THE SOLUTION FOR THE SUB-PRIME MORTGAGE CRISIS

This guest post was written by my good and dear friend Dr. Kurt Lehovec.

THE LEHOVEC SOLUTION FOR THE SUB-PRIME MORTGAGE CRISIS
by: Dr. Kurt Lehovec, Prof. Emeritus, USC.

1. BACKGROUND

The present financial crisis originated from sub-prime lending of home mortgages by financial institutions. “Sub-prime” refers to non-qualified borrows. The lenders benefited from these mortgages by charging higher interest rates. The easy availability of mortgages generated a housing boom and ever increasing house prices – for a while. The rising home equity led some home owners to refinance and withdraw money increasing their mortgage debt.

When the supply of would-be home buyers was exhausted, house prices began to fall. With the equity less than the outstanding mortgage, many home owners opted for abandoning the property to the lending institution. The lenders had to write off the difference between mortgage and equity as bad debt, depleting the capital of the lending institutions to an extent leading some to bankruptcy. The foreclosures of the property by the lending institution depressed further the house prices in the neighborhood and inflicted a great hardship on the owners, now, in theory, homeless. The government, that is the people, provided cash to some institutions saving them from consequences of their past mistakes, from which they had benefited for some time. No government money was provided to home owners on main-street and a drop of the stock-market. Initial attempts by the government have failed to restore confidence so far.

2. MY SOLUTION FOR DEFAULTING SUB-PRIME MORTGAGES

My solution is restricted to sub-prime mortgage home owners who live in their property and saw their equity decline below their remaining mortgage debt. My solution does not apply to speculators who bought the property in hope for further appreciation and plan eventually to sell and to investors who acquired the property to rent.

I propose the following steps to be taken:

i. The government removes the sub-prime mortgages from the lenders by buying these mortgages from the lenders at the present remaining mortgage value. This would improve the balance sheet of the lending institutions and provide them with liquidity for further loans.

ii. The government, i.e. the people, now owning these sub-prime mortgaged houses, would let the sub-prime mortgage owner to stay in their former houses as tenants of the government, at a rent equal to the present interest rate for their former mortgage paid to the lending institution before the take-over by the government.

3. A NUMERICAL EXAMPLE

The following numerical example illustrates the proposed transactions. The numbers are not necessarily typical. Consider a sub-prime house bought for $300.000 at an interest rate of 9% annually. Assume that the sub-prime owner has paid off already $100.000, so that his remaining mortgage is $200.000. His present monthly interest payment is thus $1500.

If the present monthly repayment of the mortgage principal is $2000 (This depends on the duration of the loan), the sub-prime owner would have to pay $3,500 each month, which he cannot afford.

According to my proposal the government would pay to the lending institution $200.000 from the already approved 700 billion rescue fund and would assume ownership of the property. The sub-prime former owner would remain in the property as the tenant of the government at a monthly rent of $1,500, which he can hopefully afford. By losing his ownership of the property he would have lost his $100,000 mortgage payment prior to the government’s take over. However he should be very happy to stay in his former house at the low rent of $1,500. The government, i.e. the people, should be happy with an investment providing a return of 9% minus local real estate tax and insurance and with a potential added capital gain if house prices recover.

4. CONCLUSION

The mortgage lender receives the full mortgage value, thus erasing a bad debt and gaining liquidity and should be very pleased. The sub-prime borrower now pays as a tenant only the former interest and no more a down payment of the loan and should be very pleased to remain in his home.

The government, that is the people, should be pleased with a cash investment paying the high interest rate of the former mortgage minus real estate tax and insurance. And the neighborhood should be happy of having avoided another property depressing foreclosure.

Dr. Kurt Lehovec
Los Angeles, CA.
213-384-8921

BYE-BYE HILLARY!

Hillary Clinton can kiss her chances for being President good-bye.

This economic situation is going to ruin Barack Obama during his 4 years and when it's all said and done...Mr. Obama will be the next Jimmy Carter. A laughing stock!

Then the Repulicans will be primed to take over congress and the White House by the time Mr. Obama and the Democratic Senate and Congress take this country into even more of an economic crisis...then this generation of kids who voted for Mr. Obama will be older and wiser. Then they'll come to their senses and we'll see another 8 years of Rebublican rule.

That's because it's going to take time to forget what Mr. Obama and the Democrats (They'll have no one to blame) did to the country...just like it took time for America to forget what Jimmy Carter did to the country.

PALIN 2012

mike t.

COLIN POWELL THE COWARD!

I've always been a big fan of former Secretary of State Colin Powell. I thought for sure this guy would be a shoe-in for the White House if he decided to run. This man, to me, was the perfect candidate for representing minorities in the political big picture. The man, to me, seemed to be a level-headed conservative with a clear understanding of social issues concerning minorities in the context of this country's center-right Presidential political philosophies.

Now, from what I'm hearing, Mr. Powell is on the verge of endorsing Mr. Obama for the Presidency? My, my, my...how the mighty have fallen!

If this rumor is true, I only have one thing to say to Mr. Powell: HOW DARE YOU!

