Ben Stein's suggestion on Larry King Live last night was the most sensible, simple and sure-fire way to recoup taxpayer money on the bailout I've heard yet: put a tax on the un-regulated insurance contracts called Credit Default Swaps (CDS) which are at the heart of the sub-prime mortgage taxpayer rip-off.
For those who are unfamiliar, a Credit Default Swap is essentially an insurance contract between two parties, where the first party (presumably the one who holds one or more sub-prime mortgages), pays the second party a premium in return for insurance that, in the event the borrower defaults, the second party pays off the face value of the mortgage.
Mr. Stein's proposal is simply to levy a tax on these transactions. The idea is not really all that radical. I happen to live in one of two states which does not have a state sales tax. In every other state, it is routine to tax commerce. What's wrong with enacting federal legislation taxing this particular form of commerce?
A secondary advantage of this proposal would be to force these transactions on to the record. The legislation could be written to include criminal penalties if it is determined later that any part of the original transaction involved fraud, or specific violations of federal statutes (such as the Truth in Lending Laws for example). This would give the incoming administration a tool for seeking out those responsible for the financial crisis and prosecuting them later.
Yes the financial markets made a huge mistake backing investments with ridiculously bad loans, but at the end of the day it is the failure of homeowners to make their payments that is at the heart of the financial meltdown.
Why are we talking about injecting 700 billion dollars more into an already bad investment? This is no different than a problem gambler betting more and more money trying to "get back on top".
Stop trying to bail out the financial institutions and start giving the homeowners the best possible chance to make their payments. Lower interest rates to 4% fixed for the next 8 years.
Force consumer credit card companies to lower rates to a max of 10%. I just discovered one of my cards had jumped to 28.99%. If that isn't usury the dictionaries need to update the definition.
Stabilize the mortgage meltdown and you stabilize the financial markets. WITHOUT spending 700 billion dollars of tax payer money.
Remember, interest is fake money. Lowering rates does NOT represent a loss for the lenders.
THE WALL STREET CRISIS IN A NUTSHELLWritten by Brasscheck
This story is about a five minute read, but if you have any interest in what's going on in the financial markets, I think you'll find it a more useful analysis than you're likely to find anywhere else. Along with the video link at the end, you'll REALLY know what's going on, better than most people on earth, including financial news reporters.
A SHORT EXPLANATION OF HOW WE GOT TO WHERE WE ARE
Today's banking crisis is the THIRD trillion dollar plus US-caused financial meltdown in the last twenty years. Each one of these crises came into being through the same basic mechanism: The fraudulent over-valuing of financial assets by Wall Street, with a "wink and a nod" (and sometimes a lot more) from the White House and Congress.
The fraudulently valued assets stimulate the economy, impart the illusion of health, and then inevitably, the fraud goes too far, and the whole house of card comes painfully crashing back to Earth.
The three trillion dollar plus frauds were:
Fraud #1: The so-called "Savings & Loan Crisis" of the late 80s
Fraud #2: The so-called "Tech Bubble" of the late 90s
Fraud #3: The so-called "Credit (Sub-prime mortgage) Crisis" of today
HOW THE SCAM WORKS
The mechanism of these frauds is simplicity itself.
You take a shaky financial asset, blow up its value, and then sell as much of it as you can.
In the "Savings & Loan Crisis," the instrument was "Junk Bonds".
In the "Tech Bubble", it was Internet Stocks.
In the "Credit Crisis", it was individual mortgages collected into pools, and then re-sold to investors.
In each case, normal, well established "bread and butter" financial principles, were consciously thrown away by Wall Street, with no hint of protest from federal regulators.
THE "SAVINGS & LOAN CRISIS" DISSECTED
Junk bonds caused the Saving & Loan crisis, which resulted in the US taking over the assets of hundreds of banks, and selling them back over time to the marketplace at fire-sale prices.
Junk bonds, which caused the "Savings & Loan Crisis", were shaky bonds that were pumped up by deliberate misrepresentation, and what I call "Staged Dealing."
Bonds get their value from two things: the amount of interest they pay, and how safe they are.
"Junk" bonds have to pay higher interest because they are less safe. Therefore, until the "Savings & Loan Crisis", savings and loan banks banks were not allowed by law to buy them and callthem assets.
