priorities. The reason for Obama's soft support among Labor and pro-choice voters should be obvious now that we have seen Obama compromise away EFCA and private abortion funding.

    Those policy priorities also provide a broader explanation for the weakness of Democratic candidates in the off-year and upcoming 2010 elections. Two pillars of the Democratic base, Labor and women, are not seeing their interests addressed and have lost enthusiasm. Even Scott Brown can see how important labor is in a state like MA.

    I still think passing health care reform will prevent a complete disaster for us in the 2010 elections, but Obama and Congress have to begin addressing base concerns if they want to avoid significant losses. But that requires that Obama abandon some of his ideological commitments.

    The difference was on the website. (5.00 / 1) (#7)
    by observed on Wed Feb 24, 2010 at 03:06:01 PM EST
    Just kidding.
    Obama's use of that campaign trick was masterful, giving yet another way for people to read into him what they wanted.
    Spoken campaign promises mean little enough as it is; what' on the website means less than nothing, in reality.

    I wouldve gone with (5.00 / 1) (#10)
    by Left of the Left on Wed Feb 24, 2010 at 03:19:10 PM EST
    "The Incredible HOLC"

    Right becuz (5.00 / 3) (#19)
    by DancingOpossum on Wed Feb 24, 2010 at 03:40:32 PM EST
    The banks who made these loans are so upright, so upstanding, and so faithful to moral scruple.

    Excuse me while I hurl.

    I don't care if every home "owner" we "bail out" is a lazy deadbeat. (For the record, I don't think that, but even if I did my position still holds.) I don't even care that housing prices are in a death spiral, they never should have been inflated to the heights they were. I don't "own" a home so this doesn't even affect me, but it's ludicrous to say we shouldn't help these people.

    The banks are the ones that made these bad loans. In our blissful free market economy, that means they made bad decisions, and that means they get to suck up the losses, or fail utterly. Them's the breaks.

    As for the crowd who says "what about us who didn't buy, didn't overbuy, didn't get in over our heads, what do we get?" crowd, well, congratulate yourselves on your farsightedness. I do every time a house in my neighborhood goes under. That's plenty of satisfaction, trust me.

    There is NO moral reason to pay more for your house than it's worth. NONE. Banks don't do it. Businesses walk away from bad investments every day. Even sober analysts are realizing that the smart people are just walking away from their mortgages, period. Actually, I think that makes more sense than waiting for yet another Democratic FAIL on getting some kind of HOLC passed. Obama's "homeowner help" plan has been a raving, utter disaster, and this newly-borrowed-from-Hillary plan is likely to prove another.

    When does HRC get to do the "I told you so dance" from Scrubs???

    You know, it's true (5.00 / 1) (#20)
    by kmblue on Wed Feb 24, 2010 at 03:52:19 PM EST
    I bought my first home (a condo) in 2005 when I was gainfully employed and the value has now plummeted.  Now I'm out of work, can't pay someone to hire me, but I'm still paying the mortgage out of savings.  Then I read on the front page of the New York Times that some multi-million dollar company is walking awayfrom a huge development--just saying, we're done, and leaving.  Smart biz move, says the Times.  If I do that, I'm a scumbag.

    That doesn't make you a scumbag (none / 0) (#23)
    by me only on Wed Feb 24, 2010 at 04:31:59 PM EST
    It might hurt your credit (alot).  If you live in a non-recourse state it is probably the right move.

    Scumbag would be if the government refinanced your loan reducing the principal and then in the future, after the market recovers, you sell and get to keep the "profit."


    The principal is already being reduced. (none / 0) (#25)
    by Ga6thDem on Wed Feb 24, 2010 at 05:03:09 PM EST
    The people who are foreclosed on don't get to keep their house but when the bank dumps the house then everybody in the neighborhood gets kicked in the teeth. So then more and more people just walk away from their houses.

    Now thats funny (none / 0) (#33)
    by Rojas on Wed Feb 24, 2010 at 08:17:34 PM EST
    It's not like we have never been here before. The S&L crisis comes to mind. All those super-investers who consolidated failed S&Ls in those days for penneys on the dollar and leveraged the whole damn thing....

    So here we have a house owned by (none / 0) (#5)
    by jimakaPPJ on Wed Feb 24, 2010 at 02:51:37 PM EST
    someone who can't pay for it.


    Did the buyer:

    Just use bad judgment in thinking that they could cover a mortgage with a monthly payment of 35% of their income?

    Over extend themselves to also buy a boat, a car, a Hawaiian vacation?

    It sounds so easy but it really isn't. No one wants to pay for someone else's home.

