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

CLINTON — MCCAIN FORECLOSURE FREEZE GETS COLD SHOULDER BUT SOUNDS GOOD

Well here is a version (SEE ARTICLE BELOW) of what we have been pushing for months —- changing the terms of the mortgages so that the homeowner can stay in the house and the mortgage can be modified, sold or recast for capital accounting. This is a lot more sophisticated than the “mortgage freeze” proposed by Clinton and McCain and it is working already so we can’t dispute the success.

• The problem with a “mortgage foreclosure freeze” is that it is a sound bite that doesn’t really mean anything — like the gas tax holiday. It doesn’t address any of the problems but it gives rise to the illusion that the homeonwer is getting some relief.
• The problem for Obama is that he sounds like he is against providing relief because he understands the nuances of how to get that relief — without pandering for votes. People don’t like nuance and don’t have the time for complex answers. So they vote against themselves based on sound bites, hoping gas prices will go down (they won’t) and that their house will be saved by just doing one thing like a freeze on foreclosures that lasts ninety days (that won’t work either).

There is no Clinton-McCain plan for relief because no order, legislation or rule is pending that will freeze anything and nothing is pending. Hillary and John are just blathering. They haven’t ACTUALLY proposed the plan by introducing a bill on the Senate floor. The plan of these pandering politicians is get elected (the people be damned): the method is to make use of time-honored sound bites that consist of misleading statements and outright lies. The truth is that neither McCain nor Clinton has a clue about gas prices or mortgages.

Although this trading of mortgage obligations is obviously providing some relief, it doesn’t address the root cause of the mortgage meltdown. And much as I don’t care for the people or their methods who perpetrated this fraud on the world, there is no REAL solution unless some value is restored to the balance sheet of financial institutions and investors who purchased the collateralized mortgage obligations. Thus combining attributes of this plan with a more comprehensive plan to restore the capital reserves of financial institutions and investors would be preferable.

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HOUSING

Investors move in to save broken mortgages

By E. Scott Reckard
Los Angeles Times Staff Writer

May 1, 2008

Jared Lanning, struggling to pay a home loan on which he owed more than his house was worth, was thinking he might just let the lender take back the property. Then he got a call one evening from an Orange County investor who had bought his mortgage.

“I want out of your loan,” said the investor, Evan Gentry, chief executive of G8 Capital of Ladera Ranch, who offered to lower the balance and the interest rate.

Lanning, a crane operator in Englewood, Colo., was skeptical. A phone pitch, after all, had led to his getting the unaffordable loan in the first place. But Gentry was legit: He helped Lanning get a new Federal Housing Administration-insured mortgage — with a $12,000 lower balance. Gentry also paid $5,000 in closing costs for the new loan. Lanning’s new monthly payment is $200 less than before.

Investors — including big fish like former Countrywide Financial Corp. President Stanford Kurland as well as smaller fry like Gentry — are buying loans on the cheap from lenders who want them off their books. By paying less than face value for the mortgages, the new holders can modify loan terms, including shrinking the amount owed, and still make money.

With some economists projecting 2 million foreclosures this year, legislators and regulators are hoping to encourage wide use of this model. They want lenders and investors in mortgage bonds to mark down what borrowers owe and then provide them with lower-cost loans. It’s a tricky business: No one wants to be seen as bailing out speculative buyers or imprudent lenders, but they also don’t want mass foreclosures to devastate neighborhoods and the economy.

The Federal Deposit Insurance Corp. described the problem Wednesday as “a self-reinforcing cycle of default, foreclosure, home price declines and mortgage credit contraction, the likes of which we have not experienced since the 1930s.” The agency is proposing that the government lend $50 billion to 1 million borrowers to help them replace unaffordable loans.

Sub-prime mortgages with interest rates ratcheting higher have proved less of a problem than once feared, because interest rates overall have dropped. But a “toxic combination” of falling home prices and borrowers who can’t afford even the initial low rates on adjustable loans is now the issue, FDIC Chairwoman Sheila C. Bair said in an interview this week.

“Many more borrowers are under water,” she said. “And many more are just walking away.”

Many people bought homes with nothing-down loans at the peak of the housing boom — 29% of all buyers in 2007 made no down payments, Treasury Secretary Henry S. Paulson Jr. said recently. Others have sucked all their equity out of their properties with refinancings.

