One morning you are going to wake-up and discover that the country has come to a complete stand-still, because nobody can afford to go to work or go to the store or pay their bills. That morning is closer than you think. And within hours or days of it happening, America's streets are going to be filled with foreign soldiers -- UN peace keepers, who won't give a damn about who you are or your Constitutional rights. They'll take your guns and your life!
By Russell R. Bingman, No B.S. News & Commentary May 28, 2004
The most effective way to accomplish a victorious conquest of any people is to defeat them financially and economically.
Everybody in the world, no matter who they are, has the same common needs: daily bread, clothes and shelter; and, depending upon their region, climate and culture: the need for energy for heating or cooling, electricity and transportation -- and medical care!
All these are the essentials of life, our basic needs; and basic needs should be available to anybody and everybody, at basic prices. But the prices we pay today for life's essentials are anything but basic -- they are at a premium, and constantly increasing. Mere coincidence? C'est la vie? Hardly!
The ever-increasing prices we pay today for life's basics are a clear reflection of the conquest and agenda of the New World Order -- capitalism in its true, unmasked form. Capitalism and free enterprise are two totally different systems, and any SOB who babbles otherwise is a liar or an idiot or both!
The prices that we're paying at the gas pumps is not an accident . . . nor is it simply because of the escalating world oil prices for crude, now at $40 a barrel, as the state news media propaganda machine keeps explaining to us. Rather, it is a well planned, carefully controlled battle strategy, rapidly achieving its intended goal -- the financial and economic collapse of the world.
I've been writing for over 15 years about the elite's control of the world economy, and that the world economy is based upon petroleum, which controls everything in the world. The ignorant and the uneducated fail to see it, and the propagandists try to hide it, or mask it over to look like something else.
The carefully orchestrated march of the New World Order elites is right there in the history books for anyone to see, provided they want to see and have brains enough to bother to look. Free enterprise means exactly that -- FREE! And free means "freedom."
Freedom is not an institution -- it is a state of being, devoid of controllers and rule makers. It is the state of life and living intended by the Creator of the Universe.
Capitalism, by contrast, is an institution, and all institutions have rulers and governors, who carefully control what that institution does and everybody involved with it. Institutions are not allowed to run amuck, because anything running amuck goes its own way and cannot achieve the intended goal.
And the intended goal of capitalism is absolute control of everything and everyone.
The Merchant Bankers set out upon their conquest when America was first born. But they had no appreciable success until 1840, when the American government got naked and climbed into bed with these Mammonites. All three branches of the U.S. government became nothing more than greedy, insatiable whores; and the American people have been getting sold out ever since for the ever-escalating price of these whores.
The value of gold and silver were systematically and deliberately undermined, through various crises, as well documented in history. The specific purpose of these crises, and the financial collapse of Wall Street in 1929 that brought about the Great Depression, was solely to put an end to the precious-metals economic standard in order to impose the standard of fiat money -- worthless cash! And in order to make sure that the American people were fully controlled by this financial institution of greed, the free enterprise system was demolished and illegalized. If you doubt the latter, just look at the legal statutes of the American business code and the regulations of the IRS -- all geared to protect big corporate business but to stifle or eliminate small, independent business.
And another element of that institutionalized control was the invoking of the income tax -- the sole purpose of which is to feed the coffers and treasury vaults of the Merchant Bankers -- the robber barons! Income tax does not pay for one iota of government function. 100% of American income tax goes toward paying the interest on the national debt. America was functioning just fine under the free enterprise system, before the income tax.
The whores of capitalism have been busy rewriting history, and putting out their dime novels, to delude the ignorant and the uneducated into believing fairy-tale versions of American history and culture.
Everything in your home or driveway got there -- from the point of manufacture, to the store and, eventually, to your dwelling -- by way of the industry of transportation. Transportation, like manufacturing, costs money, and much of that cost is for fuel or energy. The higher the fuel prices, the higher the costs, and ALL costs get passed on to the consumer.
The Mammonites have systematically lowered wages, exported jobs to third world countries, and increased prices for their goods or services (irrelevant of energy costs).
Like drug-addicted crack whores, the majority of the American public fawns at the feet of their enemies -- their tales wagging and tongues hanging out like excited little puppies begging to be held -- only these fools and idiots are begging to be dragged down deeper into the muck and mire of the cesspool of capitalism's trenches of enslavement (bigger and more expensive houses, bigger and more expensive automobiles) by performing the simple task of going deeper and deeper into debt.
"The debtor is slave to the lender."
While the American government has been selling the American people out, it has simultaneously sold them into slavery -- the slavery of capitalism and all that it entails. Lower interest rates had nothing to do with getting the economy going -- it was all about enticing fools to borrow more money and go deeper into debt. The scam has worked!
In June of 2001, I wrote a headline for one of my print publications, which read:
"2001: The Final Countdown Has Begun!"
Indeed it had, as the last three and a half years have proven to anybody with their eyes open. Everything from September 11th, 2001, to the present, has been a carefully orchestrated, systematic plan and series of events to bring not only America (as a nation, which means the people -- not the government) to its knees, but the entire world, through economic defeat.
The war on terrorism is basically a fraud -- a well contrived fraud. It has now cost the American people more than $300 billion just in military expenditures, and another $700 billion to $1.5 trillion for Homeland Security and all of its phony nuances.
America's southern border is wide-open, and America's President has kept it that way to deliberately allow invaders and real terrorists.
And now, in order to divert people's attention from what is really going, Lord Ashcroft and Czar Ridge have issued ANOTHER "credible" terrorist alert, and they want everybody to look for "seven suspicious characters" that look like Middle East sand surfers. And fools are doing exactly that -- with binoculars, cell phones and walkie talkies, they're reporting anybody "who looks like they might be of Middle East descent."
We've already seen three and a half years of this half-witted, fraudulent crap. Out of the hundreds of thousands of reports, not a single terrorist has ever been found. But a lot of innocent, honest Arabs, Indians and other folks with dark skin, many of them American born, have been falsely reported, assaulted by the Gestapo, harassed, detained, jailed and deprived of their civil rights -- all of it excused by the elite, powerful whores of government, and the rubber stamp seal of perverted, corrupted religion -- pseudo Christianity, which keeps declaring King George to be the Messiah, our savior from terrorism!
If you're looking for terrorists, stop looking for folks wearing turbans -- start looking at the one's wearing sombreros illegally entering the country. La Voz de Aztlan has openly declared its terrorist intentions of taking back the American Southwest by force! The billions of dollars that King George and Congress loaned to Mexico has been used to turn its military into a very dangerous, aggressive, fighting machine. And El Presidente 'Vicente' Fox openly supports the retaking of the American Southwest by use of force and his military. He and George have slept together!
The price of the food on your table is going to keep getting higher. The cost of gasoline and diesel is increasing weekly. Your bills are getting higher, your debt deeper, and your job less secure.
One morning you are going to wake-up and discover that the country has come to a complete stand-still, because nobody can afford to go to work or go to the store or pay their bills. Truckers won't be able to fuel their trucks.
That morning is closer than you think. And within hours or days of it happening, America's streets are going to be filled with foreign soldiers -- UN peace keepers, who won't give a damn about who you are or your Constitutional rights. They'll take your guns and your life!
America's soldiers are gone, overseas, fighting a bogus war -- America's police are not here to "Protect and Serve" you -- they're here to protect and serve the New World Order, the elite politicians and bureaucrats.
If you think that John "Fraud" Kerry is going to save you from George "Weasel" Bush, you better think again! They're blood brothers of the Skull & Bones -- just two of the many faces of Satan -- two of the many faces of the New World Order, bringing you the world financial collapse -- the collapse of your own financial world with it.