As a high profile minority, Mr. Powell, is going against tradition by being labeled a conservative in the first place. Why would a high profile minority even be siding with the Republicans in the first place?

The answer to that question is pretty simple: Mr. Powell is an educated man. He understands the differences between the Republican and Democrat's philosophy on economics. He understands what the ramifications of tax proposals are. That's part of the reason why he's considered to be a conservative.

Mr. Powell understands the dangers of the world we live in. He understands the danger that Iran and North Korea pose to the world if they're allowed to obtain nuclear power. He understands these things clearly. That's another reason why he's considered to be a conservative.

Mr. Powell also understands the philosophies of this country's religous freedoms. I believe Mr. Powell is a "believer". As a believer, I think, that means Jesus-Christ. Now how, pray tell, can Mr. Powell be a supporter of abortion when it comes to that type of life issue?

It's clear to me that Mr. Powell, as it turns out, is a coward! First for not running for the Presidency himself and second for selling out his core beliefs for a candidate like Mr. Obama. That is a coward through and through.

Mr. Obama's wealth redistribution tax plans should bring outrage from Mr. Powell but instead we're hearing rumors of a Mr. Obama endorsement from Mr. Powell? What is it in Mr. Obama's own words that Mr. Powell doesn't understand? "I want to spread the wealth around"? Is Mr. Powell now endorsing this philosophy?

FROM MR. POWELL'S OWN WORDS:
_________________________

Colin Powell Tells Republican Delegates [1996]:

"We Republicans believe that the family, fueled by values, must be restored to a central place in American life if we are to keep the dream alive!

I come before you this evening as a retired soldier.- a fellow citizen who has lived the American Dream to its full, as one who believes in that dream and as one who wants that dream to come to a reality for every American. My parents came to this country as immigrants over 70 years ago. They came here as did millions of others with nothing but hope and a willingness to work hard and a desire to seize the opportunities given to them by their new land.

They found work that enabled them to raise a family; work that allowed them to come home every Friday night with the fruits of their labor - a decent wage that brought sustenance, and more importantly, brought dignity into our home. They raised two children to whom they gave precious gifts - a set of core beliefs, a value system founded on a clear understanding of the difference between right and wrong, and a belief in the Almighty. Integrity, kindness, doctrines that were right - lying, crime, violence, intolerance, drugs were wrong, and even worse than wrong in my family - they were shameful! We were taught that hard work and education were the keys to success.

My sister and I were taught to believe in ourselves. We might be considered poor, but we were rich in spirit. We might be black and considered second-class citizens, but stick with it because we were Americans! Justice will eventually triumph and the powerful series of promises of the founding fathers will come true. We were taught by my parents - always, always, always believe in miracles!

My parents found here a compassionate land, with a compassionate people. They found a government that protected their labor, educated their children and provided help to those of their fellow citizens who were needy. They found their dream in America and they passed that dream on to their children. Here tonight over 70 years after they landed on these shores, their son has been given the privilege of addressing the Republican party, assembled in convention to present to the American people our vision of how that dream can be passed on to future generations.

Our vision first and foremost rests on values - values, because values are the conscience of a society. Values that must be lived, not just preached. Children learn values by watching their parents in their homes, values that are then re-enforced in their churches and places of worship, in their schools and in their communities in which they live. Values fuel families, families that are bound together by love and commitment, families that have the strength to withstand the assaults of contemporary life, to resist the images of violence and vulgarity that flood into our lives every day. Families that come together to defeat the scourge of drugs and crime and incivility that threatens us. That's why we Republicans believe that the family, fueled by values, must be restored to a central place in American life if we are to keep the dream alive!

Yet, families cannot thrive and pass on these beliefs if parents cannot bring home a decent living wage from a hard day's work. We Republicans believe that a good job, needed to sustain families, come from a faster growing economy where the free enterprise system is unleashed to create wealth, wealth which produces more good jobs."
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That section of Mr. Powell's speech tells me that he's about to sell out his own core values to endorse Mr. Obama. Again, Mr. Obama's tax proposals should be enough for Mr. Powell to stay away from anything that has to do with Mr. Obama's policies.

Why would Mr. Powell even consider endorsing Mr. Obama? Everything Mr. Obama has done in this campaign has it's roots in class warfare. Mr. Obama, to me, is exploiting the poor for power. That goes against everything Mr. Powell said his parents taught him. I thought soldiers were supposed to stand up to injustices.

Why doesn't this old soldier, Mr. Powell, secure his role in history by telling the American public, especially the black community, that what Mr. Obama is doing is called class warfare and exploitation? Not to speak out against this type of philosophy that all Democrats seems to practice is something prominent black men will regret one day. Class warfare and exploitation is only crippling the black community and if Mr. Powell was a true soldier he would point this out this coming Sunday.

If Mr. Powell doesn't point this out but, in fact, goes on to endorses Mr. Obama, well, I only have one thing to say to Mr. Powell: HOW DARE YOU! But my real question is this: How can an educated man like Mr. Powell, who knows the difference between right and wrong, just sit there and not say anything about the black community being exploited and still call himself a soldier? To sit there in silence over an issue like this is one thing but to act blind to the point of endorsing Mr. Obama...well, that's just a sold out soul.