According to Moody’s Economy.com, some 8.8 million Americans — more than 10% of all homeowners — owe more than their houses are worth, although a Mortgage Bankers Assn. economist contended the figure was lower, perhaps 8%. In any case, there is wide agreement that many of those troubled borrowers have proved surprisingly ready to abandon their properties, even when lenders offer to modify their loan terms as they were encouraged to do by the Bush administration.

“We are working with borrowers to keep them in their homes, but a lot of them really don’t want to stay,” said Babette Heimbuch, chairwoman of FirstFed Financial Corp. of Los Angeles, a savings and loan operator that specialized in adjustable-rate mortgages, including many that were made without full documentation of borrowers’ incomes.

FirstFed has about $6.3 billion in loans on its books. It said that $667 million of that balance, more than 10%, was delinquent or in foreclosure as of March 31, up from just $46 million a year earlier. FirstFed said Wednesday that it lost $69.8 million, or $5.11 a share, during the first quarter this year compared with a profit of $8.4 million, or 61 cents, a year earlier. It set aside $150.3 million for loan losses during the quarter, up from $3.8 million during the first quarter of 2007.

Because FirstFed kept most of its loans on its books rather than selling them, it should have been easier for the company to work with borrowers to modify the loans. Heimbuch said FirstFed forecloses only after analyzing 10 other options to offer the borrower, including lowering the interest rate; changing to a five-year, fixed-rate loan requiring payment of interest only; and writing down the loan balance.

Still, she said, up to 50% of borrowers who miss payments don’t respond to letters and repeated telephone calls to see if something can be worked out.

Some customers had acquired second mortgages and couldn’t make new arrangements with the other lender, she said. “I think some know they told us the wrong income and are afraid to come clean, though we would still work with them . . . to keep them in their homes if possible.”

For struggling borrowers, it’s a big mistake not to return such calls these days, said Gus A. Altazurra, a veteran mortgage executive who recently raised $10 million from private investors to buy and modify loans for which homeowners are still making payments.

“They’re probably going to help you, given the current situation,” said Altazurra, whose Irvine-based Vertical Fund Group has been negotiating with lenders of all sizes to buy loans. He said “a flood” of mortgages went up for sale in April after lenders closed their books on a horrendous first quarter.

Altazurra, who has paid as little as 31 cents on the dollar for some loans, said the terms of some mortgages made at the peak of the boom were hard to believe. One loan he bought from a Texas bank was to a borrower with a very low credit score — 484 — who refinanced and cashed out 100% of the equity in the property, he said.

Gentry, the other Orange County loan buyer, said he had obtained commitments from investors to provide $100 million in capital for workouts on loans that have stopped paying, current loans that can no longer be sold and foreclosed properties. He has bought nearly $50 million in mortgages and property so far.

Gentry purchased Lanning’s loan in a pool of mortgages from a San Diego lender that was going out of business. He said that on average his private venture was paying 70 cents to 80 cents on the dollar for loans like Lanning’s that were still current, and “less if the loans are nonperforming.”

Lanning had no home equity left — and thus had little incentive to keep sacrificing to make payments — before he got the smaller, cheaper FHA loan. Now his outlook has changed.

“We can’t do anything frivolous now,” he said. “But if we do it right, we have enough. That other loan was just pushing us over the top.”

I would give credit for the term “moral constipation” but I can’t remember where I heard it. I invite all who read this to give me the creator’s name so I can correct this blog and give him the attribution he deserves. 

It appears that we can all agree on one thing regardless of which candidate, party or ideology we subscribe to — The United States of America is on a path of moral bankruptcy, where ethical concerns and choices between right and wrong have been shoved off the table and instead convenience and self-aggrandizement is accepted by “we the people” with far more tolerance than is acceptable to me.