    Now, if you want to lower the payment by extending the number of payments....maybe you've got something.


    Maybe they are not overextended at all (5.00 / 1) (#8)
    by ruffian on Wed Feb 24, 2010 at 03:07:42 PM EST
    as long as they are employed, but through no fault of their own their house is now worth half of what their mortgage is. If they ever want to move, perhaps to get another job if they have to, they will owe the bank tens of thousands in cash. How much money do you think they are going to be putting back into the economy with that bill looming over their heads?

    You position is the one that sounds a lot easier than it is.


    Long term unemployement . . . (5.00 / 1) (#9)
    by nycstray on Wed Feb 24, 2010 at 03:09:31 PM EST
    funny how you don't mention that one . . .

    But but (none / 0) (#11)
    by kmblue on Wed Feb 24, 2010 at 03:22:02 PM EST
    we bailed out the banksters and the automakers,
    we're fighting two wars,
    paying for health care for bores (Congress)
    but we can't help little old me?

    Cheap Shot (none / 0) (#15)
    by squeaky on Wed Feb 24, 2010 at 03:31:16 PM EST
    Blame the victims, while cheering on those who caused the problem and were bailed out.
    The problem, of course, is that the best case has millionaires "sacrificing" being able to buy a bigger airplane while the average retiree has to sacrifice eating protein. This "game" we've all got our skin in has some much more serious consequences for some of us than others: since certain of the wealthy players just crashed the financial system a whole lot of soon-to-be seniors lost their nest eggs in both the real estate and stock markets (and are being priced out of the health care market just when they need the coverage the most.) If there's a worse time to require these particular people to sacrifice more I don't know what it is.

    It's also true that often the people for whom "sacrifice" is nothing more than a minor inconvenience are prone to lecture those for whom is is quite painful. It's irritating. [emphasis mine]



    There is no victims ... (none / 0) (#32)
    by nyrias on Wed Feb 24, 2010 at 07:03:39 PM EST
    in this mess.

    We should blame both the bankers and the borrowers who make bad decisions about their loans.

    Sure the bank may have MORE responsibility but i doubt the borrowers are squeakily clean victims. If they cannot do some sound financial planning, they have no business in getting a mortgage.

    Buying a house is an American DREAM, not an American entitlement.


    In my (none / 0) (#21)
    by Ga6thDem on Wed Feb 24, 2010 at 04:18:20 PM EST
    case we bought waay less than we qualified for but the other people in the neighborhood drove the price down because of their foreclosures--many different reasons for the foreclosures. So people like you seem to think that people who had nothing to do with this should be punished too?

    PS. All the 2 out of the three foreclosures on my street were your fellow conservatives. Consevatives somehow see themselves as completely entitled to live like millionaires.


    How are you being punished? (none / 0) (#22)
    by me only on Wed Feb 24, 2010 at 04:26:24 PM EST
    And what exactly do you think the remedy is?

    My house (5.00 / 1) (#24)
    by Ga6thDem on Wed Feb 24, 2010 at 05:00:43 PM EST
    is worthless than the mortgage balance right now due to no fault of my own.

    The remedy first of all would be to get the banks off their duffs. They are letting the houses fall into disrepair.

    Secondly having somebody live in the house is much better than leaving them empty. If an HOLC lets people stay in their houses it helps everybody because you aren't going to have tons of empty houses that the banks don't want to take care of.


    The reason is that your house (none / 0) (#34)
    by me only on Wed Feb 24, 2010 at 08:34:15 PM EST
    is worth less than the mortgage is because there was an asset bubble in real estate.  Are you seriously trying to argue that the answer to the bursting of the bubble is to re-inflate the bubble?

    no (5.00 / 1) (#35)
    by Ga6thDem on Wed Feb 24, 2010 at 08:43:30 PM EST
    I'm talking stability but people are going to keep walking away from their houses and people like you are going to continue to bail out the banks so isn't it better to keep people in the houses than letting them just sit?

    An HOLC won't reinflate the bubble, it will just stabilize the market and people will have a better chance.

    Frankly, the way things are right now most people are better off walking away from their houses. What's the incentive to stay other than the hit to your credit? And there's so many people that have the hit on their credit that people will still rent to them.


    Most people will not be better off (none / 0) (#38)
    by me only on Wed Feb 24, 2010 at 09:00:43 PM EST
    about half the houses in this country are owned without a mortgage.  Of the remaining half about 25% are upside down.  So about 1 in 8 people would be "better off."  Except many would not be.  Most people do not live in non-recourse states.  You can't mail the keys in and just walk away.  You still owe the remaining principal on the mortgage.  The bank can take years to collect.

