One Place With No Bank Failures, Few Foreclosures, and Still Working

I am totally amazed at knowing this, but there is only ONE country in all of the developed group of nations that is not facing any bank crises, closures, or banking bailouts, as well as few mortgage foreclosures or personal bankruptcies. ONE

This country has strong legislation on banks that demands a much higher ratio to loans vs. deposits, so the money within the system is higher. In fact, these banks are posting profits, albeit lower than previous years.

This country has strong federal legislation over the ratio of down payments to the total mortgage amount, so that unless you have saved at least 20% of the purchase price of a house or condo, you cannot get it.  The lenders are NOT allowed to issue sub-prime mortgages, are NOT allowed to turn the mortgage papers over to others to be used in credit default swaps, and each bank must keep track of the mortgage within their books. Housing prices have dipped, not dropped, losing maybe 18% overall, with some markets remaining stable.

So, there is a solution for other countries to follow.

Add in the fact that this same country has a national health care system, and it is also one of the major trading nations in the G8 and the G20 and there is a huge number of people all over the world wondering how this one country managed to avoid the meltdown and crises affecting them.

Basically one country is a total anomaly to the whole financial mess. Weird but true. Yes, one or two of the banks within this country did get bitten by their transactions in the U.S., but only in a minor way and the deposits and other investments were more than enough to cover the losses.

Where is this place? Straight north of the U.S., Canada.

There are those who use the word “socialism” without knowing the truest meaning of that word, but for years Canada has been labelled as a socialistic society.  The government was seen as overbearing, intrusive, even too conservative to allow free markets to thrive. Taxes are only slightly higher in Canada than elsewhere.

If that is the picture of stability, then perhaps it is time some of the world governments and banks, investment houses and other agencies learned to be far more conservative, even boring.

Financial Crisis is Now a Long-Term Planning Situation

Well, from looking down the road filled with rocks ahead, I do honestly think it is entirely possible that this so-called “recession” is going to get a hell of a lot worse, and dive into a depression. Barack Obama is one of the most intelligent people I have seen elected as a leader in a very, very long time. But even with his ability, his sphere of influence, this has gone way past crisis stage and into a long-term butt-ugly situation that is not easily resolved. Thankfully, this time the US does have a leader with some intelligence, considerable ability to listen, watch, and take a good look before jumping into the quick-sands of panic. But he certainly cannot turn this wreck around by himself, which means all of us, including me, need to start planning for a long-term, tough and rocky ride.

Finally Paulson put the truth out, the toxic sludge that became the reason for so much of the “hedge” funds and the credit default swaps taking out Lehman Brothers and crippling the banks in the US and world-wide are NOT going to be bought out. Finally, someone figured out that this maze of stupidity is not worth paying a wooden nickel for. But, that means that those goofs that did get into this whole “funny money pyramid scheme” are now going to have to write down all those losses, if they can even figure out what the losses are. Good grief!

The ripple here is going to continue to hit the mortgages, the loans for cars, and maybe even student loans. Just this last while, another 18 banks went “POOF”!  People are taking their savings out of the banks, mostly because they have no idea whether the banks will even exist later. Treasury bonds are selling more than they have for a long time, even with paltry interest.

The APEC summit just finished, and the leaders figure it will take at least a year and a half to get this whole mess turned. Frankly, with the rate of business bankruptcy just starting to hit, the shaky ground that some of the major industries starting to move like a slow-motion earthquake, I don’t think eighteen months is even close to accurate.

Planning to endure the time ahead is the one thing I can do. Remember when someone asked you at a job interview, “Where do you expect to be in a year from now, with this company?” Well, the question now is, ” Where do I figure on being in two years from now?” Tough to call in some ways because there has NEVER been such a mess, NEVER has been such a phenomenal meltdown involving more than one or two countries. Yep, this lesson is that no country is an island, nor is any person able to do something stupid without the ripple effect going out well beyond known parameters. Congratulations you bunch of greedy jackasses, you sent one massive torpedo and blew a huge hole in all our lives! Don’t darken my door with any of your “innovative” ideas, or you may find that I DO have a pair of steel-toed boots and WILL use those on your butt!

Yep, it means I have to change my plans, work out a plan that takes into account changes in how I deal with money, and definitely how I manage my own income. Fortunately I am one of the few around with no debts to speak of, as I owe less than five hundred bucks right now.  One thing I will not do, though, is take on any credit cards. The banks are raising the interest on the cards to thirty-two percent either December first, or January first. Phooey! The only reason any bank want me to have their credit card is to make sure I go into debt. That is the only reason the cards are offered in the first place. Phooey! Keep them!