Reagan/Bush changed all this, and then a group of Wall Street fraudsters used the new loophole to kick off an orgy of junk bond creation, and junk bond selling, to banks and insurancecompanies.
The crooks would deal the junk bonds back and forth amongst themselves, thereby establishing their "value", and then they'd sell them to outsiders. The bonds then became "assets" which could be borrowed against, and leveraged to buy even more bonds.
When the bonds failed, the banks failed, and in stepped the US government to "fix" the problem that it created, at a cost of at least one trillion dollars to US tax payers.
THE "TECH BUBBLE" DISSECTED
The instrument of fraud in the "Tech Bubble" was Internet stocks, "start-ups" in particular.
A stock gets its value from the underlying company's sales, its growth, and its overall prospects for the future.
Pre-tech bubble, companies used to have to prove themselves by being in existence for several years before they could be sold on major exchanges. That standard was thrown away during the tech bubble.
To pump up their values, the companies engaged in "Staged Dealing" just like the junk bond crooks.
Company #1 would "sell" 20 million dollars in banner ads to Company #2, which would in turn "sell" 20 million in banner ads to Company #1.
In fact, nobody sold anybody anything. Company #2 ran ads for Company #1 and billed it for them. Company #1 ran ads for Company #2 and billed for an equal amount.
These should have been called "media trades", not sales, but Wall Street was happy to claim them as legitimate cash sales, and then use the sales numbers to fraudulently value these companies, many of them totally worthless, in the hundreds of millions, and sometimes even the billions.
THE CREDIT (SUB-PRIME MORTGAGE) CRISIS DISSECTED
By now, you see how the scheme works. It's not complicated at all.
You take nearly worthless pieces of paper (junk bonds, stock of start-up Internet companies, etc.) and declare them to be good as gold.
Then you create as many junk bonds and Internet start-up stocks as you can, and sell them as fast as you can.
In the case of our current crisis, the instrument of fraud was so-called sub-prime mortgages.
Previously, sub-prime mortgages had very little trading value. Only people in the sub-prime industry itself dealt in them, and for good reason. They're tricky to value, and packed with financialperil.
But Wall Street changed all that. Wall Street said: "If we take LOTS of these mortgages, and groupthem into large pools, and then slice and dice the pools in various ways, we can sell the slices to banks and other investors as AAA paper."
It sounds crazy, doesn't it?
If the underlying pieces of paper are garbage, how does assembling a whole bunch of garbage into one place make it better? It doesn't, of course. This is a principle even a three year old child can understand.
But greed and the need to pump up a shaky economy for propaganda purposes, are two very strong motivators.
Banks created these mortgage pools, sold them to each other, and they, by virtue of these "Staged Sales", declared them valuable.
Do you recognize the pattern now?
If you do, then you are now smarter than all the assembled jerks who do financial reporting, because they apparently can't, or won't.
This is the THIRD trillion-dollar plus fraud driven financial meltdown in twenty years, and apparently no one in the financial news media can see how it happened.
BUT THERE'S MORE
Junk bonds were mass manufactured as fast as the crooks could invent them. Ditto for Internet stocks. But how did hundreds of billions of dollars worth of "toxic" mortgages suddenly come into being?
Why did the mortgage industry change its lending standards so radically, and so suddenly, to make their creation possible?
And why did real estate lending regulators in all 50 states (because real estate lending is a STATE-level issue, not federal) go along with it?
Here's where it gets very interesting.
The fact is, state-level lending regulators were VERY concerned about what was going on. They've been concerned for years. They not only expressed their concern clearly, they also took SERIOUS concerted legal action to stop lenders from making these bad real estate loans to their citizens.
Most of the sub-prime loans so much in the news today, were designed to screw the people who borrowed the money, and can rightly be called "predatory" loans.
Guess who stopped the states from enforcing their own time-proven real estate lending laws, and thus created the raw material that made the current "Credit Crisis" possible?
It's the trillion dollar question, and if you're a US taxpayer, you're going to pay for this fraud, so you might as well know who did it to you.
His initials are GWB. You know him well.
But perhaps more interesting, is the name of the person who single-handedly rallied state attorneys general, and then fellow governors, to fight the creation of these loans, and whoin the process became Public Enemy #1 to the Bush Administration.