You better learn how to pray, and pray right -- because the time is much later and shorter than you think!
What follows is a synthesis, summary and abridgement of recent discussions with veteran journalist and Truthdig.com editor Robert Scheer about his new book, The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street.
By Richard Clark, OpEdNews September 14, 2010
Try as he might, President Reagan was unable to reverse the very sensible regulations of the New Deal that were designed to prevent us from getting into another depression. Those regulations, principally Glass-Steagall, as you will recall, stated that investment banks gambling with rich people's money should not be allowed to merge with commercial banks that were using regular bank deposits insured (FDIC) by our government.
Because of the savings and loan scandal at the end of his term, Reagan actually had to sign off on increased financial regulation. But when Clinton took over at the White House, he brought in one of the big players on Wall Street, Robert Rubin, former head of Goldman Sachs, and asked Rubin this question: "What do I need to do to get Wall Street on my side?" Rubin's reply was simple: "Reverse onerous financial regulation." And Clinton complied. Then he selected Rubin as his Treasury secretary, and Rubin was followed by another Wall Street toady, Lawrence Summers, who's now the top economics adviser (guardian-protector of Wall Street interests) in the Obama White House.
In addition to approving the Gramm bill that reversed Glass-Steagall, Clinton laid still more of the groundwork for our current crisis. After Summers had pushed it through, and Congress approved the Commodity Futures Modernization Act of 2000, Clinton signed off on it as well. And this lies at the very root of our recent housing meltdown.
You see, we had these things called derivatives that a few sensible people in the administration, like Brooksley Born, had tried to warn everyone about. However, few people besides her seemed to know what these often dangerous investments were all about. And those who did know would not allow themselves to think about anything other than the enormous amounts of money that could be made from them. The bundling of mortgages, packaged together and made into securities to sell far and wide, targeting naïve and trusting investors who foolishly thought that their triple-A ratings meant something, comprises a large part of what encouraged all of the wild subprime and Alt-A financing.
Mortgage brokers couldn't find people fast enough to set up with mortgages. No job, no problem. Mortgage applications became increasingly fraudulent. But who cared? These mortgages would be packaged together with hundreds of others so that even if one or two went bad, the security package as a whole would still be worth something. Supposedly. Besides, once the sliced and diced investment units were sold to unsuspecting buyers around the world (as deregulation now allowed), it would no longer be the problem of the person or institution that put the package together.
Then too, these packaged securities were being backed by credit default swaps — a kind of insurance issued by companies like AIG, who made plenty of money off of the premiums that were paid to them, but who ultimately had nowhere near enough capital on hand to pay off the claims when the housing market collapsed, thus requiring the taxpayers to bail them out.
Bottom line: these gimmicky investment vehicles that eventually spiraled wildly out of control were made possible because of the aforementioned Commodity Futures Modernization Act, which Clinton signed and which clearly stated that no existing government regulation and no existing government regulatory body would be allowed to supervise them or regulate them, especially not the credit default swaps and collateralized debt obligations that Brooksley Born had warned everyone in the Clinton administration about, to no avail, her pleas falling on deaf ears.
As a result of no one listening to Born, we had this wild run-up of irresponsible mortgage lending. The banks no longer, as in the old days, worried about whether the borrower could make his payments or whether there was sufficient value in the house. Why not? Because they weren't going to hold that mortgage for thirty years like in the old days.
To repeat, and thus stress this key point: They were going to bundle it with hundreds of other mortgages, securitize it, and sell it, ASAP, just like they were now allowed to do, thanks to Clinton signing off on the Commodity Futures Modernization Act. That's why the wild run-up of the market should be known as the Clinton bubble.
And now, as a result, we're threatened with the very real possibility of another steep socio-economic decline, perhaps even a decade of Japanese-like stagnation. And the reason is because we taxpayers (via our underwater mortgages and via the toxic debt purchased from the big banks by the Fed) are holding trillions of dollars of these toxic investments.
As a result, housing right now is in a terrible state of affairs. There are 11 million homeowners that are underwater (mortgage debt exceeds the price for which the house can be sold). That means 50 million people living in houses that are now worth less than what is owed on them. Not surprisingly, these people are increasingly tempted to simply walk away from these houses, and many are doing so (especially the well-heeled), thereby leaving ever more banks with the loss of the money that is owed to them via the abandoned mortgages.
And then the Fed buys this toxic debt from these banks, to help them out, and this indebtedness ultimately lands back in the lap of the American taxpayer. Sweet!
Many millions of Americans have invested their life savings in their homes only to see the market value of these homes plummet, essentially wiping out much of their life savings, which is why we don't have much in the way of consumer spending right now. With much of their life savings having been thereby taken from them by the doings of Wall Street sharpies taking full advantage of the stupidity of government deregulation, many Americans are now scrambling to replace at least some of their retirement savings.
And it's not just the people who are financially in trouble with their own houses, which is a tragic enough story, but their neighbors as well — for even if someone has made every payment on their home, or even if they own their home outright, if one or two houses in their neighborhood are vacant and boarded up, with a lawn that looks like hell, it brings everyone else's home value down.
All this stuff that Obama has been talking about really does not address this problem. Instead of throwing money at Wall Street, which is what Bush did and what Obama continued to do, they should have imposed a moratorium on housing foreclosures. They should have said, "OK, Wall Street, we'll help you, but you are now going to be forced (through bankruptcy courts and new rules we're going to put in place) to adjust people's mortgages so they can stay in their home."
Spending $50 billion on infrastructure, as Obama has recently proposed, is chump change compared to, say, the $300 billion of toxic investments made by one bank, Citigroup. (After he left the Clinton administration, Rubin became a top executive at Citigroup, whose $300 billion worth of investments were made possible by the reversal of Glass-Steagall, a reversal for which he, Rubin, was in large part responsible.)
Three months after Robert Rubin had given a speech at Cooper Union saying we had no financial problem and no crisis, Obama, at that same Cooper Union, acknowledged that this crisis is all due to the reversal of Glass-Steagall — all due to reckless, radical deregulation. He spelled it out. And then, mysteriously — well, maybe not so mysteriously when you consider that Wall Street and the larger financial community became his biggest campaign contributors — he, Obama, turned to the disciples of Robert Rubin (e.g. Lawrence Summers, Timothy Geithner and the very people who had, with Rubin, created this mess) and naively ordered them to "Fix all this." And of course they haven't fixed any of it! Instead they've taken care of their buds on Wall Street . . and mugged Main Street.
What could Obama do, starting today?
He could immediately push to give bankruptcy courts the power to force the banks to readjust these mortgages. We the taxpayers bailed out the banks. So why shouldn't they in turn be compelled by the federal government to return the favor by helping taxpayers who are now stuck with a house worth less than what they owe on their mortgage? As already mentioned, abandoned houses bring down the value of all surrounding houses, underwater or not, so everyone would thereby be helped.
The Tea Partiers yell about "getting the government off our back." But this government did not get big (and the debt did not rise as high as it is) due to the fact that we're trying to help firemen or school teachers keep their jobs. It happened because we have, through the Fed and through the federal government, committed three or four trillion dollars to bail out the banks.
Therefore Obama should call for a moratorium, for two or three years, on mortgage foreclosures. He could call for, and push through, legislation that would allow people to stay in their homes. The goal would be to prevent all those boarded-up buildings in the suburbs of South Florida, Riverside, California, and elsewhere.