There is practically nothing so dear to me as my own opinion of my own intelligence. And yet I am dumfounded by the lack of outrage as corporate America and Government join hands in our pockets, in our lives, in our families, and in our minds. Protests erupt about the Olympic flame — but where is the outrage, the “I’m mad as hell and I won’t take it anymore” about the following:

1. Diesel fuel is $4 per gallon here but across the border in Mexico it is $2. Anyone care?
2. Real inflation for the Average American is in excess of 15% and climbing. Anyone interested?
3. Exxon made $11 billion last quarter. The rest of us made less at the end of the month because the money went to Exxon. Is there any connection between that fact and the Presence of an Oil man in the White House/ How about a vice President that headed up the very company that profited the most from the Iraq war? Is this so boring that MSM should be ignoring it just because nobody seems to want to anything about it?
4. By 2009, 1 person in 10 will be on food stamps in the United States. Shouldn’t that be interesting to both sides of the “Aisle?”
5. The average person in the United States is in debt on credit cards and other consumer and real estate loans in an amount that they can never repay, whereas no other modern country has that problem. Why?
6. Interest on debt accounts for more expenditure by government and individuals than anything else in the United States. Trillions of dollars of transfered wealth from those who now can’t eat to those who don’t know what to do with the money. What is being done about interests rates that guarantee non-payment and assure financial enslavement? (By the way medical care is second is now touted to be the “employer of last resort”).
7. Houses were appraised at $500,000 and within days were revealed to have values of less than 70% of that. People were prompted, tricked and coerced into signing mortgage documents they didn’t understand, in violation of law (not that anyone has been prosecuted), and now the borrowers are blamed for a scheme they still don’t understand. Now millions of American citizens are or will be broke, homeless and jobless. We know who did it and how it happened but MSM doesn’t care about that.
8. All of MSM (Main Street Media) is now controlled by a handful of people who let us hear only the things they want us to hear and only in the ways they want us to hear it. If you want news, go to the Internet, if you want infotainment watch TV or listen to radio. 
9. How many flag draped coffins can be hidden from view to keep the Iraq war “sanitary” and keep the public distanced from the gruesome reality of war, death, disfigurement, famine, disease and moral decrepitude? And why is MSM going along with  the ban on pictures of coffins? Isn’t the death of young loved members of families who made the ultimate sacrifice worth reporting?
10. How many veterans need to be homeless and wandering through the streets with head injuries before we think to ourselves “you know, there is something not quite right about this.”
11. We have outsourced the most sensitive manufacturing of top secret defense components to China which just happens to be the only real military threat to our national security. And we have financed their military expansion by encouraging their economic growth to the point where they now have a  stranglehold on our country — they own most of our debt, they manufacture most of our goods, they process most of our food, and they are the most prolific source of spying in the United States. Thus whatever they don’t get legally, they get illegally. 
12. MSM (main Street Media) has virtually eliminated their staff of reporters, because they get everything off the newswires and they make up the rest. Most of the time spent on “news” channels consists of opinions about gossip. Interesting, perhaps, but useless for those of us who would like to evaluate our options on voting on issues and candidates.
13. It is illegal to counterfeit money unless you are a foreign country (North Korea for example) or you are a Wall Street investment banking firm that creates money supply by calling them “derivatives, collateralized debt obligations” and such. Between North Korea’s supernote and and the $500 trillion (yes with a “T”) in derivatives, credit swaps etc. out there it can be no surprise that no government can control the effects on world monetary supply —- that has been outsourced to the private sector as well. 
14. MSM (Main Street Media) now presents us with pretty faces, some nice looking legs, a tempting bust line, and a teleprompter written by people who have not researched the validity of the reports in 10 years.
15. Prescription medications are “so dangerous” that you can’t get them without seeing a doctor, but they are advertised directly to consumers. Is this what we want our children to hear and see? You can get a Bud Lite or a Absolute martini without a doctor’s prescription and drink all you want. It’s only when you kill or main people with your driving or other physical abuse that you are held accountable. 
16. MSM (Main Stream Media) provides us with pundits and moderators who are undereducated, and inculcated with the sole core value of saying something that will increase the ratings and thus revenues of the media in which their comments appear. 
17. Prescription medications cost $20 per pill here and as little as $0.50 in other countries easily accessible from the U.S.
18. The total expenditures for medical care, drugs, products and associated services is around 2-3 times the amount spent by any other country or group of countries. The average U.S. Citizen is in constant danger of dying for lack of medical care because he/she is probably not covered entirely for the medical event, because he/she was never given a preventative regimen that is regularly followed in other countries, or because they are simply barred from access to medical system. 
19. Despite the amount we spend per person, we get less care, and suffer from shorter longevity, higher infant mortality, shorter height, than at least a dozen other countries and sometimes as high as 40 other countries depending upon which metric you are interested in. To say we lost our “lead” is not the point. 
20. The average person educated in the U.S. has slipped from 1st in world ranking to around 20th. Does that bother anyone?
21. Bullying has spread through every school, public and private and is spreading into the marketplace. Hello? Anyone there?
22. We have lost our way. We worship money in all its forms more than we worship God. Every day we perform acts that involve our worship, use and belief in money. Most of us spend at best one day per week for a couple hours worshipping God.
23. MSM (Main Street Media) thrives on conflict over minutia (bullets in Bosnia, a flag pin probably made with lead in China, and statements of “associates” that are made into controversial “positions”) rather than actual issues and characteristics about the candidates themselves. We allow this by talking about that the pundits tell us to talk about. And what we talk about causes us to vote against our own interests.  
24. When we tried importing from China and India the prescription drugs at a fraction of the cost that the drug companies were charging us, the government stepped in and said it was unsafe and  could result in tainted drugs. Now the drug companies have eliminated American jobs and outsourced the manufacture of the drugs to where? — India and China — and we have what — tainted, deadly drugs of dubious value to begin with and with side effects that include anal leakage and death. 
25. How many times do we need to hear that pharmaceutical companies spend $5,000 on every man or woman doctor in the U.S. to push their stuff before we make THAT an issue?
26. The war on drugs is making a fortune for people on both sides of the law, including the privatization of prisons and huge profits from private ownership of prisons, 75% of the inmates of which are there because of minor drug charges. There is no war on drug use and there is no war on drug supply. That is why we have drugs in America.
27. How many times do we need to be disappointed in a politician, whom we knew was taking money from the medical- pharma complex, insurance companies, oil companies and credit card companies? What makes us vote for these people?
28. Where is MSM “keeping them honest” by reporting discrepancies between promises and action?
29. How many dogs need to die before we accept that they are the canary in the mine shaft and that the rest of us are just as much at risk because the tainted, poisoned food is all coming from the same place now?