I mean, how can you say something like this: "Our vision first and foremost rests on values - values, because values are the conscience of a society". If Mr. Powell truely believes this, then what he is doing is selling out his own conscience. Is that what it's come down to? How can Mr. Powell do something like that?

The answer to that question is simple: Mr. Powell is a coward and nothing more!

And you wonder why this great society is in a decline. When men of conscience sell their souls...that's not a good thing.

SHAME ON YOU, MR. POWELL!

mike t.

THE DEBATES...

Over and over I hear one thing. So and so needs to do this and so and so needs to do that. Mr. McCain needs a knock-out blow. Mr. Obama just needs to not over react to Mr. McCain. I mean when people are looking for a "soundbite" to determine who won the debate...that's pretty shallow.

Polls, a few days later, will say who won the debate and why.

ALL OF IT IS PURE BS!

Why is it pure BS? Because nobody wins a Presidential Debate. A Presidential Debate is based on two different philosophies. Either you buy one or you buy the other. But the idea that an election can be "won" with a clever saying is just ludicrous.

The only people who count in Presidental Debates are the Independant voters. The question that has to be asked now is this: What do Independants look for in these debates. I'm an Independant who leans right. What do I look for? I look for what makes sense. And here's why:

I had an old friend who just to lecture me many many years ago. He was an older gentleman but he taught me one good thing that serves me well to this present day.

He said to me: Michael! I preach the gospel of mathematics.

I said to him: The gospel of mathematics? What do you mean?

He said: Michael...there's only one rule in this life that you have to pay attention to.

I said: And what rule is that?

He said: If it doesn't add up...then it just isn't true! And you can apply that to anything in life. And, Michael, that's the gospel that I preach!

_______________________________________

Over the years I've come to realize how wise this simple perspective really is. The only difference between me and the old man is that I've changed his term: "The Gospel of Mathematics" to "The Law of Mathematics". The principle is the same. If it doesn't add up...it just isn't true.

Let's now apply this philosophy to this Presidental Debate or better yet, the Presidential campaign.

Mr. Obama's promise to give 95% of the population an income tax break...how does that add up?

From what I understand, close to 40% of the population doesn't even pay income taxes. So right there, according to the law of mathematics, this doesn't add up.

Now I can go into breaking this down according to my own perspective but I think I'm going to use something I found on the Internet just about 1 minute ago.

Obama's Tax Plan Charade
By AC Writer, published Oct 09, 2008

Barack Obama has repeatedly stated on the campaign trail, and in two debates with John McCain, that his tax plan would provide an income tax cut to 95 percent of working Americans. Just yesterday on CNN I saw Joe Biden repeat this claim. There's only one problem. The claim is a false one.

Think about this for a minute. How is it possible for 95 percent of working Americans to receive an income tax CUT when only 67 percent of working Americans pay income taxes? The numbers just don't add up.

According to the National Tax Payers' Union, citing IRS statistics, 32.6 percent of Americans filing income tax returns do not pay any income taxes at all. So how do they get a tax cut? You can't cut from zero. It's impossible.

Here's a look at who pays income taxes. A review of data compiled by the National Tax Payers' Union (of course, you can go to the IRS web site and examine the tables for yourself if you wish) reveals the following:

Percentiles by AGI AGI Threshold Percent of Income Tax Paid

Top 1%
$388,80639.89

Top 5%
$153,54260.14

Top 10%
$108,90470.79

Top 25%
$64,70286.27

Top 50%
$31,98797.01

Bottom 50%
2.99

So the question remains, how do you cut income taxes for those Americans who do not pay income taxes? You can't. But you can give them a rebate and call it tax relief, which is exactly what the Obama plan does. It's simple: you redistribute wealth. You take money earned by some American citizens and you give it to others who did not earn it.

According to a report by the non-partisan Tax Foundation, the 60 percent burden already being borne by the top 5 percent is going to get much heavier if the Obama tax plan is enacted. The Foundation says, "In short, the Obama plan would redistribute more than $131 billion per year from the top 1 percent of taxpayers to all other taxpayers. In 2009, for example, Tax Policy Center figures show that after the income-shifting in the Obama plan, the top 1 percent of taxpayers would pay a greater share of the total federal tax burden than the bottom 80 percent of Americans combines. In other words, 1.13 million Americans would pay more in all federal taxes than 128 million of their fellow citizens combined."

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Now that was pretty simple but still a little technical. What I want to do is bring in some common-sense language to the matter.

People, on the right, can say that all they want about taxing the rich will only cause a depression. They might be right. But why isn't that resonating with the people who actually play the polls?

My feeling is that it's because people have a tendancy to let things go into one hear and out the other from day to day.

Mr. Obama's tax proposal should be in the face of the voters everyday so that it can stay in thier ears up until November 4. But what needs to be done is that his tax proposals need to be put into everyday language, which the common man understands.

This is how I would word it.

When you tax the rich you tax yourself!