If you travel in this country and look closely, you'll see that there's enormous pain stemming from the fact that people's life savings as well as their sense of their worth, their piece of the American Dream, were tied up in their family home. When you lose that home or when you're facing foreclosure, you lose not only your pride, you lose your ability to retire and/or to send your kids to college.
The dreams of Americans are wrapped up in their home. And I don't know why we're talking about anything else right now. If we want to get the economy going again, if we want to get people back to work, if we want to get consumption up, what you've got to do is help people with their nest and their nest egg, which is their home. And so far there's precious little in Obama's speeches, and certainly almost nothing in his actions, to help those homeowners in that way.
Fannie Mae and Freddie Mac were as rapacious as Citigroup or Goldman Sachs. People like Barney Frank, and even many in the Black Caucus, said, "No, no, don't touch Fannie Mae and Freddie Mac because they're going to help poor people get into homes." Sure, a lot of minorities got into homes, but many of those homes were lost to foreclosure. So now, as a result of such a bad investment, plenty of folks have lost their life savings (to the banksters and Wall Street sharpies).
If we can't stop housing foreclosures, if we can't stem this bleeding right now, we're simply not going to get consumption and spending back, and so we're not going to get anywhere near enough jobs back — jobs in construction, and jobs generally. Therefore one should not divide the interests of homeowners, and keeping them in their homes, from the interests of the rest of the population.
Has Obama done anything different about the economy than Bush?
Obama has been a disaster. Perhaps if he would appoint Elizabeth Warren to the new consumer protection agency, there will be a bit of value in this new regulatory agency. Problem is, there's a quiet campaign in the White House and at the Treasury Department, among people like Wall Street guardians Rahm Emanuel and Tim Geithner, to prevent her from getting this appointment.
Unfortunately we can't look to the Democratic Party, hacks that they are, for leadership on this. First of all, most of these people are veterans of the Clinton administration and are the same people who destroyed Brooksley Born, who was one of the most competent lawyers in this country in dealing with banks. She understood more about derivatives than anyone around, and she was appointed to what was supposed to be a lesser agency, the Commodity Futures Trading Commission.
Seventeen times, in testimony before congressional committees, Brooksley Born sounded the alarm that there was going to be a housing meltdown, that this whole thing had gone wild, and that we had inadvertently enabled Wall Street graft and corruption.
It is people like Summers, now firmly entrenched in Obama's administration, who don't want Elizabeth Warren — Timothy Geithner, for instance, and there are plenty of others. There are many Goldman Sachs veterans and other big Wall Street veterans entrenched in Obama's administration. They destroyed Brooksley Born, and now they feel threatened by Elizabeth Warren because Elizabeth Warren all too competently represents consumers. She's a brilliant legal mind who scares them just as Brooksley Born did.
Elizabeth Warren said, "Wait a minute, what kind of government is it when you're caring about Wall Street and you're ignoring the pain out there on Main Street?" And banksters don't want to hear that kind of talk. They want unprotected consumers in the millions who they can then more easily prey upon en masse, and profit from, obscenely. Their successful predation and the growing wealth that stems from it depends on having consumers remain unprotected. And nothing else matters to them. Therefore Elizabeth Warren must be stopped. Discretely stopped, but stopped.
These folks on Main Street invest their whole life providing shelter and all manner of other basics for their family. And when you go out in these communities, it's so very depressing. There are people in Riverside, California, who diligently cleaned office buildings 50 miles away in Long Beach. They commuted every day from Riverside so their kids could live in a better neighborhood. They bought their affordable house in a nice neighborhood, worked hard, and reliably made the payments month after month. They did everything they were supposed to do. And then they lost their jobs to lower-wage workers from south of the border, mortgages started getting foreclosed and the neighborhood went to hell, and they eventually lost everything.
And that story is being repeated millions of times across America, as the wealth holdings of the banksters and CEOs multiply into the stratosphere.
And the guys who did this to America, they weren't those vicious right-wingers. It wasn't all the people that we liberals like to attack. It was our friends! Let's get that straight: This was a product of the Clinton Bubble. It was our friends who helped make it happen. It was people like the heads of Fannie Mae and Freddie Mac, who identify themselves as liberal Democrats. But they were being rewarded with enormous bonuses. (In fact they made out just as well as the people running Citigroup.)
As for Fannie Mae and Freddie Mac, these were not government agencies. These were companies whose stock traded on the stock market, yet they posed as government-supported agencies.
And the fact of the matter is that the damage that was done to America was done by people who talk a very good game. Robert Rubin contributed money to the Harlem dance group. Jesse Jackson was one of those who supported the reversal of Glass-Steagall. It was the Clinton Democrats (who now run the Obama administration) who turned the henhouse over to the foxes. And the record of Obama on this has been abysmal. He has essentially been a front man for Wall Street. Why? Because he thinks he needs their money to get re-elected in 2012.
A quote from a 1924 edition of the American Bankers Association Journal sums up what is currently happening: "When, through the process of law, the common people lose their homes, they will become more docile and more easily governed through the strong arm of government applied by a central power of wealth under leading financiers. These truths are well known among our principal men who are now engaged in forming imperialism to govern the world. By dividing the voter through the political party system, we can get them to expend their energies in fighting for questions of no importance." [This quote is also attributed to the Bankers Manifesto of 1892.]
The alternative press leads on the policy roots of the credit crisis
Columbia Journalism Review Originally Published on September 24, 2008
The alternative press has led the way on the story of Phil Gramm [who served as a Democratic Congressman (1978–1983), a Republican Congressman (1983–1985) and a Republican Senator from Texas (1985–2002)] and the policy roots of the financial crisis, beating the mainstream business and other media rather badly about the face and neck.
Why this would be so is a subject for group psychologists, anthropologists, social workers, ethnographers, drug counselors, and media critics like us, and certainly another day. But with an election around the corner, we would suggest only that it is as much a mistake for journalists as it is for voters to assume that past policy decisions are unrelated to our current predicament.
So, let’s accentuate the positive and offer an Audit Credit to Mother Jones for more excellent reportingon the ever-widening ripples from the deregulation of the American financial system, which allowed, as it invariably does, the bad money to drive out the good.
James K. Galbraith examines the bubble effects of this deregulation, looking beyond the obvious one in housing, already burst, to the other ones in energy and food. As his colleague David Corn did last summer, Galbraith lays considerable responsibility for financial deregulation at the feet of former Senator Phil Gramm. But, unlike Corn’s also Credit-worthy piece, Galbraith shifts his focus to a specific result of that deregulation: the speculation that has resulted in high commodities prices.
Galbraith’s analysis is nuanced. He does not blame high energy and food prices solely on speculation, but he does expose as a myth the idea that high prices are the result of tight supply and high demand alone. He states bluntly:
Yes, Virginia, speculators can affect the price—if they are large and relentless enough to dominate a market, and especially if they can store the commodity and keep it off the market as the price rises.
Here is where deregulation comes in, because it has given speculators their outsized power. Deregulation has meant that speculation is not a fringe activity, but has rather become a mainstream investment strategy.Here is Galbraith:
Thus today, when officials like Treasury Secretary Henry Paulson say that speculation is not a factor in the commodity markets, they’re not counting hedge funds and investment banks as speculators—even though that’s what they really are.
Galbraith is hardly the only one to raise the issue of speculation and high oil prices, but he distinguishes himself by looking at the larger picture: energy speculation as one facet of broader, and disastrous, deregulation.
In Galbraith’s and Corn’s pieces, Mother Jones makes it clear that if you are looking for someone to thank for this situation, you wouldn’t be wrong to send your regards to Phil Gramm.