His name is E Spitzer.
If you follow "silly" US political scandals, you recognized his name instantly, and FINALLY understand why he was swiftly assassinated politically, earlier this year. Had he remained, he would have been in a position to remind everyone who made the current meltdown possible. He was silenced so effectively, that no one can mention his name in connection with today's crisis, without risking ridicule, or worse.
The crisis this fraud has created is *exponentially* bigger than the S & L and Tech Bubble combined. It's not going to be resolved by a quick "patch up".
On that cheerful note, here's the big story everyone missed this year and now you'll finally know what REALLY happened and why:
http://www.brasschecktv.com/page/291.html
P.S. If you find Brasscheck TV valuable, please share our e-mail and videos with friends and colleagues. That's how we grow. Thanks.
Brasscheck TV2380 California St.San Francisco, CA 94115
Show devastated Cleveland neighborhood. 2 stories, told by the people that lived it.
What could a responsible government do for us? I am sure all of you will have some ideas. This is why the Democratic plank meetings are fast coming up in a few days all around your neighborhoods. Prepare, attend, and contribute!
For me, one of the things government can do is to truly prevent a second sub-prime mortgage disaster from happening again. Sub-prime mortgages started collapsing last September, but the federal government waited almost a full year before coming out with new mortgage rules. Unfortunately even with the new rules, a repeat of the sub-prime mess is still possible, since loan companies can still hook people by offering tempting teaser rates.
From what I read in the news I see the government unable to offer help to those in our communities who have lost their homes, but the same government sure can help these mortgage companies to the tune of multi-billion dollars at a time.
How badly do you want a government that can work for us? If you want it hard enough you can make it happen!
There is a serious discussion in my home on what to do if Senator Barack Obama, the candidate that I am backing for the Presidency of the United States, does not win at the Democratic Convention, because of the votes of the “Super delegates”. My husband has told me he will vote for Green Party candidate Cynthia McKinney if Hillary Clinton is nominated by the Democratic Party. I say that I would vote for Senator John McCain in such a case. My husband has pointed out to me that a vote for McCain would be a vote against myself! What a headache, I have just thinking about this state of affairs.
The mortgage fiasco we are now facing is just one of the issues we have with her. During the presidency of William Jefferson Clinton, husband of the senator, the highest home ownership in the history of the country came about, due to the deregulation of the mortgage industry, which allowed the birth of the subprime market; yet, Mrs. Clinton has brushed her husband’s responsibility of this issue under the carpet and no one -- not one of the so called hard hitting journalist -- has asked her any questions about this!
In a campaign commercial Mrs. Clinton is running, she speaks of her readiness to handle any world crisis at 3:00AM. How come, if she is so savvy, so ready, did she not strongly advise her husband that we should not deregulate the mortgage industry to create this false platform for mega companies like Home Depot to be created practically overnight to take advantage of all these new home owners sitting on their powder kegs of volatile subprime mortgages? How come she did not tell her husband that this was improvident and wrong? How come she did not warn President Clinton not to allow the dream of millions of poor Americans of owning a share in the American Dream to be dashed by those seeking to increase their wealth at the expense of the poor? How come she did not make any effort to stop these lenders from preying on the public with their usurious double jeopardy interest rates? This is just one of the reasons why we cannot vote for Hillary Clinton, the “esteemed” senator from New York.
Mission Statement:
Create a partnership with an Investment Bank to provide an alternative Reverse Mortgage Product to non-senior residential homeowners.
Key Results:
· Stabilize the Housing Market.
· Reduce Foreclosure Rates.
· Stimulate the Economy.
· Generate a New Revenue Stream for Investors.
With a Reverse Mortgage, the borrower will have no monthly payment obligation. This will result in a complete cessation of non-payment default loans, and stave off all potential foreclosures for those borrowers that qualify. The reduction of which will result in stable home values, and appreciation of neighborhood areas.
The ability to cash out equity in a lump sum, receive monthly payments, or line of credit in combination with the absence of any housing payment obligation will allow borrowers to use a greatly increased amount of disposable income for the purchase of goods and services. With such a vast difference in budgetary restraints, it will allow for an unprecedented economic growth in the United States.
