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When Is a Non-Bailout Really A Bailout, and Why It's A Joke
It's official. It's Presidential. The "Decider" has decided. Yes, Houston, we do have a problem with the housing mess. And yes, Congress, your White House is finally going to act to help homeowners hustled into sub-prime loans find some relief.
In a belated response to market meldowns, imploding companies (the number now stands at 145) and two million plus families facing foreclosure, when mortgages "reset," your compassionate conservative commander-in-chief has decided it's time to get involved, to show that the federal government is there in our hour of need. With prices and home value falling, building is grinding to a halt and economic growth is at risk.
We are still not sure how President Bush found out about this crisis, but August, in Crawford, seems to be a time for bringing warnings of imminent threats to POTUS' attention. Remember the Presidential briefing on August 6, 2001 warning that the United States was in imminent danger of being attacked y terrorists. Condoleezza Rice later admitted that nothing was done because Al Qaeda had not provided the date for their planned attack. Now, another set of advisors were on the case this August with a warning from the National Association of Business Economists about a serious new threat: "The combined threat of subprime loan defaults and excessive indebtedness has supplanted terrorism and the Middle East as the biggest short-term threat to the U.S. economy."
While some may think that the President acted just to defend low income owners, perhaps to atone for his earlier belated response to Katrina, there is another problem that the blue bloods in the GOP were keen that he be responsive---one closer to home--- the threat to their neighborhoods and voting base.
The LA Times outlined this emerging threat to this way:
"Houses abandoned to foreclosure are beginning to breed trouble, adding neighbors to the growing ranks of victims.
Stagnant swimming pools spawn mosquitoes, which can carry the potentially deadly West Nile virus. Empty rooms lure squatters and vandals. And brown lawns and dead vegetation are creating eyesores in well-tended neighborhoods.
It was time to act to save the suburbs and "well-tended neighborhoods."
This time, there will be no inflated war talk, heaven forbid a "War on Wall Street" or a declaration of a national emergency. That won't work, the pundits assure us. So instead we will throw money at the problem but not too much and make the rhetoric see beneficent Last Friday, the President announced some modest, mild, limited intervention-all terms used in the press-to put a band aid on this cancer, and whatever you do, don't call it a bail-out.
This initiative, aimed at helping a mere l8,000 families had these components.
- Urge Congress to pass legislation that would give the Federal Housing Administration more flexibility in assisting mortgage holders with subprime mortgages.
- Pledge to work with Congress to reform the tax code to help troubled borrowers rework their loans.
- Call for rigorously enforcing predatory lending laws and strengthening lending practices
Sounds good, but judging by the Orwellian way this Administration uses words, like peace to mean war, could this non-bailout really be a bailout?
The business magazine Forbes thinks so and reports that it is not the borrowers who are being bailed out but the lenders. They, unlike most of the media which reported it as if it was really a debt relief plan, called it "a Labor Day Gift to Wall Street."
In a Labor Day gift to Wall Street, President Bush on Friday announced plans to expand the Federal Housing Administration so that an additional 80,000 risky borrowers can benefit from its mortgage insurance program. In doing so, he sent a signal that the federal government would act to keep the market turmoil brought on by the implosion of risky mortgage lending from damaging the economy in an election season.
One of the more knowledgeable Housing blogs confirmed this is a bailout for lenders, not the borrowers:
The financial institutions that are calling most loudly for a bailout claim the Government must act to protect homeowners. However, the most severe losses will not be born by homeowners but by those who loaned them the money. Therefore any bailouts will ultimately go to lenders not borrowers.
The biggest predatory lenders understood and welcomed this nod and wink.
"Whatever he called it, stocks of financial services companies like Countrywide Financial and Bear Stearns which have been rocked by the implosion of their bad bets on risky mortgages, gained on his comments." Explained Forbes, "Investors took the comments to mean that whether or not Bush was calling this a bailout, the government was willing to step in and stem the bleeding."
And to make sure the industry has a continuing influence the firms are seeking help from insiders, but not just anyone. Financial News reports: "Lehman Brothers has appointed Jeb Bush to its private equity advisory board in the latest attempt by a buyout group to influence Capitol Hill. Lehman's move to hire the former Governor of Florida and brother of President Bush follows buyout giant Kohlberg Kravis Roberts hiring two former White House aides to lobby the US federal government on tax and regulatory matters affecting private equity."