This, combined with other deregulatory moves by the CFTC [Commodity Futures Trading Commission], broadened the ‘swaps loophole,’ an enormous backdoor into the commodities markets, basically permitting speculators making bets off the commodities exchanges to be treated as ‘commercial interests’—like say, farmers—and hence avoid the scrutiny (including limits on the size of their bets) normally applied to financial players.
For a view of where both pieces of legislation fit into the financial crisis, take a look at this clear timeline that appeared in Mother Jones last summer.
In the interest of credit where credit is due, we note that Mother Jones, while notable for its force and persistence, was not the first publication to have looked closely at Gramm’s history. Credit also goes to The Texas Observer, where a rigorous article by Patricia Kilday Hart, from last May, pinpoints Gramm as an architect of the financial crisis.Here is Hart on the circumstances of the 2000 legislation:
In the early evening of Friday, December 15, 2000, with Christmas break only hours away, the U.S. Senate rushed to pass an essential, 11,000-page government reauthorization bill. In what one legal textbook would later call‘a stunning departure from normal legislative practice,’ the Senate tacked on a complex, 262-page amendment at the urging of Texas Sen. Phil Gramm.
There was little debate on the floor. According to the Congressional Record, Gramm promised that the amendment—also known as the Commodity Futures Modernization Act—along with other landmark legislation he had authored, would usher in a new era for the U.S. financial services industry.
And did it ever.
In a reminder that the core circle of Gramm critics is a somewhat select bunch, the Texas Observer quotes both Galbraithand former government regulator Michael Greenberger, another name that appears prominently in what there is of Gramm coverage.(We’ve flagged an interview with him further down.)
But we can also see the widening influence of these ideas in pieces like this one from last July. Dave Davies, of the Philadelphia Daily News, chose to spend his “few minutes with McCain” asking about the fact that:
His campaign co-chair and economic advisor, former Texas Sen. Phil Gramm, was co-sponsor of the 1999 law that allowed commercial banks to get into investment banking. And the fact that Gramm was a prime architect of a 2000 bill that kept regulators’ hands off ‘credit default swaps.’
McCain’s answers are unenlightening. But what is important is that this local reporter asked the question. What inspired him? Well, he didn’t mention any publication by name, but he appeared to give Mother Jones and The Texas Observer a nod when he explained,
“Liberal writers raised this issue a month ago.”
The fact is, both the Mother Jones pieces and the Texas Observer piece are part of a small but important batch of articles appearing over the past several months that examine Gramm’s place in financial deregulation, and the resulting effects of that deregulation on the economy.Mother Jones and the Observer stand out for their depth and focus, but other pieces that at least place Gramm in context include an excellent April 2008 interview on Fresh Air with Greenberger, and a March 2008 New York Timespiece that focuses on deregulation more broadly but does mention the former senator.
As a side note, press criticism of Gramm has not gone unnoticed in Washington. On Sept. 17, Vermont’s Bernie Sanders demonstrated that politicians—or at least their aides—do scan the press. He went to the trouble of reading to Congress a Sept. 15 post by blogger Peter Cohan criticizing Gramm’s deregulatory schemes, and he also mentioned The Texas Observer. In addition, Democrats have compiled an information sheet on Gramm that is based in substantial part on press coverage.
In other words, information is out there for those with the motivation to look for it.
The effect of these articles in the political arena remains to be seen. But it is worth noting that the current crisis is not the first time the press has focused on Gramm and deregulation.
To bring in recent history: Gramm and his wife, Wendy, did get some high-profile attention—from an eagle-eyed Public Citizen, then The New York Times, The Chicago Tribune (“Sen. Gramm and Wife Deregulated Enron, Benefited from Ties,” Jan. 18, 2002, Robert Manor), The Washington Post (“For Gramms, Enron Is Hard to Escape,” Jan. 25, 2002, Dan Morgan and Kathleen Day)—several years ago, after the Enron debacle and California energy crisis, for their roles in energy deregulation.But, as will happen, the hubbub died down.
Before it did, some reporters—in the NYT and the WSJ (“Out of Reach: The Enron Debacle Spotlights Huge Void In Financial Regulation,” Michael Schroeder and Greg Ip, Dec. 13, 2001), for example—widened their view, to address the problem of deregulation beyond the energy market. But the job of piecing together Gramm’s role in broader financial deregulation would largely fall to later reporters. Like Hart in The Texas Observer and Galbraith and Corn in Mother Jones.
All this is to say that while Gramm’s role in deregulation has not received the attention it deserves, neither has it gone away. Rather, it forms an undercurrent to the press’s effort to present the larger story of financial collapse.
And lastly, we come full circle: Another place the story has popped up again in recent days is on Mother Jones’s website, where David Corn returned to the topic September 15. He elaborated on suspicions about an ongoing connection between Gramm and McCain:
Gramm is responsible for the rise of the wild and wooly $62 trillion swaps market. And he was chairman of the McCain campaign and a top economic adviser for McCain—until he dismissed Americans worried about the economy as ‘whiners.’ After that comment, McCain dumped Gramm. But was Gramm truly excommunicated from McCain land?
This is pretty much a rhetorical question. And to back up his point, Corn goes on to offer evidence that Gramm appears to be “back in the good graces of the McCain campaign.”
All the more reason why the press needs to keep Gramm in its sights.
"If one understands that socialism is not a share-the-wealth programme, but is in reality a method to consolidate and control the wealth, then the seeming paradox of super-rich men promoting socialism becomes no paradox at all. Instead, it becomes logical, even the perfect tool of power-seeking megalomaniacs. Communism or, more accurately, socialism is not a movement of the downtrodden masses, but of the economic elite." - Gary Allen, None Dare Call It Conspiracy, Concord Press, 1971
The economic “recovery” we are now witnessing is based on theft, greed and deceit. It’s a giant rip-off, a rotten sham. In this sleazy imitation of a free market economy, liars, cheats and deadbeats are the ones getting rewarded.
And as for the savers, the hard workers, the ones who chose to honor their debts and live within their means? Nothing but a bunch of suckers.(They’re the ones paying for it all.)
If you’re one of those “suckers,” at least you’ve got company. I’m a sucker too.
All this time, I thought working hard for my money and staying debt free was wise. I thought sticking with one credit card -- paying down the balance every month, no exceptions -- was prudent. I thought driving a five-year-old car -- fully paid off, nothing flashy -- was a sensible thing to do.
Nope. Turns out those were sucker moves. What I should have done, to be in synch with this economy, was to have bought a 3,000-square-foot McMansion at the peak of the bubble… pulled out a cool hundred thousand in home equity loans… and then defaulted on the place.
That way I could have had the cash for a jet ski and a new convertible and a Hawaiian vacation ---- you know, the means of living in style -- without having to worry about a thing.
No Morals Is the New Normal
Apologies for my cranky tone today. I hope I’m not messing up your Monday. It’s just that, heading into the weekend, I read something that absolutely made me sick. More on that in a moment…
Two weeks ago your humble editor asked, “Did the Housing Bust Fuel the Consumer Spending Binge?”In that piece, it was explained step by step how the phenomenon of “strategic defaults,” i.e. homeowners walking away from their mortgages, may have fueled a surge in retail spending by way of freeing up cash.
As it turns out, it looks like the strategic default thesis was correct.And this helps show why those who were expecting a “new normal” got it wrong.
See, guys like Mohamed El-Erian at Pimco (and yours truly) at first thought the “new normal” meant consumers tightening up and living within their means.What we failed to realize is that “new normal” actually translated to “NO MORALS,” as in “deadbeats ripping off the banks with abandon” (while the banks in turn screw the taxpayers).