The rich are not rich because they're stupid. When you tax the rich they will increase the price of their products and services. So you will be "taxed" with that price increase. Technically, you aren't being taxed by the Government but you'll be paying in the supermartket, gasline and everything else that makes over 250,000 dollars per year.

250, 000 dollars per year isn't really where the price of product and services go up. That's the place where jobs are created. The price of products and sevices for big cooporations is where you'll see the increase. And when they increase the price for those products and services that's where "95%" of the people getting those "tax breaks" will be getting TAXED!

So, we put these two ideas together and what do we get? For 250,000 small business we get job cuts. For big cooporation we get a price increase for products and services. Put together that's called inflation.

What is inflation? That's when the price of products and services go up and the money in your pocketbook is staying the same or going down.

That's what Mr. Obama's tax proposals will do. It's common-sense. It goes right along the lines of "The law of mathemathics". It can be looked upon in two ways.

Do "95%" of the population get a tax break? That doesn't add up!

Will people at 250,000 dollars a year cut jobs because they can't grow because of Mr. Obama's tax proposals? That adds up!

Will big cooporations increase the price of products and services if they get a big tax increase under Mr. Obama's tax proposals? Propably yes! That adds up, too!

So, who do you think is telling the truth? Both parties are telling the "truth" but there is a clear differance in their philosophies.

The question is this: Which philosophy do you buy into?

mike t.

WHAT'S WRONG WITH THIS PICTURE?

Take a good look at this face and tell me what do you see? Take a good look at that sly little smile. And take a look into those sincere blue eyes and tell me what do you see? A writer for the N.Y. Times? Yes, he's that for sure. An intellectual? Isn't that how all major journalist see themselves? They take their intellectual ability and combine it with a marketable photo of themselves and they try to convery the idea that you can trust them.

I mean, really, take a good look at the photo and tell me that's not what this guy is trying to do.

Now read his piece in the opinion of the N.Y. Times.

The Terrorist Barack Hussein Obama

For this post I'm going to pull one paragraph from this opinion he wrote about. It's not really about Mr. Obama...it's about Mr. McCain.

About 2/3 of the way down in this article you'll come across this paragraph.

"The operatives who would have Palin quote Pegler have been at it ever since. A key indicator came two weeks after the convention, when the McCain campaign ran its first ad tying Obama to the mortgage giant Fannie Mae. Rather than make its case by using a legitimate link between Fannie and Obama (or other Democratic leaders), the McCain forces chose a former Fannie executive who had no real tie to Obama or his campaign but did have a black face that could dominate the ad’s visuals."

__________________________________________________

Through all the intellectual twists of this piece we have this little gem where the "intellectual" really outsmarted himself.

That one little paragraph correctly points out that Mr. Obama and other Democratic leaders are legitimatley responsible for the economic crisis that is hitting America and the rest of the world. That, to me, is pretty big news. That, to me, is EARTHSHAKING NEWS! That, to me, is reason enough to bring these people to justice for manipulating our system to the point where we don't know if we're heading into another great depression. That's the kind of thing that should have people outraged and calling out for justice. But instead of outrage, this guy, Frank Rich, is accusing Mr. McCain of some superfical charge of...I just don't know what! Compared to this economic crisis what he's talking about or trying to point out seems like nonsense, to me.

American's have every right to be very very angry with Mr. Obama and the Democrats over this economic crisis. And this guy, Frank Rich, seems to think there's another issue at play here. My question to Mr. Rich is this: If you know that there's a legitimate connection between Mr. Obama, other Demorcratic leaders, Fannie Mae, Freddie Mac and the economic crisis...then why aren't you angry at the deception of Mr. Obama's campaign? If you know the connection between Mr. Obama and the economic crisis is legit...then that would make everything Mr. Obama is saying about economic crisis a lie. Tell us, Mr. Rich, why aren't you angry about that?

Is this economic crisis not serious enough to break through partisan politics and "reporting" to make people angry enough to hold those responsible and to bring them to the "light" of the media? Isn't that what a journalist is supposed to do? Watch out for the American people by reporting on issues that would hurt the overall well being of the country?

I mean, here we are spinning out of economic control and everyone in the media knows it's because of the Community Reinvestment Act. And everyone in the media knows it's the Community Reinvestment Act that lead to the swindling Fannie Mae and Freddie Mac applied to their corrupt business practices. That's common knowledge. But does Mr. Rich do an indepth report on that? Why not?

Read this man's article, and if it wasn't for his slip up in writing that one little paragraph, you would think Mr. McCain is playing the part of the devil or something. Where, pray tell, is the intergrity?

I mean is this guy doing his "white - forgive me - duty" to the black community by playing the race card for them in his article?

THERE'S AN ECONOMIC CRISIS GOING ON and this guy is playing the race card for Mr. Obama, who is legitimatley connected to the cause of the crisis! I mean how politically correct are these people trying to be? Are they so sensitive to the black plight that they willing to give a blind eye to the likes of Mr. Obama and the Democratic leadership who are responsible for this economic crisis?