And to make sure the Democrats don't get too uppity, the lobbyists are spreading money around on a non-partisan basis. Real Estate is a major political giver and its political action groups expect what they pay for. According to OpenSecrets, The National Association of Realtors is the number one lobbyist. "The NAR PAC spent $3,752,005 in the 2006 campaign: 49% to Democrats and 51% to Republicans. They raised $1,716,960 in contributions of $200 or more. The Realtors Political Action Committee (RPAC) is one of the largest trade association PACs, dating to 1943."
So let's not expect too much from either Party unless activists make this an issue too-an issue of economic fairness. The Administration says it now advocates "jaw boning"-ie verbal pressure-to persuade lenders to be nice their customers and not be too quick to foreclose.
But who is going to jaw bone the politicians to turn real pressure on with new regulations and investigations to penalize rather than protect those responsible? The real culprits are still living off their ill-gotten gains. New government data shows that the AVERAGE pay in Investment banking is $8, 367 a week compared to $841 for all private sector jobs. Hedge Fund managers are doing even better with an AVERAGE of $23, 846 to $16, 848 each and every WEEK. (Source: The New York Times.)
Here's the problem we need to talk about-how to contain, restrain and block the Credit and Loan Complex from further financializing our society by concentrating more power in industries that institutionalize extreme inequality and expedite the institutional rip-offs coming to light in this subcrime scandal.
News Dissector Danny Schechter is "blogger-in chief" of Mediachannel.org, His new film is IN DEBT WE TRUST: America Before the Bubble Burst (Indebtwetrust.com) Comments to Dissector@mediachannel.org
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18 Comments so far
Show AllThis is starting to shape up like the orchestrated S&L crisis. Deregulation -> dereliction of duty -> crisis -> industry bailout.
Either a crime was committed or not. If not, do nothing. If so, follow the money trail, reclaim it, and return it. But alas, we'll be sold, and enough will buy it, some solution which undoubtedly proves that crime pays.
The sub prime Ponzi scheme is lucratively profitable, the wheels are coming off and the economy points towards recession - further misery for the debt enslaved victims, if they still have a home.
I got a letter of Chase-Manhattan last week giving me my "options" on my current mortgage. Various ways to "save money". One option included refinancing at a HIGHER rate and cashing out. So basically I'd wreck my equity, reset my amortization, and have to repay interest paid on that amount of equity.
Another option called for refinancing at a HIGHER rate for a 40 YEAR LOAN. Another option called for an interest-only loan, after which it would shoot up. So much for amortization or paying off the principal. Saving money?!
There should be a law against this BULLSHIT FALSE ADVERTISING.
I can work a calculator, so they're not going to get tens of thousands more out of me. That said, they'll manage to swindle enough other people, perhaps a statistically significant number, further push the market of home affordability into the stratosphere (those people will tend to look at monthly payments, not full amount paid), raise my taxes and assessments more, etc.
kivals: Yeah, my wife subsequently told me that these "offers" come quite often. I usually ignore anything from Chase. It was a rare moment that I bothered to open some junk mail.
Comarc is correct.
The point I was trying to underscore is that "buyer beware" isn't working in our economy. Namely, there are those of us who can smell a scam and avoid it. Unfortunately that's not good enough. When a statistically significant portion of others are nonetheless suckered in, seeing only the monthly payment -- and not the cost of the house or the full amortization of the loan (maybe 100-200%+ the actual interest on the principal!), then the whole market shifts up. This is why I've been hit with double-digit property tax increases -- the county feels justified in re-assessing at criminally inflated values. The insurance companies jump in for the kill also -- need to insure at higher rates. And of course the government collects higher taxes.
So it's not enough to be a shrewd buyer yourself. The gullibility of a statistically significant number of people may come back and haunt us too.
First of all, Mortgage Insurance or what shows up on your statement as "PMI" is a misnomer at best. It is insurance for the lender against the borrower defaulting which is tacked on to most mortgages (and ALL sub-prime loans) and paid for buy the borrower. This sweet deal was set up by the industry and approved by lawmakers.
"Here's the problem we need to talk about-how to contain, restrain and block the Credit and Loan Complex from further financializing our society by concentrating more power in industries that institutionalize extreme inequality and expedite the institutional rip-offs coming to light in this subcrime scandal."