In the piece two weeks ago, I hat-tipped a blog called Credit Writedowns for helping me solve the strategic default puzzle. The main blogger there, Edward Harrison, continues to do solid investigative work. Below are some of the anecdotes he recently reported. After reading them, I think you’ll understand my mood:
My 25 year old niece had $10,000 of outstanding credit card debt. Recently, she told the bank she couldn’t pay. She is not unemployed so the ‘hardship’ is all relative. Nevertheless, the bank offered her a concession which she refused. They offered another concession, she refused again. Finally, they told her if she paid $150/month for 2 years (total of only $3600 with no interest), they would call it paid in full! She accepted in a heartbeat. It is less than a month later, and she celebrated her good fortune by going on a cruise to Hawaii.
A friend owns a small manufacturing co. He tells me of one of his female employees who was saddled with a $450,000 home she purchased almost five years ago with no down pmt. One year after her purchase she pulled $75,000 home equity and purchased ‘fun stuff’ including a boat. She recently walked away from the house (now saddled with $525K mortgage), purchased a new house for $200,000 (in her sister’s name) and kept all the goodies purchased from the home equity withdrawal. With the much lower mortgage payment she just bought a new car.
Almost everyone in my “survey” is aware of, or knows someone living rent free in their home for an extended period of time, having stopped paying their mortgage. Many of these free boarders are spending lavishly on non-essentials. My hard-working part-time assistant knows two different 35+ yr olds who have enjoyed over 9 months (one is up to month eleven) of rent-free living in very nice homes they purchased in 2004/2005! Both are employed and both enjoy a non-frugal lifestyle. My assistant wonders if he should do the same or have me pay him more so that he too can enjoy the ‘good life’.
My sister is a nurse with 25+ years on the job. She told me of a young couple that she is good friends with that both work at her hospital making a decent joint income. They didn’t like the fact that they grossly overpaid for their 3000 sq ft home in 2006. They stopped making hefty monthly payments six months ago and haven’t yet been contacted by the bank. They have decided to wait until contacted and then walk away. In the meantime, they just returned from NYC from a week vacation in the Big Apple.
My brother-in-law wanted to know if he should stop making payments on everything. He lives in Virginia and his carpentry skills are not as marketable as they were in the height of the boom. He and his wife’s best friend have lived close-by for many years. For the past 13 months since they strategically decided to stop paying their mortgage, they had yet to be contacted by their bank. Not even one letter! My brother-in-law doesn’t understand how they get to pocket the mortgage and spend carefree, including a 10-day Caribbean vacation.
Apparently there are lots more anecdotes of this type -- potentially “millions of similar stories across the country.”
I thought I was about as cynical as I could get. I thought that, after the initial outrage of the bailouts, my anger was all but spent. But this makes me feel righteously ticked off all over again.
The Revolutionary Rip-Off Machine
Why be furious? A few reasons.
First of all, because these happy-go-lucky knuckleheads spending strategic default “mad money” like water have the attitudes of fiscal dope fiends. They are likely going to go broke again en masse, or otherwise need bailing out, and someone else will have to pay. AGAIN.
Second of all, because it’s just damn disgusting that those people who scrimped and saved to own their homes and pay their debts -- i.e. the “suckers” who lived by a moral code of personal obligation and free market ethics -- have to see such blatant debauchery not just flaunted, but rewarded by the system.It’s a breakdown of ethics and common sense that threatens the future of the country as a whole.
And third, because even though the banks are the ones eating strategic default losses, they aren’t the ones getting screwed in this deal. TAXPAYERS and SAVERS are the ones getting shafted -- people like you and me.(Oh, and your kids too. They’re going to pay out the nose for all this. Big time.)
To understand why the banks don’t really care about strategic default losses -- why they can let defaulters go a year or more without so much as a slap on the wrist -- take a look at the following chart from Gluskin Sheff.
The chart shows the financial sector’s profits as a percentage of all corporate profits in total.
Before the crisis hit, the financial sector had worked its way up to more than a third of all corporate profits at the peak -- an obscene number in itself. Thirty-three cents out of every dollar earned by way of financial engineering? You don’t see that kind of imbalance in a healthy economy… only in a paper casino “phinance” economy, where the “ph” is for phony.
As the financial crisis took hold, the financial sector’s profits plummeted, which the chart shows. But then, post crisis, they bounced back with a vertical vengeance. See that rocket ride on the right side of the chart? It comes courtesy of the Federal Reserve and U.S. Treasury finding any way they can to shovel huge profits into Wall Street’s pockets.At the taxpayer’s and saver’s expense.
Here is how the revolutionary rip-off machine functions:
• Lavish-spending “strategic defaulters” feel justified in ripping off the banks. • The lawless deadbeat culture spreads -- as sparked by the banks’ own example. • The banks don’t care because they are in the rip-off game too, on a larger scale. • The banks can ignore strategic defaults by way of taxpayer-funded profits.
The whole thing winds up being a backdoor political transfer.Washington pumps torrents of money into the rotten banks.The banks look the other way as strategic defaulters catch on that “the way to play the game” is to defraud, deny and spend. And politicians get to enjoy the illusion of recovery.
A License to Print
So how are the banks ripping off the taxpayer, you ask? By way of the record steep yield curve. In keeping short-term rates near zero, the Federal Reserve has given the banks a license to print money.
Thanks to Ben Bernanke, banks can borrow as much as they want for practically nothing… plow that cash into longer-dated U.S. Treasuries… and make perpetually huge profits with little to no risk. It’s like a permanent backdoor bailout subsidy.
Meanwhile, again, the powers that be, to the extent they truly know what is going on, are happy about the strategic default situation. They see the defaults and rampant spending binges as a good thing. Why? Because all that “mad money” creates the illusion of a healthy consumer!
All these jokers going out to buy new cars and Hawaiian vacations and whatnot are fueling a new spending surge,which in turn boosts corporate earnings, which in turn gets Wall Street cheering and the average citizen thinking “hey, things are okay.”
And as for the banks -- why should they trip over pennies on their way to dollars? The big banks have far more money coming in by way of the Federal Reserve’s magic gift (zero interest rate policy) than they do going out.
A Criminal Disaster
The whole thing is a criminal disaster. Here’s why:
Zero interest rates are a cruel punishment for savers, especially elderly savers.
Backdoor inflation (via the creation of excess reserves) is a means of rewarding profligate debtors and punishing savers harshly (making “suckers” of them).
Businesses are gearing up based on the notion that this consumer spending surge is sustainable, when in actuality it’s a giant mirage.
The massive profits being accrued by the banks are pooling disproportionately in the pockets of fat cats and deeply connected investment players (as usual).
The real backbone of America’s economy -- small business -- is still being neglected. So are genuine savers.
The up-and-coming generations -- the children that will inherit all the debt being created -- are in some ways the most voiceless victims of all in this scheme.
Small Business Pain
Meanwhile, even as corporate America rejoices, small business continues to starve. According to a recent survey from the National Federation of Independent Business (NFIB), the credit picture is worsening for small business now. Despite all the hoopla, the employers of more than half of America’s workforce have reason for pessimism, not optimism, in the quarters ahead.
But who cares, right? The economic recovery, or at least the illusion of it, will be carried on by the revolutionary rip-off machine. The Federal Reserve has found a neat new way to funnel cash into the hands of those who least deserve it, just as it did with AIG.
And taxpayers and savers -- the few of them left that is -- will just keep getting squeezed on both sides.An estimated 47% of Americans pay no taxes at all… and the fat cats at the top of the oligarchy ladder certainly get a lot more out of the system than they put in.
So that leaves the “suckers” in the middle (i.e. you and me) to pay the final tab. For all of it. The whole rotten thing.