America needs to be angry at these people! And especially at the likes of Mr. Rich and the N.Y. Times for twisitng this economic issue around so bad that Mr. Obama and the Democratic leadership, it seems, are going to get a free pass for this economic crisis. Mr. Obama, Fannie Mae, Freddie Mac and the Demorcratic leadership should be under investigation and not leading in the polls for the Presidential election.

So, with that, I say unto you, again. Take a good look at that photo of Mr. Rich, again.

Now tell me: What do you see? Behind the friendly eyes. Behind the friendly little smile. I'll tell you what it is you should see. It's called INTELLECTUAL CORRUPTION! That, my fellow Americans, this what Intellectual Corruption looks like. Tell me: Do you trust that guy? I don't know if you do or if you don't but I can tell you this for sure. I DO NOT!

He insults my intelligence.

mike t.

KNOWLEDGE IS UNDERSTANDING AND POWER

I watched this youtube video and followed their links to get the following information for this post.

If people are going to be honest then you have to acknowledge the facts of what that youtube video is saying. What it breaks down to is "class warfare". What is class warfare? That's when the Democrats use the ignorance of the poor to blame the Republicans for everything without providing the facts. In other words: They rely on the poor's lack of an education.

Do your research!

SIMPLY PUT…THE DEMOCRATS ARE RESPONSIBLE FOR THE ECONOMIC CRISIS

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THE ROOTS OF THIS ECONOMIC CRISIS

The Community Reinvestment Act (CRA)

The Community Reinvestment Act (CRA) was established by Congress in 1977 (President Jimmy Carter). The Act requires that deposit-taking financial institutions offer equal access to lending, investment and services to all those in an institution's geographic assessment area-at least three to five miles from each branch. In the case of large banks with many branches, the geographic area may encompass an entire county or even a state.

Before the CRA, many bankers excluded low-income neighborhoods and people of color from their lending products, investments, and financial services - a practice known as "redlining". Community activists coined the term when they discovered that the failure of banks to make loans in some low-income neighborhoods was so geographically distinct, that it was easy to draw red lines on maps to delineate the practices.

In the 1970s, activists in Chicago and across the country brought strong pressure on banks to lend equitably to all those in their communities. Since its passage, the CRA has been used across the United States to win tens of billions of dollars in new lending, investments, and services for communities. The National Community Reinvestment Coalition tracks more than $1 trillion dollars in community reinvestment pledges nationally. These pledges are explicit investments in equitable development goals, and finance many tools in this toolkit.

Original Act

The CRA was passed by the 95th United States Congress and signed into law by President Jimmy Carter in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community. Only one banker, Ron Grzywinski from ShoreBank in Chicago, testified in favor of the act. The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an institution's application for deposit facilities, including mergers and acquisitions after the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 repealed restrictions on interstate banking. However, until 1995 the Act was laxly enforced and banks only were required to advertise in local minority newspapers or sit on the boards of local community groups. The CRA is enforced by the financial regulators (Federal Deposit Insurance Corporation ("FDIC"), Office of the Comptroller of the Currency ("OCC"), Office of Thrift Supervision ("OTS"), and the Federal Reserve System).

The bill encouraged mortgage lending through two government sponsored enterprises ("GSEs"). The Federal National Mortgage Association, commonly known as Fannie Mae, enables mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies to lend to home buyers. The Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, buys mortgages on the secondary market and sell them as mortgage-backed securities on the open market. It also charged the Federal Reserve System to implement the CRA through ensuring banks and savings and loans met their CRA obligations.

Clinton Administration Changes of 1995

In early 1993 President Bill Clinton ordered new regulations for the CRA which would increase access to mortgage credit for inner city and distressed rural communities. The new rules January 31, 1995 and featured: requiring strictly numerical assessments to get a satisfactory CRA rating; using federal home-loan data broken down by neighborhood, income group, and race; encouraging community groups to complain when banks were not loaning enough to specified neighborhood, income group, and race; allowing community groups that marketed loans to target to groups to collect a fee from the banks.

The new rules, during a time when many banks were merging and needed to pass the CRA review process to do so, substantially increased the number and aggregate amount of loans to low- and moderate-income borrowers for home loans, some of which were ‘SUBPRIME LOANS.’ Banks set up CRA departments, a CRA consultant industry was created and new financial-services firms helped banks invest in packaged portfolios of CRA loans to ensure compliance. Established and new community groups began marketing such mortgages. The Senate Banking Committee estimated that as of 2000, as a result of CRA, such groups had received $9.5 billion in services and salaries. As of that time such groups also had received tens of billions of dollars in multi-year commitments from banks, including ACORN Housing $760 million; Boston-based Neighborhood Assistance Corporation of America $3 billion; a New Jersey Citizen Action-led coalition $13 billion; the Massachusetts Affordable Housing Alliance $220 million. The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent.

Related rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks. By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market. Due to massive financial losses, on September 7, 2008 the Federal Housing Finance Agency (FHFA) put Fannie Mae and Freddie Mac under the conservatorship of the FHFA.

Bush Administration Changes of 2005

In 2002 there was an interagency review of the effectiveness of the 1995 regulatory changes to the Community Reinvestment Act and new proposals were considered. In 2003, the Bush Administration recommended that a new Department of the Treasury agency should supervise the primary agents guaranteeing subprime loans, Fannie Mae and Freddie Mac. Congressional support was approximately split along Party lines and the proposal eventually failed.