At least now I know that those who would make others the pawns in a very greedy, stupid, and ugly money game now are going to have to deal with it, not my tax dollars, not my hard-earned income. That is one relief, and from watching all the posts, I am definitely not alone in my wrath here.

Normal changes with each generation, so what WAS normal, is not normal now. Watch how the rules and normalcy change and learn to move with it. Barking about “how things used to be” is a total waste of time, energy and robs anyone doing that of the means or opportunity to be effective now.

Where do I figure on being? If I plan reasonably well, I should have a roof over my head, a change of job, certainly, and food to eat. Other than these things, the rest is negotiable, subject to change. My own sinking feeling is that this “crisis” is going to carry on well past two years, perhaps as long as five years. THAT does not make me happy, to say the very least.  I will do what I know how, what I can, and do it as well as I can, then let the rest go.

What do you think? Will this go downhill like the world did in the Great Depression or not? I sure as hell hope not.

Legal Solution to Housing Foreclosure Mess?

I decided to do some thinking on this, trying to see if there was a possible solution that is relatively simple. I came up with this one, although I am not familiar with all the legal bafflegab or laws, it may just work.

My understanding is that a mortgage is a contract, and under contract law, if one party breaks it, they can be liable. So, logically, if a bank puts out a mortgage that has the terms of repayment, and states that the bank is the holder of the mortgage, then if that bank “sells” off parts of the mortgage by “repackaging” it, the bank is in breach of contract, and possibly breach of trust.This puts others, such as investment houses, as party to the contract, without your knowledge or consent?

For example: I take out a mortgage on a home, and in the contract it states that I am to repay the bank on terms such as a monthly or weekly payment, and the bank is the sole holder of the mortgage, then if I find out my mortgage was, in fact, passed on to another entity such as a broker, then I am placed in a position of having no recourse. This is apparently what has happened with a lot of the mortgages. Banks made further contracts on my mortgage without my knowledge, agreement, or consent. This, logically, is a breach of contract and I could take that bank to court for putting my mortgage in jeopardy by parties I have no knowledge of, and without my consent. The reasoning I have here is that those unknown parties could well default, or in some other way, cause me to have my mortgage in jeopardy with, perhaps, the collapse of the bank that is holding my mortgage.

If I live in a neighbourhood where a bank and their brokers hold most of the mortgages, and those same mortgages were treated the same way, perhaps there is good grounds for a class action suit.

I do know that brokers, banks, investment houses, and others, all made separate contracts among themselves and with banks. This took the mortgages out of a contract basis between two aware parties and put the people in the houses in a position of being unable to renegotiate their mortgages. It is happening all over the US right now.

Common sense tells me the banks have, in fact, broken all those mortgage contracts unless they did put in clauses where the splitting of the mortgage was stated clearly and those who signed the mortgages knew about these clauses.

Theoretically, the class action suit could go up the chain to the top, including the owners of the banks, the corporations or companies that took part in the splits, and their executives.

I would be curious to see if any lawyer would even consider this idea, and if it is feasible. From what I do know of contract law, which is relatively simplified, I do think this would be one answer.

Personally, if I were put in any position like this, I would certainly try to find out. It may just be worth a few hundred dollars to get an answer here.

Mortgages, Foreclosures, Banking, Total Mess

I have spent some time reading all over the place to find out what is going on with all those mortgages, the foreclosures, and the banks. My conclusion? The financial world did not K.I.S.S (keep it simple, stupid!) and have created a mess that unwitting people all over the US got snared with. What is just as disturbing is the lack of any charges. What happened to the FBI investigations? I have seen nothing about this yet! Maybe because the investigation leads to companies like Wells Fargo, Fanny Mae, Goldman Sachs, and the company executives? Until there are charges or at least some grand juries convened, I have a feeling this is all just going to be wallpaper over cayuse crap. Those who knowingly defrauded, manipulated and created a huge problem need to be found and face the music. The Bush Administration has put some of the “old boys network” in the very positions where the investigations may well end up squelched.