Investors will have the opportunity to lend money to borrowers without risk of non-payment. Processing and Servicing Fees will allow for profits in a non-predatory lending practice. In a virtually untapped market, the investors that initiate the program will have unlimited and unrestricted access to millions of homeowners.
Program Highlights:
The alternative Reverse Mortgage Product will contain the following modifications to the pre-existing HUD specifications (http://www.reversemortgage.org/):
· No Age Limit Requirement. (Currently 62 years of age).
· Loan Term Limits will be mandated. (Currently no term limits exist).
· Investor will hold Title. (Currently the owner holds title).
· Home must be sold, refinanced, or the loan must be paid in full by term limit expiration. (Currently no requirements).
Specifications of age limit requirements, term limits, and details regarding ownership of title in the event of a refinance or sold home will be negotiated and detailed between investors and analysts to forecast the best application of terms.
In the event a home is not sold or refinanced, or the loan is not paid in full within the term limit specifications, investors may implement penalties, liens, judgments, or foreclosure proceedings. This would be in accordance to state and federal laws to determine the proper course of action for maximum adherence to program requirements.
Underwriting Guidelines would be drafted to specify a complete and transparent information source for lending practices and program requirements. Included would be LTV, Income, Credit, Appraisal, and other core topics pertaining to risk and collateral analysis.
Recommendations:
Term Limits should be brief. For example, a 3, 5, or 7-year term prevents the absence of an age restriction to negatively affect investor participation. It also will prevent any stagnation to market conditions and will push new home sales and refinancing.
Within the Term Limits a borrower will have full rights to sell or refinance the home, or pay off the Reverse Mortgage Loan without investor approval.
A borrower can streamline refinance into a new Reverse Mortgage with additional and sufficient build up in home equity.
Market Analysis:
The following bullet points offer a glance at the issues related to the current housing market crisis.
· Poor Stock Market Performance.
· High Jobless Rate.
· High Foreclosure Rate.
· Predatory Lending Practices.
· Federal Announcement to Lower Interest Rates.
· High Inflation.
· Low Economic Growth.
With an unlimited amount of information available on the Internet, a small sample of further research, analysis, and current events regarding the points above may be found by visiting the following sources:
http://www.mortgagenewsdaily.com/
http://www.bloomberg.com/news/index.html
http://www.cnbc.com
http://www.bls.gov/
http://money.cnn.com/
http://www.fxstreet.com/
Demographics:
The Primary focus of the Reverse Mortgage Program will be on homeowners in the continental United States with sub-prime adjustable rate mortgages at risk of foreclosure.
The Alternate focus of the Reverse Mortgage Program will include soliciting homeowners in the continental United States in good credit and equity standing to acquire new loans.
Practices:
Lending practices and requirements should be responsible yet flexible to allow high credit risk borrowers the opportunity to obtain the Reverse Mortgage loans.
Lending practices must be insured against future issues that may result. Examples of which are, but not limited to a high home sale market after term limits expire, low home purchase market, low home appreciation, new or progressive damage to residences.
Lead Times:
The normal mortgage loan process can take anywhere from two weeks to two months depending upon the various factors involved. Third Party services such as Title, Insurance, and Appraisals are required to be completed prior to close. Borrower motivation and document gathering abilities also attribute to the length of time a mortgage is processed and closed.
The creation of the program can be easily done within 1 - 2 months, and will effectively show results within a month of it's introduction. This creates the start of an economically secure landscape within 4 months from the theoretical conception to the 1st mortgage closed.
Competitive Analysis:
Without any mortgage product that rivals the proposed Reverse Mortgage Program, and with the current absence of Sub-Prime lenders, the competition will primarily be Conforming and Alt-A loan products. The strength of the proposed program is that it allows for a new alternative in mortgage lending.
The reputation of the mortgage industry has suffered which allows a new product by a new company to be unveiled that will disassociate itself with the current climate.
It’s necessary weakness in comparison to other loan products is signing Title over to the investor. Due to the current market trends, this issue is less formidable than the prospect of foreclosure. The choice to retain residence over loss of home is a compelling argument.
Regulatory Restrictions:
State and Federal Banking Laws will be addressed and adhered to with the forming of the Compliance Division.