I could go on, but I invite you to add your own comments to the list. And while you are at it, why not answer this question: What specifically are you going to say to your friends and family about these issues and how will you vote?

The answer to our unique American set of issues is not a single issue proposed solution, but a sea change in our premise: either we are a nation of people and laws to protect, defend and promote the health, safety and welfare of all our citizens or we are a vehicle for corporate interests that will do anything to maintain their positions of power and profit. Getting rid of the influence of lobbyists and the effect of campaign contributions on candidates is not some lofty ambition or ideal; it is an imperative that is the ONLY answer to having food on the table, gas in the tank and a roof over our heads.

A candidate for public office must (a) spend the time to learn about economics (b)  demonstrate their independence from special interests, (c) demonstrate their proficiency in understanding how economic trends impact the average voter and (d) educate the voter as to how economic policies are being used against them and what they can do about it. 

BEWARE OF PLATITUDES AND QUICK FIX PROPOSALS THAT WILL NOT WORK AND CANNOT DELIVER RELIEF TO THE HOME OR DINNER TABLE. 

Prospective voters who are considering support for candidates for public office or propositions and petitions having economic consequences are stuck between a rock and a hard place. The growing realization is that, in particularly in a global economy, some complex events are somehow having an effect on their daily lives. 

In the absence of any real information for each voter to make their own decision they are forced to rely on “mainstream” news, which is more fact based entertainment than informative, candidates who will say anything to get elected, and special interest advertising that mischaracterizes the choices.

Voters understand that food, fuel and medical costs are taking away more and more of their income with the same effect as if a new tax was enacted requiring them to fund the largest corporations in the world, whose losses are covered by taxpayers and whose windfall profits are closely guarded from consumers who don’t get the benefit of cost reductions, stockholders who don’t get the benefit of dividends, and merchants who don’t get the benefit of sales revenue from people who don’t have anymore money to spend. 

These “ private taxes” are reflective of the growing pattern of privatizing public finance. In short they are private taxes sanctioned by federal, state and local governments who themselves are victims of the pattern. In my opinion this represents “PRIVATE TAXATION” sanctioned by government.

Let’s look at some of the “proposals” for healthcare that are offered and watch how they work.

