Credit Crisis Over? — Not by a Long Shot

As you can imagine I get emails and comments from hundreds of people seeking help and whose houses are going into sale or foreclosure, most of whom are completely unaware that they have rights superior to the lender, if they can find someone to help them like www.repairyourloan.com. 

Lawyers won’t help you until you get the mortgage audit completed. It is then that you will know the extent of your claims and what you do to stop the foreclosure, the eviction or even extinguish the mortgage and release yourself from liability on the mortgage note. 

Here is an article which illustrates why you need to beware of both the government and the lenders. They are trying to give the impression that the credit crisis is (a) not as bad as people thought and (b) over. What they are really trying to do is pivot your attention away from the fact that the massive mortgage meltdown has caused a meltdown in all the credit markets. It has caused a massive meltdown in asset values for individuals, corporations and government entities. 

This is not the beginning of the end. It is, as Winston Churchill said in World War II “the end of the beginning.” We have years to go before this shakes out just in terms of education of the public. And we have decades to go to recover from this utter failure of government to do its job — to referee between those who know things and those who don’t. 

In the process the government, the corporations and the individuals owning houses or doing their jobs have all been smacked in the face, really hard and have snapped out of their wishful confidence in their government and in the “good faith” of a good faith estimate before closing on a loan.

Credit Crisis

Congress And The Credit Crisis

Joshua Zumbrun 05.14.08, 6:00 AM ET

Washington, D.C. - 

A congressional panel meets Tuesday morning looking to answer two big questions about the economy: Is the credit crisis over? And can anything be done to prevent another crisis in the future? 

To both questions, the answer is “No. And proceed with great caution.”

For the credit crisis, reasons for optimism are emerging. Monday morning, Federal Reserve Chairman Ben Bernanke outlined positive signs: confidence between banks has risen, the market for repurchase agreements of Treasury securities has improved, secondary markets even for troubled mortgage-backed securities have more liquidity than they did in May.

“These are welcome signs, of course, but at this stage conditions in financial markets are still far from normal,” Bernanke cautioned. (See “Recovery: Are We There Yet?”)

Still, the battered housing market continues to drag. Data released Monday from the National Association of Realtors showed that home prices are still falling. In the first quarter of this year, the median home price dropped 7.7% from a year ago–the biggest decline in the 29 years NAR has compiled the prices.

The number of borrowers who owe more than their house is worth is still growing. Loan defaults and foreclosures are likely to continue, as will losses to the lenders. Foreclosures tend to drag down the prices of their entire neighborhoods. But even here, Lawrence Yun, chief economist of the National Association of Realtors, sees some signs of optimism: “Neighborhoods with little subprime exposure are holding on very well.” And at least banks are not originating new subprime loans.

Now for the second question: How to prevent risk in the future. That’s what makes Tuesday morning’s hearing significant. The early advice Congress receives could shape regulation of banks and the financial market for years or even decades. And, as Treasury Secretary Henry Paulson noted in proposing a series of regulatory reforms in March, “few, if any, will defend our current balkanized system as optimal.”

The March collapse of Bear Stearns exposed a weakness in the Gramm-Leach-Bliley Act, a 1999 law that removed the barriers between commercial banks, investment banks and insurance companies. The amount of systemic risk was not recognized until too late.

After Gramm-Leach-Bliley, banks and insurance companies were allowed to undertake the same activities, but they still answered to their old regulators. Five federal regulators oversee deposits, in addition to regulation from state governments. Futures and securities are regulated by separate agencies. Insurance regulation is spread across more than 50 regulators.

The result was a confused alphabet soup–SEC, CFTC, OCC, NCUA, FDIC–with muddled boundaries or, as SEC Chairman Christopher Cox described the result, “a statutory no-man’s land.”

But regulation presents pitfalls as well. It must be considered not in terms of more or less regulation but rather in terms of flexibility and efficiency. 