The countries of the world elsewhere have K.I.S.S and that has allowed mortgages to be renegotiated directly with fewer foreclosures. What is the difference? “Securitized mortgages” where speculators, unscrupulous financial activity and banks all DELIBERATELY chose to “reduce risk” by cutting up the dealings to make far more money off housing.
There is obviously a HUGE problem with the U.S. regulations if this was even allowed to happen. Housing and other shelter lending should NEVER have been exposed to these practices.
What can be done now? First off, write a piece of legislation banning CDS, along with severe restrictions on shelter lending, whereby there is a simple process. Banks can ONLY lend directly to purchasers, period. The mortgages MUST be maintained within a single lender, and NO allowed contracts or other practices where there is ANYONE else allowed in. Keep It Simple, Stupid!
This may mean that the government now becomes the Master Servicer of mortgages, which is almost guaranteed to raise screams of protest from banks, and “investors” because this would put the government in the position of negotiator. For those who find their mortgages “repackaged” it would allow them the ability to renegotiate directly, simply, and probably effectively with the Master Servicer, the government.
Reform the shelter bankruptcy laws, along with an increased involvement of Fanny Mae and Freddy Mac as the holder of the mortgages. This reform MUST change the way mortgages are renegotiated, change the way mortgages are written, and MUST CUT OUT any contractual access from any other person than the banks and the mortgagee. Get those bloody contracts out of the housing market, now! Those contracts are crippling the ability of the banks, the holders of mortgages and lending to even find a clean, simple way to get things resettled.
If a housing market has dropped the value on the properties, then it is up to the banks to “eat” the losses. Why? Because BANKS are the ones that sold off the mortgages to others, complicated the hell out of the whole thing in the first place!
One reason most people have not figured this out IS because of the “securitization” of mortgages, the underlying manipulation and speculations that made millionaires out of people who NEVER had a stake in the shelter market at all!
Personally if I do go into the US market and buy a house, I am going to make DAMN SURE that the lending institution WILL NOT, HAS NOT, AND WILL NEVER turn my mortgage over to speculators. I want to have a clause that allows me to sue the hell out of the bank if they do!
KEEP IT SIMPLE! STUPID!

Credit Default Swaps and Banking Screwups Killing Economies

60 Minutes on These

I finally got some information on these and now perhaps it is time to make someone aware of how totally unregulated these were and are. The show “60 Minutes” put up one very simplified but complete explanation of what CDS are and how they were used to make some banks and people millions on the backs of mortgages, loans, and other money transactions.

In layman’s terms the CDS is essentially an unregulated insurance policy. It guarantees the performance of a security instrument , e.g., a mortgage. The buyer of the CDS pays the maker a fee or “premium” (think insurance) for protection against a loss. Historically the US Treasury has not classified derivatives as “insurance,” and therefore they trade free of any government regulations. Because of that, the firm selling the CDS is not required to set aside any reserves from the premiums received to insure against possible future loss claims. This obviously makes the sale of the Credit Default Swaps extremely profitable and default loss payments very expensive.

These were made against banks themselves, by banks, and if the Swap moves around, banks may end up with Swaps against themselves as well as having other banks “owning” Swaps against each other!  With no regulation, no means of tracking these, they remain hidden, still able to take down corporations, banks, and virtually everything with a loan on it, including mortgages still being paid today!

Basically the banks, Bear Stearns, Lehman Brothers and Citibank, along with virtually every bank in the US, along with a few international banks got caught with their hands in the cookie jar, bringing down a really nasty recession on everyone.

Swaps ARE insurance, but because insurance IS  regulated, the banks and investment houses used the term “Swap” to blatantly circumvent insurance regulations.

On September 23, 2008, Christopher Cox, Chairman of the U.S. Securities and Exchange Commission, placed the worldwide CDS market at $58 trillion, and stated it was “completely lacking in transparency and completely unregulated.” The U.S. Office of the Comptroller of the Currency reported the notional amount on outstanding credit derivatives from reporting banks to be $16.4 trillion at the end of March 2008. (For reference and perspective, the U.S. GDP for 2007 was $13.8 trillion, while the world’s GDP for 2007 was estimated at $54.3 trillion)

See the problem here? Playing high stakes poker, literally, put the bets beyond the ENTIRE world Gross Domestic Production!

What happened is that the mortgages were turned into “Swaps”, even good mortgages, the resold over and over again, until the hidden market was well over the actual value of the entire world GDP. What is truly scary is that there is absolutely no way of knowing EXACTLY how much of this toxic paper is out there, or the true value of any of it, BECAUSE it is a hidden, secret market.

Why am I reiterating this now? Well, those very “instruments” are now being put on the market this week, and there are still no regulations on creating more right as I am posting this!

“It is an insurance contract, but they’ve been very careful not to call it that because if it were insurance, it would be regulated. So they use a magic substitute word called a ‘swap,’ which by virtue of federal law is deregulated,” according to Michael Greenberger, a law professor at the University of Maryland and a former director of trading and markets for the Commodity Futures Trading Commission.  The deregulation of the swaps market is thanks to provisions in The Commodity Futures Modernization Act of 2000. Who was President and Secretary in the US at this time??