The new CRA regulations proposed in early 2005 were put into effect in July and September of 2005. They included new definitions for "small" and "intermediate small" banks which were subject to less restrictions than formally. The regulations were opposed by a contingent of Democrats.

The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities
Howard Husock

The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation's banks. Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups, intent, in some cases, on teaching their low-income clients that the financial system is their enemy and, implicitly, that government, rather than their own striving, is the key to their well-being. (That's Class Warfare)

BOTTOM LINE?

It's the Democrats who started this mess and now they're blaming the Republicans? Is that the change that Mr. Obama is preaching?

President Bush, Senator McCain and a huge number of Republicans warned about this economic crisis up to 5 years ago.

The following video link shows the hearings, when Democrats lied about what was going on with Fannie Mae and Freddie Mac. Watch the Black memebers of congress play the race card when Fannie Mae and Freddie Mac's administrators are being called into question over their questionable business policies. That was then and because of that "denial," this financial crisis is what we're facing today.

http://www.youtube.com/watch?v=_MGT_cSi7Rs

The bottomline is this: What does it all mean? It mean that when Mr. Obama uses the phrase: Mr. McCain is tied to the failed Bush economic policies...well, what he's not saying is that it is the Democratic economic policies, especially under President Clinton, that led to this economic crisis.

MR. OBAMA AND THE DEMOCRATS ARE LYING TO THE AMERICAN PEOPLE!

And for what? Power? During this time of economic crisis? They shouldn't be running for President. They should be sent to jail!

mike t.

WHO'S IN DANGER HERE?

Something is terribly wrong here. Nobody seems to know what to do about our economic crisis. The blame game is in full swing.

The economic crisis brought a quote to rememberance that I want to touch on. It goes something like this: "The Free Market will Correct Itself...". Or something close to that.

So, I went to the Internet and starting looking up that quote in association with Alan Greenspan. I wanted to see in what context Greenspan was using that saying.

I didn't really find anything I could use but I did find this interesting article.

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Alan Greenspan's Meaningless Statistics
by: Michael Steinberg posted on: August 14, 2008

The Wall Street Journal's “Greenspan Sees Bottom In Housing, Criticizes Bailout” shows just how stubborn the former Federal Reserve chairman has become. Endlessly out to defend his record, he even wrote a new chapter for his book. The paperback version will be out next month.

The Journal reports Greenspan studying endless statistics, charts and graphs: 800K vacant homes, the quarterly S&P Case Shiller National Home Price Index, and his old time favorite “owners’ equivalent rent”. At a certain price it will be rational to own a home, according to Greenspan. When the market finds that rational price, equilibrium will be achieved and the excess inventory will be used up.

Once we have price discovery, we will know home equity value and mortgage related assets can then be accurately priced. At that point financial institutions will stabilize. Doesn’t Greenspan sound rational? I wrote "Foreclosures will Moderate as Home Prices Continue to Fall" disagreeing; financial institutions will stabilize well in advance of price stabilization.

Greenspan believes that supply and demand will be in balance with a bottoming in the first half of 2009. But, he qualifies that does not mean home prices stop falling. He just means that the supply and demand will be in balance. Greenspan enforces his argument by relating homes to commodities, and reminding us that he traded copper 50 years ago.

Why do I say that Greenspan’s analysis is meaningless? First, homes do not behave like commodities. They are not as fungible as one pound of copper is to another, and industrial markets are different than consumer markets. Second, statics do not take into account the increased cost of operating a home, stagnant wages of the last decade, tighter lending standards, and weaker consumer balance sheets. Third, statics do not take into account that much of the overstock of housing created during the boom is not consistent with current lifestyles. McMansions built during the boom are now about as valuable as SUVs. Therefore, many vacant homes are either worthless or might take years to sell.

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What does it all mean? Lets isolate one section of that article.

"At a certain price it will be rational to own a home, according to Greenspan. When the market finds that rational price, equilibrium will be achieved and the excess inventory will be used up.

Once we have price discovery, we will know home equity value and mortgage related assets can then be accurately priced. At that point financial institutions will stabilize."

That little section right there is basically saying that the Free Market will correct itself. But the problem with that is the government bailout. Once the government gets involved, then the Free Market isn't allowed to correct itself.

OK, we know that! We know that! The real question is what are we going to do?

Well, first we have to identify who's in danger here? The people? I don't think so. People will survive one way or the other even if they have to eat beans and rice everyday, 3 times a day. Hey, it fills you up!

The nature of the economy is for it to go up and for it to come back down. That's just life. So, what's really in danger here, with all the bailouts, is the Free Market philosophy.

I am convinced that the Free Market will, indeed, correct itself...except for one little thing. GREED! The Free Market is at the mercy of the business community. The business community is filled with too many people who have spend their lives trying to manipulate the system instead of appreciating the Free Market philosophy. In other words: They practice Corruption!

A perfect example of this is the Board of Directors of institutions like Fanny Mae and Freddie Mac. They took the system for all they could.