To be honest, I don’t really know what to think of my country any more. This ridiculous, debauchery-ridden, quasi-socialist Ponzi-scheme of a recovery is going to end in absolute disaster.Crushing deflation, hyperinflation, heck, maybe even martial law… it could all be coming down the pike, in wave after debilitating wave, when the music finally stops.
Maybe we’re just fulfilling the old prophecy:
A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.
Mike Krieger, formerly a macro analyst at Bernstein, and currently running his own fund, KAM LP, summarizies the pretend reality we are all caught in now, knowing full well America is set on a crash course with reality at some point, yet sticking our collective heads in the sand, as the collapse will be some time in the "indefinite" future. In the meantime, banks will continue to boost US GDP by peddling "financial innovation" and restructuring advice to countries like Greece... and nothing else. - Zero Hedge
'Goodbye Disneyland' by Mike Krieger April 22, 2010
A government big enough to give you everything you want is a government big enough to take from you everything you have. - Thomas Jefferson
We Must Move to a Free Market and Shun the Welfare-Warfare State or all will be Lost
Unfortunately for all of us, the primary economic policy of the U.S. government, as well as many others around the world, is an 'extend and pretend' strategy that is economic suicide -- primarily in that it keeps the irresponsible in their assets and makes the responsible shudder and shun productive investments.
Whether it be a homeowner that is subsidized to stay in a home that he cannot afford or a bank that doesn’t want to come clean on the extent of its bad assets, the result is the same -- complete economic inertia.
Now of course there has been a rebound in demand, but my argument has been and continues to be that this is the most unproductive rebound in aggregate demand that perhaps the world has ever seen. Whether it be in the U.S. or China, the demand is taking away spare capacity in many areas, indeed, but we must question the methods. This is where the whole idea of inflation comes into play.
The whole reason why printing a million dollars and giving it to everyone doesn’t work is because this “liquidity” is not created through a productive process.It is purely an injection of new dollars into the economy. The basic rule of supply/demand kicks in. In the average person’s pocket, this money is unlikely to be “invested” in productive capital endeavors; rather, the vast majority of it will simply be spent to consume the resources of that which can be supplied by the already existing capital stock.
So in many ways it isn’t that the creation of the money itself that is the biggest problem, it is the distribution channel of that money. Only a small percentage of the population that receives the million dollars has the ability, drive and discipline to invest the money into something that will create economic value for the society at large rather than just blow it on a flat screen television. This is the entire premise of why a free market economy works when it is allowed to work, which I would argue is not possible under the current Federal Reserve system.
The Fed is a socialist organization that SETS the most important price in the economy, the price of money. Even worse, when they set that price at say 0%, as is basically the case today, that 0% (or anything close to it) is not offered to all the small businessmen or potential entrepreneurs out there.
It might not even be so bad if the low interest rates weren’t simply being used to gamble or play a carry trade with treasuries. Of course, the banks, or anyone else for that matter, playing a spread by borrowing at near zero to buy long-term treasuries is doing irreparable harm to this nation. They are complicit in the gross misallocation of capital to the government, capital that can then be doled out at will to favored interests.
So all we have today is essentially a creation of money and credit out of thin air that is allocated to two major constituents.First, it has primarily been used to maintain the people of wealth, power and political connections (on both sides of the isle) before the crash entrenched in their socioeconomic roles.Second, is to pay off political favors. Those who supported the President in his campaign have been paid back handsomely and are today much more powerful and secure than before, whether we are talking unions or the oligopoly banks.
If we wish to have any hope of a sustainable recovery preventing the inevitable social unrest to come from truly getting dangerous, we must restore the free market and end the union of big business and government, which historically has presented an extremely dangerous situation.
For those that are in big business and think they have made a great move by joining forces with the state, I suggest you go back and read your history.You never will possess the ultimate power; you will be seduced into thinking you do; and then, when the time is right, government can eliminate you and your fortune with the stroke of a pen.Power is granted to you by this authority when you engage in this unholy union, and it can be taken away on whim and your wealth confiscated. Selling out freedom and your fellow citizens for some extra money or government contracts will come back to haunt you. Your legacy to the United States will be a neo-feudalistic, gulag casino economy that has already begun.
Here is a link to an excellent interview with Bill Moyers on PBS about our financial oligarchy (I believe many industries here are becoming oligarchies, but the financial one is the most powerful) and the need to stop its cancerous growth.
There Will be Surplus...In 2050!
The above paragraph is meant to reach those that are actually faced with important decisions every day which can have a meaningful impact on our future -- decisions on whether to sacrifice their country’s and their children’s futures for an extra buck or to stop the game, stand up for freedom and make a positive difference in this world.
This paragraph is meant for a much more broad based audience. Key to the entrenched elite strategy (whether in government or business) is to keep the public in an infantile state.What I mean by this is to keep the notion alive that big daddy government is going to be there to provide for you and protect you. Taking it one step further, they really want the public to believe the government’s existence is in fact necessary for the realization of all one’s hopes and dreams, whether it be economically or with regard to security.
If you remember from Orwell’s 1984, there is never-ending war in Oceania. Think about how useful a never ending “war on terrorism” is to those in positions of power. All this said, while I am a small government person, I am no anarchist. I think government can do a lot of good. I merely think government must be used a tool, a complement to the freedom, independence and individuality.Once the government becomes so big that it is the primary driver of capital and investment, we are in big trouble.This is where the individual’s economic creativity becomes stifled and things shut down.
One of the key strategies being used by insolvent governments around the world right now are fantasy long-term budget projections. They basically read something like, “Well we expect deficits to GDP to be elevated for the next several years, but there will be a surplus by 2020.” Sadly, many people actually believe this nonsense.
As I have said before, the biggest wealth destruction in the next 1-2 years will be, in my opinion, without a doubt, in the sovereign/municipal debt markets. Whether it be through inflation or deflation, this stuff can’t possibly be paid back in real money or anything close to it. The biggest fallacy I hear from people I know that own government or municipal paper is they say they are “comfortable just collecting the yield.” Ok, they may be comfortable with that now, but what if inflation escalates in a major way, which is, in my opinion, one of the more likely outcomes to all this. It means that clipping 3.7% per year on a 10-year note will not be so comforting.
The only reason people think it sounds good is because of what they just experienced in 2007-2009. Use some common sense and there is nothing comforting about it. In fact, it is downright scary. Here’s why. As inflation escalates, the overall price of these securities will trend lower and then, one day, whether in two months from now or a year from now, yields are really going to spike and you will be sitting on a pretty hefty capital loss. By the time an owner actually comes to the admission that there is big inflation in the system (remember the big holders of long-term treasuries will be the LAST to admit this) there will be a major principal loss on the securities, and the decision to sell or hold at that point will not be a pleasant one. Clipping the coupons wasn’t such a good idea after all…
Why Extending Unemployment Benefits is Inflationary and Why Food Stamps = Bread Lines
One theme I have focused on for years now is how the government and the establishment relies on disinformation and propaganda to keep this phony economy alive and to keepp the populace distracted with “bread and circuses” (as the Romans called it) or, as we can say in the modern United States, “food stamps and American Idol.”
Before I get into some of the “bread” tactics used by politicians on both sides of the isle, I want to make something clear. I am not saying we should get rid of food stamps and unemployment benefits.In the current world where we allow corporate oligarchies to control all aspects of the country, this would be unhelpful and immoral. However, I would be in favor of reducing them AFTER the oligarchy problem is dealt with. To do so before would lead to social chaos and would, as I said earlier, be entirely immoral.