One large difference between credit default swaps and insurance, is you do not need to own the bond or instrument being insured in order to obtain insurance on it. If the bond fails, then, theoretically, you get paid, possibly along with many others. Yet the “insurer” of the bond is not regulated and the transaction is beyond federal or state regulation. This allow speculators to make money by purchasing insurance on a company’s bonds and then shorting the stock of the company in great quantity and getting a payoff that exceeds their risk of shorting if the price of the company’s stock increases. The fact that you need not be a party to owning the bond also explains why the total value of credit default swaps is so high, indeed higher than the total value of the bonds issued.

Translation of bafflegab to ordinary language? You and I do NOT even have to put any money or have a stake in this to be paid off! Speculators all cashed in here!

AIG sold them, bought them, moved and split them, and some banks are still making, moving, splitting them right now.

Until the banks can declare openly what they have in CDS, what they risk, and where their money is being invested in, this will be open season on the government funds, central banks all over the world, and I have yet to see any demands on ANY banks to disclose their swaps.

Obviously this has yet to come out with any transparency, any real idea of what kind of real trouble we are all in, all because of some sneaky, coniving, greedy banks, investment houses, speculators, and the government officials who KNEW these were out there and did absolutely nothing.

Stupidity Explained, Now It “Figures” Literally

http://scienceblogs.com/goodmath/2008/09/economic_disasters_and_stupid.php

This one says a lot about the way this whole thing got so tangled up, so obscene in the ways banks, investment bankers, and insurance companies got into the game. Let it be no mistake, this was a game to them, without any families, any real touch with the pain that bad loans created.
The person who wrote this is NOT a politician, NOT someone whose specialty is economics, but IS someone with math skills, and logic.
I read just this posting and started to swear, my eyes bugged out completely at some of the sneaky, underhanded and just plainly obscene practices here.
Unfortunately it appears to be just another version of the Savings and Loan fiasco, with a few new twists.
How this all works out is beyond my capability to foretell, and what happens to those who pulled off some of the game strategies, I don’t know.
What I do know is that I live in a country where the banks, the investment firms, the insurance companies are regulated.
Paulson, the Federal Reserve Bank, and you, the unwitting tax payers, will be the ones to deal with this. International banks will get some of the funds here, but remember, they also built parts of your economy. Maybe some of them got suckered, like a lot of people apparently did, but with the international banks far more regulated, far higher scrutiny on them, at least your taxes will go to help you out with ethics being the underpinning on the international banks.
Paulson, the FRB, the Senate, the house of Representatives all knew the foreclosures, the money, the sucker loans and the insurance between each other were going on as long as two bloody years ago. This should never have come as a surprise, period. All of them experienced the fiasco with the Savings and Loans institutions, and definitely John McCain would be well aware because he was in with one of the Savings and Loans in Arizona.
However this works out, and it may well take a couple of DECADES to even get the strings unwound here, there will be some pain, there will be a serious slowing of the entire world economy, and maybe, although I hope not, a full recession which turns into a real depression.
Maybe this is what NEEDS to happen. People will learn to live without borrowing to buy a new tie, or a sandwich, by putting the charge to a bank charge card. People will learn that money that they put into deposits does have risk, some of it high, some of it very low. Maybe some will learn to be a lot smarter when dealing with the financial version of the Barnum and Bailey circus.
Remember, there is a sucker born every day. Maybe it is time even the bank CEO’s recognize their own faces in the “Great Mirror of Sucker”.
This is a harsh way to learn some lessons, but maybe that is what is needed now. I don’t know the future, and maybe that is a good thing. I DO know the day has come where the sucker punches to the economy finally took it down. Hard.

Tough Times

Most people know the news in the US and around the world has not been good this week.

Well, it seems that some banking institutions have done what most of us know is stupidity displayed.

I had to read several explanations to understand what in hell was going on.

So, I am going to try to put it into simple terms here, if only to clarify my own thinking.

A friend approaches me for some money to borrow. (read bank here)

I have some money set aside, but not quite enough to cover the entire loan. (read liquidity in bafflegab banking terms)

I ask why they want to borrow, and they say , ” Well, ya see, I just started working (read they are a bit of a risk to repay) and I want to borrow the money for a car.”

Now, if I were one of the banks that went under, at this stage, I would not even check out what make, model or year, but put my own interests (pun definitely intended here) and my own greed into play.