More talk - that should solve the problem! And let's start a couple of investigations, too. And let's have Senate hearings. And while we're talking, let's talk about the S&L scandal where the bank robbers got away clean, or Iran/Contra, or tax cuts for the wealthy, or, or, or... whatever. As long as talk is involved...
IT will not work! Period. Only one person has the comprehensive plan for this scenario, and was laid out before Congress three years ago. Thats right, three years ago! It is in the Public Record. The real crime was the artificial inflating of the price of homes beyond their actual value.
Coffeelover.......
I keep seeing how much hate right-wing commentators have for people not 'taking responsibility for actions' in this mortgage bubble blowout, and blaming it on the people owing the bankers (bankers, as you may recall, used to be the villains in turn-of-the-century melodramas as they tied people to railroad tracks - symbolism, symbolism). I'm really tired of right-wingers thinking that their good fortune was all their own doing. They are truly delusional.
As to the 'special' mortgages, well, people trusted the grifter "professionals" that steered them into them. After all, most folks only do these things very occassionally and rely on 'professionals' (who somehow just always seem to have a stake in the game.) Remember, the Fed under Greenspan furiously 'printed' trillions of dollars which went to banks (not citizens) at 1% interest during the recent real estate boom/bubble, which drove housing prices/phony-mark-to-market-equity through the roof. And he did it to save the Republicans' political bacon in the wake of the collapse of the last phony scam - the stock-market-dot-com bubble. Remember, tax cuts which have cost the American people/nation trillions of dollars went to the rich who had their lobbyists buy off the Republican Administration/Congress. These actions are sheer 'welfare for the rich' - so don't be saying that the poor folks who got caught in the trap the lenders/bankers/Fed set have no one to blame but themselves. Say rather that you can't trust the professionals/grifters that run America today. Who among them do you trust... the Enron accountants... the shifty lawyers... the greedy executives... the lying realtors... the shady mortgage bankers... the bribed stockbrokers... the rich tax-evaders... the sociopathic corporations... the vicious hedgefund operators... the defrauding Fed... the corrupt politicians? If someone is taken in a scam, is it the victim's fault? If someone is raped, is it the victim's fault? The right-wing conservatives seem to think so. Of course, they are the ones doing the raping.
And speaking of blame, who -for example- is to blame for the costly Iraq mess? When the people in authority act only for their own benefit and take no consequences for their criminal behavior/stupidity/foolishness/failures then why expect anyone to do so? You start the blame with those in control that should be examples, that should fall on their swords.
And anyway, maybe the very premise of on-your-own capitalism is completely anti-social (Adam Smith thought so) - its basic tenet is after all: buy low (and screw that guy) and sell high (and screw that guy, too). Don't look for morality in capitalism. That is why right-wing conservatives are utterly mistaken as to who is to blame for the mortgage debacle. The Grifters are. And America has become a nation full of Grifters, with the parade led by those Kings of the Grifters Bush and Cheney. Actually, right-wing conservatives are totally to blame for the shameless U.S. welfare-state-for-and-by-the-rich-and-corporations of the last decade. I'm sure they voted their wallet, and told the world to go to hell - only they don't see that the world going to hell... is the one they are on.
Sincerely,
F Horn
If We the People incorporate, the dividends we get from leasing our public lands, our mineral rights and on and on will keep us from foreclosure. Who needs politicians when we can hire a corporate administration that works for we the people instead of for other corporations?
"The real culprits are still living off their ill-gotten gains."
That's because we have a bunch of psychopaths running this country who try to define reality for us. Fortunately, the majority of us are sane and realize that a "save the people" gesture from George Bush contains no hint of honesty or fair play. As we have seen over the past 6 years, the so-called "moral majority" have managed to destroy human values, not adavance them.
http://www.serendipity.li/bush/beyond_insanity.htm
Over the weekend, a friend introduced me to this particular author and article. It's wonderfull! I would encourage you to take a few minutes to read it.
Gail -
I agree - it's a great article. Scary though...
A paraphrase " Well here you go again " Prez Regan.
This really shows how resilient people are compared to corporations.
I say, people should take foreclosure (they have nothing to loose )and DENY Government bailout of lenders. Federal Reserve should bail out the lenders ( Yes, you mr. money bags ).
I belive, people will recover from this scam, and rebuild their dreams better than ever. In most cases, borrowers did not have to put down any cash anyway. And lenders will be left holding the bag.