 

1. American citizens spend more (35%-250%) on drugs, medical protocols,, tests and treatment than any other country in the world. The same drugs that cost $20 per pill in the U.S. can be purchased for $2.00 elsewhere. Protocols that would prevent disease or would cure them are virtually banned or are allowed to be “not covered” by insurance — resulting in the average person my age (61) taking thousands of pills per year that people in other countries are not taking because they don’t need them and because the pills themselves present risks of side effects that include everything up to and including death. 
2. The financial excesses of the medical-pharmaceutical-insurance industry is supported by “laws” that protect the industry and which little or nothing to do with the health of any person. These excesses are present ONLY in the United States. 
3. At the same time that we are spending more, we are suffering more medical disasters in more families every day. Longevity (life-span) in the United States is declining. Infant mortality is rising. Even average adult height has decreased in the Untied States and is now lower than many other countries.
4. Protocols like chelation IV therapy, food supplements and vitamins, gene therapy, human stem cell therapy, and primitive cell therapy are being used all over the world, growing back diseased or missing organs, improving overall health, and improving vitality while at the same time vastly reducing the demands for medical treatment. Those other countries are spending less and delivering more. Several third world countries have now become centers for medical care of those Americans who have the money, time and physical ability to reach them. 
5. National programs for health and fitness are not only improving physical health, but the all important index of happiness and contentment.
6. Ideological arguments against these other systems are bogus arguments designed to distract American voters from the truth: the system is working here for those looking to earn a profit, whereas the system is working elsewhere in the world for those seeking to maintain a healthy population.
7. The ideological argument against a single payer that negotiates prices, seeks preventative national programs and pursues the best possible treatments and cures is merely a hammer to threaten and frighten people with the prospect of “socialism” which most people translate as a loss of freedom, constant fear of government, loss of privacy, and a lack of disposable income at the end of the month.
8. The truth is that all societies practice socialism as to those services that the government elects to provide. In the United States, taxes are used to pay for military, police, fire, education etc. In an ultimate irony, the heavy reliance on ideological argument over common sense has resulted in the the outcome most feared by those who are cajoled into voting against their interests: loss of freedom, constant fear of government, loss of privacy, and a lack of disposable income at the end of the month.
9. The surrender of our healthcare to profit motivated private interests, like the surrender of prison management to private interests, like the surrender of regulation of sales of securities, creation of credit, expansion of monetary supply to private interests has led to a corporatocracy that threatens to consume the last dollar of every “average” American leaving them not only with no disposable income at the end of the month, but rather in debt up to their ears.
10. Meanwhile the countries with “high” tax rates (which can simply be translated as honest transparency, as opposed to hiding the taxes in your utility bills, and covering up the private power of taxation given to corporate America) have satisfied, happy, free, contented populations who get along just fine and their citizens are not in debt and who are able to save up money and pay for things in cash.

 

American citizens have the exclusive right to vote in what should be a free society, but instead they are confronted with a corporate-government set of rules where the opportunities and choices are closing in on the the average guy or girl who is just trying to get through the month. 

Our incomes are being used to fund corporate losses, corporate abandonment of our own population for employment and training, military adventures that are funded by borrowing (which is future taxation), and huge windfall profits of oil companies, agricultural companies receiving “subsidies”, pharmaceutical companies, and insurance companies.

The answer to our problems is not a single issue proposed solution, but a sea change in our premise: either we are a nation of people and laws to protect, defend and promote the health, safety and welfare of our citizens or we are a vehicle for corporate interests that will do anything to maintain their positions of power and profit. Getting rid of the influence of lobbyists and the effect of campaign contributions on candidates is not some lofty ambition or ideal; it is an imperative that is the ONLY answer to having food on the table, gas in the tank and a roof over our heads. 

Boom and Bust Cycles: Predictions on American Life — PART I MONEY

The best predictor of future behavior is past behavior. It’s all we have really. Of course the problem with using past behavior is that we relying on defective memories or reports from people who had their own agenda in relating “facts” that tend to enhance their own future. Thus it is with something of a grain of salt that we take what is reported and convert it in our minds as something we know. 

Accordingly, our predictions are sometimes right and sometimes wrong depending upon the quality of the information we used, our ability to process that information and of course the ever-present probability of intervention of unforeseen acts, events, or plain bad intent. 

This is why when news was news, reporters would seek corroboration from multiple reliable sources before reporting it as fact. Now they report things that are unsubstantiated, partial and misleading, or mere statements of opinion in a hash that is known within their industry as fact based entertainment. It follows that anyone forming opinions on “mainstream” reporting is more likely to arrive at miscalculations and wrong conclusions than before.