“In the wake of a bust, there is always a predictable series of political activities,” says Alex Pollock, former president of the Federal Home Loan Bank of Chicago, who will testify before the committee. “First, the search for the guilty; second, the fall of previously esteemed heroes; and third, legislation and increased regulation to ensure that ‘this will never happen again.’ But, with time, it always does happen again.”

The guilty have been identified as the twin bogeymen of the subprime underworld: “speculators” and “unscrupulous lenders,” enabled by banks unable to price risk and an irrational belief that home prices would always rise. The esteemed heroes have fallen: the collapse of Bear Stearns, disappointing results from Wall Street’s banks. Even Alan Greenspan has lost some of his luster.

The third act at the boom and bust theater is well under way. This week the Senate is ironing out its companion legislation to the House’s Foreclosure Prevention Act, which passed last week with a 266-154 margin. The president has indicated he would veto the bill’s current incarnation but could support a toned-down version. All that remains is the predictable regulatory overhaul and then a long wait for the inevitable cycle to begin in the future. 

Today we have a bill pending that stops the meltdown. It is a courageous and creative step that protects all parties. It requires YOUR input, so pass this along to as many other people as you can. This is much more than a step in the right direction. It would be nice to see support from the presidential contenders as well.

Write your congressmen and women and get this thing passed. The Senate and House are standing on the line between mayhem and an orderly society and have taken the right steps. The rest is up to you.

It isn’t perfect, but the bill would do more to stem the tide of foreclosures, evictions and declining home prices than anything else on the table. It will protect your home equity, it will stabilize the economy, and it will give the U.S. dollar just the shot of confidence it needs to slow the rising threat of hyper-inflation.

Call and write your congressman/woman, call and write your senators, flood them with emails.

This is not about the morality of or ideology of whether it was more the fault of one group over another. This is about the practicality of holding our society together. Nothing is more important to the your lifestyle than this bill no matter who you are.

Mortgage Aid Plan Advances in House

You can argue all you want on paper with equations and philosophical arguments, but a simple human fact remains true — if people do not feel any moral sense of accountability they will not act in accordance with a reasonable standard of good character. Without character the entire society, and of course the economy, goes down the crapper. The U.S. Treasury plan is not merely “more of the same” it seeks to institutionalize all that is bad and wrong with our society and our economy. Some immediate thoughts about the reports on the new plan to be unveiled on Monday by Secretary Paulson:

• There is being nothing being reported that indicates the plan seeks to help out anyone now: soften the meltdown, slow the foreclosures, stop the evictions, restore confidence in the financial markets, restore consumer confidence, restore balance sheets, increase liquidity without enlarging the money supply, reverse the slide of the dollar, or reverse the rising tide of inflation. It is all about future bubbles and busts which may or may not look like the one we have, the one before (.com bubble), or the one that is in process (foreign exchange and commodities).
• There is nothing being reported that indicates the plan seeks to increase transparency for the public so that they are well-informed and educated about “new” financial products whose design is to create confusion through complexity and profit through back-doors that undermine the American Citizen, U.S. Economy, and U.S. foreign policy.
• There is nothing being reported that indicates the plan seeks to enhance the fundamentals of our economic system, which is currently based upon profligate consumer spending, pressures to increase consumer debt, and steering citizens away from savings. It is interesting that the very same people who “ideologically” plead for less government and more personal responsibility are lining up behind a plan that institutionalizes to an even greater extent all the economic forces that prohibit or inhibit the ability to provide fro their own security and prosperity.
• There is nothing being reported that the plan is willing to even address the current disparity of wealth, the current trend toward a deepening divide between a few people who have wealth and the rest who don’t. It is interesting that the very same people who plead for a free market economy line up behind a plan that would allow precedent to stand on socializing losses and expenses for big business, thus undermining entrepreneurship and innovation (the hall mark of all prior economic progress in the United States). 
• While these people tell us that windfall profits are part of the game that will even out in the end, they give us plans that prevent leveling the playing field by covering losses with access to tax dollars, covering expenses by shifting the risk onto public programs, and covering deception by legalizing slight of hand reporting in which both the methods of business and the financial results are completely misstated (that would be “lying”) or even reversed converting actual losses to the company and damage to the society into reported profits, higher per share earnings, higher price earnings ratios, higher stock prices, and “benefits” of bringing new products and services to the downtrodden members of our society (like tricking them into signing papers to “buy” a house) enabling the lender to sell the paper at a profit without regard to the quality of the paper, thus tricking investors, undermining pensions, social services etc.)
• What is being reported is more centralization of highly complex political and economic subjects into the hands even fewer people of dubious talent, leadership, training, education or creativity —thus decreasing the pool of available talent and decreasing the discourse on economic policies all contrary to the basic constitutional premise of checks and balances, division of power, prevention of tyranny and promoting policies for the health, wealth, safety, security, and benefit of United States citizens.
• Centralization of banking and deregulation of banking has produced a boondoggle of problems that will take decades to reverse. There is no doubt that the Federal Reserve should have greater control over any process that creates “money” in the marketplace so that monetary policy will mean something. But it is the Federal reserve itself that needs re-structuring to provide for greater transparency, more checks and balances, and greater de-centralization of decision-making. The open-market committee is simply not set up to deal with today’s marketplace, today’s money, the prospect of a declining dollar and the possibility of a rising Euro in the United States. 
• Centralization of banking has led to the flow of money away from where it is deposited into places that have no relationship to the depositors. Loans are made in foreign countries from deposits made in Springfield, Illinois. The depositors are deprived of the economic benefit of having that money loaned or invested in their locale, thus improving liquidity and growth prospects for those depositors and all the citizens of their town or city. With no safety net, the slightest ripple can and does cause blight to replace what were once vibrant or at least promising communities.
• Centralization of banking has led to indexing of loans as the exclusive basis on which to grant them — replacing the old fashioned relationship of person to person. This has resulted in hyperventilating the prospects for fraudulent lending by lenders, the entire CMO/CDO market, and fraudulent borrowing by borrowers. JP Morgan was asked at a senate hearing 100 years ago what was the primary criteria, the essential quality for granting credit; his answer was that it was “character,”(not balance sheets, income statements or track record) which is exactly what is not part of the equation now with the total reliance on FICO scores, other computer algorythms etc. 
• By removing “Character” from the equation we removed accountability. You can argue all you want on paper with equations and philosophical arguments, but a simple human fact remains true — if people do not feel any moral sense of accountability they will not act in accordance with a reasonable standard of good character. Without character the entire society, and of course the economy, goes down the crapper. The U.S.Treasury plan is not merely “more of the same” it seeks to institutionalize all that is bad and wrong with our society and our economy.

Paulson’s comments yesterday were inappropriate. He just doesn’t get it. He is arguing for hitting the iceberg and then let the deadly water take care of the problem. The ship is the American economy. And the waters are a legal system that assumes, all things being equal, that the process of foreclosure, eviction and losses on CDO investments will eventually find a state of equilibrium from which the economy will rebound. He is wrong.

All things are not equal because of the scale of losses, the scope of the economic effects, and the deadly despair descending upon the American consumer in a consumer driven economy. Take away the spending of consumers, and the United States is a third world economy. Maybe it doesn’t need to be that way, but it is now. 

On the other hand he is right in one respect — that a bailout, using federal funds, will not alone solve the problem. More fiat funds pushed into a marketplace where the dollar is already declining in a virtual free fall will cause problems of its own — continuing devaluation of the U.S. dollar, other countries severing their currency ties with the dollar, a huge increase in U.S. debt, spiraling inflation at a level not seen before in our lifetimes, and a sea-change in life-style as virtual ghost towns dot the landscape consisting of abandoned homes. 

The answer is a combination of remedies and rewriting the rules so all things ARE equal. A relatively small Federal bailout along the lines of the Barney Frank proposal will provide some breathing room. 

Republicans and Democrats need to get together under the leadership of their standard bearers in this election year and refuse to pass any legislation for funding or otherwise until this credit crisis is addressed in an immediate comprehensive way. 