People who were dupped into leaving their home to get into the now foreclosed home, should file claims against lenders for the scam which caused them inconvinience.
A nice reward for achiving world class productivity, scamming their customers.
Banks have been turned into loan sharks and mafia monsters. Take a real look at how much you pay in interest. It's not the meer 5%, it's more like 100/200%. After you are done in 30 years how much actual interest did you pay? You may have paid 200%.
I wonder what would happen if common folks got together, and gave each other microloans to start businesses, and purchase houses. What if we bypassed Walstreet and the elite to help each other out. What if some of us sewed clothes and others farmed, and what if we bartered with each other? What if we built each other houses? What if we taught our children to respect each other and value the person rather than that person's money (or gadgets).
It does seem like an essential character trait of today's successful corporatists to regard everyone else as potential suckers. Honor among thieves? How about all these carpetbagger loan initiators selling their useless paper all over the world? The secondary (financial marketers) were speculative investors also, and only now realize they are left holding the empty (carpet)bag.
It may be best to expose the overrated value of all stock now before it becomes any more hollow. Overrated becuase based on speculation about future returns via "growth." Any moderate(?) downturn will turn out all of the marginal (i.e. speculative) players. More shame on the face of the deregulated "free-marketers" and more pain on us. Looking more and more like the terrain before the last big crash.
Paul ...
The first two are pretty classic bank scams, the first aimed at people carrying a ton of credit card debt along with that over-priced home mortgage. The second aimed at people who are always conned with payment plans by thinking the lower monthly payment saves you money.
The last is the one that cracks me up. Its exactly the sort of loan causing all the problems. We are facing a wave of foreclosures this year and next as the earlier suckers with these loans face the ballooning interest rates. The only thing I can figure is that Chase is trying to shift in time some of its foreclosure problems. They are basically saying "Here, take a loan that we know you are very likely to be foreclosed on someday in the future, but at least it won't be in the next year or two when all the other suckers with these loans crash and burn."
My guess is you'll see a lot of these last sorts of schemes. They'll make refinancing fairly cost free in the short term just to keep afloat some of their current suckers who are about to crash and burn. Those deals always screw the borrower in the long run, but they put off the day of foreclosure till its a bigger crash further in the future. Kind of like when we loan some 3rd world country billions more so they can pay off the debts they were about to default on.
Or for Chase right now, I guess anything that churns some fresh money into their schemes is what they are begging for. Anytime they get anyone to bite on any of those, that's fresh money coming in to their books that might try to help them balance the massive losses they are suffering.
COMarc and Paul Bramscher,
I have a Countrywide mortgage and I get those "great" offers almost weekly. I think COMarc's explanations make some sense.
"If our Nation can issue a dollar bond, it can issue a dollar bill.....The difference between the bond and the bill is that the bond lets money brokers (bankers) collect twice the amount of the bond plus interest. Whereas the bill pays nobody but those who contribute directly in some useful way. Why then cannot the people have the benefit of their own credit by receiving non-interest bearing currency, instead of bankers receiving the benefit of the people's credit in interest bearing bonds?" - Thomas Jefferson
Compare Jefferson's statement with the late economist and Nobel Prize winner, Milton Friedman, who argued that the money supply should be increased at a constant rate and that interest rate manipulations have little to no impact on the stability of the economy.
Huh...?
I am of course against predatory lending practices, but I don't see how bailing out homeowners is a good idea.
I've rented my home for years because I didn't have the money for a decent down payment and I knew better than to take out a mortgage I could only afford in the most optimistic financial scenario. Honestly I don't have much sympathy for anyone who would assume that much debt- especially with an adjustable interest rate- without reading the fine print.
The housing market has been out of control for years, pricing responsible buyers like myself out of the market. Bailing out the irresponsible buyers will only continue to artifically prop up the market. What kind of a message would that send to people like me, people who are waiting until they can actually afford to own rather than buying well beyond their means? It's only promoting the mentality that it's ok to spend money you don't have, which is already responsible for the financial crisis facing the middle- and lower-class in this country. It's not like these people are going to be homeless- they'll just go back to renting, which is what they should be doing in the first place. Americans seem to be under the mistaken impression that owning anything they want is their (manifest) destiny. Owning a home is not a right- it's a privilige that must be earned through saving.