Ok, so first with regard to food stamps. The latest data shows that 39.4 million Americans are receiving food stamps. One of the biggest spins you have heard on the media since 2008 is that this is nowhere near as bad as the Depression; after all, where are the bread lines? Well of course there are no bread lines, this is 2010. Food stamps are the modern equivalent. It is a convenient way to keep the suffering and plight of 13% of the American citizenry out of sight and out of mind. That way those that are benefitting from the corrupt crony capitalism of the current system can feel better about themselves. How about you join reality instead.
Next, there is the issue of unemployment benefit extensions.This situation is very similar to the simplistic scenario of printing money and giving it to everyone.Except this is worse. In that situation, at least some percent of those getting the money will be in a position to put that money to productive uses. Someone that is struggling with the severe trauma that is unemployed is going to basically use that money to pay the bills, pay down some debt, and if there is a little left over…well that IPAD sure looks nifty. All the while this is an unused asset of the economy.
This unutilized economic asset is consuming on the taxpayer dime while not adding to the productive capacity of the economy. This is pure inflation. Again, I want to reiterate that dealing with this problem is not the first order of business -- dismantling the oligarchies and restoring a free market is.Then the welfare issue can be dealt with.
Next, to those that continue along this irrational line of thinking -- that without wage inflation there is no inflation (2+2=5) -- I see the first signs of it appearing despite U6 employment at near 20%. Let me give you an example. Here in New York City we were just faced with a prospect of a doorman’s strike. At the last minute a deal was reached with the union which calls for a four year contract with a nearly 10% pay raise and no cuts in benefits for workers. First Wall Street bonuses rebound and now the unions. Entirely coincidental I am sure.
Say Goodbye to Disneyland
One of my old colleagues when I was at Bernstein, and who is from another country, described America to me with the following statement: “it’s like “Disneyland.” I never fully understood what he meant until the last couple of years.However, what I have also realized is this sense of delusional entitlement is extremely manifest in most other OECD nations as well. In case you missed it, earlier this week the European Union declared traveling a “human right” and is “launching a scheme to subsidize vacations with taxpayers’ dollars for those too poor to afford their own trips.”
A friend quipped to me after I sent him that article: “I just realized that there no longer exists any need for political parody. The Onion is a short.” Indeed.
Euro down on Greek jitters, banks dent U.S. stocks Reuters - The euro fell and Greek debt came under intense pressure on April 26, 2010, on renewed jitters over Greece's bailout, while U.S. stocks mainly edged lower on fears that the financial reform making its way through Congress will curb bank profits. Euro hits 1-year low on Greece, Portugal downgrade Reuters - The euro hit a one-year low against the dollar on April 28, 2010, and some traders saw scope for a further drop in the near term, after downgrades of Greece and Portugal's credit ratings raised fears the euro zone's debt problems were spreading. Battered euro, U.S. stocks get lift from Fed Reuters - The euro rallied from one-year lows on April 28, 2010, and U.S. share prices gained after the U.S. Federal Reserve left interest rates near zero and gave an upbeat assessment of the U.S. economy. Oil rises towards $86, up for third month on recovery Reuters - Oil rose on April 30, 2010, heading for a third straight monthly gain, driven by expectations of global economic recovery and hopes of a bailout package to help Greece avoid debt default. Consumers step up spending, bolstering growth Reuters - The U.S. economy expanded at a 3.2 percent annual rate in the first quarter as consumers stepped up spending, the strongest sign yet a sustainable recovery is taking hold. Instant View: U.S. economy grows 3.2 percent in 1Q 2010 Reuters - The U.S. economy grew at a slightly slower-than-expected pace in the first quarter of 2010, held back by inventories and exports, but resurgent consumer spending offered evidence of a sustainable recovery, a government report showed on April 30, 2010. U.S. Economy Grew at a 3.2% Pace in First Quarter as Consumers Spent More Bloomberg - The U.S. economy expanded at a 3.2 percent annual rate in the first quarter as households spent more freely, setting the stage for gains in employment that may help the recovery broaden and accelerate.
The money that the government spends on a failed [mortgage loan] modificationgoes to banks, not homeowners. Typically, the government will have substituted an FHA insured mortgage for the original mortgage issued by a bank. This means that when a redefault takes place, the bank will have received most of the principle back on the loan, with the government incurring the loss on the redefault. The net result of this policy is that far more money is likely to be given to banks through the HAMP than to homeowners. - Dean Baker, Money for Failed Modifications Goes to Banks, Not Homeowners, CEPR
What Dean Baker is pointing out is that the HAMP program looks suspiciously like a way for the banks to shed their bad loans and pile them up at the FHA. And since we know that the vast majority of FHA-eligible modifications are redefaulters, the FHA is going to need some serious capital injections via the US taxpayer.
Baker’s statements about the mod programs being for the banks and not for the borrowers jives with what I have been saying about practically all the government housing bailout plans.
Here’s what I said about principal reduction mods:
It is clear that the principal reduction is more about the banks than the homeowners.In reality this is a another backdoor bailout for the banks camouflaged as support for homeowners. It is a way of recapitalizing banks by having the government pony up for the dodgy assets still on their balance sheets which they have not yet written down.
By Peter S. Goodman, New York Times January 1, 2010
The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.
Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.
As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences.Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.
Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.
“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”
Mr. Katari contends that banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books. Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.
“Then the carpenters can go back to work,” Mr. Katari said. “The roofers can go back to work, and we start building housing again. If this drips out over the next few years, that whole sector of the economy isn’t going to recover.”
The Treasury Department publicly maintains that its program is on track.
“The program is meeting its intended goal of providing immediate relief to homeowners across the country,” a department spokeswoman, Meg Reilly, wrote in an e-mail message.
But behind the scenes, Treasury officials appear to have concluded that growing numbers of delinquent borrowers simply lack enough income to afford their homes and must be eased out.
In late November, with scant public disclosure, the Treasury Department started the Foreclosure Alternatives Program,through which it will encourage arrangements that result in distressed borrowers surrendering their homes. The program will pay incentives to mortgage companies that allow homeowners to sell properties for less than they owe on their mortgages — short sales, in real estate parlance. The government will also pay incentives to mortgage companies that allow delinquent borrowers to hand over their deeds in lieu of foreclosing.
Ms. Reilly, the Treasury spokeswoman, said the foreclosure alternatives program did not represent a new policy.
“We have said from the start that modifications will not be the solution for all homeowners and will not solve the housing crisis alone,” Ms. Reilly said by e-mail. “This has always been a multi-pronged effort.”
Whatever the merits of its plans, the administration has clearly failed to reverse the foreclosure crisis.
In 2008, more than 1.7 million homes were “lost” through foreclosures, short sales or deeds in lieu of foreclosure, according to Moody’s Economy.com.Last year, more than two million homes were lost,and Economy.com expects that this year’s number will swell to 2.4 million.
“I don’t think there’s any way for Treasury to tweak their plan, or to cajole, pressure or entice servicers to do more to address the crisis,” said Mark Zandi, chief economist at Moody’s Economy.com. “For some folks, it is doing more harm than good, because ultimately, at the end of the day, they are going back into the foreclosure morass.”
Mr. Zandi argues that the administration needs a new initiative that attacks a primary source of foreclosures: the roughly 15 million American homeowners who are underwater, meaning they owe the bank more than their home is worth.
Increasingly, such borrowers are inclined to walk away and accept foreclosure, rather than continuing to make payments on properties in which they own no equity. A paper by researchers at the Amherst Securities Group suggests that being underwater “is a far more important predictor of defaults than unemployment.”