Nevertheless, there are some things we know from American HIstory and World History that appear to be true, except for those instances where “revisionists” undertake to change public opinion by denying the painfully obvious with such fervor and passion and persistence that at least some portion of the population comes to doubt their own senses. It is clear that central policies of the United States are increasing resulting in failure to affect outcomes in economics, politics, war, or world society. we can argue over why, but the facts are inescapable as are the conclusions regarding our presents status.

Boom and Bust seems to be a fact if not an inherent part of human nature. We bunch up a group of ideas and theories, right or wrong, and act as if they were not only true but absolute. After a while, with the passage of time, the idea or theory becomes obviously true because “that’s the way it works.” The concept of a theory “proving” true because of people validating it with their behavior (despite obvious flaws in the idea or theory) usually does not occur to anyone — except for old texts, rarely read, by people who started with more basic questions and arrived at reality is which is far more ambiguous and ambivalent than prevailing political and economic theory, slogans or sound bites. 

In the context of this ambivalence and ambiguity we attach our perceptions of American Boom and Bust here for your entertainment or edification. Here are some thoughts on past, present and future which we believe have a high degree of integrity and reliability, based upon our reading, measurements, and interviews with those “in the know” (i.e., people who espouse a theory or slogan that gains currency and  thus, for a while, becomes a self-fulfilling prophecy which is “true” — at least long enough for book royalties and trading of securities to fill their own pocketbook).

MONEY: BOTTOM LINE: After years of enjoying the benefits of being the currency of choice, the U.S. dollar is declining in value and status and will continue to diminish tot he point where our wealth and fortunes depend upon the decisions of foreign sovereign nations and private companies rather than the U.S. treasury or the Federal Reserve. 

 

The United States will be called on to pay is debts and a series of deep recessions and possibly depression will ensue as a result of our obligation and attempts to pay off the debts created by our borrowing and the free ride that ends when those holding U.S. currency convert to other currencies or other forms of “money.”. This will cause tension in our foreign relations and could lead to war rather than payment.  

 

Within the last 250 years of American history, 

 

• the Colony of Massachusetts declared wampum, the currency of native Americans to be the official currency of the colony. 
• Virginia used tobacco as currency, 
• there was no Federal Reserve or central bank at all, on and off, in our history, and 
• at times the Fed was only as strong or directed as its leader (like Strong who died 18 months before the 1929 crash), 
• our coin currency came from Spain (the origination of the “dollar”), 
• paper currency came alternatively from 
  • individual banks where a central exchange was used to publish their relative values, or 
  • paper currency came from the King of England, or 
  • paper currency came from the Federal government or 
  • paper currency came from states or groups of states, and 
  • even now the money supply comes from multiple sources and issuers 
  • only one of which is the Federal government through the Federal Reserve and the United States Bureau of Engraving and Printing. 
• The rest of our money supply basically comes from private systems of payments varying in media from paper, conversation, or digital representations on some accounting or reporting host located out in cyberspace. 

 

In ALL cases, the issuance of money led to boom and eventually bust of that currency, which means according to the paradigm we have adopted here, that our current money supply is in for some major changes. Wampum for example, went to zero in value because colonists figured out a way to mass produce it ( a scenario not unlike the current mortgage meltdown which derives from a Ponzi scheme using derivative securities to vastly increase the money supply and circumvent monetary policy). “Not worth a continental” was an expression of disgust with the issuance of currency from our new government during the war of independence. Greenbacks alternately received the same reception, only to come back in other forms. State Bank notes went out of favor only to come back as bank sponsored prepaid branded or co-branded plastic cards. The list is endless. The conclusion is inescapable: currencies come and go. Money changes because it is based upon confidence and trust in the issuer. 