What's to be done about it? That's an easy question to answer: REGULATON!

Regulation in the business community is a four letter word, but due to the greed on Wall Street it is a word we have to use to get this economy back on the right track.

But we're not talking about Regulation across the board in the business community. We're talking about Regulation for businesses that take advantage of what people are reliant upon for their everyday use.

FOR EXAMPLE:

Big Oil
Power and Electricity
Insurance
Banking Institutions
Telephone Companies

These are the businesses that are in need of regulation because people are forced to buy or use the products provided by these institutions because of their practical everyday use. There really isn't a Free Market when it comes to these institutions. These institutions have the market sown up and therefore they do as they please. And what they do, as we are witnessing, is apply their greedy practices to defraud and cripple the Free Market philosophy.

There's no way for the Free Market Philosophy to survive as long as these institutions are allowed to manipulate the system with their greedy practices. With the corrupt and greedy practices that are being applied to the Free Market, the survival of its philosophy would be impossible to maintain.

So, again, who's really in danger here? The Free Market Philosophy! In other words: We are witnessing is the decaying of our society's philosophy right before our very eyes.

What to do? Mandate Regulation on Big Oil, Power and Electricity, Insurance, Banking and the Telephone Companies.

These institutions are the ones who are gobbling up huge profits at the expense of the consumer in a Free Market society. Regulate them and the Free Market will surely correct itself.

For those who don't know why and how regulations work. Here's a link to get an idea.

In December 2001 Enron became the center of another scandal when its bankruptcy, the largest to date in the nation's history, revealed that the company had used deceptive accounting practices to inflate its earning reports and stock price. This was the first in a series of corporate bankruptcies to involve fraudulent bookkeeping that shook an already weak stock market in 2002. To restore investor confidence, the federal government exercised its regulatory authority to promote greater scrutiny of the securities, accounting, and power utility industries.

In other words: They were practicing corruption! And with that type of corruption the Free Market cannot correct itself.

With that said: The fundamentals of our economy are strong! No, wait! The fundamentals of our economy are very very strong! But the fundamentals are being stressed by the greed of Wall Street, who don't even work for a living. They speculate with money that isn't even theirs.

The working people of America are the fundamentals of our economy. The fundamentals will hold. But the structure which are built upon our fundamenatals have got to come down! If this greed isn't checked then it's quite possible that America is headed for a Paradigm shift and who knows exactly what that will lead to.

What is a paradigm you ask?

Paradigm: a philosophical and theoretical framework of a scientific school or discipline within which theories, laws, and generalizations and the experiments performed in support of them are formulated ; broadly : a philosophical or theoretical framework of any kind. (The Free Market fits this definition of paradigm.)

What that means is this: Everything you see with your eyes and is registered in your mind as "normal" is the paradigm that you're operating in. Now if the Free Market were to collapse then the American paradigm would change and how you think would also be effected. What does that mean? We don't know because we're so used to thinking in a certain way that we would be in shock if something like that happened to us. But if the greed of the business community continues...we'll be forced to have to reevaluate everything we believe in.

This is the type of thing that has led to the destruction of every world power in the history of mankind. When world powers collapse due to corruption then that is what we call a "World Paradigm Shift". If this were to happen in the United States of America then the Constitution itself would also become vulnerable.

Believe it or not but the constitution of the United States of America isn't going to last forever. Corruption will and has destroyed every world power in the history of mankind and the United States of America is not above the history of the world.

REGULATION BEFORE IT'S TOO LATE!

mike t.

SOME OF MY OLDER POSTS: THE ECONOMY

Sunday, March 16, 2008

Oh, It's Coming: This Recession is Going to Bite!

"This is going to go down in very historic terms," said Peter Dunay, chief investment strategist for New York-based Meridian Equity Partners. "This is about credit being overextended, and how bad it is for major financial institutions and for individuals. This is why we're probably heading into a recession."

Do regular people understand what is happening? The gimmicks are over. The prosperity over the last 20 years is coming to an end. The computer/software has reached its peak. Let me explain how I it think this happened.

The housing market overextended itself by giving people with poor credit history money to finance their homes. The people with poor credit history took the money they did have in hand and paid cash for all the computer gadgets. The cash purchases of computer gadgets allowed the economy to flourish. What that means is that there’s a lot of cash flow in society.

The problem is this: The computer gadgets that are used for common purposes have been intergraded into society across the board.

Lets follow the history of how that works.

1. In the 1980’s the P.C. was the thing to have. This thing hit the market and hit it big. Everybody wanted one. It was the thing to have. And it was a practical investment.

2. The software to go with the P.C. hit the market. Namely: The Microsoft Operating Systems. ’95, 97, 2000-Me-XP.

3. The Microsoft Office software. Namely Microsoft Word.

Everyone rushed to the stores to get the latest updates to these programs. And the money spent just flowed into society. That was a good thing because the Operating System’s and the business applications were practical for everyday use from large business corporations to the personal use at home. The biggest money stimulator, in my opinion, was from the individual buyer who took the computer home.