    Unless you live in Flint or Detroit or some other city that is effectively destroying itself your home value will recover in the future.  It might not return to what is was in 2006-2007, but it will return to something that is more reasonable.  Over the very long haul housing appreciates at about the same rate as inflation.  People tended to forget that in the run up.

    As for bailing the banks out.  Most of TARP that went to banks will be repaid.  Unfortunately people like me (people who actually pay federal income tax, unlike 50% of American households) are bailing the banks out.  I cannot change that.  The Democrats in DC are no better at resisting crony capitalism than the Republicans.


    Actually (none / 0) (#43)
    by Ga6thDem on Thu Feb 25, 2010 at 05:09:49 AM EST
    you can make an agreement with the bank so that they can't chase you for the balance. And that woudl be just like the worthless banks to spend money chasing people who don't have the money while letting the house sit and not even trying to sell it. Where are your statistics to back up 1/2 the houses are owned with out a mortgage?

    If you are so worried about the 50% who supposedly don't pay income tax then you should be all for raising taxes don't you think? Anyway, I've heard that talking poitn from conservatives but they never have anything to back it up with.

    Do you really have anything more than ditto monkey talking points?


    Actually if you had the ability (none / 0) (#47)
    by me only on Thu Feb 25, 2010 at 09:23:10 AM EST
    to click to the IRS, you would see that 97.11% of federal income tax is paid by the top 50% of earners.


    Scroll down to 07in01etr.xls

    So now you have the actual data.  Choke on it.

    Where are your statistics to back up 1/2 the houses are owned with out a mortgage?

    The Census Bureau reports the number of owner occupied homes w/o a mortgage as 33%.  That comprises about 70% of the homes in the US.  The remaining 30% are owned at a noticeably higher rate (estimates range from 60 - 70%).  Totaled together about half of US homes do not have a mortgage.  Additionally, of the owner occupied homes about 10% owe less than $30,000 according to the Census Bureau.

    You need to start researching the data yourself instead of reading and believing the people at DKOS.


    WRong (none / 0) (#50)
    by Ga6thDem on Thu Feb 25, 2010 at 10:09:25 AM EST
    the other guy below linked to data that supports the fact that 70% of people have mortgages.

    Obvioulsy (none / 0) (#52)
    by Ga6thDem on Thu Feb 25, 2010 at 10:10:47 AM EST
    you don't know much if you think I go to Kos, silly one.

    You (none / 0) (#53)
    by Ga6thDem on Thu Feb 25, 2010 at 10:12:28 AM EST
    are trying to twist the figures to make it support your argument when they do not.

    Actually, ... (none / 0) (#46)
    by Yman on Thu Feb 25, 2010 at 08:55:39 AM EST
    ... 70% of homes (owner occupied) are encumbered by a mortgage, while the other 30% are "free and clear".

    That is owner occupied (none / 0) (#48)
    by me only on Thu Feb 25, 2010 at 09:23:51 AM EST
    which is only about 70% of the homes in the US.  Read my above reply.

    So you're claiming the 30% ... (none / 0) (#56)
    by Yman on Thu Feb 25, 2010 at 12:53:42 PM EST
    ... figure is invalid, since it includes only owner-occupied houses, and you cite 2007 Census data of owner-occupied houses without mortgages (32.8%) as your support?  Then, you try to include reverse mortgages (0.2%) as homes without a mortgage to bolster the number?  Seriously?  It's called a reverse mortgage.

    BTW - The original poster was clearly referring to owner-occupied homes:

    Frankly, the way things are right now most people are better off walking away from their houses. What's the incentive to stay other than the hit to your credit? And there's so many people that have the hit on their credit that people will still rent to them.
     Unless, of course, someone walking away from an investment home/vacation house would be worried about finding a rental to live in.

    BTW -

    The remaining 30% are owned at a noticeably higher rate (estimates range from 60 - 70%).  Totaled together about half of US homes do not have a mortgage.

    Really?  Who's "estimates" are those?


    Additionally, your data is from (none / 0) (#49)
    by me only on Thu Feb 25, 2010 at 09:27:41 AM EST
    2000.  What you want is the 2007 American Housing Survey from the Census Bureau.  That shows only owner occupied homes, but shows that 25 million of the 75 million (round numbers) are free and clear or reverse mortgages.

    Reverse mortagages? (none / 0) (#51)
    by Ga6thDem on Thu Feb 25, 2010 at 10:10:06 AM EST
    Really now?