 

Our prediction is that 

 

• private proprietary “money” which has already supplanted government efforts to control the money supply will continue to expand exponentially through issuance of private paper including derivative securities like collateralized debt obligations (which despite the current situation are not likely to go away anytime soon), 
• together with adoption and acceptance of some foreign currency in lieu of the U.S. dollar by private individuals and companies will lead to an “obvious” conversion (i.e.,  recognition long after the fact) to our money supply, and a deep erosion of the ability of both the Federal Reserve or the U.S. Treasury to have any significant impact on monetary supply. 
• Thus monetary policy of the United States will increasingly become irrelevant and be regarded as such. It is already happened. This is past and is not a prediction. 
  • Merchants in Manhattan and other places are asking for Euros instead of dollars. 
  • Electronic payment systems go through the Federal Reserve not in its position of authority but rather as a logistical clearing operation between member banks. 
  • “Prepaid” debit and ATM cards, some with “overdraft” (i.e., loan privileges) including payroll, loyalty, wire transfer emulation and other electronic accounts that the Federal Reserve never sees, except indirectly through total balances at member banks, are rapidly taking the place of paper currency or even traditional electronic payments. 

 

In succeeding installments we will cover the rise and fall of mass transportation, healthcare, war, oil, pharmaceutical companies, education, technology and innovation. In brief we believe the relevant historical cycles point to a severe continued downdraft for current dominant players in oil, healthcare, prisons, pharmaceutical companies (because of innovation in stem cell applications and innovation in protocols that currently result in each aging consumer to ingest hundreds if not thousands of expensive pills per year), insurance, and financial services, while an updraft of great significance is in the works for new companies, transportation, energy, education, medical protocols and procedures and personnel. The big new industry might be the protection of your identity and personal information from everyone including the agencies, companies and people who now pretend to do it for you. 

Whether Krugman is right in today’s New York Times, predicting a massive bailout between $450 billion and $3 trillion at taxpayer expenses, or the “free marketers” have their way and let everyone collapse, or some people finally get it and move toward a consensus of policy that forgives everyone their transgressions but keeps them in the game as we have suggested repeatedly in these posts, it is clear that perception of risk, trust, confidence and integrity has been changed. This change will be reflected in world and domestic financial markets rights down to a car loan, credit card, home equity loan or business loan.  

• The recent rise of ankle biting between home equity lenders (many of whom have frozen home equity loan accounts making the credit limit unavailable to borrowers), borrowers and fist mortgage lien holders on short and long sales and refinancing, shows what has happened: Nobody trusts anybody anymore and credit is going to decline not only because of availability of money, not only because of viability of short-term credit instruments and the auction markets that drive them, but because rising borrower distrust of all lenders for all reasons is going to lower demand for credit.
• Just as there isn’t enough money in the world to bailout everyone in this mess, there isn’t enough equity, income or assets to cover the credit that exists, much less putting on more. But more is what we are getting in the form of inflation fueled by the Fed churning out money supply like it was candy from a machine.
• Borrowers seem to have learned that what lenders tell them can’t be trusted. It is a valuable lesson. They are realizing that lenders have a vested interest in keeping borrowers in debt and to maximize the debt of every man, woman and child in the United States. 
• The number of homes going upside down either because of overvaluation of the home for purposes of the purchase money mortgage or over valuation for purposes of home equity loans is increasing daily. Sorry to hit a sore point but the chickens are coming home to roost. The motivation of change lifestyle from home owner to renter has never been greater. It seems likely that people will do just that.
• This might be a paradigm change that could forever change the landscape of the American economy. retail buying sprees of things that nobody needs, and that nobody wants after they make their purchase, are on the decline. They might be on their way out as a way of life. That accounts for 70% of the U.S. economy.
• This new perception of risk and the new distrust, have taken on the same dynamics as the politics of division which was bound to be reflected in the marketplace eventually. Basic assumptions and formulas currently used in economics are now cast under a cloud of doubt, as are the policies based on current assumptions and current measurements of things that might not matter as much in the future as they did in the past.
• Doubt and uncertainty create bad environments for doing business, investing and living. We might be in for some hard times, but it is probably high time for the AMerican economy to “get real.”

 

Mortgage Meltdown: Socialized Losses and Expenses

The root of any solution to the current credit crisis and meltdown is politics, which is simply a consensus of opinion. When people consent to an idea like “free market” it seems to work because we make it work. The fact is that we don’t have a free market, we never had a free market, and if we did, the mortgage crisis  would be even worse. When we give up our ideology in favor of thoughtful response to the facts “on the ground” we will have a solution. Failing that, the economy is headed for far worse than ever imagined by the doom  sayers.