“Sure, I can lend ya the money, and you will have to just pay me a very low interest, but if you don’t pay it back ( I will use weeks here to represent years) then after 2 weeks the interest changes. I won’t bother to tell you right now what will happen, we will see then.”

Friend is anxious enough to borrow, to have the car for ego buffing, and has no intention of saving up for the same car. So, they agree.

We sign off an agreement.

What my friend does not know is that I don’t have all the money.

I get another phone call, asking to borrow money too!

So, I make a call.  Someone I know is interested in being a silent lender (read investment banker), and has taken steps with an insurance company to cover bad debts, sort of like betting that the debts will not get repaid.

I mention I have two people who want to borrow, but I am not “liquid”, and would my “investment” person back me with some funding. Of course they want interest on their money, but again, they have taken out insurance against failure. Either way they get paid.

What I don’t realize or am told is that the “investor” has no money at all, but they are “selling” this debt bundle to someone else! (read insurance or another investment dealer with no regulations overseeing all of his or her finances)

Sound complicated?? Yep, it is.

BUT! Here is the catch in the whole thing. The investor really does not have the money, the backer of the investor uses some paperwork to show a bundle owing, but has no money invested.

So, where does the money come from for me?

On a note to a bank from the backer.

The money is sent to the backer, then to the investor, then to me, then to the friends who borrow.

Is the picture getting clearer now?

Well, surprise of all surprises, friend pisses off his boss, loses the job, and instead of selling off the car, approaches me.

I have two choices, here. Take possession of the car (which I now find out is basically a wreck) and try to get what I can from it, or demand payment.

Friend cannot repay, so I am in a financial bind here (banks over-extending on sub-prime or high risk loans) so I talk to my silent friend (investment banker) who has the insurance.

But…. the debt is higher than the collateral is worth (wrecks go to the wreckers, right?) and the insurance does not cover the entire debt.

So… he goes to the backer!

Backer has taken out a paper on the debts and now is finding out that they should have investigated the original worth of the collateral and the ability of my friend, myself, my investor, to repay, but they did not.

The backer’s bank calls in the papers, the investor is facing some serious money problems, and I am now broke!

I can seize the car, and put it into the auction, but after doing that, I get maybe 10 cents on the dollar.

And, of course, my friend is out a car, has to declare insolvency (tells me they are totally broke, again) and I get told to sell of what I can to cover the debt I owe the investor. Damn!

So off I go to the pawn broker and sell off something.

Well, all is not rosy for the investor, because they have to pay the backer and I am broke too. Sorry.

They end up selling off some items because the backer has charged them interest on a larger amount, because the insurance company put the “investor” into a higher risk category now.

They end up with some money, the rest of us………. go to second jobs.

Basically this tale is what happened on wall street, with secret loans and bundling of loans to another level, with some of the insurers turning around and getting papers on the debts.

I did not check out the car, did not check out how often my “friend/s” repaid their loans or even how many hours they would work!

Neither did my “investor” , nor the backer, nor the bank who drew up papers check out the risk, the collateral worth, the trustworthiness of the layers below them.

I paid all my debts, so I would be a good risk, but I put my money on a debt that was high risk with someone who had trouble balancing a bank cheque and balance each month.

But, I put my own financial stability on very shakey ground.

Here is the bottom line.

Banks in the US should have always put money into savings, like I did, but neither of us put ENOUGH money into savings.

Instead we relied on credit, lines of credit and the greed.

If a bank is stupid enough to lend money without knowing the people, without checking out the area of town they people are buying houses in, and without having a truly secure basis for understanding the loans (read mortgages) here would be paid, then as far as I am concerned, they should get slapped.

Now, remember the original conversation?? Where I did not happen to mention that the interest would change to a definite amount??

Bubble interest, rising rate, whatever you call it, the banks who lent money to a hell of a lot of people did not happen to mention that the interest rate on the mortgages would rise, significantly.

The analogy here would be that I did lend my money at 3% for 2 weeks, then, if the debt was still there, no matter that it was all of it, or some of it, I would demand repayment at 8%.

Now my friend was budgeting on his repayment for 3%, right? I did not disclose that I would basically up the rate to over double the rate in 2 weeks!

No wonder he could not repay it! He overextended his own money, in the first place, then I hit him with a huge jump in payments.

This is why so many people got their home foreclosed on.

The banks used bubble mortgages on the loans.

So, yes, the shit has hit the fan, but perhaps the whole story boils down to a very simple, very obvious thing.

IF YOU CANNOT BUY IT NOW WITH CASH, YOU CANNOT BUY IT WITHOUT RISKING SOMETHING