    Everyone is being punished in (5.00 / 1) (#27)
    by ruffian on Wed Feb 24, 2010 at 06:08:18 PM EST
    one way or another. This is the root of many of the economic problems we are having. Consumer confidence and economic recovery are not going to get appreciably better until people have a hope in hell of not being underwater on the biggest investment of their lives.

    Do i want the government to use MY money to (none / 0) (#12)
    by nyrias on Wed Feb 24, 2010 at 03:24:15 PM EST
    pay for someone else's house .. NO.

    While we should crack down on the banks, I am not in favor of giving our money to bail out people who make bad decisions.

    This applies to BOTH the banks and the borrowers.

    HOLC means (5.00 / 3) (#14)
    by Emma on Wed Feb 24, 2010 at 03:31:04 PM EST
    that the homeowners would pay back the government.  The original HOLC made a profit for the government.

    During his first year in office, Roosevelt created the Home Owners Loan Corp., or HOLC, to help debt-laden borrowers pay off their mortgages. The HOLC took borrowers out of their high-interest loans and put them into 15-year loans, financed through federal bonds, with rates fixed at about 5 percent. Unlike many government bureaucracies, this was specifically designed to be a short-term program intended to extend loans for three years and then oversee those loans for an additional 15 years.

    Roosevelt's real goal was to create stability from both an economic and social perspective. With the HOLC and the Federal Housing Administration, his administration created the long-term loan, which soon evolved into the 30-year, fixed-rate mortgage. The local business community praised the program, which not only helped people keep their homes, but also  provided employment for construction workers. From 1933 to 1936, more than 1 million people relied on HOLC loans. Close to 80 percent of the borrowers made good on their payments and kept their houses. When the HOLC shut down in 1951, it returned a slight profit to the government.



    I mean (5.00 / 1) (#16)
    by Emma on Wed Feb 24, 2010 at 03:33:25 PM EST
    HOLC = Home Owner's LOAN Corporation, not gift corporation, after all.

    And i quote .. (none / 0) (#31)
    by nyrias on Wed Feb 24, 2010 at 07:01:20 PM EST
    "distressed mortgages for 30 to 50 cents on the dollar, there would be ample room to reduce the principal to make the mortgage affordable"

    .. that does not seem to be a pure "loan". It looks like WE, the taxpayers, are paying for PART of their BAD loans.


    Only if (none / 0) (#36)
    by me only on Wed Feb 24, 2010 at 08:46:06 PM EST
    buying the loan so cheaply that the banks have to be rescued again.  They would be the ones losing the 50 - 70 percent on the loans.

    As I said upthread the real moral hazard is that by reducing the principal, when the house appreciates the bailed out homeowner keeps the profit.  So we would be rewarding people who bought above their means.


    Not quite (5.00 / 1) (#39)
    by ruffian on Wed Feb 24, 2010 at 10:08:09 PM EST
    All of the HOLC or other principal reduction programs I have seen proposed return any future appreciation profit to the lender, not the homeowner that got the reduction. So if that is the real moral hazard you are worried about, worry no more.

    Right, cause no one (none / 0) (#40)
    by me only on Wed Feb 24, 2010 at 10:15:37 PM EST
    would think to then sell the house to a relative who then gets the appreciated value.  

    You lost me (none / 0) (#41)
    by ruffian on Wed Feb 24, 2010 at 10:50:59 PM EST
    Say my mortgage is 100k and the current market value of my house is 50k. HOLC rewrites me a new loan for 50k. 10 years from now the house appreciates to 60k and I sell it, and HOLC gets the loan paid off, plus the extra 10k. Are you worried about whatever principal I paid off in the 10 years that I may get back now? Fine - write the terms so that I don't get anything back at all.   What benefit does a relative who buys the house get? He bought a house from HOLC for 60k.

    Sorry, I wasn't clear (none / 0) (#45)
    by me only on Thu Feb 25, 2010 at 08:04:25 AM EST
    Home today is worth 50K
    Today's loan 100K

    HOLC drops the loan to 50K.  HOLC terms are that you can't keep any appreciation over 50K.  When you are ready to sell, in comes me only.  You sell to me at 50K.  HOLC is paid off.  I then sell the house for market value (in your example 60K, but the reality is probably more like 75K).  We split the proceeds after I keep a fee of 5K.


    You are smarter than my relatives (none / 0) (#57)
    by ruffian on Thu Feb 25, 2010 at 04:15:47 PM EST

    I see what you mean now. I'm sure that would happen in some cases, though what I would really gain by selling my house and moving for 5k, or whatever my relative decides to share with me, remains to be seen.

    In my neighborhood it's not going past that imaginary 60k mark anytime in the foreseeable future, sad to say. More likely to be 40k first.