From its inception, the Obama plan has drawn criticism for failing to compel banks to write down the size of outstanding mortgage balances, which would restore equity for underwater borrowers, giving them greater incentive to make payments. A vast majority of modifications merely decrease monthly payments by lowering the interest rate.
Mr. Zandi proposes that the Treasury Department push banks to write down some loan balances by reimbursing the companies for their losses. He pointedly rejects the notion that government ought to get out of the way and let foreclosures work their way through the market, saying that course risks a surge of foreclosures and declining house prices that could pull the economy back into recession.
“We want to overwhelm this problem,” he said. “If we do go back into recession, it will be very difficult to get out.”
Under the current program, the government provides cash incentives to mortgage companies that lower monthly payments for borrowers facing hardships. The Treasury Department set a goal of three to four million permanent loan modifications by 2012.
“That’s overly optimistic at this stage,” said Richard H. Neiman, the superintendent of banks for New York State and an appointee to the Congressional Oversight Panel, a body created to keep tabs on taxpayer bailout funds. “There’s a great deal of frustration and disappointment.”
As of mid-December, some 759,000 homeowners had received loan modifications on a trial basis typically lasting three to five months.But only about 31,000 had received permanent modifications — a step that requires borrowers to make timely trial payments and submit paperwork verifying their financial situation.
The government has pressured mortgage companies to move faster. Still, it argues that trial modifications are themselves a considerable help.
“Almost three-quarters of a million Americans now are benefiting from modification programs that reduce their monthly payments dramatically, on average $550 a month,” Treasury Secretary Timothy F. Geithner said last month at a hearing before the Congressional Oversight Panel. “That is a meaningful amount of support.”
But mortgage experts and lawyers who represent borrowers facing foreclosure argue that recipients of trial loan modifications often wind up worse off.
In Lakeland, Fla., Jaimie S. Smith, 29, called her mortgage company, then Washington Mutual, in October 2008, when she realized she would get a smaller bonus from her employer, a furniture company, threatening her ability to continue the $1,250 monthly mortgage payments on her three-bedroom house.
In April, Chase, which had taken over Washington Mutual, lowered her payment to $1,033.62 in a trial that was supposed to last three months.
Ms. Smith made all three payments on time and submitted required documents, Chase confirms. She called the bank almost weekly to inquire about a permanent loan modification. Each time, she says, Chase told her to continue making trial payments and await word on a permanent modification.
Then, in October, a startling legal notice arrived in the mail: Chase had foreclosed on her house and sold it at auction for $100. (The purchaser? Chase.)
“I cried,” she said. “I was hysterical. I bawled my eyes out.”
Later that week came another letter from Chase: “Congratulations on qualifying for a Making Home Affordable loan modification!”
When Ms. Smith frantically called the bank to try to overturn the sale, she was told that the house was no longer hers. Chase would not tell her how long she could remain there, she says. She feared the sheriff would show up at her door with eviction papers, or that she would return home to find her belongings piled on the curb. So Ms. Smith anxiously set about looking for a new place to live.
She had been planning to continue an online graduate school program in supply chain management, and she had about $4,000 in borrowed funds to pay tuition. She scrapped her studies and used the money to pay the security deposit and first month’s rent on an apartment.
Later, she hired a lawyer, who is seeking compensation from Chase. A judge later vacated the sale. Chase is still offering to make her loan modification permanent, but Ms. Smith has already moved out and is conflicted about what to do.
“I could have just walked away,” said Ms. Smith. “If they had said, ‘We can’t work with you,’ I’d have said: ‘What are my options? Short sale?’ None of this would have happened. God knows, I never would have wanted to go through this. I’d still be in grad school. I would not have paid all that money to them. I could have saved that money.”
A Chase spokeswoman, Christine Holevas, confirmed that the bank mistakenly foreclosed on Ms. Smith’s house and sold it at the same time it was extending the loan modification offer.
“There was a systems glitch,” Ms. Holevas said. “We are sorry that an error happened. We’re trying very hard to do what we can to keep folks in their homes. We are dealing with many, many individuals.”
Many borrowers complain they were told by mortgage companies their credit would not be damaged by accepting a loan modification, only to discover otherwise.
In a telephone conference with reporters, Jack Schakett, Bank of America’s credit loss mitigation executive, confirmed that even borrowers who were current before agreeing to loan modifications and who then made timely payments were reported to credit rating agencies as making only partial payments.
The biggest source of concern remains the growing numbers of underwater borrowers — now about one-third of all American homeowners with mortgages, according to Economy.com. The Obama administration clearly grasped the threat as it created its program, yet opted not to focus on writing down loan balances.
“This is a conscious choice we made, not to start with principal reduction,” Mr. Geithner told the Congressional Oversight Panel. “We thought it would be dramatically more expensive for the American taxpayer, harder to justify, create much greater risk of unfairness.”
Mr. Geithner’s explanation did not satisfy the panel’s chairwoman, Elizabeth Warren.
“Are we creating a program in which we’re talking about potentially spending $75 billion to try to modify people into mortgages that will reduce the number of foreclosures in the short term, but just kick the can down the road?” she asked, raising the prospect “that we’ll be looking at an economy with elevated mortgage foreclosures not just for a year or two, but for many years. How do you deal with that problem, Mr. Secretary?”
A good question, Mr. Geithner conceded.
“What to do about it,” he said. “That’s a hard thing.”
Bank of America Corp and JPMorgan Chase & Co have started modifying tens of thousands of mortgages where the banks deem the loans especially risky, even if the borrowers have not asked,the New York Times reported on Sunday.
In some cases, the paper said, the banks are slashing the amount borrowers owe, citing one case in Florida where a woman's principal balance was cut in half.
The paper said the banks are targeting holders of pay option adjustable-rate mortgages, a type of loan where borrowers have the option of skipping some principal and interest payments and having the amount added back onto the loan.
Such "option ARM" loans were seen as especially high risk in the wake of the financial crisis; the two banks collectively still have tens of billions of dollars of such loans in their portfolios.
One law professor quoted by the Times said the banks were behaving in contradictory ways, modifying some loans that should not be and not modifying some loans that should be.
Spokespeople for the two banks were not immediately available to comment.
The New World Order Plan is spiritually based: it is a conflict between God and His forces, on the one hand, and Satan and his demonic forces on the other side. Anyone who does not know Biblical doctrine about God and Satan, and who does not know Scriptural prophecy, cannot comprehend the nature of the struggle facing the world today. - David Bay, Cutting Edge Ministries
For we wrestle not against flesh and blood, but against principalities, against powers, against the rulers of the darkness of this world, against spiritual wickedness in high places. - Ephesians 6:12
For we are opposed around the world by a monolithic and ruthless conspiracy that relies on covert means for expanding its sphere of influence... Its preparations are concealed, not published. Its mistakes are buried, not headlined. Its dissenters are silenced, not praised. No expenditure is questioned, no rumor is printed, no secret is revealed. - President John F. Kennedy, April 27, 1961
The book in which they are embodied was first published in the year 1897 by Philip Stepanov for private circulation among his intimate friends. The first time Nilus published them was in 1901 in a book called The Great Within the Small and reprinted in 1905. A copy of this is in the British Museum bearing the date of its reception, August 10, 1906. All copies that were known to exist in Russia were destroyed in the Kerensky regime, and under his successors the possession of a copy by anyone in Soviet land was a crime sufficient to ensure the owner's of being shot on sight. The fact is in itself sufficient proof of the genuineness of the Protocols. The Jewish journals, of course, say that they are a forgery, leaving it to be understood that Professor Nilus, who embodied them in a work of his own, had concocted them for his own purposes.
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