A side economy stimulator was the Apple Corporation. The Mac had its own niche by marketing to the creative industry. Software like Photoshop, Illustrator, Dreamweaver, and Flash got a late start but came on from the late 90’s to the mid-00’s.

That software evolved from being almost exclusive to the Mac Operating System to being able to be used with the P.C. Now there is no difference between how the software is used in either operating system.

But the money that flowed while all these software programs were being developed was huge. And that’s not to mention the Internet and high-speed access to it. That was a lot of money that was going into huge corporations and then hitting the streets. Then the telephone and all its gadgets kicked in. That’s the economy, baby!

All these things, combined, boosted the economy because most of these things were short-term investments and very practical for everyday use. In other words: You didn't need to make huge financial sacrifices to obtain these gadgets. The American dream still revolved around the idea of having a family, house, and car.

Family, house and car are the things that require a serious finacial commitment. Those things require a lifetime commitment. But the underbelly to those dreams, during the 80's to the mid-00's, was the obtaining of the technology to provide your family with every opportunity to succeed. At first the technology gadgets were very expensive but people made the investments because they weren't as expensive as a house and car. And if you mastered the technology, that could get you to the point of obtaining the American dream. Again, that technology created a lot of cash flow. But now, all of these programs have reached their peaks and they’re almost common.

In other words: People aren’t going to spend a lot of money on things that don’t make a great improvement on the gadgets they already have. Maybe the elitist, of society, can go get the latest version of all the programs I mentioned but not the common-man. The common-man isn’t going to spend huge amounts of money for what meets his needs for everyday practical use. That’s a huge slowdown of actual money hitting the streets.

With that part of the economy slowing down big time, that leaves the housing market.

From the news article link above:

“In June, two Bear-managed hedge funds worth billions of dollars collapsed and lost all their money. The funds were heavily invested in securities backed by subprime mortgages — loans given to customers with poor credit history. Until that point, subprime mortgage-backed securities were immensely popular with investors because of their profitability.”

Wow! Where did the “subprime” people come from? Or how did they get their foot in the financial door of banking institutes like Bear Stearns? Creidt, of course! Credit has become the American way of survival for the common-man. It has provided beautiful homes and nice cars for a lot of people with “poor” credit history. Now combine that with the slowdown of the actual money that was being spent from the early 80’s to this present day and what do you get?

In other words: What goes up must come down. The American Standard of Living has gone way up from the 70’s to this present day and it went up on the back of banks like Bear Stearns who were handing out credit like it was candy.

All of this is common knowledge. But the silent killer in all of this, in my opinion, is the credit that was being handed out not for just home mortgages but for automobiles. Have you seen the amount of cars on our streets? Have you ever thought about just how many of those cars are being driven on credit? Almost all of them! How ridiculously absurd is this situation? Just look at the gas prices. That’s how much cars we have on our streets. The demand is too high from a bunch of people who are living on credit. This is the silent killer.

Most people don’t buy their gas on credit. They pay cash. That cash at the pump is taking away from having loose money to spend on gadgets. That’s not to mention the price of food.

Here’s the question: How many people with poor credit history can really afford both a house and a car? And how wide spread is this situation?

“In June, two Bear-managed hedge funds worth billions of dollars collapsed and lost all their money…”

Yikes! That’s how wide spread it is.

The crunch is on!I don’t think the recession is going to bite this year. The prosperity from the 80’s to this present day was too great. We’re living with an excess of material gain. Once that gain is depleted, then the recession’s teeth will be felt.The next President of the United States of America has that to deal with. That should be the main concern of the American people.

Tuesday, February 26, 2008

Only A Fool Doesn't See This Coming!

I'm telling you! The American Standard of Living is way too high. This is a rare time, in the history of the world, when prosperity has been so high across the board. Everyone is doing pretty well.

For those who aren't doing well, it's only because it's compared to those who are doing well.

How long can this great prosperity last? It doesn't make sense. The history of the world tells you that there are good times and bad times. And the recent good times, from the time Reagan became President to this present day, they just can't continue.

I speak to a lot of old men who are "thrifty" and they are all concerned about what's coming. They say it unavoidable. And these old men are people who have invested in the market all their lives.

I know something is in the air because one day I went to buy some milk and it was $4.59 a gallon. Just the day before it was $3.99 a gallon. From one day to the next it went up 60 cents. Lettuce went up from 99 cents to $1.99 for a head. And since that happened, a few months ago, the prices haven't come down. And that's just milk and lettuce. (It really isn't that hard to figure out.)

For those who don't understand what that means, it means this: The combination of the price increase across the board indicates that people don't have as much money to spend on other things. And if people aren't spending money on other things then the economy slows down. When we have to spend most of our money on food, housing, heat, gas, and clothing then we can't spend as much on gadets.

Spending on food, housing, gas, and clothing isn't what makes the economy stay afloat. It's the spending on everything else that makes for a healthy economy.

Recession is in the air. And I don't think the next President of the United State of America is going to be able to avoid that. And if that's the case, then healthcare is the big thing to have available for all the people. You know the old saying: As long as you have your health, you're OK. Lets hope that's true if this country goes into recession.

mike