    Well, (none / 0) (#17)
    by kmblue on Wed Feb 24, 2010 at 03:36:58 PM EST
    that's a relief.

    HOLC reminds me of the (none / 0) (#26)
    by BTAL on Wed Feb 24, 2010 at 05:57:44 PM EST
    Tennessee Ernie Williams song - 16 tons.

    Specifically, the line about owing your soul to the company store.

    Flame suit on.

    More accurately, .... (none / 0) (#30)
    by Yman on Wed Feb 24, 2010 at 07:00:56 PM EST
    ... it would just be owing your home loan to a government agency, as opposed to a private lender.

    OTOH, a homeowner facing foreclosure could always refuse to sell their "soul to the company store", ...

    ... and move into their car.


    fixing the moral hazard (none / 0) (#28)
    by diogenes on Wed Feb 24, 2010 at 06:47:00 PM EST
    Why doesn't the government refinance the mortgage of ANYONE, in foreclosure or not, who wants to on these terms.  If the government really makes money on HOLC, then the more people who sign up the more money the government makes.  And there's no sense of individual moral hazard.  Heck, the government is making a shrewd investment in property.

    Exactly (none / 0) (#29)
    by ruffian on Wed Feb 24, 2010 at 06:57:26 PM EST
    Case in point, I'm underwater but not in trouble - good steady income, and payments well within my means. Just happens that I bought at the high side of the bubble and got slammed in the FL real estate crash.  Maybe I would want to sign on for HOLC just in case I lost my income. I never was looking to make a killing on my house, and have no dependents to leave it to - just wanted a decent place to call home while I work in FL.  That would free up money I am now afraid to spend because I'm 80k in debt to the bank even if I sell my house.

    If the object was to really fix the economy, they would do this in a heartbeat. But the object is to make the banksters happy.


    Better yet, the government could give (none / 0) (#37)
    by me only on Wed Feb 24, 2010 at 08:51:25 PM EST
    everyone $50,000 to spend on anything they wanted.  Apparently the CBO thinks that giving money away like that has a multiplier of 1.8 - 2.  We would be richer and the government could recoup 40,000 - 50,000 of that using the multiplier.

    Wow, all the crisis solved.  Yipeee!!!!


    I've heard worse ideas (none / 0) (#42)
    by ruffian on Wed Feb 24, 2010 at 11:02:04 PM EST
    and we sure waste at least that much a year in the defense budget alone.

    better yet (none / 0) (#44)
    by ruffian on Thu Feb 25, 2010 at 07:01:40 AM EST
    make the 40-50k a low interest loan and stipulate it has to be used to pay off any of their other existing loans from banks first. Banks get whole, person gets well at a much lower interest rate, economy gets better faster, government eventually gets paid back.

    I know it will never happen - something like that would take real, bold leadership to overcome your very legitimate objections. We have to admit that we all benefitted from the housing and credit overspending in some way. That borrowed money got spent in the economy - oftentimes helping the businesses of people who were smart enough not to indulge in the overspending themselves.  

    If you look at it from the perspective of fixing the economy and not  punishing any particular player, it is clear what needs to be done.


    The very legitimate concern (none / 0) (#54)
    by me only on Thu Feb 25, 2010 at 12:25:50 PM EST
    is that 144 million households times $50,000/household is a whopping 7 trillion.  That is half of the GDP of the country.  Our currency would plummet in value and we would have massive inflation.

    Enacting such a policy would be bold.  It would also be massively stupid.

    I don't know how to explain this to progressives.  They seem to think that government fixes recessions.  It does not.  We live in something resembling capitalism.  The private sector is 80% of the economy (and shrinking).  Fixing the private economy is the answer.  Not growing the government.

    We could hire 5 people today.  That would help the economy.  We won't.  Not until the government resolves HCR, bank regulation and the ultimate disaster of Cap & Trade.  Doing none of these would be better than sitting on all three for a year.  People don't understand business HATES uncertainty.

    Look back at your answer.  Your answer to overspending during the previous 10 years on credit is walla more credit.  If only we spend more, things will get better!!!!


    Silly "me only" (none / 0) (#55)
    by BTAL on Thu Feb 25, 2010 at 12:36:53 PM EST
    Its the magic money tree.  Get with the program.

    Sorry, I was exaggerating (none / 0) (#58)
    by ruffian on Thu Feb 25, 2010 at 04:25:01 PM EST
    and assumed you were too. Of course 50k per household is ridiculous, even a liberal like me can see that.

    My main point is that we could have structured TARP, and could still structure HOLC, to fix the banks and the little guy at the same time.