Federal and state agencies and judicial systems, should bend their rules as much as possible to provide a de facto moratorium on foreclosures and evictions — re- routing cases into mediation procedures and providing for mediation reports in 90 days before the cases can continue.

Attorney Generals of each state should intervene in each foreclosure case, basically alleging that the lender participated in a vast conspiracy to defraud the borrower and with reckless disregard to the damage their behavior would cause to the economy of the state and the nation, not to speak of cities in other countries who are now decreasing social services because the cash they thought they had evaporated with the diminution of value “Safe” “cash equivalent” CDO investments they thought they had. 

See the previous post, for details plans on remedial legislation which Congress and each of the states can pass to aggressively put down this crisis. If Federal authorities fail to act, then states, individually and collectively should encourage their state chartered banks to start issuing bank notes as an alternative to U.S. currency. Agreements with Forex and precious metals traders should be reached to back up these new currencies. A radical solution to a radical problem. Failure to act will leave every American citizen bereft except those who are already taking hedge positions in foreign exchange and precious metals and other commodities. 

Our division of opinion on the Wars in Iraq, Afganistan and secret wars being conducted by our government has become so confused, with the assistance of an extremely lazy and under-resourced media, that real discourse leading to compromise and resolution of the issues has become our greatest challenge. In other words, we are not talking about the real issues. Instead we are talking from ideological mindsets and assumptions that do not permit facts or alternative possibilities to enter into our discussion.

We have lost our way, lost our moral leadership and standing, and are viewed with suspicion and fear around the world. We have a constitution but everybody on all sides of every issue wants to ignore its provisions. Lies about WMD, personal agendas, and ideological crusades are NOT the reason we are in Iraq without clearcut goals and missions. The reason the goalpost keeps moving is NOT the incompetence of the Bush administration. The reason is that we stopped following rules we all swear to when we pledge allegiance to the Flag or swear to protect the United States Constitution.

On War, the constitution is quite clear and nobody contests that. There are arguments that certain provisions are impractical or wrong — just like on issues like abortion, guns, etc.. But just as slavery was contained in our constitution and we all decided that it was wrong, we made sure that the whole concept of slavery and inferior races was prohibited by amending the consitution and taking it out. If you disagree with the constitution there are provisions available for amending it through the political process. In the meanwhile, in a nation of laws, whatever it says IS the law and anyone who suggests ignoring its provisions is attacking the foundation of our republic. Anyone who suggests changing it by amendment is acting as a true patriot whether you agree with him/her or not. Anyone who suggests or acts on ignoring the constitution is guilty of high crimes and misdemeanors.

Bush is not the culprit here. It was congress who ignored the constitution and acted accordingly. The Iraq resolution was a delegation of power to the president to declare war. He committed no act of treason by asking for the power. When Congress delegated that power to the President, they violated the very core, intent and express wording of the consitution, which provides that ONLY Congress may declare war and ONLY congress may vote to fund it to such extent as congress deems necessary. True a President who knowingly accepts powers not authorized by the consitution is acting wrongly,and equally true he shouldn’t have asked for it. But he didn’t actually do it, Congress did.

So now we have a war declared by the President (i.e., unauthorized) with congress voting to fund it (unauthroized because they never declared war in the first place), with virtually no oversight to determine what policies should be funded and what policies should be changed. Instead we are wasting our time blaming each other and pointing fingers at unpatriotic people who either support the war or are against it. It isn’t the people who are unpatriotic, it’s Congress.

Every congressman, every congresswoman, every Senator who voted for the Iraq war resolution committed an act of violence to our republic — not because the war itself was wrong or right but because they were giving the power to decide on the war to the one person the writers of the constitution did NOT want to see holding that power. If we really want to see the president holding the power to make and declare war then the constitution needs to be amended according to its own terms. I for one hope that such an amendment is never introduced or passed. But if it is, then we can expect more disgrace in the eyes of the world not so much for what we do, but for the way we did it.