There is not enough MONEY in the world to stop this crisis. Mortgage Meltdown/Credit Crisis/Monetary Crisis/Housing Crisis can ONLY be solved politically through a consensus of ALL parties involved. REAL incentives must be present for borrowers, homeowners, bankers, mortgage brokers, appraisers, lenders, underwriters, investment bankers, retail securities brokerage houses, traders, money managers, CFO’s of government and companies and individual investors. “Bailing out” some of the variables just tips the economy more toward ultimate disaster. 

While we have free market forces at work within our economy, sometimes they work and sometimes they don’t. That is why you need a referee (government regulation). Free market ideology is wrong in its premise — that given the chance, everyone will rise to their highest potential, at least in terms of wealth. That has never been true because people are all different, they have all different perspectives and values, and all different life challenges that come from factors outside the closed circle of economic theory. 

In a truly free market, tyranny is the inevitable result. Those with the ambition, leadership qualities and political skills end up with controlling positions in the marketplace and in government such that wealth is unevenly distributed to themselves. Innovations, education, and cultural advances that endanger the dominance of such persons or companies are squelched. It’s legal because we make it legal. For the past 10-12 years American society has been reaching for the “ideal” of non-regulation or “free economy.” Now even the most ardent free market proponents are conceding that it has brought us to the brink of disaster.

In a truly “free market,” the market is actually a closely held dominated society with despotic leadership. Government mirrors the society in which the predatory and monopolistic entities get to pay for legislation and enforcement (and non enforcement) they want. 

In a truly free market, a few people dominate government and the marketplace so that losses and expenses are transferred to the citizens while profits and gains are transferred to the leaders in the marketplace and in government. This is what Bill Maher called “socialized losses.” I would add “socialized expenses.” 

Thus a truly free market is actually a socialized marketplace for the benefit of those at the top. In other words, “free market” is a combination of words stating an idea that does not exist but which politically is accepted because politicians and business leaders refer to it so much it has gained sufficient acceptance by listeners to be considered true. 

Thus it is the opinion of most people that “free markets” exist even though all empirical evidence is to the contrary. 

However as a political tool, the bullet phrase “free market” is appealing and is used to socialize the marketplace for the benefit of a select few right under the noses of the people whose opinion was swayed by disinformation emanating from the top.

In a truly free market, Bear Stearns would have gone out of business, the proper result of overreaching behavior that tipped the risk allocations without telling anyone. 

OR, in an environment where free market forces were the goal, the Fed would not only have opened up its window to private investment houses, but also to private individuals and small businesses that were equally in danger of being wiped out. Instead we have the Fed conspiring to bail out one of a dozen variables in the equation that would produce a solution and then, responding to political pressure (something that the Fed was designed NOT to do), it increased the bailout for Bear Stearns 500% so rich people and the people that worked for this firm would not get completely wiped out. 

Careful examination of the Fed bailout of Bear Stearns, however, reveals the perfect plan for bailing out all the players behind all the variables in the equation for solving our monetary crisis, credit crisis, housing crisis, confidence crisis, political and economic crisis: Leaving the opportunity for their fortunes to rise when the crisis is over allows maximum protection for the player to recover, establishes an equilibtrium or plateau that is fairly strong is withstanding further downward pressure, and restores CONFIDENCE in the U. S. financial markets around the world.

By starting out as $2 per share and then moving up to $10 per share, the Fed and JP Morgan established a new precedent that can be applied to borrowers, investment bankers, lenders, investors in CDOs, homeowners who are in foreclosure and homeowners who are at risk. 

If followed out to its maximum advantage, foreclosures could stop, evictions would cease, payments would resume, CDOS (CMOs) would recover their value on balance sheets, capital insolvency would recede, and the opportunity for every one to recover as much as possible would be restored. 

As we have repeatedly said, there is not enough MONEY in the world to stop this crisis. Mortgage Meltdown/Credit Crisis/Monetary Crisis/Housing Crisis can ONLY be solved politically through a consensus of all parties involved. REAL incentives must be present for borrowers, homeowners, bankers, mortgage brokers, appraisers, lenders, underwriters, investment bankers, retail securities brokerage houses, traders, money managers, CFO’s of government and companies and individual investors.

Central to the solution is a political feat of enormous proportions: accepting the fact that housing prices were artificially inflated in 2001-2007. A reduction of the mortgage balances, payments and interest rates combined with an incentive to all players to recover their losses downstream when the market recovers would stop the slide, eliminate the crisis and stimulate the recovery.